There is an ante-room in the Department of Finance in Dublin where ministers often receive visitors. Portraits of finance ministers past line the walls. One of them is of Michael Collins, finance minister as well as insurgent commander during the Irish war for freedom from Britain. What would he say, 88 years after independence, as Ireland fights the bond markets and its eurozone partners to retain its economic sovereignty?
He could well remark that it is a government led by Fianna Fáil– descendants of the Republicans who launched a civil war against his pro-treaty faction over partition of Ireland, in which he died – which has placed Irish sovereignty in jeopardy.
It was Fianna Fáil’s efforts artificially to prolong the Celtic Tiger boom of the 1990s, by giving extraordinary licence to its banker and building developer cronies, that broke Ireland’s banks. And it is Fianna Fáil’s obdurate equation of bank debts (vast) with sovereign debt (manageable) that has cast doubt on Ireland’s solvency and indentured Irish taxpayers, even though the state’s cash position is quite positive.
Unlike Greece, which for all practical purposes had run out of money when it was bailed out by the European Union and the International Monetary Fund in the spring, Ireland is fully funded until next July, has a cash pile of €20bn ($26bn) and a sovereign wealth fund of €24bn. In addition, the cost of Ireland’s borrowing this year is the same as last year: 4.7 per cent, not the close to double that reflected in the recent spike in bond spreads.
For all that, the bond markets sense that the position of Irish banks could be worse than the up to €50bn rescue cost quantified by the government at the end of September. That is a deadweight. It means Ireland now has to take up about a quarter of European Central Bank lending to eurozone banks. This lifeline is already turning into a forfeiture of sovereignty, to judge by ECB pressure on Ireland to accept a bail-out.
Resistance to that, on the airwaves at least, has been fierce. “It’s been a very hard-won sovereignty for this country, and this government is not going to give over this sovereignty to anyone else,” said Batt O’Keeffe, enterprise minister. “We fought hard for our independence and we should not hand it away,” said Eamon Gilmore, leader of the opposition Labour party.
The idea of becoming like Greece, a quasi-protectorate of the ECB, the IMF and the European Commission, sticks in the Irish gullet – as does the Schadenfreude of Britons who think Ireland would have done well to follow the UK in eschewing the euro. But Ireland’s attitude towards sovereignty is different to Britain’s.
Both countries joined the then European Community at the same time, but Ireland always saw Europe as an opportunity whereas the UK increasingly came to regard it as a threat. Partly, that was because for Ireland it was the opportunity to get out from under the clammy embrace of post-imperial Britain, to diversify its dependency – and then overtake its former colonial master in per capita wealth.
While occasionally voting against EU treaties and then retracting, Ireland is pro-European and, arguably, Europe’s most open economy. It has been happy to pool sovereignty, so long as it had the freedom to turn itself into an international investment platform, with a low, 12.5 per cent corporate tax rate. Last year, in the trough of the recession, Ireland still pulled in €30.4bn in foreign direct investment. But will it still be able to set its own policies?
It is plainly visible in bond-yield graphs that the credit position of Ireland was torpedoed by late October’s German-inspired plan for a future crisis resolution regime in which bondholders would share the cost of default with taxpayers. But it was a Fianna Fáil government that did so much to make Ireland so vulnerable.
Part of its motivation in resisting a bail-out is, no doubt, fear that it might be forced to surrender sources of competitive advantage such as low corporate taxes. But history plays its part too. The ruling party is certain to be ejected by voters, and sooner rather than later. But Fianna Fáil, the Republican party (to give it its full name), would find it hard to survive the shame of making Ireland a ward of the ECB.
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