The inter-governmental row about our low corporate tax rate seems to have abated somewhat. In part this reflects the fact that, although most of the German-French fire was in fact directed at us, the British government decided to take issue with the principle of tax harmonisation on its own account.
And Germany, together with France, seems to have pulled back from a confrontation with Britain, fearing that such a row might damage their relations, and make it more difficult for the Blair government to prepare the way domestically for eventual British participation in EMU. In the European Parliament, however, some British and Dutch Socialist MEPs, incensed by the Rank Xerox relocation of plants from Britain and the Netherlands, have not been deterred from impugning on their own account our combination of significant transfers through the EU budget and effective industrial incentives contributing to high economic growth.
This row about corporation tax clearly justifies my warning two months ago, in an address to an economists' conference in Kenmare, about the danger of arousing hostility among our EU partners through pushing our luck too far.
Last week my comments were reinforced by the ESRI which, in its quarterly commentary, stressed the need "to prioritise those economic policies which might come under European pressures". While each such policy, taken in isolation, might be desirable from an Irish viewpoint, it said, "it could well prove impossible to defend all of them successfully.
"Thus, at least privately, the absolutely essential elements of our economic strategy, such as the relatively low rate of corporation tax, should be distinguished from such useful but essentially minor aims as gaining an additional tranche of structural funds or even prolonging the life of duty-free travel." This is now a matter of great importance, for there are a number of policy areas in respect of which we depend upon the goodwill of our partners, and on this account we should be worried about the amount of negative feeling we have managed to arouse, even though on the specific issue of tax harmonisation we are protected by the fact that the rates at which national taxes are fixed are matters exclusively for each individual member-state.
The Commission is quite explicit on this point. A state cannot be forced to raise its tax rates just because others have higher rates. Last October, at a meeting attended by several hundred people from all the memberstates, I put this to Commissioner Mario Monti, and his response was blunt and unambiguous. He made the clearest of distinctions between legitimate differences in tax rates and the quite distinct issue of distortions of competition arising either from imposing different tax rates on different sectors of the economy (a practice of ours that we are now being obliged to abandon), or from extending special tax concessions to areas like the IFSC and Shannon, which we are also being obliged to abandon in relation to new firms locating in these areas.
So, however much the Germans or French or others may huff and puff on the issue, they cannot force us to change our proposed corporate tax rate, and there are two good reasons for this. First, on this issue unanimity would be required for any legislation to pass and, given the crucial role that our low corporate tax rate on industry has played in our economic growth, this is certainly one of those cases where a country like Ireland would be fully entitled to use the veto, although it is, of course, something that small countries should never use lightly. But, in the second place, this matter will not even get to the stage at which a veto would have to be used, for under the treaties only the European Commission can introduce legislation. And the Commission has made it quite clear that it cannot, and will not, introduce legislation to increase corporation tax rates, for national tax rates are simply not an EU competence.
It is this unique feature of the European Union - the Commission's exclusive power of legislative initiative - that makes it a safe place for small countries like Ireland. For that is what ensures that we cannot be dominated or exploited by any other state or group of states, however powerful or populous. And it is because of this provision of the Rome Treaty that no vital interest of ours has ever been lost or damaged since we joined 25 years ago.
There are those both here and elsewhere who complain that the Union is undemocratic precisely because the European Commission, which is not directly elected, has this exclusive power of initiative.
In particular there are members of the European Parliament who are given to complaining that Parliament lacks this power of initiative and consequently is confined to enacting, amending or rejecting, in co-decision with the Council of Ministers, such legislation as the European Commission decides to bring before these two legislative bodies.
INDEED, several weeks ago Patricia McKenna MEP made precisely this complaint when addressing the Literary and Historical Society of UCD, demonstrating to the audience a striking lack of understanding of how the rights of small countries are protected in the Union. Can anyone doubt that if she had her way on this matter, legislation purporting to force us to raise our corporate tax rate would be introduced in the European Parliament? We could then incur even more hostility by being forced actually to use our veto.
I must emphasise that in making this point about the undesirability of a parliamentary right of legislative initiative I am in no way arguing against an extension of the role of the Parliament to new areas of policy where it does not now have a power of co-decision with the Council of Ministers. Indeed, I think the political parties in the Oireachtas have been much too negative about extending the democratic role of the Parliament to a wider range of matters.
However, we cannot ignore the fact that if frustrated in pursuing what they see as their national interest in a matter of this kind, countries like France and Germany are liable to become less well-disposed to Ireland than has been the case in the past. In this connection we now have a good deal of lost ground to recover.
In Germany, France, the Benelux countries and perhaps also elsewhere, we have allowed a belief to grow up that our exceptional economic success is attributable primarily, perhaps even exclusively, to the structural funds and CAP transfers that we have received.
In part, this has been due to our own excessive political and popular preoccupation with structural funds. And we have totally failed to convey the reality that these funds, while of course useful, have in fact played a relatively minor role in generating Irish economic growth.
As for the second aspect - the need to avoid other unnecessary aggravation of our partners - I have yet to see any evidence that this need is understood at the political level, or that any attempt is being made to prioritise our EU policy interests across the range of departments that are involved in EU negotiations.
This would require energetic action by the Minister for Foreign Affairs, strongly backed by the Taoiseach, so as to rein in the many departments and ministers which, left to themselves, will pursue enthusiastically, but not always tactfully, through a plethora of sectoral Councils of Ministers the interests of their own clients whether they be farmers, industrialists, educationists or transport operators.
Make no mistake about it, the current period of phenomenal Irish economic growth is a crucial and possibly defining moment in our relationship with the European institutions and our EU partners. Never since we joined the EU has there been a greater need for the active personal engagement of an Irish Minister of Foreign Affairs in the Council.