Tuesday, 5 May 2015

Why May 7th is crucial for Ireland

David Begg:  There has always been a paradox of sorts affecting Ireland’s engagement with the prospect of European Integration. With few honourable exceptions Ireland’s elite was never much concerned with a big vision of Europe. Economic considerations and the assertion of our independence tended to dominate. But herein lies the paradox.

While we might have seen the EEC initially, and subsequently the EU, as a means of consolidating our independence from Britain, it was equally seen as vital to our interests to have Britain also engaged in Europe. We had to sit on the sidelines with Britain for a year in the early 1970’s when its application to join the EEC was initially turned down. Likewise our joining the single currency was predicated on a belief that Britain too would ultimately join.

It is this interdependence with Britain which makes the General Election of the 7th May of such interest to Ireland.

The Conservative Party is committed to holding an ‘In/Out’ Referendum on Europe in 2017 if elected. Last week Nick Clegg made it plain that he will try for another coalition with the Tories by rejecting the possibility of supporting a Labour government dependent on the SNP. His ostensible reason is that the SNP wants to sunder the United Kingdom.

What is Nick Clegg playing at? The defining value of the Liberal Democrats is their fidelity to a European ideal. Inasmuch as Labour has taken a very principled stand against an in/out Referendum, against a tide of populism, one would have expected Clegg to have considered Ed Miliband a more comfortable partner in Government.

Moreover, as Will Hutton (2015;238) suggests in his recent book ‘How Good Can We Be’, there is a deep schism in the Tory Party wherein its Libertarian wing, with the aid of a partisan press, wants to drive home an ultra Thatcherite agenda in common cause with UKIP.  Their Britain will leave the EU, consolidate its position as a tax haven, shrink the state further and become a low-tax free market paradise for the world’s rich and multnationals. Hutton avers that the right wing of the Tory Party has become more of a messianic cult than the wing of a political party. As a result the party is even willing to put at risk its relationship with sections of its own base in business.

The only conclusion one can draw is that Cameron has convinced Clegg that he can win an in/out Referendum on Europe. That means getting a deal, without Treaty change, which can placate the eurosceptics. By definition that implies no change on free movement of people without which he can hardly satisfy this wing of the party. So how can Cameron avoid splitting his party?

The danger is that he will achieve various opt outs, particularly relating to social policy, and then present the country with a choice ‘Either accept Europe on my terms or leave it’. If this is what happens he will surely divide the country. The SNP and Labour could hardly accept those terms. Business probably would but the TUC surely could not. This political calculation might not work and Britain might leave by accident. It is some gamble for Clegg.

This is why the General Election is very important to Ireland. Edgar Morgenroth (2015:148) points out in a recent IIEA publication that Ireland is the fifth most important destination for UK goods. It is particularly important market for indigenous Irish companies. In 2012, 43% of Exports from Irish companies went to the UK, while the corresponding figure for FDI companies was only 12%. Supply chain linkages are also important for Ireland as UK wholesalers often supply the Irish market and UK supermarkets have a high market share in Ireland.

Ireland and the UK also constitute a single energy market with both Gas and Electricity interconnectors between them. It is conceivable that a so-called ‘Brexit’ would have a significant disruptive effect on the Irish Economy and on the Dual Model Industrial Policy we have pursued for fifty years. For the first time cleavages would be created between indigenous firms focused on the UK market and multinationals focused on Europe. It must not be forgotten that the Single European Act of 1986 was of enormous importance in terms of attracting foreign investment to Ireland.

This conundrum for Irish public policy is analysed in very great detail in a new IIEA publication ‘Britain and Europe: The Endgame, An Irish Perspective’ edited by Daithi O’ Ceallaigh and Paul Gillespie. In view of the economic risks involved it is hardly surprising that they argue the case that Ireland should do everything possible to keep Britain at least ‘Half in’ Europe rather than ‘Half out’.

It is hard to gainsay the logic of this argument in the immediate circumstances. But in the longer term a different strategy may be required. If one accepts that the core lessons of the 2008 Financial Crisis is that a currency union requires also a fiscal, banking and political union, however improbable that may seem right now, then deeper Eurozone integration is ultimately inevitable.

The problem is that this will tend to reinforce Britain’s isolationist disposition. The centrifugal force of deepening integration and euroscepticism will eventually make for, if not a Brexit, then surely a permanently semi-detached Britain with all the loss of influence on European policy that this will entail.

Those who favour a Liberal Market Economy Model will mourn the loss of Britain’s influence in Europe. Ireland can hardly be expected to be unaffected by its deeper immersion with the group of Social Market Economies that populate the Eurozone. Would this really be such a bad thing? If we reflect on it the 2008 crisis exposed flaws in our development model which raise questions about its sustainability. Most serious thinkers accept that recovery cannot mean a reversion to ‘Business as usual’. But if not that then what?

Perhaps the uncertainty of our long term relationship with Britain should act as a catalyst for us to take a closer look at the other small open economies of Northern Europe. The famous Nordic Model has been a beacon for economic prosperity and social cohesion since the 1950’s. Whether Ireland could adopt that model in whole or in part is a topic we will revisit on another day.

David Begg is Director of TASC

Hutton, Will (2015) How Good We Can Be: Ending the Mercenary Society and Building a Great Country. London. Little, Brown.

Morgenroth, Edgar (2015)’ Economic Consequences for Ireland’ in Daithi O’Ceallaigh and Paul Gillespie (EPS) Britain and Europe: The Endgame. An Irish Perspective. Dublin. The Institute of International and European Affairs.

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