INSIDE POLITICS:Enda Kenny must show our EU partners that his Government is serious about getting the public finances in order
THERE WAS no quick fix to deal with Irish concerns about the EU-IMF bailout at the summit in Brussels over the past two days but that is probably no bad thing for all concerned.
It is imperative for Ireland, and for the EU as a whole, that the true scale of the banking crisis in this country is credibly established before any further action is taken to deal with the problem.
The issue of the interest rate Ireland is paying on the bailout, which generated so much heat, before and during the election campaign, is now seen for what it actually is: a sideshow.
Taoiseach Enda Kenny confirmed yesterday that some reduction in the interest rate has been agreed in principle but will only be revealed as part of an overall package. An interest rate reduction will save Irish taxpayers a few hundred million a year but saving the banking system is going to cost tens of billions of euro. The question of how that is going to be sorted is the real problem for Ireland and the EU.
The realisation of the scale and complexity of the banking crisis is what prompted Kenny to seek a postponement of decisions on what to do about it until after the Central Bank reveals the results of the latest stress tests on the Irish banks next Thursday.
After that it is going to take a lot of difficult negotiations for Ireland to persuade its partners to agree to an injection of the necessary billions into the Irish banking system to provide the liquidity it so desperately needs. There are no easy solutions and none that will enable Ireland to wriggle out of the austerity programme devised by the last government in conjunction with the EU and IMF.
If Kenny is to get a deal on the banking issue, it is essential he demonstrates to our EU partners that his government is serious about getting the public finances in order.
The other thing the Irish side has to do is come up with some concession, or at least the appearance of one, to give other EU countries, particularly Germany, the political cover they need to fund a new bank deal.
At his first European Council two weeks ago, Kenny rightly shot down a determined attempt by President Sarkozy to get rid of the low Irish corporation tax rate as a quid pro quo for future help. We can’t keep saying No to everything, though, and the Irish side will have to come up with something that looks like a concession before the process is over.
There is a wider European context for the Irish problem of which most Irish voters seem blissfully unaware. In Germany the prevailing popular view is that their prudently managed resources are being squandered to bail out the Irish who pay lower taxes on incomes that are above the EU average. That is the background to the cut in the Irish minimum wage, one of the highest in the EU, which the two government parties are committed to reverse.
The negative sentiment in Germany towards bailing out Ireland, as well as Greece and Portugal, could well manifest itself in a vital regional election in the state of Baden-Württemberg tomorrow.
Angela Merkel’s CDU party has been in power in the state since the early 1950s. Baden-Württemberg is the heart of wealthy, conservative Germany, where the “Swabian housewife” is a symbol of good housekeeping, and fiscal rectitude is a core value.
If the CDU is ousted from power by a coalition of the Social Democrats and Greens it would represent a huge setback for the chancellor and could undermine her power.
And it is not only in Germany that resentment at the fecklessness of countries such as Ireland is growing. In Finland an election next month could make the populist anti-EU party, True Finns, the biggest in parliament. The party is led by ultra-conservative Timo Soini, who objects to the EU citizens of the south “milking our cow”. Soini has focused on Greece rather than Ireland, maybe because during a visit to Ireland as a young man he decided to become a Catholic after a life-changing encounter with an Irish nun.
Nonetheless, his rhetoric when taken in tandem with growing hostility to bailouts in Germany and Holland is a real problem for Ireland. Governments of prudently managed countries cannot continue to act in defiance of their own public opinion and Merkel and her colleagues in northern countries are coming under increasing pressure from their electorates to take a tougher stance.
In the wider scheme of things it is very much in the interests of Germany and the other northern countries that the Irish banking issue is sorted out in a way that doesn’t cripple us and force a default.
Just as the banks were “too big to fail,” as far as the Irish State was concerned, the scale of Ireland’s debt to the European Central Bank will make an Irish failure to honour its debts a real problem for Europe.
Having had his moment of glory standing up to Sarkozy at his first European Council meeting, Kenny appears to have had a more congenial time at this second meeting this week. If the current economic situation was not so serious for Ireland, and the rest of the EU for that matter, the Taoiseach could have afforded himself a little smile in Brussels at the way things have changed for him over the past month.
For the past nine years, since he became leader of Fine Gael in 2002, Kenny has been coming to Brussels to attend the meetings of the European People’s Party, which take place before EU summits. The meetings usually take place at the castle of Bouchout in Meise, just outside the city. During those years in the wilderness of opposition, Kenny had to make his way back into the city, stand outside the building where the summit was taking place and hope a few Irish journalists would come out and listen to what he had to say.
This time around the boot was on the other foot. The Irish media trailed out to Meise in big numbers hoping for scraps of news from the Taoiseach. In the event, he said very little, knowing that he would have plenty of opportunities to get his message across. It was just a small sign of the enormous changes that have taken place in Irish politics.