Thoughts from Brussels on the euro crisis

I have been prodded – both by being on a radio panel discussion today and by the awesome Catie – to assemble some thoughts on the euro crisis and what it means for both parts of Ireland. There is a certain air of pessimism at present, driven largely by recent pieces in the Financial Times and the Economist predicting that the end is nigh and that the single currency is on the verge of breaking up. I must say that I am very sceptical of such reports. They seem to me a combination of wishful thinking from those outside the system who never wanted to see it get off the ground in the first place, deliberate spinning from those inside the system who hope that a sense of urgency may spur EU leaders into action, and malicious spinning from those inside the system who resent being marginalised by the process of resolving it. The fact is that while the costs of retaining the euro for now are huge, the costs of abandoning the project are almost literally unimaginable, and so far no government in the system has determined even that their own interests are in leaving, let alone that they wish to bring down the system. 

A good example is Friday's pair of pieces (1, 2) by the Economist's "Charlemagne" (Anton La Guardia) on the differences between President Sarkozy and Chancellor Merkel, which combines a detailed and forensic analysis of their recent statements with, in my view, an unnecessarily pessimistic take on the chance of their reaching agreement. Even the uninformed reader will be able to spot that there is not actually much substantive difference between the positions of Paris and Berlin on the way forward. In addition, La Guardia could have looked a bit more at the underlying dynamics – most importantly, Merkel and Ssarkozy actively want to reach a deal; and where there are differences between them, Merkel is likely to prevail over Sarkozy because she is is more widely respected in the EU, enjoys the paradoxical combination of a stronger domestic political situation and more serious domestic institutional constraints (thanks to the Karlsruhe constitutional court), and is basically a smarter and more serious politician than the French President. Next week's summits will inevitably declare success, because they always do, but I think it's more likely than not that there will be serious substance to that success.

That is almost certain to mean a proposal for institutionalised fiscal governance for the 17 countries in the euro-zone – a surrender of national sovereign financial powers to some Brussels-based institutions. The big concerns there are going to be the extent to which such a process can have democratic oversight, and the role for the 10 (soon 11) member states who don't use the euro as their currency. David Cameron appears to have decided that British interests are to have a fiscal union without the UK in, and if so he is likely to get that. But the UK and the other 'Outs' will certainly be marginalised from the debate; as the Economist's "Bagehot" (David Rennie) has reported, if the British demand anything much in return for their consent to a treaty change which does not directly affect them, the Germans will reluctantly (and others less reluctantly) move to a new treaty with no British involvement at all.

From the Irish perspective, this is all pretty significant. Irish fiscal sovereignty has already effectively been outsourced as a result of the crisis; the new EU architecture offers not a means of regaining it, but an opportunity to at least fight for some openness and transparency (perhaps even democracy!) in the new structures. I doubt that Irish officials will have the stomach for such a fight. I have been told by one senior source that Ireland's red line is to retain its right to set a low level of corporation tax, and pretty much all other concessions may be made with that goal in mind. (Has that been a matter of public debate in Dublin?)

Northern Ireland is a marginal region, on the frontier of the euro zone, in a state which will have little input into the debate and whose neighbouring euro-users will not be arguing for Northern Ireland's interests either. Northern Ireland's three MEPs, whose positions I respect and who have all been personally helpful to me on various issues, are Eurosceptics and so will also be outside the political mainstream on this. There is a role for civil society to get a bit more involved in European issues, for the Assembly to start taking a stronger interest in Brussels, and for the Executive to start liaising with other regions which are in a similar situation – the likes of Skåne, or Karlovy Vary.

There is a bit of a silver lining. The crisis has directly resulted in Belgium finally forming a government, almost twenty months after the last one resigned; bow-tie-wearing Francophone Socialist Elio Di Rupo is to take office as our new Prime Minister tomorrow. And later in the week, Croatia will sign its accession treaty to become the 28th member state, a significant reminder of the EU's origins as a mechanism for continental conflict resolution, and of the importance of the EU in removing war or the threat of war as an element of forward planning for its member states. That will be a great moment, particularly for chief negotiator Vladimir Drobnjak, who has been managing the process for most of the last decade, and a chance for the EU as a whole to cheer rather than sigh; it is a club that people still want to join.

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