Euro's recovery waits for green light from Dublin


Published on:
The euro continues its recovery against the US dollar. Everything seems rosy in the EU garden. Dissatisfaction among citizens has not become a concerted anti-European platform.

The extreme right in France has failed in elections and it is inconceivable that German dissatisfaction with the euro will spill over into actual opposition to it. The British government is growing increasingly confident about its ability to take the UK into monetary union. Above all, enlargement seems to be on target.

Behind the scenes, though, there are time bombs. The most worrying is that the Irish still have to approve the EU's Treaty of Nice. If that vote were to be lost again the entire EU agenda could be thrown into mayhem.

The treaty is the linchpin of EU projects for the coming decade. It is designed to prepare for enlargement, while reforming existing institutions from within. It recalculates the voting allocations for individual countries inside the European Commission and the Council of Ministers and allocates national seats in the enlarged European parliament.

Under EU law, the treaty must be ratified by all member states. The Irish rejected it in a referendum last summer. But in practice the EU has continued with its enlargement process, disguised as just a preparation for the actual invitation to candidates. However, the game has to stop before the Copenhagen summit this November. If the Irish have not ratified by then, it will be difficult to proceed.

The Irish voted "no" last time because some fear the arrival of new member states in need of EU handouts. Some also opposed the treaty's creation of a European rapid reaction force, mainly because this would violate Ireland's neutrality. But the biggest reason was apathy. Barely a third of the electorate voted.

The consensus is that the treaty will be approved this time because the Irish have re-elected a popular prime minister who backs a "yes" vote. Polls suggest opposition to enlargement is actually quite feeble, while more publicity should bring out more voters. Finally, objectionable clauses - such as the military ones - could be removed, through negotiating opt-outs. This should guarantee acceptance.

But what if the consensus is wrong? The turn-out will have to be at least 45% to offset the better organized "no" campaign. And it is not at all obvious that the EU is considered a good thing in Ireland. Many politicians deny that new-found prosperity emanates from membership, looking instead to the adoption of US-style economic practices and investment in hi-tech. So it is possible the Irish will say "no" again. Then enlargement will be up in the air. If the treaty is not operational, discussions about EU institutions' powers will be reopened. It's a recipe for years of instability.

Enlargement is not popular in Europe. The Germans and the French are concerned about immigration and the smaller EU states are worried about loss of power and financial subsidies. An Irish "no" in another referendum will push these issues into the public domain. Once debate begins, it will be impossible for any German government to avoid wider questions, such as free movement in an enlarged EU. Populist right-wingers everywhere will sense their chance. And the French, who always looked for an opportunity to halt the entire process, will be tempted to suggest more delay. And what chance would UK prime minister Tony Blair have to ram through accession to the single currency?

Another big uncertainty is EU reform. The EU's biggest states are determined on fundamental change. The big five, which have more than two-thirds of all the votes and contribute 80% of the budget, are tired of the European Commission, which tries to be a government and a civil service at the same time. They do not believe the EC can provide a clear voice for the EU as a whole. So they want to strip away the EC's existing powers and place all key decision-making with the Council of Ministers, which at present brings together all the EU foreign ministers.

View graph.
An EU president is proposed, to be chosen by the EC from among the big countries, to provide unified EU representation on the world stage and create greater internal cohesion.

A second proposal would simplify the procedures of the Council of Ministers by splitting it in two. Half would be composed of prime ministers and foreign ministers (dealing with defence and foreign policy) and the other half newly created national ministers for Europe who will deal with all other issues.

The new Europe ministers will become extremely powerful. So European issues will be concentrated in the hands of the prime ministers through their Europe ministers. The Council of Ministers will effectively become Europe's government, issuing decrees and regulations. The EC will merely execute these.

When this debate widens, rows and delaying tactics on enlargement are to be expected as smaller states fight to avoid power being concentrated. However, these measures are likely to go through. And more efficient and faster decision-making can only benefit the EU experiment and the euro in the long run. But in the short term, the "Irish problem", enlargement and EU reform could provide a dampener on the euro's renaissance.