Last Monday, Ireland became the first country to experience a formal recommendation criticising its budgetary policy since the euro was established. The Minister for Finance, Mr McCreevy, representing Ireland, was completely isolated at the EcoFin Ministerial Council. His intervention was received by his fellow ministers with studied silence. Given that Ireland tends to position itself in the mainstream of most EU negotiations, was it wise of Ireland's representative to opt for isolation on this issue?
The Minister, assisted by the Tanaiste, depleted scarce political capital with nothing to show for it. If I might be forgiven for mixing my sporting metaphors, the Government, in an exaggerated mood of pique, decided to score an own goal at Eco-Fin on Monday, whereas it could have reduced the entire affair to 10 minutes in the sinbin. Ireland's conduct throughout this episode was at odds with how we have managed our relationship with the EU in the past. In particular, the contrast with how the same Government managed the Agenda 2000 negotiations could not be more stark.
The Agenda 2000 negotiations were considered of major importance to the Government when they began in July 1997. A textbook case of good negotiationswas characterised by clarity of objectives, good procedures, and a solidinstitutional base. The Taoiseach and the Irish negotiating team were well pleased when they left Berlin in March 1999. They understood that managing the interface with the EU system requires hard bargaining combined with persuasion and diplomacy. The Minister for Finance and the Government received ample warning of the thinking in the Commission about the 2001 Irish Budget.
The Commission had two key concerns. First, in its judgment the Irish Budget for 2001 was pro-cyclical and followed two expansionary budgets in 1999 and 2000, despite the fact Ireland had the highest inflation in the euro zone. Second, and more importantly, the Commission was concerned about the longer term implications of how it handled the Irish case for its role in the management of the Euro zone. If it failed to issue a draft recommendation on Ireland, this could well undermine its credibility in the future. In the Commission's judgment, Ireland had technically breached the agreed economic policy guidelines.
Mr McCreevy responded to the prospect of an adverse recommendation in Eco-Fin not by attempting to limit the potential damage but by portraying this as an EU versus Ireland confrontation. He was unwilling to see the Irish case in the context of the wider EU system. Nor was he concerned at the prospect of isolation among his ministerial colleagues.
The second pillar of the McCreevy-Harney axis in the Cabinet joined the fray with a Financial Times article that argued that Ireland was not in breach of the broad economic guidelines. Put simply, the Commission and all of the other member states had got this wrong. The Harney intervention served only to harden attitudes against Ireland in the Commission and among our partners. The veiled threat concerning the Nice Treaty in that article was not viewed with favour in EU capitals.
The other member-states were also annoyed that the Minister for Finance said their attitude was based on "green-eyed jealousy" of Ireland's economic performance. Populist statements like this were unhelpful and smacked of hubris.
More importantly, both the Minister for Finance and the Tanaiste claimed the Commission analysis was flawed and not based on an adequate understanding of the Irish economy.
If this is the core of the Irish case, then both these Ministers and their Departments must bear responsibility for the lack of understanding. Since the mid-1990s the EU system has been awash with different processes that analyse issues like competitiveness, employment policy and economic governance. There are ample opportunities to feed ideas, documents and analysis into the EU system.
But this is not the Irish style. The Government tends not to contribute policy papers. Rather, it attempts to shape those produced by others. If we are serious about influencing the debate on economic governance in the EU, the Ministers and their Departments need to become far more proactive and engaged in explaining the rationale behind specific budgetary or fiscal measures. Turning up at the Eco-Fin Council with economic statistics, when the outcome of the meeting is already determined, is akin to closing the door when the horse has bolted. A longterm strategy based on good bilateral contacts with the other Finance ministries is essential.
Even if the Minister felt hard done by he would have been better advised to have regarded the recommendation as a technical issue. Furthermore, his attitude may lead to two unintended consequences. First, it is in Ireland's interest that the UK join the euro at the earliest possible date. The Minister, by amplifying and polarising the issue, has given ample ammunition to those opposing the euro in the UK. Second, there are already calls from the Commission and some of the other member-states for a strengthening of the budgetary surveillance mechanisms.
This episode highlights the need for stronger formal mechanisms in the Irish system for tracking and managing difficult negotiations. Foreign Affairs and the Taoiseach's Department are the custodians of Ireland's overall European policy and relationships with our partners. In situations where Ireland is isolated, the Cabinet or its European sub-committee should determine the approach and carefully balance departmental and wider national interests.
In the long term it is not in Ireland's best interest, however individual ministers may feel fully justified, to engage in open public dispute with the EU institutions and the other member-states who have been more than supportive and generous towards Ireland over the past three decades.
Brigid Laffan is Director of the Dublin European Institute, UCD. Her monograph, Organising for a Changing Europe: Irish Central Government and the European Union will be published shortly by the Policy Institute, TCD.
