Bad time for public dispute with Flynn

If it is true that the Agenda 2000 negotiations on the EU's budgets, agricultural and cohesion policies, structural funds and enlargement finances are the most important since Ireland joined - and it is hard to dispute the case that they are - then this is an exceptionally bad time to have such a bitter and public row between the Government and the Irish member of the European Commission, Mr Padraig Flynn.

While commissioners are not constitutionally representatives of the member-states that nominated them, everyone knows they play as essential role in mediating and communicating between Brussels and national capitals. And since these negotiations are taking place on a Commission set of proposals, that institution is at the heart of the process, despite the fact that the outcome will be determined between the governments.

The German EU Presidency has in the last two weeks produced a hectic timetable and programme of meetings, including two summits and several extra ministerial council meetings with the aim of reaching agreement by the end of March on the EU's future financing. They have to square their own agenda of cutting their national contributions with the overall responsibility to bring the negotiations to a timely close.

Observers suggest they will be satisfied with a compromise that puts their contributions on a declining path. To do that will require sacrifices by net receivers from the EU budgets, Ireland included, and probably a bruising encounter with Britain over its budget rebate.

Assuming the overall budget does not increase above the existing 1.27 per cent of EU gross domestic product - a realistic assumption in the circumstances, however inadequate it is in the light of aspirations for greater economic and political integration - it is suggested that the net receivers could end up paying most for the continental enlargement of the EU's membership now under way.

According to the authors of a report on Agenda 2000 published in Dublin this week,* Ireland has most to lose in these negotiations. This is partly a problem of success, of course, in that EU funding has contributed so much to Ireland's development. We are now in a major period of transition, both in terms of national development and in our relations with the EU.

Much of this has to do with perceptions, however. Images of the Celtic Tiger prosperity militate against traditional clientelist methods or tactics of negotiation.

After a thorough and illuminating analysis of financial perspectives, enlargement, agriculture and institutional consequences, this report outlines three possible negotiating strategies for the Government, concluding that it will probably combine elements of each.

The first would concentrate on Ireland's continued interests as a cohesion country, predicated on the still substantial gap between Irish and EU living standards and the income gap between regions in Ireland. Statistical evidence of convergence with EU living standards are misleading since they are based on measurements of gross domestic product (GDP) rather than gross national product (GNP). The first of these exaggerates the real convergence of income because of inflated estimates arising from the activities of multinational firms in Ireland.

It is stated in this report that in 1997 Ireland's GNP per capita was 18 points below the EU average, with nine member-states at or above it. This is quite a different picture from the Celtic Tiger image based on GDP figures, which suggest we now have an income of 103 per cent per of the EU average. It has received too little attention in Irish public debate.

Peter Brennan, director of the Irish Business Centre in Brussels, one of the authors, suggests that on the basis of recent trends GNP convergence to the EU average would not occur until 2006, the end of the next budgetary period.

But EU calculations are made in GDP terms, and GNP ones are difficult to apply at sub-national levels; it would be difficult to convince the other 14 member-states to shift to another system (although there may be a case for exploring one German Presidency suggestion that EU budget contributions currently based on value-added tax be rather linked directly to ones based on GNP).

By 2006, Mr Brennan says, Ireland's contributions will have doubled to some one billion ECUs, and in a worst-case scenario direct transfers would have reduced to 10 per cent of what they are now. Ireland would then be a net contributor to the EU budget.

The other two negotiating strategies more or less anticipate that transition. Option two is entitled "A Region in Transition" and would be aimed at securing a soft landing and a well-managed rundown of structural funding. It would stress the continued infra structural deficit, so visible in Ireland's contemporary urban congestion, and the fact that income convergence is so recent.

It would also underline continuing regional disparities, notably investment restrictions imposed by the Commission's Regional Aid Guidelines, which disproportionately affect this State.

But such an approach would also highlight how little Ireland devotes comparatively to public capital expenditure, with the transfers from Brussels in 1997 equal to the entire capital programme. One way or another more public expenditure here is required in coming years. The authors of this report underline how important it will be to agree a national development plan this year after the Agenda 2000 negotiations and to maintain the system of social partnership.

The third option is entitled "Net Contributor in Waiting". It would primarily seek to limit the extent to which Ireland would become a net contributor rather than maximising the potential for gross transfers.

This is a canny suggestion, which anticipates a prolonged period of development and growth in the EU system and would seek to put Ireland decisively in the camp of those who would seek to minimise their net contributions.

It contains a realistic assessment of how rapidly our position is changing. But it may underestimate the Irish commitment and interest in growing the economic and political integration capacities of the EU system in coming years, which would require a larger budget.

The authors of this report are convinced a deal will be done sooner rather than later this year and that all these elements are up for grabs. Once it is concluded the way will be cleared for enlargement negotiations.

*Agenda 2000, Implications for Ireland: Institute of European Affairs