Sunday

25th Aug 2019

Opinion

Irish bail-out terms endanger EU's future

  • "Irish voters' support for new EU powers cannot be taken for granted" (Photo: topgold)

Recent discussion of the terms of the EU bail-out for Ireland has focused on the preferences of the Irish, French and German governments and the likely impact on international bond markets, but largely neglected the effect of this issue on the Irish public's attitude toward Europe. This blind-spot could have disastrous consequences whenever the EU next seeks to revise its treaties.

According to its constitution, Ireland may not ratify any significant amendment to the EU's treaties without amending the constitution itself, which requires approval by a public referendum. Polls have long found the Irish public to be more EU-friendly than most other publics in Europe, but the treaties of Nice and Lisbon were both approved only after the government took the controversial step of holding a second referendum.

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So Irish voters' support for new EU powers cannot be taken for granted. And there is now good reason to fear that Irish voters would be even less forthcoming in future referenda.

Although the political party responsible for the mismanagement of the Irish economy over the last decade was thoroughly repudiated in the recent election, the Irish public remains more distrustful of public authorities than at any time since the country's independence in 1922. This might not endanger future Irish referenda on EU treaties if Europe were seen as part of the solution rather than as part of the problem.

But the terms of the 2010 EU-IMF bail-out are considered illegitimate by the vast majority of Irish voters. This sentiment is only partly focused on the high interest rate premium that the EU imposed on its loans to the already-overburdened Irish state, apparently to reduce the attractiveness of this option for other Eurozone members in budgetary difficulty.

Much of the Irish public's anger is directed at Europe's subsequent refusal of the Irish government's desire to distinguish between its obligation to repay sovereign debt, which nobody contests, and its predecessor's decision to guarantee the vast debts of Ireland's private banks, which are owed mostly to private banks and other bondholders in Germany, France, Belgium, the Netherlands and the UK.

The Irish public has proven remarkably tolerant of the harsh budgets required to restore Ireland's public finances. But the European Commission and French-German governments' hard-line position on private debt restructuring - whether in the form of ‘haircuts' for bondholders or debt-for-bank-equity swaps - is seen in Ireland as an unprincipled attempt to make the Irish taxpayer pay for the bad investment decisions of private banks in other countries.

Finally, the German and especially French effort to link reconsideration of the bail-out terms to a change in Ireland's corporate tax rate is seen as both hypocritical and unacceptable. Hypocritical because France's effective corporate tax rate – i.e., the percentage actually paid after all loopholes and exemptions are considered – is considerably lower than that of Ireland. And unacceptable because it challenges one of the Irish state's few mechanisms for recovery from an economic crisis that is only partly of its own making.

These all may appear to be obscure technical issues to average voters across the EU. But after three years of economic retrenchment and intense policy debates, the Irish public is now unusually well-informed and attentive to how these issues are being addressed at the European level.

If France, Germany and the European Commission maintain their hard-line positions, they may well convert Ireland from a euro-friendly to a deeply eurosceptic country. If this happens, it is likely that any future EU treaty reform would be rejected by Irish voters, regardless of the new treaty's merits and regardless of how many referenda are held. Given the myriad challenges facing the EU, and the evident shortcomings of its current treaties, this would indeed be a bad outcome for all concerned.

The writer is associate professor of European Governance and director of the Dublin European Institute at University College Dublin, Ireland.

Disclaimer

The views expressed in this opinion piece are the author's, not those of EUobserver.

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