The Irish General Election and Ireland’s Place in Europe

Posted on April 1, 2011

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From a guest blogger:

Chamber of the Dáil Éireann (Lower House of the Irish Parliament)

For anybody who follows Irish politics, the recent general election, in the wake of Ireland’s financial crisis, represents a remarkable change in the Irish political landscape, but is also instructive about the underlying dynamics of Ireland’s relationship with the European union (EU). The centre-right party that has long dominated Irish politics and that has been in power for the last 14 years (as well as throughout much of the period between 1932 and 1997), Fianna Fáil, suffered a dramatic collapse in support, losing almost three quarters of its seats, and its status since 1932 as the biggest political party in parliament. It is now only the third largest, winning just over 20 seats, has been replaced by its older and, until now, generally less successful centre-right rival Fine Gael as the party of government. Fianna Fáil‘s coalition partners, the Greens, were electorally wiped out. The background is of course the economic debt crisis that has gripped Ireland and much of Europe for the past three years. Despite the dramatic political repercussions of this scenario, the underlying causes and lessons have not dominated political debate in the way that might be expected.

The most obvious cause of the debt crisis was an over-inflated property market, but the reasons for that itself are more complex than gross economic mismanagement by the outgoing political administration. The Governor of the Irish Central Bank, who formerly worked for the IMF and who encouraged EU and international intervention, made an admission to a parliamentary committee that the managers of the Irish economy had been lulled into a false sense of the country’s ability to sustain the level of debt it held.[1] Responsibility for Irish banks’ credit practice lies primarily with the Irish Central bank, and to some extent with the European Central Bank (ECB). It seems that neither intervened to correct excess borrowing within the Irish ecnomy or between Ireland and other Euro economies. It has emerged that the officials of the Ministry of Finance did warn of excessive spending, but not in the manner that the subsequent collapse warranted.[2] There was thus a widespread failure of economic prediction that goes much beyond simply blaming the outgoing government.

An implication of the crisis that has not been fully explored is its relevance for re-examining Ireland’s relationship within the EU and the Euro system. As a member of the Euro, Ireland lacks the flexibility that currency revaluation could give it to stimulate exports and thus help strengthen recovery, and it also lacks virtually any control over interest rates in its economy. An obvious solution would be exit from the Euro, yet this option has been ruled out by the EU political elite with apocalyptic statements that ‘Europe’ (by which is meant the EU itself) would fail if the single currency came under threat. Yet an organised and orderly withdrawal by one or more member States could be managed. It seems that this would present a blow to the end-in-itself integration project that the dominant influences in the EU treat as more important than a pragmatic management of Member State economies.[3]

European Central Bank, Frankfurt

The underlying political pattern of the crisis appears to be emerging as a drive to enhance integration, with the pro-integration French President and German Chancellor pushing the idea of ‘fiscal convergence’ and alignment of economic policies in the Member States[4] on the back of the crisis as the price of ‘solidarity’. Crucially for Ireland, the same influences are encouraging it to abandon its low corporate tax rate, one of the few economic instruments left to the Irish government that can be used to enhance an export-led recovery. Ireland is learning to its cost the political price of the benefits of the Euro, at the same time that the economic benefits are themselves becoming more doubtful.

Until now, there has been a dominant consensus that Ireland is better off to participate more deeply in the Euro (and the EU), with more critical perspectives marginalised. Vague talk of not being left in the slow lane tends to carry the day in public debate. A fuller appreciation of the economic crisis means that this superficial consensus now needs to be examined. The outgoing prime minister, Brian Cowen, and some other leading political figures have commented directly or indirectly on the role of the German chancellor in the immediate credit crisis for Ireland in international markets and on the lack of solidarity shown in the attempt to force Ireland into a costly EU-IMF loan at a time when the government still had enough funding for eight months at least.[5] Irish political debate, which avoids ‘ideological’ discussion in favour of the pragmatic middle ground, must now critically assess whether the rhetoric of partnership and solidarity that surrounds the process of European integration in its current form really captures the reality of the process, or whether the real dynamic is about the centralisation of power in Europe.

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[1] Submission of Prof. Patrick Honohan to the Oireachtas Joint Committee on Economic Regulatory Affairs, Wednesday, 10th November 2010.
[2] See the Report of the Independent Review Panel on Strengthening the capacity of the Department of Finance (March 2011), para. 3.2.3.
[3] R. Sutherland, ‘Euro’s Existential Dilemma Strains European Unity’, The Guardian, 23rd May 2010, citing German Chancellor Angela Merkel speaking to the Bundestag.
[4] ‘Sarkozy, Merkel promise Joint Plans for Fiscal Unity’, Euractiv.com, 17th December 2010.
[5] Brian Cowan, outgoing Irish prime minister or Taoiseach, commented on Angela Merkel’s suggestion that private investors should shoulder the risk of future Greek-style bailouts: “It hasn’t been helpful”: ‘G20 Falters as EU Acts to Reassure Markets on Ireland’, Euractive.com, 12th November 2010. Former Prime Minister John Bruton, generally a Europhile, wrote to Commission president Barros criticising his failure to acknowledge the role of the European Central Bank (ECB) in the financial crisis: ‘John Bruton Blames ECB for Bank Crisis’, BusinessWorld.com, 8th March 2011.

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(Photo of Dáil Éireann: © AnCatDubh)

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