Next weekend marks the 10th anniversary of the EU-IMF bailout to save Ireland from bankruptcy in the wake of the financial crisis.
he government was forced to introduce swingeing cuts in one of the most chastening experiences since independence. What made the bailout even more humiliating was the number of British conservative politicians and commentators who questioned whether Ireland had the capacity for self-governance. Some even wondered aloud whether the UK should do the decent thing and volunteer to take over the running of Irish affairs.
Many of these politicians and commentators went on to become leading Leave campaigners in the Brexit referendum. It would be understandable if Irish people had indulged in a collective bout of schadenfreude following the latest bout of internecine warfare to convulse an already shambolic Tory government.
Dominic Cummings, the éminence grise of Boris Johnson’s Conservative Party, last week resigned allegedly under pressure from Carrie Symonds, the prime minister’s partner, just as Brexit negotiations entered the end zone.
The latest meltdown follows the publication of the Internal Market Bill earlier this year by the British government. This legislation asserted the UK’s right to tear up an international treaty it had negotiated and signed only last year. The rationale was that the agreement was made in haste and not properly understood by Westminster. The move was brazen and unedifying, and it cratered London’s reputation internationally.
It finally looks as if the Brexit circus is coming to an end of sorts. It is expected that a pared-back trade deal between the EU and UK will be reached over the next few days. But this is not the time to breathe a sigh of relief. The UK’s departure has enormous consequences for Ireland’s relationship with the EU. The view among experts is that Dublin’s focus on Brexit has diverted much-needed attention from developments in tax, security and economic growth that will have far-reaching implication for Irish people.
Dr Eoin Drea, a senior research officer with the Martens Centre, a Brussels-based think tank, says the EU has to contend with a growing number of challenges. “I’m not sure that Dublin is aware of what is coming down the tracks and whether it has a strategy to deal with it,” he says.
After both countries became members of the European project in 1973, Ireland’s interests were often closely aligned with the UK’s.
Ben Tonra, professor of international relations at UCD, maintains that there has been an overemphasis on Dublin’s alignment to London. “In areas such as CAP (Common Agriculture Policy), Ireland was much closer to France.” But in two crucial areas, such as commitment to free trade and taxation, London was a bulwark against protectionist and federalist impulses pushed by the Franco-German axis.
This could be hugely problematic in years to come. For almost the first 20 years of Ireland’s EU membership, sclerotic growth rates meant our GDP per capita was 60pc of the bloc’s average up to the late 1980s. Ireland was a massive net beneficiary of EU funds. Then a series of economic reforms in the early 1990s gave rise to the Celtic Tiger. The signature policy of these reforms was a 12.5pc corporate tax rate.
Ireland’s tax policy has increasingly become a flashpoint between Dublin and the core member states. The country has been depicted as a tax haven that has enabled US multinationals to reduce their corporate tax liabilities to single-digit rates, which has unfairly deprived EU exchequers of much-needed revenue. The issue was not so much the 12.5pc rate, although that is frowned upon, as a series of loopholes such as the now-scrapped ‘double Irish’.
The European Commission wants to harmonise the way taxes are calculated across member states. Ireland is implacably opposed to such a move because Economic and Social Research Institute estimates suggest it could halve the amount of tax going into the exchequer. Paris wants a digital tax, which is also opposed by the Irish Government.
If the UK had been an EU member, it would have knocked back any new tax proposals. But times have changed.
The EU has embarked on a historic rescue package to respond to the Covid crisis. The European Commission has pledged to raise €750bn in the markets and disburse the proceeds to member states in grants and loans. Brussels will have to raise extra sources of revenue to pay back these funds. So far, the only measure that has been agreed is a single-use plastic tax. That is why the pressure on tax reform will be ratcheted up over the next few years. This could put Ireland on a collision course with the EU.
Much has been made of the fact that this country has three important financial portfolios. Paschal Donohoe is the chairman of the Eurogroup of finance ministers; Mairead McGuinness is the European Commissioner for financial services; and Philip Lane is the chief economist at the European Central Bank. There is a belief that holding these powerful positions will safeguard Ireland’s interests.
But Drea warns that Dublin is taking too much comfort from these appointments. “It is the first time ever the head of the Eurogroup has been appointed without the backing of Germany, France, Italy and Spain,” he says. “Mairead McGuinness’s appointment was a quirk of what happened to Phil Hogan.” The former Fine Gael minister lost his job as commissioner after Golfgate.
Drea says that the Irish government must engage with its EU counterparts on tax reforms. “They just can’t say no all the time and say that they are co-operating with the OECD [organisation representing developed nations].” The Irish Government has said that any tax reforms should not be done on a regional basis and that is why it is against any unilateral EU moves.
