John Bruton

Opinions & Ideas

SIGNPOSTS TO A NEW AND VERY DIFFERENT EUROPE

Last week’s video conference Summit of EU Heads of Government was important.

BREXIT

The leaders received a report on the meeting of EU Presidents Von der Leyen, Michel and Sassoli with the UK Prime Minister Boris Johnson.

They noted his decision not to seek any extension of the transition period.

Significantly, the EU leaders decided to make no change to the negotiation mandate given to the Commission for its negotiation with the UK on a future relationship with the EU. There had been suggestions in the UK media that the EU should loosen the mandate to facilitate the talks.

If a “No Deal” is to be avoided, the UK will now need to do some creative thinking about how it can give legally enforceable commitments to meet the concerns highlighted by the EU side on issues like

  • guaranteeing fair competition, if the UK is to have access to the EU Single Market, especially on state to business and quality and environmental standards
  • access for EU travelers to UK fishing grounds, if there is to be access for UK fish exporters to the EU consumer market for fish
  • human rights guarantees, if the UK is to have access to police cooperation with the  matters like the EU Arrest warrant
  • an overall partnership structure to govern the future EU/UK relationship.

If there is a “No Deal”, the relationship between the UK and its neighbours could deteriorate quite dramatically. There will be bitterness on both sides. This will not be confined to economics, but will affect every aspect of life.

POST COVID 19 ECONOMIC RECOVERY PROGRAMME FOR EUROPE

The post Covid 19 economic recovery proposals put forward by the European Commission are really ambitious.

For the first time, the EU itself will be borrowing substantial sums on its own account and passing the money on to member states.

Detailed allocations of funds for each country have been suggested. These allocations are based on an analysis of which countries, regions, and economic sectors that have been hardest hit by Covid 19.

It is interesting to note that there are wide differences in the economic impact of Covid 19 within countries. For example two regions of Italy are much worse hit than the rest of the country.

The analysis of need, on the basis of which the Commission proposed allocations have been prepared, takes no account of the impact of Brexit. Even if there is an EU/UK Deal, Brexit will do a lot of additional economic damage from 1 January 2021 onwards. The allocations will have to be revisited at that stage.

If fully implemented, it is estimated that the Commission proposals could, by 2024, add 2% to the overall GDP of the EU.

Member states will design their own programmes for spending the money.

There will be equity supports for viable companies.

It is important that the money be spent in ways that will enhance the sustainability and efficiency of the EU economy.

Since the financial crisis of 2008, the Commission has developed expertise in identifying what works and what does not work.

The judgement as to what is a “viable” business, that should get help, will not be an easy one. Objective criteria should be used. Some will be disappointed. There will be controversy and accusations of favouritism.

Eventually, borrowed funds will have to be repaid, or rolled over into new borrowing.

Interest rates will not always be as low as they are today, especially if the global economy recovers and there is an increased demand for funds in other parts of the world. So rolling over debts may not be wise.

Keynesian economics is not easy to implement in democracies.

Keynesianism encourages governments to run deficits and borrow, when times are hard. But that requires them to run budget surpluses and to pay down debt, when times are good.

 Politically, the first part is easy, but the second part is really difficult.

In good times, the expectations of the electorate of what governments should provide are very high and rise incessantly. There is no  electoral appetite for using the good times to pay off debts. We need to keep that in mind.

“Freedom is a Land I Cannot See”

Peter Cunningham’s latest novel “Freedom is a Land I Cannot See” is due for release by Sandstone Press on 24th June. It is one of his best. He shows great skill and sympathy in evoking living conditions of a century ago.

 The novel is set in the Baldoyle/ Sutton area of Dublin, 1924 when the new Irish Free State was coping with their aftermath of the successive internecine in wars of the 1919 to 1923 period.  To explain why the characters were as they were in 1924, the novel then switches back to 1920. This is at the height of the fighting between the IRA and the Army, Police and Black and Tans. The killings that happened then left a mark on the surviving characters that remained in 1924.

 The central character, and narrator in the book, Rose Raven, is the daughter of a Presbyterian, English born, ex soldier, who is married to an Irish Catholic woman and living in a cottage in Sutton. 

Rose’s mother believes Ireland would be safer staying in the Empire. Her father tries to keep his head down, but Rose’s friends are all nationalists of various hues, who want out of the Empire and are prepared to act in varying degrees to achieve that.

 In 1920, the risks run by  mixed allegiance families like the Ravens in 1920 are substantial. People were suspected of being “informers” on the strength of their religious beliefs and/or past service alone. Many left the country out of fear.

By 1924, the Free State had finally been established and was trying to stay afloat financially. It was highly sensitive to its credit rating, and worried about the dissemination of bad news that might damage confidence in the State’s creditworthiness.

 The plot of the novel revolves around the involvement of some of Rose Raven’s friends in endeavouring to pass some such damaging information, about conditions in the West of Ireland, to a US newspaper.

