Oireachtas Joint and Select Committees

Thursday, 14 March 2013

Joint Oireachtas Committee on European Union Affairs

Ireland's Role in the Future of the European Union: Discussion (Resumed)

2:00 pm

Photo of Dominic HanniganDominic Hannigan (Meath East, Labour)
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I ask members to switch off their mobile telephones. It is not sufficient to leave them on silent mode, they need to be switched off.

The first item on our agenda is Ireland and the future of the European Union. On behalf of the Committee, I welcome Professor Brigid Laffan and Dr. Gavin Barrett, both of whom are from University College Dublin. Today's meeting is the fourth in a series dealing with Ireland and the future of the European Union. We are considering issues related to financial, budgetary and economic policy integration in the EU. We will also touch on the issues of democratic accountability, legitimacy and political union. We will also discuss the implications for Ireland of the future of the United Kingdom's involvement in the EU. Today's session presents an opportunity to discuss these issues in depth with two distinguished academics on European affairs, both of whom have a strong track record for communicating Europe in their academic writings and teachings.
Before we commence, I remind members of the long-standing parliamentary practice to the effect that members should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way that he or she can be easily identifiable. By virtue of section 17(2)(l)-----

Photo of Timmy DooleyTimmy Dooley (Clare, Fianna Fail)
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I note Deputy Flanagan is in the Dáil so the need might not arise.

Photo of Dominic HanniganDominic Hannigan (Meath East, Labour)
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-----of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of the evidence they are to give this committee. If they are directed by the committee to cease giving evidence in relation to a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. Witnesses are directed that only evidence connected with the subject matter of today's proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise nor make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.

I understand that Professor Barrett will commence.

Dr. Gavin Barrett:

I thank the Chairman for the kind invitation to attend this meeting.

As he mentioned, I have been asked to turn my thoughts to a triple-tiered agenda - to consider, first, the financial, budgetary and economic policy integration in the European Union, second, democratic accountability and legitimacy and political union, and, third, the UK and the European Union and the implications for Ireland. Any one of these themes could legitimately form - I expect in due course they probably will form - the subject of extensive consideration by the committee and probably separate reports by it. I will do my best to express some coherent thoughts on the three areas. Given the time constraints I might confine myself to the first area – financial, budgetary and economic policy integration – and then return in more detail to the important issues of the United Kingdom and democratic accountability and legitimacy in the question and answer session that follows.

On the theme of financial, budgetary and economic policy integration in the European Union, probably the most sensible place to look is the extensive report produced by the President of the European Council, Herman Van Rompuy, towards a genuine economic and monetary union. We could call that the current culmination of a series of documents, interim reports, roadmaps, Commission communications and European Council conclusions, which constitute responses to the June 2012 invitation by the European Council to President Van Rompuy to do something extremely ambitious, namely, to come up with a specific and time-bound roadmap for the achievement of a genuine economic and monetary union. The ambition of the document should not be underestimated. It does only constitute proposals but we will see many of them come true, particularly the short-term and medium-term ones because they were mostly endorsed in the European Council conclusions on 13 and 14 December. Whether some of the long-term proposals come to fruition remains to be seen. Any document written by the President of the European Council with the collaboration of the European Central Bank, the President of the Eurogroup and the President of the Commission is no ordinary discussion document and it really needs to be taken seriously.

Three stages are envisaged in heading towards a genuine EMU, or completing the half-built house that is economic and monetary union. Stage one runs from the end of 2012 to the end of 2013. In other words, we are already in stage one. Stage two runs from 2013 until 2014 and thus also to some extent involves activities which have already begun. Stage three runs from after 2014. The aims involved in the three stages overlap with each other. They run into each other and they are multifaceted. Rather than parse each stage, a better idea is to pluck out the three biggest ideas involved in the Van Rompuy paper. These are the following: big idea No. 1, if I could call it that, is that of integrating the eurozone’s financial framework or, to put it another way, creating a financial market union. Big idea No. 2 is what is called integrating the eurozone’s budgetary framework. Big idea No. 3 is what is called integrating the eurozone’s economic policy framework. I would like to have a quick look at financial, budgetary and economic integration.

Big idea No. 1 is the creation of a financial framework, or to put things more ambitiously, which is the case in the Van Rompuy report, the creation of a financial market union. This is really about breaking the perilous link, as we found out to our cost in this country, between banks and sovereigns. It is about ending the situation in which when banks go under, they drag countries' finances down with them. The proposals in this area are concentrated in stage one and stage two. In other words, they are happening right now. What I am talking about is the setting up of a single supervisory mechanism for eurozone banks. As we are all aware, we have already had unanimous agreement of the legislative framework for that to guarantee effective, unbiased oversight so that banks do not get into trouble in the first place. Second, work is also ongoing on the creation of a so-called single rule for banks. That will include the adoption of the capital requirements regulation and the capital requirements directive. Third, there is agreed harmonisation of national frameworks for resolution of insolvent banks. We are talking about the recovery and resolution directive. Fourth, is the agreed harmonisation of national deposit guarantee frameworks. In other words, that is the draft deposit guarantee scheme directive. The idea is to ensure sufficiently robust national deposit schemes are set up so that one does not get destabilising deposit flights between institutions. Fifth, there is the setting up of an operational framework for direct bank recapitalisations for the European Single Market. We will be interested in that one but also in how retrospective its effect might turn out to be.

