Belfast Telegraph

Economy Watch: Open to debate if we should look to north or south of Europe

Economy Watch


By Richard Curran

It has been talked about in Ireland for many decades - if not centuries. Our little island may be sitting out on the edge of northern Europe but are we really more a southern European country?

In terms of culture, attitude, religion, outlook, lifestyle, the economy - and, of course, fiscal discipline - we have tended to have more in common with our Mediterranean cousins in places like Portugal, Spain, Italy and Greece.

Whatever about those shared characteristics in the past, when it comes to forming new alliances at the EU table in the 21st century, we are now definitely a northern European nation.

This became 'official' earlier this year when we joined up with the grouping of seven other EU countries now referred to, with some irony, as the Hanseatic League 2.0.

It consists of ourselves, the Netherlands, Denmark, Sweden, Finland and the Baltic states of Estonia, Latvia and Lithuania.

The name is a reminder of the Renaissance-era confederation of northern European cities that dominated trade in the Baltic and North Sea.

The original Hanseatic League represented an enormous trading and political alliance across nearly 200 cities in countries from Russia and Finland, to Germany, Belgium and the Netherlands from the 13th to the 16th Century.

The original league did not include Denmark and in fact the Danes went to war with the league over shipping routes in its waters. But that is all, shall we say, firmly in the past now.

Ireland was never in the mix back then. At that stage we were still more focused on getting one over on the boys down the road.

But the original league did include a city in Iceland, one in Norway and three in Britain.

The new club is being described in Brussels as a grouping of fiscally conservative countries.

We are the new fiscal hawks.

It all began over dinner in a Brussels steakhouse in 2017 after an EU finance ministers meeting. The group of eight is led by Dutch finance minister Wopke Hoekstra, and the countries are co-operating and clubbing together to find common cause on the future direction of the EU once the UK leaves. Britain has traditionally been a lead voice in free trade matters and its departure from the EU raises many questions about the future direction of European integration.

The group holds private dinners every month and has issued common position papers this year on three topics.

These include a paper on resisting attempts at creating more common eurozone spending tools, demanding more powers for the euro's bailout fund.

When Paschal Donohoe faced opposition from France and several other big EU countries on the introduction of a new digital tax on tech companies, he was supported by several of the Hanseatic group nations at a meeting of finance ministers.

The initiative, spearheaded by French finance minister Bruno Le Maire, was knocked back following this show of strength and the agreement of Germany.

To some extent Berlin has been encouraging the Hanseatic alliance while remaining part of the Franco-Germany axis, which some French politicians would argue is at the core of the European project.

German finance minister Olaf Scholz told the Financial Times recently: "I am from Hamburg - we are the traditional ancient Hanseatic League."

Last month Mr Donohoe met finance ministers from the Baltic States and the Nordic countries in Brussels. The Dutch and German ministers also called in for a coffee, according to the FT. Before that, Leo Varadkar met his Nordic and Baltic counterparts in the margins of an EU summit in Brussels in October.

Prime Minister Theresa May asked to attend but apparently was politely rebuffed.

Newspaper reports suggest that senior diplomats of these countries have been meeting regularly since the start of the year. Tensions about the group came to a head two weeks ago when Mr Le Maire berated Mr Hoekstra in front of two journalists while they were having post-dinner coffee at the French finance ministry.

According to the FT, Mr Le Maire went on a tirade against the so-called "closed clubs", accusing the alliance of threatening deeper eurozone integration and ultimately weakening the EU's ability to rival global powers like China and the US. Mr Le Maire's remarks highlighted the growing influence the Dutch-led alliance may be having in Europe.

For some though, it is still seen as a collection of relative minnows. It was once knocked as 'Wopka and the Seven Dwarfs'. Nadia Calvino, Spain's finance minister, annoyed some of the club's diplomats when she refused to respond to a recent position paper they had put forward on the grounds it was the work of "small countries with small weight".

So what are we getting into exactly, and why? After the financial crisis, its threat to the single currency and the subsequent bailouts for Ireland, Portugal and Greece, the EU has been divided on whether the solution should be more European integration or less.

The French have been spearheading a major push towards greater integration and centralised control.

To some extent Ireland has to be careful about that. Smaller countries could easily get squeezed out in a more homogeneous, centralised Europe. But we are not alone in thinking that way.

Clearly, these reservations are felt not only by other small member states but ones that have a reasonable level of collective clout if they can form joint positions on things.

The question is how like-minded are these countries and where does Ireland fit in? Not all eight members agree on everything but they share a common outlook on many economic questions.

They favour competition in the single market and they want to retain strong national budgetary responsibility within the eurozone.

It is somewhat ironic that Ireland should find itself in the company of the greatest fiscal disciplinarians so quickly after needing a massive multibillion-euro bail-out.

During the bail-out years, the Finns were very hawkish on burning bond holders. So, too, were the Germans. Now we are closer to having a shared view on how future bail-outs should operate and burning bondholders is a big part of it.

It has come too late for us.

But sitting at the Hanseatic table may be no bad thing.

The Irish Government wants to retain individual taxation powers especially when it comes to corporation taxes. Yet, it also wants to be, what Leo Varadkar described two weeks ago as "on the right side of history on the corporate tax debate".

It remains to be seen how Ireland will achieve that given that our very financially successful corporate tax structures have already facilitated many multinationals in paying so little tax.

There is another argument that says Ireland needs to work harder at pan-European relationships once the UK leaves the EU.

There is a natural space left at the table when the UK goes which could easily be filled by, or carved up by, France and Germany in particular.

Of course some might argue that a club of these fiscally conservative countries might in some way mark a shift to the Right in Irish economic policy. But the group contains some of the most successful social democratic states in Europe like Sweden and Denmark, with models of high taxation and high public spending.

Perhaps the most surprising thing is seeing Ireland referred to in the European press as a member of a "fiscally conservative" group of northern European countries.

All is changed, changed utterly - at least for now anyway.

Richard Curran is a journalist, broadcaster and author

Belfast Telegraph