Lisbon Essay (27): If it’s No, Europe will simply find a way to move on without us…

Dan O’Brien, senior Europe editor at the Economist Intelligence Unit in London, posts from Berlin where he is covering the aftermath of the Germany election. He takes a sounding of insider opinion on Ireland and Lisbon, in several of Europe’s major capitals. The general assumption is that Irish voters will, as they did with Nice, change their minds in tomorrow’s poll. Most negative opinion is constellated around Paris and Berlin. In brief, that negativity centres around a disbelief that a country which thrived on huge cash transfers which cumulatively and on a per capita basis, have larger than any other country that joined before or since.

By Dan O’Brien

Germans and their politicians have paid little attention to Ireland’s referendum on the Lisbon treaty. In the EU’s largest and most powerful country, they have been too busy following their general election, which took place on Sunday. Besides, they have worked on the assumption that Irish voters will change their minds on Lisbon, particularly after being given concessions on the structure of the European Commission and assurances on issues the Irish government told them were necessary.

If next Saturday, as the vote counting moves towards a conclusion and news filters to Berlin that Irish voters have endorsed the treaty, there will be a sigh of relief. A process of institutional reform that began in 2001 will finally be implemented. If ,on the other hand, the treaty is rejected, things will change for Ireland. And the change will almost certainly be profound.

Across the bloc opinions on Ireland differ, but in the two most important capitals–Berlin and Paris–it is not hard to find negative views and perceptions. Here is a synopsis of what I have heard repeatedly heard over the years, this week included.

No other country has done better from the EU. When Ireland joined in the early 1970s, it was by far the poorest country of the then nine members. It was therefore entitled to large cash transfers, which have been, cumulatively and on a per capita basis, larger than any other country that joined before or since.

Among the things this money was used for was to allow very low rates of corporation tax to be levied on foreign companies. That gave and continues to give these companies, which are mostly American, a competitive edge over their European rivals in the European market (some people here in Berlin and elsewhere on the continent become visibly angry at what they see as a link between cash transfers and corporation tax ).

Germans have another long-term bugbear–Ireland’s financial regulation. For years they have been critical of Dublin’s financial services centre because they believed it was a dark crevice in which institutions could get away with things that would not try in Frankfurt or other continental locations. When German bank, HRE, blew up earlier this year and had to be nationalised, its Dublin based off-shoot, Depfa, was blamed by many.

Another gripe relates to monetary union. Germany only grudgingly agreed to give up the Deutschemark–it was the price to be paid for reunification. As negotiations took place in the 1990s on how the common currency would function, serious players in Germany sought to exclude countries with poor economic management records, such as Ireland, because a currency union would only be as strong as its weakest link.

Earlier this year both the German chancellor and finance minister felt obliged to state publicly that the no euro area country would be allowed to default as the financial crisis threatened to spiral out of control. They were referring to Ireland, along with Greece, as the two countries slid towards bankruptcy.

From a German perspective, Ireland causes more than its fair share of problems in the EU. For a small, peripheral country to be viewed as the source of so much trouble makes it vulnerable. But the killing of the Lisbon treaty by Ireland would be more than just another problem. It would say that the entire process of European integration has come to a halt because one of the smallest countries in the bloc says so.

The EU, as a Union of laws, cannot implement a treaty that has not been ratified by all members. But the EU is also a political entity. Politics, as the cliché goes, is the art of the possible. The political reality in Germany and most of the other key member countries is that there is a deep belief that an enlarged EU has to be made more effective and that it needs the changes in the Lisbon treaty to achieve this.

There are numerous ways that change could take place within the law. A core group of those countries who want to implement Lisbon could do so, creating two classes of membership. Alternatively, a new treaty could be agree, but with the explicit stipulation that if it is not ratified the EU is dissolved and a new entity to replace it be established (existing members would have a straight choice between being in or out). A worst case scenario for Ireland would be that it comes under pressure to withdraw voluntarily.

It would be a gross misreading of the dynamics of modern European history to believe that a strategically inconsequential country that has benefited so disproportionately from EU membership could now, for reasons that appear to outsiders to be capricious if not malicious, wreck an initiative that is almost universally supported by Europe’s political parties and took so long to put together.

O’Brien’s new book “Ireland, Europe and the World” is published this week. You can read the rest of the Lisbon Essays here.

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