That is all happening right now. In terms of achieving the aim of what I call big idea No. 1, only the first main element is the single supervisory mechanism. The second main element involves more harmonised deposit guarantee mechanisms. The third element considered necessary is a single resolution mechanism. Already, there is a draft directive on recovery and resolution. The idea of that is harmonising the tools needed for orderly bank resolutions in all EU member states; in other words, sorting out bank failures. The single resolution mechanism would go a step further. It would move the responsibility for dealing with bank resolutions to European level. Once the recovery and resolution directive and deposit guarantee scheme directive are in place the Commission is going to propose a single resolution mechanism. A crucial element of what Van Rompuy is proposing is an appropriate and effective common back-stop as well; in other words, money, which would have been very useful if it had been in place like a lot of mechanisms associated with economic and monetary union when our crisis hit home. The idea basically is that public assistance would be recouped via ex postlevies on the banking industry. That is big idea No. 1. The plan is that it will be set up by the end of 2014.

Big idea No. 2 is what is called integrating the eurozone’s budgetary framework. Again, that is based on the reality that we are all economically interdependent, in particular within the eurozone. When one country messes up budgetarily, we are all left picking up the pieces. The idea is to ensure sound national finances and, vitally, as we have seen in this country, to build up the eurozone’s capacity to deal with asymmetric economic shocks, which is what we experienced in this country. We have already seen a huge amount of activity in this particular area. Since December 2011 we have had the five regulations and one directive that make up the six pack. I do not need to remind anyone that we have had running parallel to that the fiscal stability treaty. The day before yesterday the European Parliament agreed on the two pack, involving strengthening eurozone surveillance and monitoring and assessing of draft budgetary plans. To borrow a phrase, a lot has been done but a lot remains to be done.

It is probably fair to say that we have seen more stick than carrot in regard to stage one, even if the stick is necessary in order to ensure that we do not commit budgetary hara-kiri. One could ask about stage two which runs up to the end of 2014 and stage three. For stage two, Van Rompuy is suggesting the possibility of financial incentives being provided for member states to engage in valuable structural reforms. Stage three is the most interesting idea. Basically, what is being proposed is the idea of giving the European Union the ability to provide fiscal solidarity against adverse fiscal shocks. Again, that is something that would have been most interesting had it existed when the Irish financial crisis hit home. Van Rompuy does note that all other currency unions are endowed with a central fiscal capacity. We do not have that in the European Union as a distinguishing feature. I noticed that in the European Council conclusions of December that particular point remained conspicuously absent. There are no guarantees that it is going to happen at the end of the day.

As I said, this is a report that has been considered by the presidents of all of the important institutions at European level so it cannot just be ignored. There is always the point that if one eliminates the impossible, whatever else remains no matter how improbable must be true. Is it possible for a European Union to exist without this kind of centralised fiscal capacity? It is obvious that those particular presidents have some doubts in that regard. We will have to wait and see. There is nothing coming up in terms of European Council results in relation to that but certainly the idea is out there at the moment. The Van Rompuy report does refer to choices regarding particular shock absorption mechanisms as to whether they would be macroencomic or microeconomic but I do not need to detain the committee with those considerations today.

Big idea No. 3 is the creation of an integrated economic policy framework. The problem being addressed here again is that we are all economically interdependent and if one country pursues unsustainable policies that gets everyone into difficulty.

In terms of the proposed solution, the Von Rompuy paper puts forward a number of ideas, one of which is completing the Single European Market, which will promote growth. That is something of a perpetual aim. It is not easy to achieve in difficult economic circumstances such as those we are experiencing.

The second idea is creating a framework for systemic ex anteco-ordination of major economic policy reforms. Members might recall that systemic ex anteco-ordination is specifically envisaged in Article 11 of the fiscal treaty. In other words, setting up a mechanism for that is envisaged and work on that is ongoing.

A third idea we can expect to see implemented in stage 2, Towards a Genuine EMU, is the idea of contracts, in other words, arrangements of a contractual nature between member states and the European Union institutions to bring about desirable structural reform. It is a type of contract between the institutions on one hand and the member states on the other. The idea is that it would be as a result of a dialogue between the member states and the EU institutions. They would need to be approved and monitored by national parliaments, and the details of their implementation possibly renegotiated on the occurrence of a national change of government.

Those are the basic ideas being put forward, and I imagine they are the kind of ideas that need to be thoroughly discussed in Ireland. There are also the issues of democratic legitimacy and accountability, and also the important issue of the United Kingdom, but I have probably used up my speaking time and I want to give Professor Laffan an opportunity to contribute. With the Chairman's permission, I might come back on the other issues during the questions.

2:10 pm

Photo of Dominic HanniganDominic Hannigan (Meath East, Labour)
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Yes. That would be sensible.

Professor Brigid Laffan:

I thank the Chairman for the invitation to give evidence today. This is clearly a time of major change in the European Union, and therefore it is important that we examine Ireland's engagement with the system. The key question should be the way Ireland can shape this evolving Union and adopt what I would call smart strategies for dealing with our partners and European institutions. Central to being smart is knowing what is happening, and the general drift in integration that Ireland needs to understand and shape.

I will refer to three issues. The first message I have, which echoes much of what my colleague said, is that we are looking at more Europe, so to speak, in the euro area. There will be further integration of a serious kind to retrofit the euro area to ensure it becomes more stable and sustainable in the longer term. The euro area itself has settled on what I would call a very low trust regime in that there is still a major cleavage between the debtors and creditors, the prosperous and less prosperous, those with high unemployment and those without. That remains a major challenge in terms of what is happening in the real economy.

