EU – The Irish Economy

This was the reaction of Swedish EU affairs minister Birgitta Ohlsson to the publication yesterday of the Cypriot Presidency’s revised proposal for the next EU multi-annual financial framework (MFF) covering the period 2014-2020. This is because it proposed big cuts in research and cross-border infrastructure while largely protecting the CAP budget in line with the Commission’s proposal.

The Commission has proposed a trillion euro budget (actually €1,091,551 million for EU-28 including off budget items) for the seven-year period which, depending on how the comparison is made, is seen as representing a 5% real increase in the resources available to the EU. The European Parliament, never shy about spending other people’s money, considers this a minimum amount and would prefer a higher increase. In the other arm of the budget authority, the Council of Ministers, opinions are split. The net recipients, grouped in the ‘Friends of Cohesion’ group, support the Commission proposal. The net payers, which form the ‘Friends of Better Spending’ group, want to rein back the Commission proposal to a real freeze in resources or even more. But there are differences within this group over whether the cuts should fall on the CAP or cohesion budgets (both of which are roughly 40% of the total) or on the remaining headings which account for just 20%. Not surprisingly, both the Commission and the Parliament’s Budget Committee reacted caustically to the Presidency proposal yesterday.

The Cyprus Presidency proposal explicitly sets out the implications of how a reduction in €50 billion might be made, while recognising that in the negotiating endgame further cuts will be required. The following graphic shows how it proposes the cuts should be made (all changes relative to the Commission’s revised MFF proposal in July 2012). Further details on the makeup of these figures can be found in this post.

The protection of farm spending in the EU budget emerges clearly from these figures. While in the short-run the Irish authorities will be pleased with this outcome (even if they will not state this in public, we are negotiating after all), it is worth asking whether our longer-term interests would not be better served by a budget for Europe rather than a budget for farmers.

Colm is at his best in this Sindo column. Best bits:

Plan A has failed to create circumstances in which the three ‘rescued’ countries can return to the markets, the over-riding objective of any programme of official support. Their traded debt has collapsed in price and all three are rated junk by at least one of the bond-rating agencies. They will not be graduating from the programmes of official support anytime soon and the verdict of the markets, the only verdict that matters, is that Plan A is also junk.

The essence of Europe’s Plan A, as first applied to Greece, is to pretend that the problem is less serious than is actually the case, avoid any element of debt relief and insist that budgetary stringency alone will do the trick.

…

Persistence with Plan A and blaming the markets and ratings agencies is not a viable option should Spain and Italy go under. The game is up. Plan A is being quietly abandoned. In this sense, this has been a good week for Ireland.

..

Minister Noonan should now be seeking European support for an end to payments to holders of bonds, guaranteed or unguaranteed, in the Irish banks. Every cent paid to them is at the expense of the holders of Ireland’s sovereign debt, who have been treated in quite cavalier fashion at the behest of the European Central Bank and apparently in response to threats from this unique organisation.

ECB officials come and go but sovereign states need sovereign credit forever. It would be an unmitigated disaster if Ireland’s act of faith in Europe were to result in the first-ever default on the sovereign obligations of the State.