Say it in plain GermanMonday 11 February 2013 09.55 By Sean Whelan
by Seán Whelan, Economics Correspondent
Back in the early part of the last decade, Peer Steinbruck was prime minister of NorthRhein-Westphalia. He visited Dublin in an official capacity, as part of a roadshow, touting NRW state bonds to investors among the various companies based in the IFSC.
A few years later he was federal finance minister, and had to pick up the pieces when one of those IFSC companies, DEPFA bank, went into meltdown, costing the German taxpayer billions. Mr Steinbruck was not too impressed with Irish financial regulation.
I once tried – and failed – to get him to say something unpleasant about the Irish regulatory system. This was back in September 2007, on the very day that Northern Rock went bust. We were in the Portuguese city of Porto for an informal meeting of ECOFIN, and every finance minster and central bank chief in Europe was fortuitously gathered in the one place when Europe’s financial crisis officially began.
That evening our then Central Bank governor John Hurley told journalists he had been in contact with every bank in the country, and they told him none of them were facing a Northern Rock type problem.
Five years on, Mr Steinbruck has been roped into lending his support to the Irish Government’s campaign to lessen the burden of the promissory notes, the financial instruments used to fund thirty one thousand million euro in losses racked up by Anglo Irish Bank and Irish Nationwide. Given the backstory, that is no mean achievement.
Of course, he fully respects the independence and mandate of the European Central Bank, but on balance thinks Ireland deserves a break on the promissory note, not least for its “remarkable” performance in exports, current account surplus, economic growth, competitiveness and fiscal consolidation. Ireland’s return to full market funding, he tells us, is important for all EU countries.
But he is not keen on the ECB doing anything that adds to the fiscal burdens of Germany. Or anyone else for that matter. He is wary of the ECB having power to do things that impact on national budgets without any democratic check or oversight. Fiscal power he calls “the kings right”.
It is one of the reasons he favours changes to the EU treaty aimed at improving economic governance in the EU, but especially in the euro zone. But he accepts that getting agreement on treaty change is extremely difficult, and so for the next five years everything should be done to introduce changes to the way Europe is run that do not require treaty change. That is a politically realistic, pragmatic approach, though one that David Cameron could find uncomfortable, as the British prime minister wants to put a new treaty to a referendum in the UK in four or five years time.
Mr Steinbruck wants to see Ireland successfully exit the bailout programme, but he does regard that programme as a missed opportunity – to increase Ireland’s corporate tax rate. He told us he would have preferred if at the time of the EU/IMF deal (when he was gone from office) it was a condition of the deal that Ireland raise its corporate tax rate to the average rate of euro area states. The moment to put the heat on Ireland has, he says, passed – but Cyprus is still in play, and he thinks forcing Cyprus to raise its corporate tax rate should be a condition of the bailout programme it is trying to negotiate.
He says Ireland’s low corporate tax rate, combined with “the supervisory arbitrage you have here” contributed to the country’s financial woes, and he thinks it reasonable that if we are asking others to help carry the costs, they have every right to ask us to raise more money in taxes, especially corporate taxes.
Another policy stance that is unlikely to endear him to the denizens of Kildare Street and Merrion Street is his belief that the EU spends too much of its budget on agriculture. He is one of the “modernisers” who thinks the EU should concentrate more of its limited resources on things that will generate more economic growth, such as infrastructure networks, scientific research and development and energy.
“I know agriculture is important for Ireland, France and Poland, but our previous economic growth strategy, the Lisbon Agenda, failed, and now we have the 2020 programme and its repeating the same mistakes”.
He is, however, sensitive to the charge that Germany is using this crisis to seize power in the EU, and says that even if leading politicians like Radek Sikorski of Poland call for German leadership “the people of Poland don’t forget what happened in the past, nor do the people of France or Denmark”, the latter being the home country of his mother. Instead he says Germany’s past compels it to develop what he calls a “soft power relationship with Paris – we should set the pace but invite the smaller states to stay alongside”.
Not that things always go smoothly with Paris. He tells us that President Sarkozy tried to have him sacked on three occasions, but his then boss, Chancellor Merkel, rebuffed her ally in the Elysee. Now he wants her job come the elections in September.
Peer Steinbruck’s reputation – as a blunt speaking political bruiser who calls it as he sees it – is what led the SPD leadership to install him as their chancellor candidate. They think – or at least they thought back in December – that a direct approach was needed to dislodge Angela Merkel. This week he is also visiting Britain, Holland and Greece. It will be interesting to see how his forthright style plays there. And if it has any impact on the polls back home.