As my colleague said, retrofitting is the Van Rompuy roadmap that looks to develop the four pillars of the EMU. First, on banking, I will not reiterate what my colleague said on banking other than to say that a banking union will have major implications for the Irish pillar banks, the International Financial Services Centre, and also for the Irish Central Bank. There is high politics but there are also many technical issues, and that must be watched carefully. That part of the Van Rompuy plan is proceeding at a pace.

Second is the fiscal area. In a sense one is looking at the build-up of very strong monitoring, surveillance and what I would call intrusive EU policies in the budgetary field. That raises major issues for national parliaments, including this Parliament, because it will alter the timing of the budgetary cycle in Ireland, and the Commission will make recommendations about the Irish budget. The question arises, therefore, as to how Ireland interacts with the Commission on this. I do not believe the Commission should simply come to national capitals and talk only to finance Ministries and officials. It must come into Houses like this and engage with the Parliament. It is more stringent monitoring, more surveillance and what I would call the development of constrained politics. That is important not just for the Parliament. It also has implications for all political parties that aspire to holding power. The budgetary regimes are shifting.

The third issue is economic union. I would argue strongly that a stable, long-term euro area will require automatic stabilisers, a capacity to intervene, and a capacity to help countries facing asymmetric shocks. Therefore, we should work out the kind of stabilisers we believe are necessary for the euro area, and we should support that development. That is not in the immediate agenda. It is further out from that, but in the long term there is a very strong functional need for this in the euro area.

To sum up, those three pillars are necessary if the euro is to remain a stable currency and we avoid the calamity of the past few years. It will require more Europe, as it were. In my view it will also require another European treaty at some stage. Given that we are a referendum country, I know that the prospect of further treaties is always a challenge.

It is also important to consider the format such a treaty would take. Will it be a treaty of the 27 member states or of fewer countries? We must think carefully about whether the fiscal treaty or compact has now become a model. That has implications because the fiscal treaty was ratified once 12 countries agreed to it. It did not require the unanimity of all. Therefore, the referendum on the fiscal treaty in Ireland was the first time Ireland had a referendum on a European issue that was only about Ireland and that had no implications for the other member states. Had we voted "No", we would not have been part of the fiscal compact, but the fiscal compact would have happened anyway. We do not know what will happen in terms of future treaty change.

That bring me to the second issue, the euro area, and the so-called ins, pre-ins and outs. There is no doubt that the European Union, à la 27, is now characterised by what I would call enhanced co-operation across the member states. Law making among smaller groups of countries is now used much more frequently. For example, a financial transaction tax has just been proposed for 11 countries, and there are other examples.

In the long term the question that arises is the way this system retains unity, given this diversity or divergence. In that regard one would distinguish between what I would call the pre-ins, who want to joint the euro at some future date, and those who are unlikely to do so. Currently, I identify four countries that are unlikely to join, that is, Sweden, Denmark, the Czech Republic, although it might shift, and the United Kingdom.

On the relationship between the United Kingdom and the European Union, that has now become highly contingent following Prime Minister Cameron's speech, his desire for renegotiation, and his commitment to putting an issue of in or out to the British people at some stage in the future. It is in Ireland's interest that we do everything we can to keep the United Kingdom as a full member of the EU. We are its closest neighbour. It really matters to us. There is a benign scenario and a less benign scenario. The benign scenario is that both the 26 member states and the UK can do a deal on competences, they will review what is happening in the EU, and on issues such as the working time directive or whatever, they will be happy to reach a deal that a British Government can then put to the people.

It is almost, although not entirely, inevitable that there will be a referendum in the United Kingdom. I think the Labour Party may have to offer a referendum but that may not be the case, and the current Government may not win the next election. What is clearly at play is a high level of uncertainty and contingency about the relationship between the United Kingdom and the system. It is important we display very strong support for continuing membership and that we engage actively in ensuring there is something with which both sides can live, but that is challenging because we are looking at a much more flexible EU and more flexible membership.

That brings me to the third area, namely, democratic legitimacy and accountability. If one looks forward ten years to where the system is going and at what is happening not so much in the institutions but also in politics across Europe, it is clear that party systems across Europe are under strain. We see parties of both the extreme left and right acting as challenger parties, those in the centre getting squeezed, and a good deal of instability in party systems in a number of countries.

How will Europe deal with this? I do not think democratic politics will live with it for ten years, unless there is the prospect of prosperity for all countries in the system. I do not think we can continue on this track for the next five years. What really matters is what will animate politics across Europe. There are the related questions of how the political actors can be held accountable and how national parliaments can respond to what is happening. There is, however, no institutional or policy-based fix. What we are seeing is that democratic politics is largely national - that is where the most important events take place for individuals in Europe - but the European Union is really important in terms of the policy remit. This needs to be knitted some way or another. These are questions of politics rather than institutions, but they also involve the question of how national parliaments can continue to be important arenas with democratic legitimacy, given that the European Parliament is becoming a much more dynamic and powerful actor. Therefore, there are challenges for the country, the Oireachtas and members of this committee as politicians. There are also challenges for us as analysts because prediction is always easier in hindsight. All I have tried to do is give the committee a sense of where the drift is taking place in the system.