Peter Cunningham makes the reader feel he or she is living in North Dublin, alongside the book’s characters, as they navigate the successive crises of the 1920’s.

 Peter spent much of his own early childhood in Sutton and has a great eye for local detail. That said, the characters  he describes remain something of a mystery. This a good book and I recommend it.

IS IT TIME TO REASSESS THE ARMS TRIAL, AND THE ROLE OF JACK LYNCH?

“The Arms Crisis of 1970….the plot that never was”, by Michael Heney, published recently Head Zeus, challenges the received historical interpretation of the attempt IN 1970 to import arms to Ireland for possible use in Northern Ireland . 

Rather than seeing it as a plot undertaken by a faction within the then government, without proper authority, Heney argues convincingly that this was in fact an informally authorised operation. 

He believes that the then Taoiseach, Jack Lynch, knew what was going on, at least to the extent that he wanted to know.

 Heney is able to make this case by relying on state papers which were sealed from view until 2000, under the 30 year rule. 

He shows that Jack Lynch had been told by the then Secretary of the Department of Justice, Peter Berry, as early as October 1969, of offers of arms, or of money to buy them, being made by a serving Irish Army officer to nationalists from Belfast some days earlier at a meeting in Bailieboro.

He reveals that the Chief of Staff of the Irish Army minuted that, on 6 February 1970, he  had received a direction from the Cabinet to

 “prepare the Army for incursions into Northern Ireland”

 and to have arms

” in readiness to be available in a matter of hours”

 to be given to Northern nationalists for their protection.

The legal position was, however, that under the Firearms Act of 1925, arms could not be imported to Ireland without a licence from the Minister for Defence of the time, Jim Gibbons. No such licence was ever issued.

 That was the basis for the prosecutions in the Arms Trial of Charles Haughey, Neil Blaney, Captain Jim Kelly, John Kelly and Albert Luykx. 

Strangely, the decision to prosecute these men was taken by the Attorney General, Colm Condon SC, before all the relevant witness statements had been gathered, notably the witness statement of the Chief of Army Intelligence, Colonel Heffron.  Heffron’s testimony was to blow a big hole in the prosecution case. 

There is much forensic detail in this book to which this summary cannot do justice.

 The conclusion I draw is that, from mid 1969, the Lynch government was pursuing a twin track strategy,

+  a diplomatic one, that was openly acknowledged, seeking reforms in Northern Ireland. Jack Lynch’s Tralee speech (eschewing coercive means to achieve a united Ireland) was part of this and

+  a parallel , covert and deniable, strategy to give military aid to the nationalist minority for “self defence”,  in the event of a further intensification of Loyalist attacks on them. The attempted arms importation was part of this second track.

The Secretary of the Department of Justice, Peter Berry, saw the danger in the second track approach, hence his warning to Jack Lynch in October 1969.

 The notion that weapons, once supplied, would or could only be used for “self defence” was ludicrous. The Irish State would have had no control over how they might be used, once outside the jurisdiction.

 Such an involvement by the Irish state in military actions across the border would have exposed to attack isolated nationalist communities far from the border. The situation would have become far worse even than it became.

 The effect on relations with the UK would also have been potentially disastrous. Imagine how one might react if the British Army was supplying arms to a political group in this jurisdiction!

 Jack Lynch did not seem fully to see these risks, until Liam Cosgrave went to see him on 6 May 1970 with information he had received from an anonymous Garda source naming the Ministers supposedly involved in the plot to import arms (including the Minister for Defence, Jim Gibbons).

 Michael Heney argues that this second track approach (of the Irish state preparing to arm Northern nationalists) might, by reassuring them that they were not alone, have forestalled the re emergence of the Provisional IRA.  I do not believe this at all. It is dangerous historical nonsense.

 The Republican ideology, dating back to the Fenians, is based on the false idea that Unionists can be coerced into united Ireland, and that nationalist have a moral right to use force to that end, and that only pragmatic considerations should inhibit them from doing so. 

This is  still a widely held view among “Republicans”, so the Provisional IRA Republicans would have gone down the cul de sac of violence, no matter what the Irish state did, or did not, do in 1970.

Michael Heney does show, however, that the prosecutions in the Arms Trial of 1970 were unjustified. This is principally because the accused believed sincerely that they were acting with formal or informal government authority. 

How then ought the matter have been resolved, if not by the Arms Trial?

 Jack Lynch should have put a stop to the whole arms importation exercise much earlier, when first warned of it by Peter Berry in October 1969. He should have done so long before May 1970, when he did eventually act by sacking some of the Ministers involved.

 After all, Jack Lynch had already won an overall majority in the Dail in June 1969, and had the political authority to assert himself. By October 1969, reforms in Northern Ireland were under way. The B Specials were being disbanded and effective security powers were being withdrawn from Stormont.

