McCreevy's EU megaphone diplomacy puts Ireland in the Eurosceptic camp

There was a fine photograph in the Guardian of Charlie McCreevy and Gordon Brown tetea-tete at the Ecofin council in Brussels this week. It revealed a striking convergence of British and Irish attitudes towards the emerging pattern of EU economic governance.

Both men were furious about being criticised by their peers for transgressing the broad economic guidelines set out under the Maastricht convergence criteria. These apply whether or not an EU member-state is in the eurozone.

The little discussed consequence of megaphone diplomacy by the Minister for Finance and his ideological soulmate, the Tanaiste, Ms Mary Harney, in response to Ecofin criticisms of Irish budgetary strategy has been to align Irish policy not only with Mr Brown's Labour government but with their opponents, the British Eurosceptics.

An avalanche of comment in the British press this week pointed up the outcome. Gone is the pathetic stereotype of an Irish bubble economy fattening gratuitously on EU transfers before its inevitable hard landing.

This was the guiding principle of much Eurosceptic press comment in recent years, deeply affecting perceptions in the City of London about Irish economic performance. In its place we have the exemplary paragon of low-tax, supply-side, high-growth policies assailed by Brussels bureaucrats for economic and political incorrectness.

A whole page in the Wall Street Journal devoted a leading article to defending Ireland's position, an article by Mr McCreevy and a comment by the leading supply-side writer, Arthur Laffer, who concluded that Ireland would be best advised to leave the euro.

High-tax and high-spend policies espoused by continental social democrats were contrasted with the Irish espousal of a more neo-liberal Atlanticist model of economic development.

This is good knockabout stuff, bringing a welcome international dimension to domestic policy debates which all too frequently are conducted as if they had no such correlates. And, as Mr McCreevy does not tire of saying, the economic arguments are not all on the one side.

The Financial Times commentator, Martin Wolf, for example, was also critical of the Ecofin approach towards Ireland, on the basis that the ministers identified the wrong targets and misinterpreted the Irish economy.

Others pointed out that the Maastricht criteria and the stability and growth pact based on them (concluded at the EU summit in Dublin in December 1996) were predicated on the likelihood of budgetary deficits rather than the surpluses now enjoyed in Ireland, which encourage tax cuts.

But it would have been perfectly possible to play such policy disagreements differently, with less likelihood of ending up so comprehensively isolated as Mr McCreevy found himself last Monday.

It is an uncomfortable and unenviable position for Ireland to be in. It is also potentially damaging, given that so much political capital has been spent in getting there. In the process Ireland is seen as deliberately flouting the rules on mutual economic surveillance and peer group review.

By positioning Ireland so clearly with the Eurosceptic camp it looks as if the McCreevy-Harney axis has tried to hijack Ireland's usually more integrationist EU policy. This is puzzling, in that a compromise was apparently available a couple of weeks ago which would have been less critical and more accommodating.

The Government, by allowing this axis to take such an initiative and not insisting that heads be kept down and mouths shut, revealed how deeply both the Budget and the determination to avoid qualified majority voting on taxation in the Nice Treaty had bound the Taoiseach, Mr Ahern, and the Department of Foreign Affairs to the Department of Finance line.

Ironically, such tactics may now reinforce the determination of those in the European Commission and Ecofin who want to see greater prior scrutiny of budgetary policy within the eurozone economies. That is not the desired outcome from the French or German point of view.

The confrontation has also opened up new veins of suspicion, among German policy-makers especially, as to whether EU transfers to Ireland in the last decade were used to subsidise corporate tax cuts which facilitated capital flight from Germany and unfair competition with its companies. That is contestable but requires urgent attention if isolation from France and Germany is not to be deepened by the McCreevy-Harney solo run.

THE trouble is that perceptions once laid down are difficult to undo. Sympathetic observers in the Commission believe Ireland is decisively aligned with Britain and Sweden on most of the major economic and political governance issues facing the EU in coming years.

That may or may not be true, but it will take much more proactive policies to correct if it is not. As Ireland becomes a net contributor to the EU budget and adjusts its agricultural, trade and structural/cohesion funds interests and policies it will badly need a wider palette of allies within an enlarging EU system.

The Taoiseach has now virtually committed the Government to a referendum on the Nice Treaty, probably in May, along with several other issues such as the International Criminal Court.

But, ironically, the confrontationist attitude adopted by McCreevy seems likely to stoke up anti-EU feeling. That would build on the existing bloc of about a third of the electorate that has voted No in successive EU referendums, which those who don't know about or understand the issues tend to join.

It may well be, too, that the issue is seen by McCreevy and Harney as a handy way of attacking Labour and Fine Gael in the next election on a quasi-nationalist platform. That would bring the Berlin-Boston polarity to the heart of domestic political debate.

Evidence that it is already there regularly surfaces in the Letters page of this newspaper. On Thursday Jason O'Mahony wrote: "I have a higher disposable income than many of my continental friends. They have better access to low-cost healthcare, more time with their friends and families, live in clean, well-run cities and don't spend the hours in traffic that I do. Believe me, jealous is one thing they're not".

It is perhaps not surprising that there should have been a wider convergence of policy between Britain and Ireland as a result of the Belfast Agreement. Mr Ahern and Mr Blair have worked together more closely than any neighbouring political leaders in recent years.

But Mr Blair faces a crucial choice on entering the euro in the next two years. It is very much in Ireland's interest that Britain should join the single currency. Until it does so and assumes a leading role in Europe the normalisation of British-Irish relations will be crucially incomplete.

Not the least of the ironies of this week's confrontation between Mr McCreevy and Brussels is that it has set back that process of change in Britain by giving succour to those who oppose it.