2:20 pm

Photo of Kathryn ReillyKathryn Reilly (Sinn Fein)
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I welcome the delegates and thank them for coming to speak on this important issue. I would like to ask about Eurobarometer surveys and the attitudes of people in Ireland and across the European Union towards the Union and its institutions. There has been a decrease in confidence and trust in European institutions. Do the delegates think the reality of people's experience of the Union - the most recent experience in Ireland was with the troika - has affected their opinions of the Union and its institutions?

Unemployment and emigration rates are still high, while the mortgage and debt crisis is pushing more people towards financial hardship. This has the effect of dampening domestic demand and, in some respects, blocking a return to economic growth. Do the delegates think this is affecting people's opinions of EU institutions? What do the European Council and the Commission need to do to reverse this trend in public confidence? In particular, what policy change, if any, is required?

I have read Professor Laffan's document and heard what she had to say. She referred to input legitimacy and said it was not just about giving a voice to the people but also concerned their responsiveness. She said she thought there would be a new treaty. In that context, how does she think the re-running of referenda feeds into this? Going back to the confidence issue, when people say "No," how does the reaction that there will be another referendum feed into the issue of input legitimacy?

Professor Laffan referred to the democratic accountability and legitimacy of the European Union. Last week the President of the European Parliament, Mr. Martin Schulz, said it was a Frankenstein Europe because there was not the necessary balance of powers across the European institutions. He said people could not trust the Union when the division of labour was not clear on a legal basis.

Professor Laffan said democratic politics was largely national, while Mr. Schulz said the European Commission was an undemocratic mix of legislative and executive powers. He also said we needed to reform the Commission and parliamentarise the European Union. I would like to get Professor Laffan's opinion on that issue.

Professor Laffan referred to the British Prime Minister, Mr. David Cameron, and the British Labour Party. I would like to hear her views on the recent result achieved by the UKIP candidate in the Eastleigh by-election and what it means for Mr. Cameron and the Tory Party.

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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I am afraid we will have to continue this debate at another time. I congratulate our guests for the manner in which they have laid out and grasped the issues before us. This serves to focus once again on the challenging issues emerging for us, as Members of Parliament, and our colleagues throughout Europe.

The question of the financial markets, as well as budgetary and financial frameworks, has been well and accurately laid out by Dr. Gavin Barrett. As has been said before, we must all move in the one direction. When the crisis hit, each country seemed to run for cover, while ignoring its neighbours to a large extent, with one or two exceptions. That was how the problem arose in the first instance. It is true Europe had never been asked to address an issue of this nature before.

There are lessons to be learned from history, of which I know the Chairman and our guests are keen students. When crises struck Europe in the past, it turned on itself. It was cannibalism for want of a better description, to which Professor Laffan also referred. In the United States President Franklin D. Roosevelt's guidance cajoled the people and led them in a different direction. They were encouraged not to take the destructive route. I ask our guests to address this point. The destructive route is very dangerous. It is as old as history itself and has been followed countless times on the continent of Europe. Sadly and unfortunately, it seems to be moving in that direction again.

Professor Laffan referred to party systems being under pressure. They are because they have nothing good to offer. In addition, they have no easy options. The Italian election in recent weeks was a classic example of where people wanted to go for easy options. Unfortunately, however, there are no easy options. It is a question of dealing with issues as they arise in the earlier stages, or dealing with a more serious issue in the not too distant future. I do not accept the notion that we cannot arrive at that juncture again.

Various commentators have suggested the Second World War solved the problem that arose in the 1930s after the roaring twenties. We find ourselves in a similar situation. I do not believe the Second World War solved the problem, but humanity recognised that it was about to obliterate itself from the face of the map. People across the globe, not in one particular area, recognised this. They suddenly realised the seriousness of the problem and that untold damage could be done and it was. I do not think modern Europe is conversant with what happened in that era, including the options that were taken and those that were not.

A good point was made on democratic legitimacy, but where do we go from here? Do we lead the people or vice versa? That is what it comes down to. It is a difficult issue that nobody else can really assess, except those on the front line. Those of us in the public arena must seek public support to do what is right for the people. It is a difficult position to be in. It is easy to seek public support to do what people want, if that is the easy option. Therefore, we all have to choose.

There are those who believe the abolition of the party system is the answer to their problems, but it is not. The opposite is the case. I do not think the European Union can succeed socially, economically or politically without a single currency for the entire Union. Professor Laffan also referred to this issue but did not come to the same conclusion. All kinds of excuses have been made, but effectively we now have a two-speed European Union.

It is going the opposite route to the way the founding fathers of the European Union who had experiences from a different time from which they learned wanted it. Several weeks ago this committee heard from a delegation from the European affairs committee of the Swedish Parliament. We learned that this committee has a veto over their Ministers at Council meetings. The committee was asked on whose behalf the committee speaks when it has to use the veto. Is it on the behalf of the people of Europe or the people of Sweden? We know what the answer is in that case.

I believe when each member state takes ownership of the European project as if it were theirs and recognises the need to accommodate others, then we will succeed. Until that it is done, we are wasting our time. All we are doing is talking around the subject. A classic example of this is when the euro was introduced. We all thought, in our naivety, that the European Central Bank was going to control European fiscal policy. It did not, despite the fact each member state had representatives on the bank's board. Why did this happen? It happened because each member state wanted to go its own particular route, looking after its own interests.

Enough said, although I could go on for ever and I know our two guests could go on for an awful lot longer than they have. I would love an opportunity at some later stage to have a longer debate on this subject. We need it in this country and Europe needs it as well.