 He should have concentrated all his efforts on the diplomatic track, in the United Nations, the United States and among the Irish in Britain, in pushing for much more rapid reform in Northern Ireland. Instead he allowed the covert strategy to continue in parallel…….a big mistake.

The use of weapons, by whomsoever supplied, and for whatever ostensible purpose, was always a waste of time and of lives.

“SAY NOTHING”

….THE DECEITS THAT FLOW FROM THE USE OF VIOLENCE FOR UNACHIEVABLE ENDS

“Say Nothing” by Patrick Radden Keefe was recommended to me by two friends whose judgement I respect.

Radden Keefe is a writer with the “New Yorker” magazine.  His book is published by William Collins. A native of Boston, Keefenow lives in New York. He has an arresting writing style.   It is hard to put his book down.

 It starts with the 1972 murder of Belfast widow, and impoverished mother of ten small children, Jean McConville. It ends by naming the female IRA member the author believes shot Mrs McConville.

 Jean McConville was suspected, on flimsy grounds, of having given information the British Army. She was a Protestant, married to Catholic and living in Divis tower, in the heart of Republican Belfast. 

Her religious background would have drawn suspicion upon her.

 The author names the senior Republican, who claims never to have been in the IRA, who ordered her murder, and the “disappearing” of her remains across the border.

“Say Nothing” expands from this sad story to delve into IRA violence in Belfast and the response of the security forces to it. 

Things need not have turned out as they did.

 In 1968, the IRA had actually sold off some of its remaining weapons to the Free Wales Army. 

Then came the Loyalist attacks in 1969, and the start of an intense cycle of violence that lasted over 30 years, and which was only ended by a series of convoluted ambiguities that satisfied no one.

It all had its origin in the Proclamation of the Irish Republic on Easter Sunday 1916. 

The terms of this Proclamation made compromise by its sincere adherents impossible.

 The Proclamation claimed a “fundamental right” to a 32 county Republic. No one had a right to compromise that right.

 As the author of the Proclamation, Patrick Pearse, wrote, justifying the rebellion;

“We go in the calm certitude of having done the clear, clean, sheer thing”.

He said on another occasion;

“We have the strength and peace of mind of those who never compromise”.

It is remarkable that the 1916 Proclamation is officially celebrated in Ireland , given that the Irish State is BASED on a compromise, and  that the Good Friday Agreement IS a compromise.

 The  ritual annual incantation of the words of the Proclamation every Easter, gives a false  and deeply misleading message to Ireland’s school children, and to future generations.

The absolutist and uncompromising nature of the 1916 Proclamation went against human nature.

 It helped make compromise by the Four Courts garrison impossible in 1922, and it made decommissioning of weapons, in more recent times,  much more difficult to acknowledge or admit by those who based their republicanism of the Proclamation. 

 There was nothing that was “clean, clear or sheer” about the civil wars in Ireland from 1919 to 1923.

Nor was there much   that was “clear, clean or sheer” about the so called Armed Struggle of the IRA in Belfast, as Radden Keefe’s book shows.

 And there was nothing clear or sheer about the British security forces response to it, either. They were mirror images of one another.

Radden Keefe’s claims the IRA hunger strikes of the 1980’s were deliberately prolonged by the IRA leadership, because they were yielding electoral dividends for Sinn Fein.  An offer acceptable to the prisoners had been made by the authorities, but the outside IRA leadership vetoed acceptance of the offer, and six more prisoners died, all for electoral considerations the author claims.

He also explores why many ex IRA people had difficulty with the peace process.

 He says that Dolours Price, who was involved in many IRA actions including the abduction of Jean McConville, felt a sharp sense of moral injury from the peace process and the compromises it required.

 He says she believed that it had

“ robbed her of any ethical justification for her own conduct”.

This is the sort of sadness that inevitably flow from the use of force to obtain goals on which there can be no compromise.

NOT QUITE SUCH A DECADENT AGE, 1880-1914

“The Age of Decadence, Britain 1880 t0 1914” by Simon Heffer is an ideal book to have tackled during the Covid 19 lockdown.

It consists of almost 900 closely typed pages, and covers every aspect of this eventful period, from the rise of organised labour to naval rearmament, from the campaign for votes for women to that for Home Rule for Ireland.

An overriding political constraint on elected governments in this period was the veto the unelected and unrepresentative House of Lords had on all legislation. A Crisis over this had been avoided for many years by the Lords exercising restraint in its use of the veto. Once the Liberal Party came to power in 1905, a clash between the Commons and the Lords was inevitable.

The crisis came in the 1910 to 1914 period, as a result of a combination of two phenomena.

 The first was the fact that the Irish Party, demanding Home Rule, held the balance of power in the House of Commons from 1910 on.

The second was the contents of Lloyd Georges’s budgets of 1909 and 1910, which proposed very progressive taxation (to pay for naval rearmament). 

A  majority of Lords took violent objection to both Home Rule and the tax policies.

