Defective European policy sees Ireland losing friends

Our early success within the European Community was due to a combination of circumstances. Expectations were low

Our early success within the European Community was due to a combination of circumstances. Expectations were low. We were widely thought to be a poor and backward satellite of Britain, unable to contribute much to the sophisticated Community.

The discovery that we were not a British satellite but had quite different interests and ideals from our neighbouring island came as a pleasant surprise to our continental partners. Next, from the outset we actively engaged ourselves in European construction, and even some large countries that were trying to diminish the European Commission's role came to respect our defence of the Community's institutional structure against their efforts to dominate it. We were also fortunate in our first presidency, which provided a range of problems to get our teeth into.

Indeed, we have been lucky and skilful in that all our presidencies have set us at least one major challenge that we surmounted with success.

But underlying our early success was the fact that our strategy was based on a clearheaded recognition that as a small country we had suffered severely from larger states exercising their sovereignty to our disadvantage, while being unable, being small, to use our political sovereignty to the disadvantage of others, save through the self-defeating imposition of industrial protection.

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Thus Britain had served its own interests for over a century by its "cheap food" policy, which, except during the first World War, had left Irish agriculture depressed and stagnant. And the continental countries - most strikingly the Latin states of the west and south - had used their sovereignty to exclude imports, thus making it difficult for us in the 1960s to attract major export industries from outside Europe.

Consequently - as the small Benelux countries had long grasped - the real interests of a small State such as Ireland lay in maximising the sharing of sovereignty within a Community, in which the European Commission's exclusive power of legislative initiative gave a unique guarantee against exploitation by the larger and more powerful member-states.

It was clear from the outset that, at least until a future Community enlargement to the south, we were going to be the largest net beneficiary from the Community budget. We were the only member State which would benefit from the Common Agricultural Policy, (constructed to favour Northern European countries with big farm sectors), and from what later came to be known as the "Structural Funds", which were primarily intended to help the poorer Community regions, of which we were then one.

While becoming the largest net beneficiary of the Community Budget, in the amount that these transfers would add to our GNP, we would also be the only member not contributing to European defence. And the historical reasons for this neutrality policy could not be explained convincingly to EC partners who saw us getting a free ride on their efforts to contain a potential Soviet threat.

This combination placed us in a vulnerable position where we might rapidly accumulate ill-will from our EC partners. And within that Community the protection and advancement of our interests would inevitably depend on our partners' goodwill, both on derogations needed in the early decades of Irish membership and on discretionary decisions on future policies.

The best way to avoid these dangers was to be seen to pursue actively what, happily, was also our long-term strategic interest, viz a more fully-integrated Community with obstacles to trade, including national currencies, removed.

This approach, adopted by successive governments and accompanied by good personal links with EC leaders, carried us successfully through the 1970s and 1980s. Our last notable success was during our 1990 presidency, when Charles Haughey's decision to call two European Councils to clear the issue of German reunification earned its gratitude.

But, as the financial burden of the CAP became less tolerable to many states with ever smaller farm sectors, our defence of agricultural interests was eventually bound to prove more controversial.

With the end of the Cold War our neutrality to become more of an issue, highlighted by our absurd, totally indefensible and inexplicable failure to join in the Partnership for Peace. For that peace-oriented organisation has the participation of all the other European neutrals, and of the former eastern bloc and former Soviet Union except only war-torn Tajikistan.

Moreover, our successful membership of the EU was bound to induce a change of attitude towards us. Sympathy for the poor little "Celtic cub" must transmute into envy of the "Celtic Tiger" and in that we remained net beneficiaries of the Community budget in the early years of success, even into irritation at paying for our progress as we were passing out these net contributors in terms of falling unemployment and, in due course, higher living standards.

It is unfortunate that our success has evoked these negative reactions as fresh controversial issues emerge between our partners and ourselves.

Thus the International Financial Services Centre in Dublin seemed a great idea at the time, and in its own right it has been a success, but we are now paying a high price for it in terms of German hostility.

That hostility has been only partially assuaged by limiting new IFSC greenfield projects to 67 this year and next, and the earlier deadline of end-1999 imposed on approvals of new projects.

These recent restrictions are the price for Commission approval of the new 12.5 per cent corporate tax scheme for services as well as industry in 2003.

At the recent summit meeting the Taoiseach came under fresh pressure on tax harmonisation. And while Community decisions on taxation matters require unanimity, the Austrians have recently made an ominous reference to Article 101 of the Rome Treaty.

That Article provides that where the Commission finds that differences between national "law, regulation or administrative action" require the elimination of a distortion of competition, and fails to get agreement by consulting member-states, the Council, on a Commission proposal, shall issue the necessary directives, acting by qualified majority vote.

So far as I am aware this Article has not so far been regarded as providing a basis for decisions on taxation, but it is disturbing that the provision for unanimity on tax harmonisation decisions contained in the earlier Article 99 is qualified by the words, "without prejudice to the provisions of Articles 100 and 101".

Is it possible that a future more unsympathetic European Commission, under pressure from aggrieved member-states, might be tempted to use Article 101 to require us to raise our 12.5 per cent corporate tax rate to a higher level?

Another hare we have chosen to raise is regionalisation for structural-fund purposes. For we are in the midst of an ill-prepared attempt to squeeze more money out of the EU structural funds by belatedly introducing this concept.

Whatever the intrinsic merits of such a regionalisation, is this a wise move in the face of the possible dangers sketched out above? At a time when we have been straining the Commission's patience on other issues, and irritating many of our partners in more ways than one, were the long-term implications of such a decision seriously addressed by the Government? Indeed, do we have a well-thought-out overall strategy on the European Union?

And, if we don't, isn't it time our politicians sat down with our public servants, who are alert to the urgent need for such a strategy, to hammer one out?

That is an issue to which I shall certainly return in this column.