2:30 pm

Photo of Eric ByrneEric Byrne (Dublin South Central, Labour)
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I thank both speakers for an in-depth discussion about this issue. I am a relatively new member of this committee, so I am still learning about Europe as I go along, notwithstanding the fact that I am a public representative with a mandate from the people. How do we fill this democratic deficit between the people, parliament and the European Union? The fact we have not come to terms with properly structuring the MEP system is a disaster. If we are talking about accountability and legitimacy in the European Union, someone must convey this to the people. Theoretically, MEPs are challenged with that task. How do they fulfil this role? In the case of Ireland, there were three elected MEPs who packed it in and now have substitutes representing them - Proinsias De Rossa, Joe Higgins and Alan Kelly. It appears to some that election to the European Parliament is used as a route back to the national parliament. Do we treat the European Union as seriously as we ought? How are our MEPs supposed to be conveying the message of work they are doing in Europe to the people?

The committee recently heard an argument - one that was dismissed but worth repeating - that the Irish political system is so clientalist-based that we will never achieve a sense of political reality unless the multiseat constituency concept is changed to stop the incredible competition between political parties and members of parties. Is there a domestic platform for MEPs? It would seem this fundamental structure is missing and MEPs have no domestic platform to convey the work they are doing. Then it falls upon committees like this to come to terms with the European project.

Does the delegation agree that to develop the concept of the economic and monetary union and bring the people along with its debate, that more of our Ministers, Prime Ministers and committee chairmen should spend less time at home and work more on the European agenda? We know from our EU Presidency term that the Taoiseach, the Tánaiste and Minister for Foreign Affairs and Trade and other Ministers are forever out of the country doing productive work for the Union. Given that Europe is developing and taking on more member states, is this the future for senior Irish politicians?

We are in challenging times with three member states in bailout programmes and Cyprus heading that way too. The people are suffering financially. There is no government in Bulgaria. Italian voters were so disillusioned, 20% of them thought there was nothing wrong with voting for comedians. Given that austerity is hurting people and that Europe needs to consolidate and convey its message back to the people, are we doing it as well as we can? I feel Ireland is rather unique in Europe in so far as our Constitution requires referenda on European treaties. It provides a shock system to the electorate to decide on treaties such as Lisbon. This debate on the future of Europe is so important that it has to be extended to higher and lower political levels, right through to all elected public representatives.

As regards the future of Britain in the European Union, I presume Northern Ireland would be part of the in or out scenario. Its Assembly already has eurosceptics such as Sinn Féin. I am not quite sure where the DUP stands in the euro ball game. I agree we must do all we can in our power to keep Northern Ireland in the European Union. Notwithstanding the tendency to be opportunistic and say the Brits are out, let us start playing on the insecurity of foreign direct capital, target it for Ireland and ignore the English and all of that, we do need them in at all costs.

These are rambling comments that the delegation might pick up on in their responses.

Photo of Dominic HanniganDominic Hannigan (Meath East, Labour)
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The committee regularly invites MEPs to meetings. None of them is in attendance this week because it is Strasbourg week but we do hope for improved attendance from MEPs at future meetings. On Monday, we had a fruitful meeting in Copenhagen at which I presented a paper to representatives of 20 different member states. It dealt with how we co-ordinate the role of national parliaments at European level with the new European semester and the new system for economic governance with the European six pack and the forthcoming two pack.

We had a very interesting discussion and a paper will be published with recommendations for enhancing the role of national parliaments. We will discuss that paper at the COSAC meeting in June in Dublin, and I am sure a number of members will attend that plenary session and be able to partake in the conversation.

My first question is directed at Dr. Barrett, who spoke about a big idea on sound national finances and bringing in financial incentives to make structural reforms. There is also the issue of financial solidarity between member states when there are fiscal shocks in the system. These are absent from the December paper, but if they go ahead, how will the measures be funded? Will there be more fiscal union, new taxes or higher levels of contributions from member states? Significant amounts would need to be available to cater for the fiscal shocks and structural reforms.

Professor Laffan spoke about how European politics might develop over the next ten years. At a time when so many of our economic exports go to the European Union, what happens at a European level is very important to the country. How does Professor Laffan see the role of European parties developing with regard to issues such as a joint manifesto at European elections? How will European election campaigns change by the next European election next year and for subsequent elections? Does she expect to see common manifestoes across political parties with real meat, as opposed to the individual campaigns we quite often see now?

2:40 pm

Dr. Gavin Barrett:

Will I try to answer everybody's questions?

Photo of Dominic HanniganDominic Hannigan (Meath East, Labour)
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Yes, or as much as possible in seven or eight minutes. At that stage we will ask Professor Laffan to speak.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I will have some supplementary questions.

Dr. Gavin Barrett:

The Chairman's question was very specific and I will refer briefly to it. With regard to financing shock absorption, very considerable resources would have to be provided to make a difference in that regard. The suggestions put forward include national contributions, financing from own resources and a combination of both. The point was made that a key aspect of fiscal capacity would be the possibility for the eurozone to borrow, with common debt issuance. The implications of this should not be underestimated and the paper envisages the setting up of a common European treasury. Perhaps it was the sheer ambition of ideas such as this which led to their not appearing in the Council conclusions. Ultimately, we either want the euro to function or we do not. If shock absorption mechanisms are needed, they must be of an appropriate scale, so perhaps the issue will not stay off the table. If it is put on the table, these are the kinds of thing we will consider.