 The Lords saw their property in Ireland under attack from Home Rule, and their investments in England under attack from the budget.

 They wanted to stop both.

 Eventually the King had to threaten to appoint hundreds of new Lords, drawn from the Liberal Party, to overwhelm the Conservative majority in the Lords. This forced  the Lords to climb down and pass the legislation.  Home Rule became law on 12 September 1914.

But this is a social history as much as it is a political history.

 Simon Heffer draws on the novels of authors like John Galsworthy, Virginia Woolf and HG Wells to show how different classes of society inter acted with one another.

 I am not sure he justifies the claim in the title of the book that this was an age of decadence.

 Certain members of the aristocracy did indeed live idle and extravagant lives, but there were major advances taking place in medicine, housing standards, social welfare. Old Age Pensions and the Social insurance were introduced.

 It could be argued that more radical social reform was made by the Liberal government before the First World War, than by the Labour government after Second World War.

 People could imagine the future. The writings of HG Wells in this period foresaw many of the technological developments of the following hundred years. Eugenics were advocated by George Bernard Shaw and opposed by GK Chesterton.

Heffer’s book is full of pen pictures of the interesting characters who populated this period of rapid change.

 He tells their story well and holds the reader’s interest.

GERMAN COURT SETS ITSELF ABOVE EUROPE

The Federal Constitutional Court (FCC) of Germany this week attacked one of the fundaments of the European Union, the primacy of Union law.  It is long settled practice that, in its field of operation, EU law has superiority over national law.

The FCC of Germany has also rejected the primacy of decisions of the European Court of Justice (ECJ), over decisions of national courts, on the meaning of EU Treaties.

The FCC has furthermore attacked the independence from the politics of any one country, of the European Central Bank.  It instructed the German Bundestag and  the German government to ensure that the ECB did a new analysis of its bond buying programme in light of the principles it laid down. Failing that, the ECB bond buying in question should not be applied in Germany, it said.

This is wrong. It is not the prerogative of any one EU country to instruct the ECB!

I remember how, at the Dublin EU Summit of 1996 which I chaired, Helmut Kohl defended the independence of the soon to be created European Central Bank. He did not want member states to be able to pressurize it to pursue loose monetary policies.

Now, A German Court wants a German government to interfere with the independence of the ECB, something that would have horrified Helmut Kohl.

The decision that  the German FCC announced this week was about the bond purchasing programme of the European Central Bank instituted by Mario Draghi to support the Euro in the wake of the 2008/10 economic crisis.  This bond buying programme was known as the PSPP.

The ECJ had found this PSPP programme to be legal under the EU Treaties, in a decision on 11 December 2018. The German Court this week flatly rejected this ECJ decision. It described it  as “untenable”.

It condemned it in the following terms;

“In its Judgment of 11 December 2018, the ECJ  held that the Decision of the ECB Governing Council on the PSPP and its subsequent amendments were still within the ambit of the ECB’s competences.

This view manifestly fails to give consideration to the importance and scope of the principle of proportionality (Art. 5(1) second sentence and Art. 5(4) TEU) – which applies to the division of competences between the European Union and the Member States – and is simply untenable from a methodological perspective given that it completely disregards the actual economic policy effects of the programme”

 The German Court added that the PSPP bond buying programme of the ECB is “ultra vires (beyond its powers) and not to be applied in Germany” and instructed the German authorities to this effect.

 It even criticised the methodology of the ECJ in reaching its decisions. A remark designed to annoy.

The EU can only work if its laws are interpreted consistently in all 27 EU member states. If a German Supreme Court can overrule the ECJ interpretation of the EU Treaties, so also could the Hungarian Supreme Court or the Polish Supreme Court.

 Soon we could  have 27 different interpretations of what EU law meant, and the EU Single Market would  quickly disappear!

The German Court did say that it was not making a decision about the more recent bond buying programme, introduced in the wake of the Covid 19 outbreak, and which is supporting countries like Italy and Spain, hardest hit by Covid 19.

 But the logic of the German FCC’s  decision this week clearly implies that it would also find against that programme too when, as is likely, the same German litigants bring a case against the new programme before the German courts.

A major showdown is now inevitable, at a time of maximum vulnerability for the European economy.

A robust answer must be given by the EU institutions to the German Court.

The Inter governmental Conference, including the then German government, that finalised the Lisbon Treaty in 2007 said, when it promulgated that Treaty ;

“In accordance with the well settled case law of the EU Court of Justice, the Treaties and the law adopted by the Union on the basis of the Treaties, have primacy over the laws of Member States, under the conditions laid down by the said case law”.

The European Heads of Government, including Angela Merkel, must urgently reaffirm that declaration, and declare their unequivocal support for the ECJ decision of December 2018, and for the independence of the ECB from the authorities of Germany, and from those of  any other EU state.