The other area that could put Ireland on a collision course is security. Geopolitical uncertainty has increased over the past few years. Russian fighter planes have made a number of incursions into Irish airspace. There is a greater threat of cyber-terrorism. Yet even the merest hint that the Government should look to co-operate with the EU on security prompts a backlash amid accusations that our cherished neutrality is about to be jettisoned.
“Nobody is going to pressure us on security and defence. We are a small player and everybody knows that and everybody knows this issue is a problem for us. All member states are conscious of our neutrality,” Tonra says. “I think we need a national conversation about what we need to defend, how we defend it and where do we get the resources.”
Brussels has also said that the bloc must develop its own industrial strategy. If this means moving to a more protectionist model, it would go against Ireland’s interests as one of the world’s most open economies.
Make no mistake: the benefits of Ireland’s EU membership have been vastly outweighed by any downsides. The 12.5pc corporate tax rate would be meaningless without access to the single market and EU trade agreements. The country’s sway on the international stage is amplified by membership of the bloc. Brexit is a case in point.
It is an article of faith among Irish governments that EU membership is a given. Even during the dark days of the bailout, when relations soured to previously unimaginable levels, an exit was never contemplated.
When the Irish border became the biggest stumbling block in Brexit negotiations, Brexiteers initially assumed that Ireland would just have to leave the EU. Nigel Farage even travelled to Dublin for an ‘Irexit’ conference in February 2018 organised by Hermann Kelly, his former adviser in Brussels and now the president of the Irish Freedom Party. Journalists at the event estimated that roughly half the 400-strong audience were British ex-pats.
The Daily Express, probably the most rabidly pro-Brexit newspaper in the UK, still clings onto the belief that Ireland’s EU exit is imminent. It has run a series of lurid pieces over the past few weeks claiming that euroscepticism is reading endemic proportions in this country and an Irexit is only a matter of time.
Opinion polls paint an entirely different reality. The latest Eurobarometer survey, released on September 24, shows that 89pc of Irish people feel that EU membership has been beneficial, making this country the most enthusiastic members of the bloc.
In other words, there is slim to no chance that Irish people will solve the Brexit dilemma by following the UK through the Brexit door.
Noelle O’Connell, the head of European Movement Ireland, a civic society group that foster closer EU ties, says that the elevated EU support levels can be attributed to a ‘Brexit bounce’. Brussels’ backing for Ireland has been unstinting over the past four years. For the first time in recent memory, Ireland has put Britain on the back foot. Yet O’Connell warns that there is no room for complacency.
Irish governments have involved either Fianna Fáil or Fine Gael. That could change in the next election if Sinn Féin builds on its historic breakthrough in last February’s election. That party had been on the opposing side of every EU referendum until the Brexit vote in Northern Ireland in 2016 — and even then it gave less than full-throated support for membership. Sinn Féin’s euroscepticism has latterly evolved into a ‘eurocritical’ approach, although this would probably to be tempered in government by the reality that a united Ireland cannot happen without EU support.
There is also the emergence of the National Party, the Irish Freedom Party and various other crackpot anti-corruption movements that are all anti-EU. They are marginal but very noisy and looking to exploit any potential fissures between Dublin and Brussels.
Irish governments have seldom had any easy time passing EU referendums. The electorate rejected the Nice Treaty in 2001 and Lisbon in 2008, although both were ratified in follow-up votes.
Lack of understanding of how the EU works is not exclusive to Irish people, Tonra says, adding: “It is common in most member states.”
Unlike most member states, though, Ireland must put every treaty to a referendum. That could pose significant challenges for future governments. “My biggest fear for the future is ignorance and lack of understanding,” Tonra says. A change of mindset is needed, he argues. “We are part of the EU and it is part of us. It is not something that does something to us. We can shape EU policy.”
Drea says that the Netherlands have roughly the same tax issues as Ireland but there is a totally different perception of that country in Brussels because the Dutch government engages on a wide range of issues. “There is a feeling that we are only interested in tax and Brexit,” he says.
Ireland made a strategic blunder over the past year, he believes. It had been a prominent member of the Hanseatic League, a group of seven economically liberal north European countries committed to free trade and balanced budgets. Then when Covid erupted, Ireland joined southern member states in calling for greater budget flexibility.
“Up to 2019 Ireland was viewed very positively in the EU but I think that has changed slightly. The way the Irish government was seen to put pressure on the commission over Phil Hogan [over Golfgate] didn’t go down well in Brussels. It was seen as setting a dangerous precedent. There is also the failure to engage on corporate and digital tax reform,” Drea says.
He doesn’t see Ireland turning eurosceptic in the short or medium term, but in the longer term it could become semi-detached.
O’Connell says that the Irish government needs to develop a much greater and all-encompassing vision for how it deals with the EU.
“At the moment we look at the EU predominantly through the prism of Brexit and in the Anglo-Irish context. We need to look at it more strategically. We need to take off the Brexit goggles.”
Source: Irish News