Future of the Euro

Future of the Euro

Posted June 18th, 2012

This article appeared in thejournal.ie on Friday, (15.6.12)

When Ireland eventually signed off on the Lisbon treaty, the general conclusion at the time was that there would be little new on the horizon by way of further attempts to amend the functioning of the European Union. The internal navel-gazing was done for now and the immediate future would be spent examining the EU’s role in external affairs.

I guess the pundits were wrong.

It is a fact of our relationship with Europe now that we proceed by referendum. That on the main issues of the day we consult the people before we can continue.

We will be consulting them again in the near future, for it is certain that there is more to come in our quest to save the euro. But we don’t need to march blindly on, wondering what changes may come and then discussing them only at the last minute in the pressure of a referendum campaign, where other interests and other political motives come in to play.

A massive shift in the functioning of the EU is under way through current efforts to make the currency union a viable one. It’s time we started talking about the end game – what we believe it should be, and what we are willing to do to get there.

Without a vision, and without definite positions on key issues, we risk becoming a passenger on the eurozone express, rather than someone laying the tracks. The eventual risk is that we find ourselves being asked to go to a place that we’re not too happy about, only by then it’s a single track and there’s no way back.

Because of the referendum situation, the big questions must be answered by all of us. Now is the time to begin the discussion. We have room now, with the Stability Treaty passed and access to funding guaranteed post 2013.

We have our fiscal stability plan. But currency unions require more than that. Pooling our debt, possible direct interventions in banking systems, banking unions, all require more than that. They require more than just coherence in planning. They require coherence in fiscal instruments at the very least, if not some form of central control of the fiscal levers of the State, with fiscal transfers to boot.

So it’s time to figure out where we stand on some of our key taxation issues, if we’re to understand and help chart the right direction for the future of the eurozone. Because if we want to stay in it, we need to make sure that it’s going to work for us. When you look at the recent situation in Spain and their banking problem, this is exactly what they are doing: making it work for them. Germany has been doing it since day one.

(And yes they’re bigger powers than us. But the whole point of the European Union – it’s raison det’re – was to negate such conventional power imbalances and establish us as equals in a common purpose. How quickly that is becoming undone).

For example, we need to really figure out where we stand on a Financial Transaction Tax. We say we will only move on this with the UK, because we don’t want to put our own financial services sector (30,000+ jobs) at a competitive disadvantage. But the UK are not inside the euro, so they’re not going to be asked the same questions as us. What if Germany and France decided to go a different way to the UK? Which way would we go?

Another example is our corporation tax. We say we will not budge on it as it is central to our economic planning, now and in the future. But can you have separate and distinct sovereign tax havens inside a single fiscal system? Isn’t that a contradiction?

Here’s another way of looking at it: would we give control of our corporate tax rate up (even if only to suffer a 0.5 per cent increase) if it meant a write-off of the legacy banking debt, some 68 billion? What if they threw in our public service pension liability too?

There are implications for the future of the euro in how we answer these questions, in the direction that current and new policies can take as our leaders attempt to maintain and strengthen the eurozone, and with us in it.

Better to prepare for them now, to prepare for ours and Europe’s future. Because a bigger referendum is surely to come. We need the euro to survive. But at what cost? It is time to start asking ourselves some honest questions about what we are willing to do to make sure that it does, and us with it. The end game is what’s important now.