By undermining the ECJ, the German Court is providing a precedent that could be used by semi authoritarian governments in some EU states, who do not like some EU decisions on matters like the rule of law , academic freedom, or media pluralism.

To be fair, the doctrine underlying the German Basic Law is one which has democracy, and respect for democratic procedures, at its centre. The German Federal Constitutional Court has frequently defended the democratic prerogatives of the German Federal State.

 It has, however, failed adequately to recognise that the EU is a democracy too.

 It has an elected Parliament, to which the ECB accounts for itself.

 That is where German concerns should be pursued, by political means, and not by mischief making court cases, decided by judges who set themselves above the European Union.

IRELAND AND THE BATTLE FOR EUROPE, 1688-1691

I have greatly enjoyed reading “Kingdom Overthrown” by Gerard Fitzgibbon, published by New Island in 2015. Gerard Fitzgibbon, a history graduate, worked as a reporter with the Limerick Leader. He writes history in a lively way, with colourful portraits of the main characters, and of the places in which they fought and died.

 The war in Ireland between Jacobites and Williamites was just a small part of a wider European war between the allies of King Louis XIV of France, who included the Irish Jabobites, and a large multi denominational coalition of European powers who wanted to curb French power.

 France wanted to expand its territory along the Rhine so as to make its territory more defensible. Louis XIV launched the war by crossing the Rhine to besiege Philippsburg to this end in September 1688.

 This upset the Holy Roman Emperor and led to the formation of  anti French alliance (the League of Augsburg)  which included the Emperor himself as well  William of Orange but also the Pope,  and the Kings of Spain, Sweden and  Savoy. 

In addition to Ireland, the war was waged at sea, in modern day Belgium, in the Rhineland, Catalonia, and there were engagements between the French and the English as far away as New York, New England and the Caribbean. As well as the Irish campaign on behalf of King James, there was a Jacobite rising in Scotland, aided by some troops from Ireland.

As long as the Catholic King, James II was on the throne in England, the British Isles might have remained neutral in the conflict between Louis XIV and his enemies. But when James was deposed by William of Orange, Louis regarded this as an act of war against himself. 

Without the financial and military support of France, James II, and his viceroy in Ireland the Duke of Tyrconnell, would not have been able to sustain their campaign in Ireland from 1688 to 1691.

Religious affiliation was a determining factor in the war in Ireland, with relatively few Protestants supporting James, and even fewer Catholics supporting William. But across Europe, many of the powers who opposed France were Catholic.

 This suggests that territorial ambition was an even stronger force that religious affiliation.

 In Ireland too, the war was about who would own the land….the families who had had it in the past, and remained loyal to the  old Dynasty, or the newly arrived settlers, who had arrived with the Ulster Plantation and the Cromwellian confiscations, and put their money on  the usurper, William of Orange. 

The events of 1688-1691 have shaped the way Ireland is today.

 The fault lines on 1690 are there still in Ireland, and will be accentuated by Brexit.

 In contrast, the fault line between France and its eastern neighbours, which so preoccupied Louis XIV, has been dissolved in the European Union. 

BREXIT….HEADING FOR THE CLIFF EDGE

Last Friday Michel Barnier gave a stark warning about the lack of progress in the Brexit negotiation. 

But this week Boris Johnson has come back to work. 

Perhaps it was unrealistic for Michel Barnier to have expected the UK to  have engaged seriously with the trade offs and concessions, essential to a long term Agreement  , while the UK Prime Minister was ill.

Brexit is Boris’ big thing. He made it. Other Tory Ministers have no leeway to make Brexit decisions without his personal imprimatur. He has purged from his party of all significant figures who might advocate a different vision of  Brexit. 

The point of Michel Barnier’s intervention is that, now that Boris is back at work, he will need to  give a clear strategic lead to the UK negotiating team.  If he fails to do that, we will end up, on 1 January 2021, with No Deal and an incipient trade war between the UK and the EU.  Ireland  will be in the front line.

 The scars left by Covid 19 will eventually heal, but those left by a wilfully bad Brexit,  whether brought  about deliberately or by inattention, may never heal. 

This is because a bad Brexit will be a deliberate political act, whereas Covid 19 is just a reminder of our shared human vulnerability.  

Boris Johnson signed up to a Withdrawal Treaty with the EU, which  legally committed the UK to customs, sanitary, and phytosanitary controls between Britain and Northern Ireland, so as to avoid controls between North and South in Ireland.

 So far, Michel Barnier says he has detected no evidence that the UK is making serious preparations do this.  An attempt by the UK to back out of these ratified legal commitments would be seen as a sign of profound bad faith. 

Michel Barnier said that negotiating by video link was “surreal”, but that the deadlines to be met are very real.

 The first deadline is the end of June.  This is the last date at which an extension of the negotiating period beyond the end of December might be agreed by both sides. While the EU side would almost certainly agree to an extension, there is no sign that the UK will agree. Tory politicians repeatedly say they will not extend. 

