EUROPEAN DIARY:Bailout leaves Ireland with weak hand in fiscal negotiations. But the good thing is Germany and France may end up arguing our case
AND THEY’RE off . . . A seven-year budget proposal from the European Commission last week set in motion laborious talks with member states and MEPs on a new fiscal plan for the EU. This will be a triathlon, not a dash.
Budget negotiations are never straightforward in Brussels. It will be no different this time round as EU leaders try to settle on a deal for the years 2014-2020. Recession and the sovereign debt emergency mean the stakes are greatly increased for everyone.
In the face of pressure from wealthy donor countries, the commission is trying to raise the budget. In a beggar-thy-neighbour battle between member states, budget recipients want to preserve their share of action or increase it. This could get nasty. It all likelihood it will.
The talks are crucial for Dublin. Lucrative agricultural payments are on the line as the commission pushes to redirect money to east European countries and eliminate the index-linking of funding for rural development. Irish farmers receive €1.7 billion annually from Brussels, more than 85 per cent of the State’s EU receipts. Although the commission aims for “evolution” instead of “revolution” in the budget debate, it is clear any pressure on Irish agricultural receipts poses danger to the effort to rekindle economic growth.
What is more, the bailout severely weakens the Government’s bargaining power. This sense is reinforced by the argument with France and Germany over corporate tax, which is depleting what remains of Dublin’s political capital after a humiliating turn to external aid. Solidarity has its limits.
The budget talks won’t be any easier. Irish negotiators, no matter what they say, will be seen to be in special pleading mode from the off, never a nice way to advance an argument.
Ireland’s net receipts since joining the then European Economic Community in 1973 exceed €41 billion, a huge amount by any standards.
Were it not for the dire economic situation, the State would become a net contributor to the EU before the current budget round expires in 2013.
While the debt debacle serves to magnify the influence of the largest budget contributors, Ireland will remain among the recipients for years.
Still, countries like France and Germany rank among Ireland’s potential allies in the fight to conserve agriculture payments. While Dublin may feel the need to let others do most of the shouting, the position could be a lot worse. This could explain the relatively muted response of the Government and the farming lobby to the commission’s proposal, which contains several unsavoury elements from their perspective.
The wider budget debate will be played out in the next couple of years and may yet culminate during Ireland’s rotating presidency of the EU in early 2013. Whatever happens, the eventual deal will be a fudge. Political expediency means there will have to be a little something for everyone as 27 member states squabble over a pie worth about €1 trillion.
This is messy stuff, however, with a multitude of interlocking moving parts and numerous interests to appease. The opening phase of the debate was not encouraging. When the commission published its proposal late last Wednesday, the striking dearth of clear like-for-like figures made comparison between the new proposal and the current budget difficult.
The headline increase in actual proposed payments is about 5 per cent over seven years, but officials say the real rise would be 3 per cent when discrepancies are eliminated. This is still controversial in contributor countries, although the commission argues that such increases are minimal when taking inflation into account.
While the commission also argues that budget contributions as a percentage of gross national income will remain more or less the same, it is clear the advent of euro-zone bailouts serves to increase the exposure of wealthy countries to their profligate neighbours. In the Greek case at least, there are valid reasons to question whether the country’s guarantors will ever get all their money back.
Such concerns cannot but have a bearing. This is, after all, an international political scrum about money; always contentious, even more so now given the commission’s prominence in the relentless push for austerity right around Europe.
It was no surprise, therefore, that the proposal met immediate resistance from Britain, Germany and France, with others quickly joining the nay-saying chorus.
Almost alone in the storm of criticism was the voice of European Parliament president Jerzy Buzek, who welcomed the proposal as “an intelligent starting point for negotiations”. This is not without significance, for the parliament must give its “consent” to the budget plan under the Lisbon Treaty. Although MEPs are enthusiastic when it comes to increasing the EU budget, the counter-argument from national capitals is that it is easy to make plans to spend other peoples’ money.
The trend in Europe these days is for fiscal retrenchment. That will shape the outcome.
