Ireland and Europe's Democratic Deficit

By Meghan McBride Kelly

The European Union has a democratic deficit. Public discontent with European institutions has led member-state leaders to limit popular engagement in EU affairs. Ironically, this unhappiness is a result of the leaders' inability to communicate the case for Europe effectively.

In Ireland this is an especially thorny issue due to the country's constitutional requirement that new treaties be ratified via referendum. Prime Minister Enda Kenny certainly had this in mind in September when, upon German Chancellor Angela Merkel's first rumblings of EU treaty change to resolve the eurozone crisis, he dismissed such a move. "I've made this known to other political leaders: It's very important that having put the Lisbon [Treaty] in place that the governments of the EU work that treaty in a way that it was intended... I think we have to get on with what we have now," Kenny said at the EU Partnership Summit in Warsaw.

Yet at last week's EU summit, Kenny joined 25 other European leaders in agreeing to a new treaty to legally enshrine fiscal discipline. The pact would include automatic sanctions for countries whose annual budget deficit exceeds a previously agreed limit of three percent of GDP.

Europe's leaders clearly need to act quickly and decisively to calm volatile markets and prevent contagion across the eurozone. Significant reform is required if the EU is to avert financial catastrophe. US Treasury Secretary Timothy Geithner's visits to Europe in September and early December signaled that international pressure is mounting on eurozone leaders to stabilize their financial markets. If that means legal changes to reinforce fiscal and budgetary rules, so be it.

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But the path is not so clear-cut for Ireland. The small island nation has been vulnerable to large EU member states, such as Germany, since the outset of the euro crisis. The Irish public was dealt a major blow in 2008 when then-Finance Minister Brian Lenihan announced that Dublin would guarantee all deposits with major Irish banks, starting with Anglo-Irish Bank. Most of the funds deposited with these banks originated abroad, especially in Germany, but the Irish taxpayer would foot the bill for the guarantees. That led to Ireland's near bankruptcy, forcing the government in 2010 to accept an €85 billion EU/IMF bailout. German and French leaders, in return, tried to exact changes to Ireland's sacred, low corporate-tax rate, key to the country's competitiveness.

This confused the Irish electorate. They were, after all, promised control over their own tax regime in return for approving the Lisbon Treaty. The Irish rejected that treaty in a first referendum in 2008; they passed it in a second attempt in 2009 only after Dublin negotiated special guarantees, including a supposed safeguard of the Irish tax regime. The government also sold the treaty by claiming a second rejection would cause economic ruin.

Since that second referendum the Irish economy has crumbled. Dublin has enacted harsh austerity measures as a condition of the bailout, the Cowen government collapsed, unemployment has soared to 14 percent, 1,000 people are emigrating weekly, and remaining Irish taxpayers continue to repay debt -with interest. Member of Parliament Mick Wallace captured the sentiments of the Irish when, during a recent parliamentary session, he said to Finance Minister Michael Noonan, "I am wondering if Angela Merkel is quite aware of how difficult things are here for the Irish people." Meanwhile, