June 17, 2008

Putting the jackboot into Ireland

Wolfgang Munchau's Financial Times piece on Europe's hardball plan B for the Lisbon treaty does at least have the virtue of being clear, and showing how namby pamby most UK comment has been so far in EU terms.

"Both Ireland and the EU should have celebrated their relationship", he announces, and the country now has exactly two alternatives (alternatives usually come in pairs).
One is a humiliating U-turn, consisting of a Yes vote in a second referendum without a material change of circumstances. The other is that Ireland could lose its full EU membership if the second referendum produces another No victory. Ireland's citizens would send the country back to the economic Dark Ages, from whence it emerged only a few decades ago.
Leave aside this economic judgement, which must be highly questionable, especially if and when an Ireland inside the EU is forced into line on corporate taxes. France and Germany have a hardball plan, he writes.
It seems to me that France and Germany have put some thought into how to drive the Irish out of the EU unless they fail to reverse their No vote.
A 26-1 ratification would increase the pressure on Ireland. Munchau considers a re-referendum with the same question unlikely.
Ireland has already opted out of everything it wanted to opt out of. It is difficult to formulate any specific concessions, since nobody knows what the Irish electorate wants.
Inconvenient, this democracy.
An alternative would be a referendum with a differently worded question, such as: "Do you want to remain in the EU on the basis of the Lisbon treaty?" Of course, this bundles two questions many people would like to answer separately. Yes, stay in the EU, No to Lisbon. But folding the two into a single question is politically more honest because it is Ireland's only real-world choice.
That'd teach them.

Otherwise he expects the EU to find ways to implement Lisbon without Ireland - which would happen for sure.
The biggest losers from this fiasco will be the Irish themselves. They brought the country to the brink in its relations with the EU at a time when the economy is facing the most severe crisis in living memory. I shudder to think how foreign investors are going to react, given how much Ireland relies on them for its prosperity.
Well, they're about to become net contributors to the EU. And if they left the eurozone, they'd be able to set their own interest rates again.

Anyway, he thinks the strategy most likely to be successful from the perspective of the rest of the EU is to play hardball. "This is plan B."

To conclude, an undergraduate question. Discuss the political model that underlies this analysis.

4 comments:

Mark Wadsworth said...

That's a harmless cowboy boot, as not worn by cowboys! Not a Jackboot!.

ivan from bradford said...

'I shudder to think how foreign investors are going to react'. This is an idiotic analysis. Even if Ireland was threatened with expulsion from the EU for the crime of voting 'No' in the Referendum Ireland would not be excluded from trading with Europe. If the EU was crazy enough to expel Ireland Ireland would most likely end up trading with the EU in a similar 'Free Trade Area' set up that Norway, Switzerland etc use. It would be an investors paradise. A large competent, educated, work force, good governance, Corporation tax at 12.5% and only one level of bureaucracy to deal with (Dublin)rather than the two tier regulatory system they currently have (Dublin & Brussels). In fact the EU would not expel Ireland because the backlash from people across Europe seeing Ireland expelled for the crime of voting in a democratic procedure would damage 'the project's' credentials too muchi

John Page said...

Mark, maybe, I'm no expert. It came up in a google search.

Ivan, yes ... and presumably they'd leave the euro, so they'd be able to set their own interest rates again. And Ireland's due soon to become a net contributor, isn't it?

Mark Wadsworth said...

To be fair, this 12.5% rate is a gimmick. Ireland is a tax haven. The much vaunted 'foreign investment' is captive finance and insurance subsidiaries of non-Irish groups.

Ireland is a small-ish country (4 million) so if they 'lose' half their domestic corporation tax receipts by halving rates, they gain more than that because of all the captive subsidiaries.

And there's nothing other countries can do about this because Ireland is in the EU.

The trick would not work in a large economy like the UK because there simply aren't enough captive subsidiaries in the world to go round - that little bit of international 'hot' money we could capture would never make up for the overall loss in corporation tax.

Also, don't forget that Ireland's truly domestic economy is stifled by a savage VAT rate of 21%.

For some reason, the lie is perpetrated (by EU-philes and -phobes alike) that Ireland's corp tax receipts have soared, which is patently untrue.

See here.