A number of questions were raised, with democratic legitimacy being one issue and the role of the United Kingdom another. I am not sure I have any particular comment to make on the United Kingdom Independence Party's performance in the latest by-election but it is part of a somewhat worrying trend across Europe in that regard, as well as in the United Kingdom. It is vital to consider the relationship among Ireland, the United Kingdom and the EU. We do not know what will happen in the UK and whether there will be a "Brexit" and, curiously, we are not even sure there will be a referendum on a British exit. As Professor Laffan mentioned, that referendum is promised for the first half of the next British Parliament, at which time Prime Minister David Cameron, if current polls are anything to go by, will probably not be in power. The holding of a referendum is dependent on the Labour Party's acceptance of the need for it, and so far it has been unenthusiastic. The party will be under immense pressure to concede a referendum, although we are not sure what the result of such a referendum would be. There are many issues up in the air with regard to the United Kingdom and I encourage the committee to consider such issues.

The committee should also consider whether there will be renegotiation between the United Kingdom and European Union and the position to be taken by Ireland with regard to concessions. Should we be in favour of repatriation of powers to the United Kingdom, for example, or minor concessions? We must also consider what would happen if the United Kingdom withdrew from the EU. These are crucial issues, and they involve matters such as free movement of powers and the implications for justice and home affairs.

Deputy Byrne and Senator Reilly in particular raised very important questions on democracy and what needs to be done. It is a very difficult problem at a European level, as Europe is where decisions and policy are made in many respects but it is at national level that rewards are reaped. Essentially, policy is at a European level and politics are at a national level. It is very difficult to design an adequate democratic system which copes with that reality. More parliamentarisation may be required, which would make the executive at a European level more responsible to the European Parliament, but that is difficult where individuals identify themselves primarily by national identity and may not feel adequately represented by the European Parliament. That leads to difficulty, and the European Parliament, along with national parliaments, must have a role in that regard.

With regard to democratic legitimacy and accountability in developing the economic and monetary Union, the guiding principle is that democratic control and accountability should occur at the level at which the decisions are taken. That implies that, in so far as there are shifts to a European level, it will be the European Parliament which forms the primary forum for accountability. At the same time, the pivotal role of national parliaments must be included. I can go into further detail on the proposals for legitimacy or accountability in respect of the three areas I mentioned but these are the basic principles. Nobody doubts the crucial nature of the question of democracy and the European Union, and the survival of the European integration project depends on our finding an adequate answer to the question.

Professor Brigid Laffan:

Senator Reilly mentioned the decline in trust in European institutions. It would be extraordinary if that did not happen, as Europe is experiencing the most serious economic challenges since the Depression in the late 1920s and early 1930s. One would expect a decline in trust in institutions. With regard to attitudes in Ireland towards European integration, there is a solid core of support for Ireland's membership and the notion that membership is both necessary and good for Ireland. That was seen very recently in a RED C poll indicating that 85% of Irish respondents would remain in the Union regardless of what the United Kingdom did. It is the settled will of the Irish people and hard euroscepticism has much political leeway. I do not expect it to develop.

With regard to input legitimacy, the EU must become more responsive, and I argue that one way to do this is to marry monitoring and surveillance on the fiscal side to real social investment on the other side. I expect there will be rebalancing as long-term politics demand it. There was a question on running referendums again. There is always a democratic dilemma in running a referendum again; we have done it twice in this country.

In both cases it was done on the basis of an Irish Government asking for a mandate from an Irish Parliament. It was entirely democratic. One third of the Irish electorate voted in the first Nice referendum on a treaty that was more important to east Europeans than to us. It was absolutely right to ask us to vote again. The other member states saw the Lisbon treaty as being in their interests and wanted to ask the Irish whether this was their final answer. We are part of a larger system which requires our making these decisions in a very considered way.

In response to Deputy Byrne’s question on how Europeanised Ireland is, public knowledge of the EU is weak subjectively and objectively. When confronted with European issues we are like students who suddenly realise there is an exam the next day and we do a lot of cramming so that we feel comfortable with the subject. There is a real problem in communicating about the EU because most of the time we want the thing to work and we do not want it to bother us too much. It only comes to our attention when it is highly problematic, as it is now. There is, however, a real task to be done throughout Europe in political communication about the EU. It is not about the jargon and acronyms but about how this part of the world, which is very small, can cope with a highly globalised and shifting world. Europe has no choice but to hang together or it will fall apart, but we all need to debate and discuss what globalisation means and our connection with the wider world.

I agree with Deputy Durkan that party systems are under pressure, but I am also struck by how the centre is holding. Although there are challenger parties on the extreme left and right, this does not feel like the 1930s. We are not seeing the 1930s recreated. There are pressures on politics in Europe, but also because countries are faced with serious challenges of reform. The countries that are and will be prosperous are those that can adapt, adjust and reform. The countries that can do that will survive. For example, Spain has extraordinarily high levels of youth unemployment, but even in the boom it had a youth unemployment level of over 20%. In other words, it had a lousy labour market. Faced with a deep recession, the labour market freezes. Adjustment, adaptation and reform are part of what it means to live in today’s world. That poses a real challenge for politics.

Europe does not have a party system yet in the way that each country has, but there is no doubt that the European parties are coalescing and strengthening and we will see a shift in the next European elections. It has already been announced that they will be led by someone whom they will propose as the next President of the European Commission. There will be manifestos. I do not expect the next European elections to be transformational. Everything in Europe happens in a slow-drip, incremental way and this is no different. There is a drift from diplomacy to politics in the EU. It is becoming much more like a political system than a diplomatic inter-state system. That shift interacts and intersects differently with each country. Some countries and peoples are more comfortable with it than others.

