Taoiseach hopes to leverage fragile goodwill on official visit to Berlin

Wednesday 16 November 2011 12.14

By Tony Connelly, Europe Editor

Taoiseach Enda Kenny and German Chancellor Angela Merkel are bound up in an unlikely symbiosis.  The Irish government needs to stay on the right side of Germany for vital political support at a time of unprecedented turmoil and a huge domestic debt burden; Berlin needs a bailout success story to showcase to the rest of Europe and to the world, in order to prove the virtues of austerity and sticking to the programme.

Although his first official visit to Germany has been in the works since the coalition took office last March, it has come to pass at a time when no eurozone leader’s speech or news conference is complete without a sunny reference to Ireland’s ability to meet its targets and to grow its economy.

Such praise has often been accompanied by groans in Ireland from those who feel that it’s particularly patronising when so many sacrifices are being made, and pain suffered.

Irish officials grimly acknowledge how members of the public ”hated it” when other countries criticised Ireland for its spectacular fall from economic grace; now we hate it when we’re being praised for apparently turning the economy around.

Either way the visit will be a satisfying one for the Taoiseach.  When, as leader of the opposition, Mr Kenny met chancellor Merkel in the Christian Democrat headquarters in Berlin on 14 February in the teeth of the election campaign, he literally had to walk up to reception to tell his hosts he had arrived.

In Berlin today (Wed Nov 16) he will be feted with the pomp of an official ceremony, a joint news conference with Chancellor Merkel, and an address to the prestigious Konrad Adenauer Foundation, the main think-tank associated with the CDU.

He is likely to push for broad economic support for Ireland continuing to find ways of lowering its debt burden and to present the government’s thoughts on the eurozone meltdown, which is changing hour by hour.

In particular they will discuss treaty change, a concept which has grown more frequently in Mrs Merkel’s public declarations since the spring, culminating in her speech to the CDU party conference in Leipzig on Monday.

In remarks seen as bringing the CDU decisively back to its pro-European roots, she spoke of moving towards a “political union,”  announcing that the eurozone crisis needed “more, not less, Europe.”

But exactly what does Germany mean when it demands “more Europe”?

In principle it wants to make sure that the Greek debt crisis never happens within the eurozone again.  Berlin believes changing the Lisbon Treaty is necessary to tighten budget discipline so that no single country can pursue policies which are detrimental to the whole.

Such a regime has already been approved by eurozone member states by way of the so-called Six Pack of measures, designed to force harsher monitoring, as well earlier and more automatic sanctions of budget offenders.

Despite fears of Berlin binding the rest of the eurozone into treaties forged in its own image, the ideas to go further than the Six Pack appear thus far to be modest.  Officials talk of deleting pargraph 10 of Article 126 of the Lisbon Treaty, the one governing the Stability and Growth Pact.  At present no country can be taken to the European Court of Justice for breaching the terms of the pact.  Germany would like to see that overturned.

Another more contentious idea would be to give Olli Rehn, the EU Monetary Affairs Commissioner, greater powers to dictate to sovereign governments how they should order their budget plans.

Although the intervention would be limited to those countries in a so-called Excessive Deficit Procedure (ie, where they are repeatedly breaching the sacred rule of keeping the budget deficit to 3pc of GDP), or under bailout programmes (like Ireland), it would stray into very sensitive political territory.

Elsewhere, when Mrs Merkel talks of “political union” it’s not yet clear how far she wants to go, or how far she will be able to take other countries along.

One upshot of her Leipzig speech, though, is the attempt bring the party back to its true European reflexes as embodied in the legendary Chancellor Helmut Kohl.

There’s talk of having the European Commission president elected by a popular vote across the EU (an idea former Taoiseach John Bruton put forward when he was a member of the Convention on the Future of Europe which drew up the blue print for what became the Lisbon Treaty), as well as having some kind of bicameral European Parliament.