This tight deadline would be fine, if the UK was engaging seriously, and purposefully, in the negotiation.

 But, according to Michel Barnier, the UK has not yet even produced a full version of a draft Agreement,that would reflect their expectations. The EU side produced its full draft weeks ago.  Without full texts it is hard to begin real negotiation. So far the UK has only produced texts of selected  bits of  the proposed Treaty.

 But the UK  insist that Barnier keep these bits of  draft UK text secret, and not share them with the 27 Member States. Giving Barnier texts that he cannot share with those on whose behalf he is negotiating, is just wasting his time. It seems to me the UK negotiators are adopting this strange tactic because they have no clear political direction from their own side.  They do not know whether these bits of text are even acceptable in the UK!

In the political declaration, that accompanied the Withdrawal Agreement, Boris Johnson agreed his government would use its best endeavours to reach agreement on fisheries by the end of July. Such an agreement would be vital if the UK fishing industry were to be able to continue to export its surplus fish to the EU. Apparently there has not been serious engagement from the British side on this matter. 

The other issue on which Barnier detected a lack of engagement by the UK was the so called “level playing field” question.

 The EU wants binding guarantees that the UK will not, through state subsidies, or through lax environmental or labour rules, give its exporters an artificial advantage over EU (and Irish) competitors.

 The “level playing field” is becoming a difficult issue within the EU itself.

 In the response to the Covid 19 economic downturn, some of the wealthier EU states (like Germany) are giving generous cash/liquidity supports to the industries in their own countries. 

 On the other hand, EU states with weaker budgetary positions (Italy, Spain and perhaps even Ireland) cannot compete with this.

 It is understandable that temporary help may be given to prevent firms going bust in the wake of the Covid 19 disruption.  But what is temporary at the beginning, can easily become indefinite. And what is indefinite can become permanent. Subsidies are addictive.

 The reason we have a COMMON Agricultural policy in the EU is that, when the Common Market was created 60 years ago, nobody wanted rich countries to be able to give their farmers an advantage over farmers in countries whose governments could not afford the same level of help. The same consideration applies to industry. Subsidies should be equal, or should not be given at all.

 State aid must be regulated, inside the EU, if a level playing field is to be preserved. To make a convincing case for a level playing field between the EU and the UK, the EU side will need to show it is doing so internally. This will be a test for President Von der Leyen, as a German Commissioner.

Which way will Boris Johnson turn on the terms of a deal with the EU?

I think it is unlikely he will look for an extension of the Transition period beyond the end of this year. 

He wants a hard Brexit, a clean break as he would misleadingly call it,  but he knows it will be very painful.

 He will probably reckon that the pain of a hard Brexit ,or no Deal, Brexit at the end of December, will be concealed by the even greater and more immediate pain of the Covid 19 Slump. Brexit will not be blamed for the pain. But if Brexit is postponed until January 2022, the Brexit pain will be much more visible to voters.

The Conservative Party has become the Brexit Party. It is driven by a narrative around re establishing British identity, and is quite insensitive to economic or trade arguments. It wants Brexit done quickly because it fears the British people might change their minds. That is why there is such a mad rush. It is not rational. It is imperative!

EUROPE NEEDS A POLITICAL HEART TO SUSTAIN ITS ECONOMIC BODY

Next Thursday’s European Council is seen by some as crucial to the future of the European Union as a political project.

President Macron of France has raised the stakes saying that unless there is agreement on a fund of 400 billion euros to mitigate the effect of the lockdowns across the EU and the Eurozone, both the Euro and the EU itself will be in danger. He says that

 “If we can’t do this today, the populists will win, today, tomorrow and the day after in Italy, in Spain and perhaps in France”

He is right to issue the warning, but there is a real risk that this sort of rhetoric will create a self fulfilling prophecy. Expectations need to be managed and false dawns avoided. 

Some of the populist criticism of the EU is misdirected, and needs to be contradicted.

 In fact the EU, as such, has responded quite quickly to coronavirus. EU institutions, like the European Central Bank and the European Commission, have acted much more promptly in response to cononavirus crisis of 2020, than they did to the Banking crisis of 2008 and the sovereign Debt crisis of 2010. This is in spite of the  huge handicap of having to meet by teleconference.

A proposal for a Coronavirus Response Investment Initiative has already been approved by the European Parliament and the Council and is in force as of the 1st of April. This will allow the use of EUR 37 billion under cohesion policy to address the consequences of the COVID-19 crisis.

It is not the EU institutions, but the Ministers of some of the member states of the euro, who have been unable to make decisions.  They are the ones who were unable to decide on Eurobonds, or an acceptable substitute.  It has been Ministers of the member states, not officials of EU institutions who have made undeliverable demands of, and used unacceptable language about, one another. It is competing nationalisms that have failed us so far.

