Ireland likely to get its regional request

There is always an element of ritual sabre-rattling as the EU's budget debates get into their swing

There is always an element of ritual sabre-rattling as the EU's budget debates get into their swing. No harm in reminding the Irish, or so the argument goes, that we know they are rich and we do not have bottomless pockets. Every capital is expected to put up a fight to give as little and to secure as much as possible.

This time is no different. We've heard German mutterings about ending cohesion funding for single-currency countries and seeking substantial rebates on their net contributions, attacks on our corporation tax generosity for sapping other members' tax-raising potential . . .

Now it's warnings against "subsidy-shopping" from the Regional Affairs Commissioner, Ms Monika Wulf-Mathies. The sub-text is clear: "Don't think you're fooling us with this new-found commitment to regional devolution".

But to imagine that Brussels is unduly preoccupied with Ireland's impassioned debate on regionalisation would be seriously mistaken. Ms Wulf-Mathies has largely withdrawn from the battle after her last broadside about the need for real devolution to match any sub-regionalising for structural funding purposes; more wishful thinking, it must be said, than a legal requirement.

READ MORE

In the end, as she knows, she will not be the one who has to decide whether these are genuine regions with the required political autonomy, but the Commission's resolutely independent statistical service, Euro stat. On the basis of precedent it is difficult to see them refusing an Irish request.

Her spokeswoman, Ms Heiche Gerstbrein, insisted again only yesterday afternoon that it was certainly not possible to take a view when there was still no specific proposal on the table. "It is a matter for Ireland. We have no intention of interfering".

That she should be genuinely unconcerned probably reflects the widely held Commission view that a decision either way will not affect the size of the overall slice for Ireland next March when the big cake is divided up by heads of government. Then the politics of deal-making will play as much a part as any notional mathematical formula.

Germany's Chancellor Gerhard Schroeder and other leaders are far more likely to have in mind the fact that Ireland's GDP per capita is now 101 per cent of the EU average rather than the other far more complicated and easily forgettable truth that part of the State, measured on the basis of an average of the reference years 1993-95, is below the ceiling for Objective 1 status.

Suggestions that the Department of Finance has calculated that regionalisation will benefit Ireland by £100 million are regarded here with bewilderment.

Where the case for Irish subregionalisation does strike a chord here as making good sense is on the issue of so-called "regional aids". These are industrial grants given by states to attract firms to regions, and their use and size in proportion to the investment being sought are strictly controlled by the Commission Competition Directorate on a formula that heavily favours less-developed regions.

Retention of full-blown Objective 1 status for part of Ireland would allow higher levels of industrial grants to be paid by the State to that region, while the rest of the country will go into a transitional status with significantly lower rates of allowable regional aid. Although the aid all comes from national coffers, differential rates within a country could prove a powerful incentive to investors to consider the west.

The argument that regionalisation will allow at least some of the country to benefit from "transitional" status in the post-2006 budget is regarded by some senior officials as wishful thinking. There is no reason to believe that when the Commission reshapes the structural funds regulations ahead of that budget it will adopt the same formula as this time.

With the likely accession of several central and eastern European countries by then, demands on the funds are going to be even heavier, and transitional arrangements are quite likely to bite the dust.

There is also a nice irony in the Irish case for regionalisation that will not pass Brussels by.

For some years Irish governments have made the case that judging Ireland's wealth on the basis of GDP (gross domestic product) as the EU does, rather than GNP (gross national product), is misleading. In the rest of the Union the argument would be academic as both figures are usually similar, but Ireland's GDP is 15 per cent greater than GNP because GDP includes large amounts of repatriated multinational profits which, arguably, do not contribute to the national economy.

Yet in regionalising it is precisely these flawed GDP figures, or their regional equivalents, gross value added (GVA), which have to be used to make the Irish case.

The economist Jim O'Leary, speaking on Friday to a conference in Galway, has done a demolition job on the figures, to show that regionalisation will mean discriminating in favour of two of the richest of the seven regions in the country.

Measured by GVA the west and the midlands are the poorest in the country, below even the Border counties. Measured by the fairer yardstick of household income they turn out to be second and third in wealth only to Dublin, ahead of the south-west, mid-west, south-east and Border regions.

Yet the Government is proposing the west, midlands and Border, because they conform to flawed EU criteria, should be favoured by keeping Objective 1 status. Already criticised for fomenting an urban-rural divide on the issue, it seems that the potential for a further rural-rural divide is being fashioned.

But then, we were always good at making sticks to beat ourselves with.