2:50 pm

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I thank the witnesses for coming in to speak to us. I am sorry I missed the early part of Dr. Barrett’s presentation. I was at another meeting but I might get a copy of his comments afterwards.

While we have touched on the level of Europe’s crisis, with chronic unemployment and low levels of growth, it is worth acknowledging that what people thought was going to happen 12 or 18 months ago has not happened. Until last summer, reasonable people were predicting that Greece would be forced out of the eurozone and that would lead to an unravelling of the eurozone, which did not happen. People predicted that the European Central Bank would not play a greater role in keeping the euro together and dealing with our difficulties, which did happen. The spectre of mass sovereign defaults plunging the entire economic system into catastrophe did not materialise. Even though we are still dealing with profound crises for individual countries and the eurozone, many fears that were propagated during parts of this crisis have not materialised. We cannot say they are unlikely to materialise in a year’s time, but they are unlikely to materialise tomorrow. That is significant progress compared to our recent situation.

I was struck by Senator Reilly’s Frankenstein analogy, which I had heard before. It is accurate in two ways. Frankenstein’s monster was made of many different constituents, like the eurozone, and he came back from the dead. I cannot recall what happened to him in the end so I will leave the analogy there.

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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He was reconstructed.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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It is important to counter the fact of our terrible difficulty with the fact that the even greater difficulty which some thought likely has not happened.

I have three questions on that point. Professor Laffan spoke about the politics of constrained choice. Would we not be dealing with that anyway? Regardless of the nature of the eurozone, or what the EU will look like, globalisation is the game-changer. It changes everything. Alongside that are financial markets that will lend to countries in the future at the rate they think appropriate. The eurozone and the EU just offer a way for countries to get through that constrained choice more safely.

The idea that there is no choice, that no matter whom one votes for one gets the same thing, is detrimental to the development of politics. Should we not be engaging on the subject of what the planned and orderly exit of a country from the eurozone would involve? One of the big difficulties is how a country might leave the EU. It might be clear but nobody knows how a country would leave the eurozone, apart from the fact that it would probably be a disaster. If a country decides it does not want to be a part of this, how can it leave without bringing the entire structure down on everybody else?

What would development look like? Could we be heading towards an EU that will be extraordinarily fractured? Could we end up with a patchwork quilt of participation in the eurozone, in which various countries such as Britain decide to opt in and out of different arrangements, or would that be too unwieldy to manage? I know that the fiscal compact referred particularly to the eurozone, but Britain did have to participate in some of its consequences.

Photo of Seán KyneSeán Kyne (Galway West, Fine Gael)
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I thank the witnesses for coming to the meeting and for their very interesting and thought-provoking contributions. Some of my comments are similar to those already made. Deputy Byrne and Senator Reilly spoke about the election system and democratic accountability, saying that the various countries have diverse electoral systems and historical experiences of democracy.

Do the witnesses believe this makes improving EU accountability more difficult? We have what is regarded as one of the fairest and most accountable electoral systems with PR-STV.

At present we are in an EU-IMF programme with targets to which we must adhere and issues regarding loss of sovereignty. Will more European scrutiny of budgets, more surveillance and the natural tendency of politicians to blame somebody else - the present Government excluded, of course - increase the likelihood of anti-EU feeling across the country, which would have implications for referendums? People might be inclined to believe that Europe is putting the screws on us and constraining us in our budgets, and therefore they will turn against the EU. It is a rather simplistic view, but unfortunately one that is quite commonly held.

In general the UK has no problem with the Single Market but has problems with a number of other clauses and treaties as part of the European Union. Professor Laffan spoke earlier about this country doing what it can to help ensure the UK remains within the EU. I presume she is talking about opt-outs from various treaties, etc. I ask her to expand on the particular ones she believes would help solve that problem. According to the opinion polls a referendum on independence to be held in Scotland will be defeated. However, if Scotland were to become independent, would it increase the chance that the UK would vote to leave the EU - the Scots presumably being more pro-EU? Do the witnesses believe the British Conservative Party might start to regret its failure to support the alternative vote proposals of Liberal Democrats? With the UKIP now eating into the Conservative Party's vote, it would be a natural transferee for the alternative vote.

3:00 pm

Dr. Gavin Barrett:

There are some very interesting questions there. The Deputy mentioned optimism and pessimism - as some members may have noticed from my contributions to The Irish Times, I am something of an incurable optimist about the European Union. It rarely fails to surprise and it is still there, and yet it moves, as Galileo might have said. There are certainly grounds for optimism. The ECB has played a significant role in this regard. Ultimately, its intervention is a holding action, and we need more. We have not done too badly so far and it has done enough to survive. Growth in the eurozone will certainly play a key role and the prospect of debt relief for Ireland remains important also. Answers have been provided for some of the questions. The European Union is a half-completed house. We have a very small "e" but a very large "m" - we have monetary union but a very incomplete economic union. We are now catching up in constructing the economic union. Quite an amount remains to be done, but much is going on, as we have seen.

