Business, Economics and Jobs

Ireland sours on the European Union


A street artist's picture of a traditional Leprechaun is daubed on a wall of an empty building in the docklands area in Dublin on Dec. 1, 2010. The Irish economy has faltered after years of growth and EU finance ministers approved an aid package totaling 85 billion euros.


Peter Macdiarmid

DUBLIN, Ireland — Is Ireland closer to Boston or Berlin? A crisis in Dublin's relations with its European Union partners has revived the recurrent debate.

The bloc's most senior civil servant, Irish native Catherine Day, who is secretary general of the EU commission, said last week that the shine has gone out of Ireland's membership.

“The perception is that the more prosperous Ireland became, the more arrogant it became, and the less it engaged,” said Day on a visit to Dublin. “It shouldn’t be a fair-weather engagement.”

Ireland has been a member of the European Union since 1973, when it was known as the European Economic Community. Membership was warmly welcomed at the time. It enabled Ireland to move out of the shadow of the United Kingdom and receive infrastructural funds to modernize what had been a mainly agricultural economy.

A poll commissioned by the EU five years ago found that Irish people were among the most enthusiastic about membership, with 87 percent convinced that the country had gained from it, and a majority in agreement with giving up the Irish currency, the punt, in favor of the euro.

These attitudes are changing and commentators are now voicing what was recently unthinkable.

Aengus Fanning, editor of Ireland’s biggest-selling newspaper, the Sunday Independent, advocated Sunday leaving the euro zone and joining Britain in an Atlantic alliance.

But as Day pointed out, the aversion is mutual. Gone are the days when Ireland was considered Europe's dazzling success story.

The country has been stunned by the hostile reaction of EU leaders, Angela Merkel of Germany and Nicolas Sarkozy of France to Taoiseach (Prime Minister) Enda Kenny’s demand for more sympathy in managing Ireland's huge debts when he visited Brussels March 24 for his first EU summit. Flush from victory in an election he won on promises to renegotiate the terms of Ireland's bailout, Kenny unsuccessfully lobbied Merkel and Sarkozy last month for a lower rate of interest on the European Central Bank’s loans.

The European Central Bank, headquartered in Frankfurt, Germany, fears however that if the Irish, as members of the euro zone, were to default on part of their debt, the euro could be plunged into a systemic crisis.

“The debate is over, Frankfurt would not agree,” said Ireland’s finance minister, Michael Noonan, on Friday.

Ireland’s foreign minister, Eamon Gilmore, conceded Sunday that Ireland had lost so much political support in Europe that a diplomatic offensive would be needed to mend fences.

So far Ireland has swallowed the bitter medicine proscribed by the 75 billion euro ($107 billion) International Monetary Fund-European Central Bank bailout last fall. Incomes have fallen, shops, hotels and restaurants have closed, tens of thousands of home owners have been left unable to pay mortgages, and unemployment has risen to almost 15 percent as Ireland struggles with a debt crisis that could take two generations to resolve.

The country's financial downfall can be traced to Sept. 30, 2008, when the previous government announced a bailout for the banks, which faced imminent collapse due to plunging property prices. Since then 46 billion euros has been pumped into the four main banks but the international markets refused to believe this was enough. A “stress test” on the banks was completed last week with the assistance of the global investment management company, Blackrock, based in New York. It showed that Irish banks needed a further injection of up to 24 billion euros.

With the over-stretched Irish taxpayer being asked to shoulder the new burden, public anger is growing. Much of it is directed at the previous government for taking a panicky decision that has bankrupted the state.

“Tuesday, 30 Sept. 2008, will go down in history as the blackest day in Ireland since the Civil War broke out [in 1922],” Noonan told parliament March 31 when announcing the new bank bailout.

However there is growing antagonism toward Europe for its role in the crisis.

Many Irish financial experts argue that the European Central Bank should shoulder some of the blame for Ireland’s property crash as it provided huge loans at low interest rates to Irish banks during the property boom.

The relationship between Ireland and its EU partners has also been strained by demands from Merkel and Sarkozy that Ireland should raise its corporate tax rate, kept at 12.5 percent to attract foreign investment, before considering any decrease in interest on bailout funds. With most European countries facing austerity measures themselves, there is little appetite to indulge Ireland, where social services are perceived to be higher and the public service more bloated than in other member states. But the Irish government adamantly refuses to increase its corporate tax rate while taking other austerity measures, despite claims that it gives an unfair advantage over other community members whose rates are higher.

The cold house that Europe now presents to Ireland stands in stark contrast to the warmth for Ireland in the United States. When he visited the United States March 17, Kenny was feted by U.S. President Barack Obama in the White House and by members of Congress on Capitol Hill.

The close relationship is not just based on historical ties: Ireland's low corporate tax rate means that most major American companies have located there, providing 100,000 jobs. U.S. economist Martin Sullivan told CBS "60 Minutes" last week, “Almost everybody is in Ireland — all the pharmaceutical companies, all the high-tech companies. You’re stupid if you are not in Ireland.”

Economists and international investors have warned that any increase in the Irish rate would prompt multinational companies to relocate elsewhere.