Indeed this failure of competing national narratives was predictable. CO2 does not respect national boundaries and nor do deadly viruses. They transcend national boundaries, so the response to them must transcend national boundaries too.

The opposition to mutualisation of debt in countries like Germany and Netherlands is almost theological.  Eurobonds are a good idea but they are just another form of borrowing. The interest may be a bit lower but it is still a debt. Eurobonds cannot be set up quickly, and speed is important. The bond buying by the ECB, which is already under way, has been much more effective. It has eased the financial pressure on Italy and Spain, and bought time for the EU to come up with a more comprehensive recovery programme.

 The key here is the Recovery Fund, which was agreed in principle by the Finance Ministers of the Eurogroup last week. This Fund is to be aimed at providing funding, through the EU budget, to programmes designed to kick-start the economy in line with European priorities and ensuring EU solidarity with the most affected member states. 

Such a fund would be temporary, targeted, and commensurate with the extraordinary costs of the current crisis, and would help spread them over time through appropriate financing.  

The Summit on Thursday next will need to decide on the legal and practical aspects of such a fund, including its relation to the EU budget, its sources of financing, and on innovative financial instruments, consistent with EU Treaties. This is a huge task because the EU budget at the moment is only 1% of EU GDP, and is already committed to other things(notably agriculture). 

One solution might be for EU to borrow additional money, on its own account on a long term basis, and that a new, but temporary, EU tax to be agreed to in principle to provide a reserve from which these loans could eventually be repaid. An EU wide carbon tax to fund this is one possibility.  Of course this would be difficult to accept, but extra borrowing that is not backed by pre agreed repayment capacity is difficult to accept too!

Meanwhile we must all realize that a breakup on the Euro would also destroy the European Single Market. That will happen unless voters in all EU states think as Europeans, not just as nationals of their own state. 

 Without the euro there would be competitive devaluations of national currencies, and these could lead to retaliatory trade restrictions, which would destroy the Single Market.

 Oddly enough, it is the countries that are most resistant to mutualising debt who benefit most from being in the EU Single Market.

 The German based Bethelsmann Foundation has said 

countries like Germany, France, Belgium, Netherlands and Denmark benefit more strongly than regions in the southern and eastern periphery of Europe

 from the EU Single Market. 

President Macron is right to say that the political legitimacy of the EU is being challenged. 

Why is this?

 The reasons are psychological as well as political.

 The voters of EU countries rarely get a chance think as Europeans. They are never asked to vote on purely EU issues, and are not confronted with realistic choices about what the EU might do, and what it might cost them.

 European Parliament elections are really national popularity contests about national attitudes. So the EU becomes remote. The EU is “someone else paying”. It is “them” rather than “we”. 

That has to change if the EU is to have the necessary strategic and political depth to deal with crises like the one we are now going through. 

If the EU is to survive as a political project, it needs  to create a European democratic constituency that complements the democratic constituencies to which national leaders appeal. The EU needs a political heart to sustain its economic body.

A Conference on the Future of Europe is to be set up to look at that in the next few months. The EU Heads of Government should send a signal that they intend to take the need for genuine EU wide democracy seriously. 

Rather than rely solely on the European Parliament, whose members are all elected in national contests, we need an EU wide electoral contest, if we are to create an EU wide identity and EU wide democratic legitimacy.  

One way to do this would be to have the President of the European Commission elected by the voters of the EU. This could be done either by using the Single Transferable Vote, with which we are familiar in Ireland, or by a two round system like the one used in French Presidential Elections. Voters identify with personalities as well as policy programmes and it is personalities who can create the emotional bonds between European citizens, that are needed to make European financial bonds politically viable. Another (weaker) proposal would be to elect some MEPs from an EU wide constituency.

Next week will indeed be crucial for the European Union. It needs to get the economics right, but itals needs to get the politics and the psychology right too. Leo Varadkar will have a vital role to play.

WHERE CAN THE EU FIND THE AMMUNITION TO FIGHT A CORONA VIRUS INDUCED ECONOMIC SLUMP?

The Covid 19 outbreak, and its deep financial aftermath, will put the European Union under unprecedented stress over the next five years or more. Brexit will add to these tensions for some members, notably Ireland. It is a matter of vital national interest for Ireland, that the EU gets its response to the crisis right, and does not allow it to create dangerous social distancing between the states of the EU.

A crunch point will be reached next Tuesday when EU Finance Ministers must make vital short and long term decisions.

 The existing structure of the EU is unfitted to a crisis like this. The public expect the EU to act, but has not been given the EU the powers it needs to do so. 

Unlike the states of the EU, the EU itself has no capacity to borrow money, and no capacity to raise taxation. So it  often lacks the financial clout to take decisive action.

 The amount it is allowed to spend is a mere 1% of GDP, whereas EU member states can and do spend around 40% of their GDP.

Membership  of the EU has been enlarged to include populations who have radically different understandings of the obligations and responsibilities of EU membership.

