Germany is making the decisions, but Irish experts broadly agree on measures needed for currency's future, writes DEREK SCALLY
THE PICTURE from last Tuesday’s dinner is worth a thousand words. European Commission president José Manuel Barroso is sitting like a schoolboy with his hands clasped in his lap, his glass of pink champagne untouched.
His host, chancellor Angela Merkel, leans over casually, legs crossed luxuriously. At her side stands a cool glass of beer.
It’s an image that recalls the rule of all happy marriages: the man thinks he’s in charge, the woman knows she’s in charge.
A week ago, Mr Barroso annoyed Dr Merkel, the woman to whom he owes his job, by suggesting that the EU rescue fund needed to boost its effective lending capacity.
Over a dinner of braised venison and stuffed pears, Dr Merkel informed him that, with just 10 per cent of the fund earmarked for Ireland, she found the idea not only rash but dangerous.
As they moved on to a creme brulee dessert, she explained to her visitor that she, and no one else, will present a paper at the EU summit in March outlining euro zone changes. Dr Merkel will sketch out to other leaders what Berlin is prepared to do to prop up euro zone members and what conditions it will attach.
Berlin’s ambitions for the euro zone are not to be underestimated: officials here say they are tired of being dubbed bad Europeans, as during the Greek bailout, while being shaken down for loans and guarantees on a no questions asked basis.
With two-thirds of Germans professing no confidence in the EU, according to a new survey, Berlin politicians say they can only afford to support the euro if others are seen to pull up their socks.
Berlin is making wide-reaching demands, including harmonisation in tax and economic affairs and an end to irresponsible national budgetary policy.
For Ireland, Berlin would like to see the infamous giveaway budgets confined to history and for the next government to commit to a “debt brake”, a kind of fiscal chastity belt for spendthrift politicians.
Germany’s own 2009 debt brake will make it a breach of the constitution for politicians to push spending beyond 0.35 per cent of GDP after 2016. Irish analysts see such a measure as unlikely in Ireland, given the high referendum hurdle.
Instead, they see inspiration in last November’s joint Oireachtas report on a new fiscal regime.
The report calls for an overhaul of the country’s budgetary process and the establishment of new independent oversight groups, including an economic advisory council.
This body, with at least 40 per cent of members from abroad, would analyse whether fiscal policy is adhering to the rules, sustainable and on track. The report also calls for an independent budget review council, composed of economists and financial planners to control fiscal monitoring.
Interestingly, the committee report is largely in agreement with Berlin on the euro zone’s future, stating that the EU urgently needs rules on how member state surpluses should be administered.
“It is the lack of understanding and effective oversight of that, by the EU, which now troubles the euro,” the report says.
Leading Irish economists and academics are optimistic a change of government will improve the chances of the report’s recommendations becoming law.
“The recommendations move in the direction of the kind of independence, fiscal rules and regulatory framework that Germany would like to see,” says Prof John McHale of NUI Galway. He is optimistic that these homegrown proposals are palatable to Irish voters and would make it much harder, though not impossible, for politicians to follow a pro-cyclical budgetary policy in the future.
“The idea of putting anything into the Constitution is fanciful in the Irish case but, short of that, [Germany] may still be impressed that we are seriously looking at fiscal arrangements that would give them more confidence in us.”
As chancellor Merkel and her team prepare their euro zone proposals for the March summit, finance minister Wolfgang Schäuble has gone on a public relations offensive. His message: Berlin’s proposals for the euro zone are responsible and the motivating intentions are honourable.
“I’m trying very hard in this process not to give the impression of Germany standing alone all-powerful, but to see things from the other’s perspective,” said Mr Schäuble to students of Berlin’s Humboldt University this week. And what does he see at present from the Irish perspective?
“I see that the Irish press is writing about Germany and not always in a friendly tone,” he said. Complaining about Germany has a long tradition in the EU, he admitted, but in this case it wasn’t justified. “Every society with problems tries to blame others, it’s the way people are, it’s how I am,” he said. “This is a systemic problem requiring a systemic answer. As part of a common system with benefits for all, we have to agree that things won’t change until we change certain bad habits.”
