Friday 4 February 2011

Plan Outside: Going it alone Ireland

Today the Labour Party leader, Eamon Gilmore, was having fun down in Limerick aping the Rubberbandits by telling potential voters: "Feck the bailout, we've a plan outside". Labour's position has hardened over the past few days, perhaps due to seeing the dregs of the plunging Fianna Fáil support trickle off to Sinn Féin, rather than give a boost to the traditional third party. Labour may be polling in the early 20s - a good place to be for it historically - but when Labour is pushing Gilmore as Taoiseach, they would want to make greater headway over the next few weeks.

So Labour revealed its plan earlier this week, and it's more ambitious in its bailout renegotiation aims. Instead of the deficit-reducing plan (reducing it to 3% of GDP) lasting until 2015, as currently agreed, it should be pushed back to 2016; instead of a €9 billion adjustment, it should be €7 billion. Labour is hoping that if they reach their aims, there will be another billion for it to invest in the economy.

This isn't as unilateralist as Sinn Féin, who really would tell the IMF to take their money and go home. In the meantime, Sinn Féin hopes to raid the pension fund to invest in the economy, while raising taxes to cover the gap between tax receipts and state spending for the next year. Sinn Féin's leader, Gerry Adams, is not known for his economic competence, and has been questioned over SF's version of past events, and whether there is simply enough money to be raised to cover the whole state bill without cutting public services. (Here's a 20 minute radio interview with him on RTÉ) Sinn Féin hopes that by shutting down and amalgamating banks so private debt is separated from the public, the bond market will be kind after only a year.

While Labour may be talking unilateralist, yet standing on a renegotiating platform, there seems to be little discussion about what a real unilateralist stance may do to Ireland and the wider Eurozone economy. The original rationale for Ireland accepting the bailout was that Portugal - and perhaps even Spain - may need to be bailed out if Ireland refused, and that it was unlikely for Ireland's situation to have sufficiently improved after 6 months, if it chose to rely on its pension fund. Portugal may have survived its first borrowing test, but, if the Greece-Ireland pattern is anything to go by, it won't be long until the European Financial Stability Mechanism will need to be called on again. With France and Germany launching their own plan today, it’s clear that there's a general consensus that things in the Eurozone need to change. How would unilaterally pulling out of the EFSM affect the Eurozone and Britain, at a time when it's the export sector that is one of the few areas of the economy that we can feel good about? Surely the core of the Eurozone would be damaged financially, as they have to borrow more to bail out banks and other countries, or, conversely, they let them fail (either one or the other or both), in which case there will be a lot of economic turbulence.

Would Ireland have enough money, or be able to raise enough, in such an economic climate to sufficiently invest in and revive the domestic economy before we need to go back to the bond markets? Of course, I could be way, way, off in many of my assumptions here: I know little of economics. However, shouldn't these issues, and how the Eurozone is going to be run in the future, be debated more?

What shine there was on austerity has now definitely come off, and despite the resignation to fixing the deficit, parties of all colours are now talking about investment to some degree. The consensus is that Ireland will eventually have to default and cannot continue to pay of the private debt it has accumulated. If unilateralism doesn't work, then negotiation will have to. So there's the fundamental question of how each of the parties are seeking to influence opinion and shape the debate: through the Europarties; contacts with other governments; shaping plans for how the Eurozone should be run?

I've heard very little of this from any of the parties here. "We must save our corporate tax rate", is the line in the sand we draw, but a simple "it's good for Ireland", is unlikely to be an endearing stance. There is very little argument about why tax competition is a good way to run a currency union - and surely this is the best way of attracting allies and forming a coherent vision of the Eurozone. It's sad to see that the response to other countries debating our taxes, and Eurozone taxes in general, is mostly "they should mind their own business". We also contributed to the Greek bailout, and were at the table when the conditions were drawn up, so we have to give aid as well as receive it: shouldn't we focus on the Eurozone as something we have an equal right to have an opinion on and argue about, rather than sulking that other people dare discuss our corner?

Fine Gael has tried to show that they have strong European connections - and imply that they're best placed to renegotiate the deal - when Enda Kenny met Barroso last month:

The hyped-up music - a mix between The Incredibles and Mission Impossible - may detract from the credibility (you can skip to 1.16), but at least it shows an awareness that negotiation means convincing others, not just ourselves.


  1. The debate about the Eurozone should be how best to manage its dismantling with the least damage to those countries within it and those who must suffer its folly from outside. Even if it survives and even if Ireland survives it, these problems are doomed to repeat themselves because the fundamental underpinning of the euro is unsound: you cannot have economic union without political union.

    All of this 'European spirit' nonsense that was used to pretend away the structural differences between the euro area economies in the 1990s is cracking under their exposure.

  2. It is perhaps not the best time of day to reply to this, but I would say that that is a political point of view that needs to be discussed. Indeed, the point of the article was that the far left parties (Sinn Féin, and perhaps also the ULA, though I would need to check the platforms of their [ULA] individuals in greater detail), are the ones adovcating unilateral action, though, as I understand it, not withdrawal from the Euro. The big questions are how would such a withdrawal - firstly, from the bailout, and secondly, from the Euro - affect Ireland AND the wider Eurozone. This is important, as at the present time, our export sector is our best economically performing sector, and the investment course of action will take time (and, I would argue, over a year in time), to have a significant effect on domestic consumption.

    I may be to some extent ideologically wed to the Eurozone, but I would suggest that the anti-Euro side needs to argue a more comprehensive case for withdrawal - the timing, the specific economic conditions, etc. You assert that sticking to the Euro is a bad course of action, but you need to argue the method of withdrawal as well. I would argue for closer fiscal integration, with input from the EP and Commission, but maintaining the vast majority of national fiscal competences at the national level (I am currently drawn to the blue/red bond structure, where market pressure would temper further national borrowing beyond a certain level, and the market would have to distinguish between national and "Euro-backed" bonds - it is, however, an area I would need to research more).

    I would say that you are correct that the current monetary union is not sufficient in its current form - the argument now remains that of whether to go forward or backward, however.