Ireland needs to keep an eye on what is happening in Europe

Moves to change corporation taxes, and major elections in France and Germany could have consequences for Ireland

While domestic issues are likely to continue to dominate the political agenda – this past week seeing the re-emergence with a vengeance of the housing crisis as some light begins to emerge at the end of the pandemic tunnel – the coming months will also feature some tumultuous developments in European politics that may have significant implications for Ireland.

Vaccination crisis – symbolic

Already in 2021, we have seen considerable focus on the stuttering start of the EU’s Covid-19 vaccination effort. From an Irish perspective – and that of other smaller countries – the decision to pursue a joint EU approach was welcome, as otherwise we would have struggled to procure sufficient supplies in a timely manner - a point starkly illustrated by the vast swathes of the world that currently have tiny numbers vaccinated. Right objective, but flawed execution, notwithstanding that the rollout is now ramping up.

There have been allegations of complacency and lack of urgency on the part of the European Commission last summer/autumn when it came to the ordering of vaccines. However, healthcare remains a competency of national governments, not that of the EU, and the process of having to seek agreement among 27 individual member states, not to mention the competing interests of some of the larger member states, inevitably leads to inefficiencies in decision making, something which can really have a negative impact when urgent actions are paramount.

'The Northern Ireland protocol has led to significant tensions within unionism and threatens to destabilise the workings of the institutions'

This latter point is relevant, not only in the context of vaccinations, but more generally. We saw last summer a very protracted, drawn-out process, culminating in a leaders’ summit that ran a number of days over schedule, before agreement was reached on an EU recovery fund. In recent years, we have also seen the bloc struggle to grapple with the Eurozone crisis.

All of this raises interesting questions for Ireland and other member states. For example, are we willing to cede more control to Brussels in areas such as healthcare and move towards greater fiscal union in order to avoid a repeat of the Eurozone crisis?

Over the past decade or so, really since the fiscal compact referendum in 2012, the issue of Europe and Ireland’s role in it has fallen off the Irish political agenda somewhat, ironically despite the fact that Brexit has been centre-stage. This is an issue that is likely to re-emerge in the coming years.

Protocol crisis

From an Irish perspective, the early teething problems around the vaccine rollout came to a head one Friday in January when, in a fit of pique, the European Commission invoked the little-known Article 16 of the Northern Ireland protocol, enabling it to suspend parts of the protocol in order to prevent vaccine exports from the EU to the UK. While interventions on the part of the Irish and UK governments saw a U-turn executed within hours, it all left a sour taste and resulted in existing tensions being ramped up.

Ordinarily, Brexit, and how it is playing out would have been the big story of the early months of 2021. The pandemic, in addition to dominating the headlines has also made it difficult to measure the impact of Brexit on economic activity and movements of people. It is probably fair to say that the introduction of complex new rules that were only finally agreed on Christmas Eve did lead to some teething problems in January, not only on EU/UK trade but also on the movement of goods between Great Britain and Northern Ireland, but there is some optimism that things are now beginning to smooth.

The Northern Ireland protocol however has had a more serious secondary impact, being a political one on the ground in Northern Ireland. It has led to significant tensions within unionism and threatens to destabilise the workings of the institutions and perhaps even call into question the future of the Assembly.

In a sense, it has acted as something of a lightning rod, exacerbating unionist unhappiness and unease more generally. The most dramatic illustrations have been the rioting on the streets last month and then the resignation of First Minister Arlene Foster.

 Taking a look at the bigger picture, the critical issue over the next year or two is how EU/UK relations develop in the immediate aftermath of Brexit. It is in the interests of both parties that this is a fruitful relationship. Ongoing skirmishes will aid neither side and, in the case of Northern Ireland are potentially very dangerous.

Taxation changes

Another issue coming back onto the agenda is the reform of global corporate taxation. This presents potential challenges for Ireland, which relies heavily on inward investment and multinational corporations. However, this has led to accusations of the State being used to exploit and abuse loopholes in the global tax system.