Irish officials see these references as an encouraging sign that Germany is tilting back towards the so-called community method, ie a European process where the Commission is more centrally involved – and thus protecting the rights of smaller member states – rather than what’s known as the intergovernmental method, shorthand for France and Germany calling the shots and everyone else stepping into line.

She, and other German ministers, have also made a recent habit of insisting that any changes to the Lisbon Treaty be embraced by all 27 member states, and not just the 17 eurozone members, not least because there are non-euro countries like Poland, Hungary and Lithuania who are still anxious to join the single currency once (or if) the crisis ends.

Getting all 27 on board will be tricky because the UK, while wanting the eurozone to deepen integration in order to end the mess, wants nothing to do any federalising instincts within the wider European Union.

David Cameron, the British Prime Minister, will be following Enda Kenny’s footsteps to Berlin on Friday.

There’s no doubt, though, that the pro-European instincts of the Leipzig speech, with its talk of solidarity and helping countries in need, is part of a plan to prepare the CDU base, reeling as it is from mulitple regional election defeats this year, for any changes to the ECB’s role in the crisis.

The deal is this:  by delivering on the long-cherished German notion of closer political union, not to mention a regime of strict fiscal discipline rolling out into the future eurozone, Mrs Merkel will have some political cover, should the ECB be finally brought more centre-stage in a fire-fighting role as lender of last resort.

German officials say they would be “astonished” if the German red line on keeping the ECB as a solely inflation-fighting machine were ever changed.  But if the euro is close to collapse or if one or more country is forced out, then the red line will have to shift – subtly or otherwise – if the single currency is to survive.

Mrs Merkel has made enough apocalyptic remarks on the euro being vital for the survival of the EU itself to lead one to believe that Germany won’t stand idly by and watch the whole Post-War dream evaporate.

With all of this in mind, what can the Taoiseach hope to get from his visit?

There’s no doubt that the favourable glow of EU opinion on Ireland’s efforts gives the government some capital that can be leveraged.

Having lost the battle to the ECB over Anglo Irish unsecured bondholders, the government is pinning its hopes on getting a less onerous deal on the Anglo promissory notes issue.

That relates to the €30bn worth which the previous government pumped into Anglo by way of promissory notes to be paid back over 10 years at €3bn a year, but with a crippling interest rate from 2013 onwards.  Dublin wants a new arrangement whereby the debt is stretched over a longer period (30 years) and with a lower interest rate.

The government is also keen that the treaty governing the European Stability Mechanism (ESM), the permanent successor to the EFSF (European Financial Stability Facility) , is changed to reflect the idea that the losses being imposed on Greece’s creditors (some 50pc according to the October 26 summit agreement) will be a once off, or at least will not apply to other countries under bailout programmes.

This is because the government is banking on a smooth return to the market in mid 2013 and if investors fear they will have to take a further haircut sometime in the future under the ESM, then that return could be seriously delayed.

It’s unlikely Mr Kenny will get into the detail of these issues with Angela Merkel.  That is being done on an ongoing basis between officials at the Department of Finance and the eurozone working group, and between finance ministers themselves.   It will be slow progress, but any political backing Mr Kenny can get from the German Chancellor in the meantime will be highly bankable.

On treaty change, the European Council President Herman Van Rompuy will present a reflection paper to the summit of EU leaders in early December based on soundings from national capitals.  In March he will set out what needs treaty change, and how far it should go.

While the government would prefer to avoid treaty change, and the referendum that will of necessity follow, they are prepared to wait and see what is proposed.  They know that major change will need the support of all 27 governments and that other countries are in no small measure reluctant to start pushing treaty change when their electorates are so restive.

As he meets Mrs Merkel in the German Chancellory, Mr Kenny will appreciate that Ireland’s continued existence in the European good books will depend on exports continuing to grow, and on targets being met.

In a climate where panic and gloom seem to grow by the day, such a scenario begins to look more and more fragile.

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