Decision time coming for Ireland on further European integration

Screenshot 2018-02-09 09.51.52The EU has been loyal and supportive of Ireland throughout the Brexit process, but nothing in politics free. Ronan McCrea argues that the time will soon come for Ireland to decide where it stands on future European intregration, and to forge new alliances to protect and advance its interests, especially with regards to taxation and the eurozone.

The utter mess of the Brexit process has confirmed the correctness of the Irish Government’s decision to emphasise our status as a loyal EU member. The difference between the EU’s concern to defend Irish interests in the negotiation process and the dismissive attitude towards Norther Ireland’s interests by the UK government could hardly be starker.

However, the fact that Brexit is going so badly for the UK should not distract Ireland from the reality that there are very important choices to be made in relation to Ireland’s future role in the EU once Brexit has taken place.

The Irish Government has been putting significant effort into strengthening the key relationships that will underpin our future role in the EU. Funding for learning French and German has been increased, and a major upgrade in Irish-German links was announced recently.

However, strengthening relationships does not avoid the reality that Ireland will have to choose sides in some key debates around the future of the EU.

For example, how much further integration will Ireland support? Will it support a multispeed Europe in which groups of member states decide to integrate more intensively while others choose not to. If there is a multispeed Europe, will Ireland, as a eurozone member, be part of the intensively integrated group?

There are some areas where Ireland is clearly keen to resist further integration. Most notably, efforts to crack down on tax avoidance by multinational firms have been seen as a threat by the Irish Government.

However, Ireland will need allies in this fight. The minimal levels of tax paid by multinationals that are often tax resident in Ireland is rightly seen as a serious problem.

Ireland has received an enormous amount of political support from EU institutions and our fellow member states in the Brexit process. While this support has been sincerely motivated, it is also true that in politics nothing is free.

It would be difficult for Ireland, having received such support, to block moves on taxation unless it is part of a decently-sized block of states adopting a similar attitude.

New allies

In looking for new allies the Irish Government has made it clear that it sees itself as most closely aligned with the group of northern countries such as the Netherlands which are keen on maintaining an open trading relationship with the world rather than countries such as France which have traditionally been more protectionist.

However, the countries of this northern group such as Finland, the Netherlands and Germany are the states that have adopted the strongest positions against measures such as euro bonds or the establishment of a eurozone budget. Germany appears to have cooled on Emmanuel Macron’s proposal for a modest-sized eurozone budget to be used to even out economic cycles despite some previous indications of support from Angela Merkel

As a relatively wealthy state Ireland is likely to end up as a net contributor to any eurozone budget, so opposition to establishing such a budget is understandable.

On the other hand, the Irish Government would do well to consider the bigger picture. Establishing the euro meant that there is one interest rate for a range of different countries with different economies. This means that often the eurozone-wide interest rate will be too low for booming countries and too high for struggling countries. In successful currency unions such as the US, spending by the federal government helps to compensate for this as states in recession will pay less in tax and will receive more in spending.

Because the EU budget is tiny, and is not linked to the economic cycle, the euro risks causing prolonged recessions. Because European economies are doing well at the moment, political pressure to ensure that the eurozone structures perform better than they did in the last crisis has eased. However, this complacency may be misplaced.

Certainly, there are many more structures in place than there were in 2008. But the eurozone is still a half-built house. It will be much more difficult to establish structures when Europe’s economy is in recession than it will be now that times are good.

A successful eurozone is very much in Ireland’s interests. A collapse of the eurozone would cause losses to Ireland much greater than the loss involved in being a net contributor to a small eurozone budget that could be used to flatten out economic cycles.

Last crisis

Collapse of the eurozone in the next recession should not be discounted. States are still heavily indebted from the last crisis, and interest rates remain so low that there may not be scope for interest rate cuts to stimulate the economy once things slow down.

In addition, populist parties that have flirted with leaving the euro are in a powerful position. The populist Five Star movement looks set to take power in Italy, and in last year’s French election we were just a few percentage points away from a hard-right hard-left run-off between Marine Le Pen and Jean Luc Melenchon that would have seen France possibly leaving the euro.

For a long time Ireland has been able to dodge key questions about the depth of integration it is willing to sign up to. With the UK gone and the eurozone facing key decisions, Ireland will have to take some important decisions.

It is certain that Ireland is committed to the EU, but it needs to think seriously about what kind of Union it wants it to be.

Ronan McCrea is Senior Lecturer in the Faculty of Laws at University College London and a Visiting Professor at the Central European University in Budapest.

This blog is re-posted, with permission, from The Irish Times

NoteThe views expressed in this post are those of the author, and not of the UCL European Institute, nor of UCL.

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