This has been a brewing issue for a number of years, but the scale at which new US president Joe Biden has moved to accelerate the process has brought it to the fore. There will be an EU angle to this too; we have heard murmurings of the EU looking for certain commitments from Ireland in relation to the €900m we are due to receive from the Covid-19 recovery fund.

While the relatively small scale of these funds means the EU does not have huge leverage in that regard, in the medium term there are significant changes on the horizon at EU level that will impact the State. Despite the challenges it presents, it is in Ireland’s interests that some form of global agreement is struck on these matters as the dangers of countries acting unilaterally would pose a greater threat. A key challenge will be how Ireland adapts its economic model in light of the impending changes.

German election

The biggest date on the electoral front in Europe this year is September 26, the date of the German Federal Election. Angela Merkel steps down after 16 years as chancellor, meaning we are heading into the unknown and Germans start with something of a blank canvass.

Replacing Merkel as the candidate of the CDU/CSU (Christian Democrats ) is Armin Laschet [pictured above], current Prime Minister of North Rhine-Westphalia, Germany’s most populous state, and its industrial powerhouse. Despite his prominent position, Laschet’s candidacy has not been greeted with enthusiasm by Germans. Indeed, many observers argue that Markus Soeder, leader of the Bavarian CSU would have been a better candidate.

'The fate of the Social Democrats will be watched closely and is likely to mirror that of other social democrat parties across Europe in recent times'

His nomination led to the second sharp drop in support for the Christian Democrats this year, the first coming on the heels of the disastrous initial vaccine rollout which ran very much contrary to the image of German efficiency. From a position where the CDU/CSU were polling steadily in the mid-thirties and looking guaranteed to lead the next government, suddenly other coalition options have now opened up.

The main beneficiaries have been the Green Party which was already polling very well in second place, and seen by many as the likeliest coalition partners for the CDU/CSU but who are now polling in the same region (and even ahead of ) the Christian Democrats. With Green leader Annalena Baerbock [pictured above] in with a live chance of winning the office of chancellor, either at the head of the anticipated coalition with the Christian Democrats, or a ‘traffic light’ coalition involving the Social Democrats and the liberal Free Democrats Party.

The fate of the Social Democrats (SPD ) will be watched closely and is likely to mirror that of other social democrat parties across Europe in recent times. In light of the dominance of Angela Merkel, it is easy to forget that the SPD have been in power for 19 of the last 23 years, first under chancellor Gerhard Schroeder, in coalition with the Greens from 1998 to 2005, and then as junior partners in the ‘grand coalition’ for 12 of the last 16 years.

'There is the possibility of the Greens seeking a relaxation of stringent fiscal rules, which would have a knock-on effect for the Eurozone'

Voter fatigue and a loss of identity in coalition may be factors – and we can expect people to draw parallels with FF and FG in this country – but the difficulties facing social democrats across Europe, shedding some of their traditional blue collar voters to populist parties (in this case the Alternative fuer Deutschland ) while also losing out to parties such as the Greens among younger ‘cosmopolitan’ voters is manifesting itself. The party may wish to go into opposition and regroup rather than partake in any government on this occasion.

What impact will this have for Germany and, by extension for Europe? With the Greens likely to be in government either way, there will be much focus on the party’s agenda. Obviously, climate change will be to the fore and the Greens having a large presence (even leading ) the German government would give the movement an entirely new impetus across Europe. There is also the possibility of the Greens seeking a relaxation of the stringent constitutionally-enshrined fiscal rules, something supported by others in parliament and which would have a knock-on effect for the Eurozone.

While foreign policy has not featured heavily in the debate to date, the Greens also have strong opinions on China and Russia, urging a stronger line against alleged human rights abuses and misdemeanours. This will please some of Germany’s allies who have been disappointed with the German government on these matters.

Keeping an eye on France

We have a second big election in Europe in the next 12 months with the French Presidential Election scheduled for next April. While it is early days, a repeat of the Macron v Le Pen run-off from 2017 is anticipated with a tight result forecast. People will be watching French politics and how this develops over the rest of the year. That election could have profound effects for Europe.

While the domestic agenda continues to dominate therefore, we should all have a keen eye on the continent and further afield.

 

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