Crouching Tiger, Sitting Bull: Taking Advantage of Ireland’s Vote of Confidence
BRUSSELS -- Leading up to the crucial European Union Council summit of March 24-25, Europe’s leaders are figuratively flipping a coin, specifically a Greek 2€ piece that portrays Europa being abducted — or seduced — by Zeus in the form of a bull. At this summit, EU governments will negotiate over the future of European economic governance and mechanisms to rescue heavily indebted member states. But between now and then, in several European capitals, the debate over what to do about the sovereign debt crisis is shifting from economics to politics. Today (Friday), the leaders of European center-right governments meet in Helsinki to discuss political strategies for upcoming eurozone negotiations.
Left-led governments meet in Athens. Helsinki features the debut of the incoming Irish Prime Minister, Enda Kenny, to make the case for renegotiating the terms of Ireland’s €85 billion bailout. Kenny arrives flush from a stunning victory in the general election in Ireland on February 25 that saw his Fine Gael party trounce the ruling Fianna Fáil party, which lost 57 out of its 77 seats. The near-annihilation of what had been one of Europe’s most successful political parties—it has been in government for 61 out of the past 79 years—is directly attributable to the financial crisis, as the Irish electorate blamed Fianna Fáil for the policies that destroyed Ireland’s once-booming “Celtic Tiger” economy.
Both Kenny and the Labour Party (which finished second in the election and will most likely align with Fine Gael in the new government) campaigned on a commitment to renegotiate the terms of the rescue plan that Ireland received from the International Monetary Fund and EU last November. But the intent to renegotiate should not be mistaken for Euro-skepticism. Fine Gael is the most explicitly pro-European party in Ireland. The election and the new government’s strong mandate present an opportunity for the EU to repair its reputation in Ireland and Europe more widely. By agreeing to discuss Ireland’s request to lower its bailout interest rate (which is currently 5.8%), the Commission and member states could demonstrate Europe’s ability to adapt to national particularities and boost ongoing negotiations on strengthened surveillance of budgets, macroeconomic imbalances, and structural reforms.
But while the Commission has already expressed readiness to be flexible on the pricing of aid to ensure the fiscal sustainability of all member states, Angela Merkel has signaled her opposition to a renegotiation with Dublin that would artificially lower the interest rate and no longer reflect refinancing costs. Admitting Ireland’s inability to meet the terms of its bailout agreement could also further increase uncertainties in the eurozone and create adverse reactions from the bond markets. Indeed, what is a discussion on Ireland is also a discussion on Europe itself. While Ireland and Greece are trying to renegotiate their bailout agreements, other member states are establishing their own positions on the various proposals that will be discussed at a special summit of eurozone leaders scheduled for March 11, to be followed by more meetings among finance ministers. Under discussion will be the shape of a permanent rescue mechanism, ideas to strengthen global European competitiveness, and ways of calculating debt and reviewing national budgets.
As usual, member states’ positions diverge along national as well as ideological and economic lines. The specter of a two-speed Europe looms and the closed-door eurozone summit bears the risk of being perceived as an intentional division of the Union. But there is room for compromise. The blueprint on competitiveness developed by Commission president Jose Manuel Barroso and Council president Herman Van Rompuy may prove to be a better alternative than the controversial proposed French-German Pact for Competitiveness that would require sensitive constitutional changes in most member states.
The Irish bailout interest rate could be lowered in exchange for an increase in Dublin’s low corporate tax rate. And Germany could agree to an extension of the terms of Greece’s bailout loan in exchange for Athens’ support for a comprehensive package of measures to deal with the debt crisis. The meetings in Helsinki and Brussels offer time and space to decide on the politics of Europe’s future economic structure. The prospects for a powerful economic deal at the March 24-25 summit are slim. Markets and investors might not be reassured and confidence in the European economy may not be fully restored, requiring heads of government to meet again.
But if a pro-European party is elected to power in a severely crisis-hit country on a promise of cutting a reasonable deal with its European partners to revive its growth, it would be a failure and a mistake to dismiss such an opportunity. With further elections to take place across Europe in 2011 and 2012, the EU’s reaction to the Irish “vote of trust” could set a welcome precedent. At the series of critical meetings this month leading up to the summit, Europe’s leaders should not be afraid to take the bull by its horns.
Guillaume Xavier-Bender is Program Associate with the Economic Policy Program of the German Marshall Fund of the United States (GMF) in Brussels. Thomas Legge is Program Officer with GMF’s Climate and Energy Program in Washington DC.
The views expressed in GMF publications and commentary are the views of the author alone.