The Deputy asked if we were constrained in our choices. Of course we are. Sometimes we need to pay more attention to real sovereignty, as opposed to nominal sovereignty. The choices for a small state can sometimes be very limited indeed. The degree to which it can influence its destiny can be quite limited. I believe that being in the European Union allows us to increase our sovereignty - in other words, increase our power to influence the decisions that affect every Irish man and woman. That is a crucial reason for being in the European Union and also the eurozone.

In terms of leaving the euro, monetary unions are easier to join than to leave. The decision to go into the euro in the first place was crucial. The costs of leaving a monetary union can be enormous because, generally, the reason for a country to leave a monetary union is so that it can devalue its currency. As everyone is aware of that, it faces the risk of investment flight, bank runs and all such things. The thought of leaving a monetary union only occurs when the costs of staying in it are so enormous that they actually justify the potential trauma of leaving it. I do not believe any state, including Greece, is contemplating that at the moment and I do not believe it will happen.

The European Union as a patchwork quilt is not a bad analogy. It works at multiple speeds and it appears that will continue for a while. I cannot see the United Kingdom, for example, joining the eurozone any time soon, so we will continue to have multiple speeds. However, at the same time, its centripetal effect is also very striking. In other words, states not in the eurozone at the moment will join it. There are only around four states in the European Union that will not join the euro shortly. While I agree it is a patchwork quilt, to a certain extent the patchwork nature of it is a temporary phenomenon in respect of many states, although there are exceptions - I would include, for the time being at least, the UK's objections to the eurozone in that regard.

Deputy Kyne asked whether more surveillance of budgets would increase anti-EU feeling. I believe the answer is "Yes" if national parliaments do not play their role in this regard. This is why it is crucial that the Oireachtas consider very deeply its role in these measures. The more Europe becomes involved, the more pressure there will be for an adequate democratic response. Some of that can come from the European Parliament, but some of it must come from national parliaments. It is incumbent on the Oireachtas to think about this carefully. There may be winners and losers among national parliaments in this crisis. Some national parliaments will come out of this financial crisis stronger and some will come out of it weaker. I hope the Oireachtas comes out of it stronger because we will all pay a price if it does not. I may not have answered all the questions, but those are the answers that strike me.

Professor Brigid Laffan:

I will say two things about the politics of constrained choice. Rather than putting the emphasis on constraint, I would put the emphasis on choice. Regardless of the EU's panoply of surveillance, how much tax a country applies, whom it taxes at what level and how, and how much it spends are entirely national decisions and will remain so. Rather than emphasise just constraint, we should recognise there will still be extraordinary choice. That means that domestic politicians must face up to the choice, in that it is not being imposed. All governing parties or parties aspiring to govern are within that space of constrained choice. In Europe we have seen the challenger populist parties engage in the politics of "You can have it all". While populism is the easiest form in politics, with globalised markets people cannot have it all because the financial markets will ensure that a country cannot fund itself.

In answer to the question about having no choice in exiting from the euro, I agree with Dr. Barrett about the danger of capital flight - not just international capital leaving a country, but a country's own population removing capital en masse without very stringent capital controls. I believe it would be really difficult and probably catastrophic. I do not believe countries would lightly contemplate leaving the eurozone. That does not necessarily mean we will not reach a time when the world is sufficiently stable that it might be contemplated, but I am not so sure.

The Deputy used the analogy of a patchwork quilt. A quilt usually has a nicely designed centre, and in the EU at the moment, at the centre of that quilt is the euro area, becoming the hardest of hard cores. It is not just a multi-speed Europe but also a multi-tiered Europe, and some countries will not join. Can the EU manage this? Up to now it has. It can manage because it must - there is such diversity in income levels in countries across the panoply, from the borders of Russia to southern Portugal, that it has no choice. However, differentiation is now an important feature of the EU and one that will continue to be part of the EU that evolves.

Deputy Kyne asked about anti-EU sentiment and the budget. In an interesting way, the new European semester will force budgetary systems in Ireland to become much more transparent and open. The history of budgets in Ireland is that the Minister for Finance would arrive with his bag and no one knew most of its contents beforehand.

In fact, it can open out the budgetary process in important ways advantage of which can be taken by national parliamentarians. National parliaments should engage directly with the Commission on its recommendations rather than with their national governments only.

I was asked about the UK and competence. My point was that the UK is engaged in a competence exercise currently. Every EU competence is being examined across Whitehall in preparation for a phase of renegotiation. There may well be a space as a result of the outcome of deliberation in the UK which overlaps with what is happening in the Commission. The Commission has a great deal more work to do and would not mind re-nationalising some elements of competence. There may be an overlap where the Commission and EU-27, as it will be with the accession of Croatia, meet the UK. There may be some opt-outs but not many. The UK will not be permitted an àla carteapproach. There will not be a single market and the-----

3:10 pm

Photo of Dominic HanniganDominic Hannigan (Meath East, Labour)
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That would require a treaty change, would it not?

Professor Brigid Laffan:

Yes. The internal market is the bottom line for both sides. An independent Scotland would change everything, including Northern Ireland, in the United Kingdom.

Photo of Dominic HanniganDominic Hannigan (Meath East, Labour)
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On behalf of the joint committee, I thank Dr. Gavin Barrett and Professor Brigid Laffan for attending. A few of our speakers mentioned that they would like to have a more in-depth conversation later in the current process. This is the fourth of a series of meetings that the committee is having over the next few months. It may be that we decide to return to the issue and invite the witnesses back.

The joint committee went into private session at 3.25 p.m. and adjourned at 3.35 p.m until 2.15 p.m. on Thursday, 21 March 2013.