 Some think EU membership is compatible with authoritarian systems of governance.

 Others think EU membership is about entitlements, without commensurate responsibilities.

 Yet others see the EU as a means of creating a sphere of influence and projecting national power. 

Some (like the UK) see the EU as just a trading arrangement, with few political obligations at all.

 Many see membership of the EU as a transaction, from which they should always gain more than they were giving up.

 The countries and regions that gain most from the EU Single Market, are either unaware of the gains, or mistakenly think it is all due to their own efforts.

 A recent study by the Berthelsmann Foundation showed that the big objectors to Eurobonds (Germany , Austria and the Netherlands) gain almost three times as much per capita from the EU Single Market as do the assumed beneficiaries of the Eurobonds, Spain and Italy!

 If the Single Market were to fail, the objectors would lose the most. But their national politicians fail to tell them this. Incidentally the study showed Ireland to be a big gainer from the Single Market.

Meanwhile the countries and regions that gain comparatively less from the Single Market resent this, and fail to acknowledge that they too are gaining from being in the EU Single Market, albeit a bit less than the others are gaining. Envy blinds some to reality.

Of course, these contradictory feelings are rarely expressed publicly, but they there under the surface, ready to emerge when a crisis happens and decisions have to be made quickly. 

Covid 19 has been such a crisis.

 The first reactions of some EU members were revealing, and deeply troubling.

On 4 March, France and Germany decided to block export of personal protecting equipment outside their own borders, even within the EU. This was done notwithstanding the fact that restrictions on export to other EU states are forbidden by Article 35 of the EU Treaty.

 Two days later, Italy requested an extraordinary meeting of EU health Ministers. This was declined, notwithstanding the fact that the health crisis was worse in Italy than elsewhere, and Italy (like Greece) had already borne the brunt of the refugee crisis, with little or no help from its EU partners.

 It took several days of pressure before the export bans were lifted, and 1 million German masks eventually did reach Italy. Meanwhile China scored a public relations coup by getting equipment to Italy, equipment that Italy’s EU partners had failed to supply. 

The Institute Montaigne, a French think tank said this episode will leave “deep scars” in Italy’s relationship with its EU partners north of the Alps.

The restrictions on economic activity, as well as the direct health and income support costs, arising from Covid 19 will dramatically increase the debts of all states in the EU. 

Assuming a 20% drop in GDP as a result of Covid 19, an economist in the Bruegel Institute in Brussels  has estimated that the Debt / GDP ratio of Italy could rise from 136% of GDP to 189%, that of France from 99% to 147%, that of Spain from 97% to  139%, and that of Germany from 59% to 94%. 

 As all these countries can expect their workforces reduce in the next 20 years, because of past low birth rates, this is a very troubling prospect. A way needs to be found to spread the  debt as widely as possible and as far as possible into the future.

One of the proposals made to do this is Eurobonds which would enable counties to borrow with a guarantee from all eurozone states. The interest rate might be lower but it is still just another form of borrowing. If Italy issued a Eurobond, it would still be increasing its overall debt, and might face a higher interest rate on its ordinary bond issues. Another objection is that it might take 18 months or more to get these Eurobonds up and running, and the markets need something quicker.

Another proposal is that distressed countries borrow from the European Stability Mechanism (ESM). Some believe that the ESM is too small for all that needs to be done. Others worry about the conditions that might be imposed.

Meanwhile the ECB continues to buy the bonds of member states. For example it owns 26% of all German government bonds and 22% of all Spain’s bonds. This bond buying by the ECB enables governments to continue borrowing, but its support is confined to members who are in the euro. It is using monetary policy to achieve the goals of fiscal policy, which is controversial.

I suggest a better solution would  be to allow the European Union itself to borrow, up to a limit of (say) 0.5% of the EU GDP, to spend exclusively on Covid 19 related expenditures. 

Article 122 of the Treaty already makes provision for the EU to give aid  to help states suffering from “natural disasters and exceptional occurrences” beyond the control of a member state or states. Covid 19 meets this criterion.

 But the EU is not using this power, because its budget is fully committed to other things. It has no room to respond to sudden emergencies.  It would have such room if it was allowed to borrow. This power could then be activated to allow direct transfers of funds to a state in acute distress because of Covid 19 or the like, without adding to the recipient state’s debt.

Doing this would require an amendment to Article 310 (1) of the Treaty. This article presently requires the EU always to run a balanced budget. This could be amended to allow borrowing  that was confined to spending on matters, like Covid 19, that had arisen suddenly and were beyond the control of the state looking for help. Such a limited borrowing authority would command a lot of support from the electorate.

It would also be borrowing under the democratic control by the Council of Ministers and  European Parliament, something that does not apply to bond buying by the ECB.

The EU faces is an unprecedented situation which justifies unprecedented actions.

Page 1 of 57

Powered by WordPress & Theme by Anders Norén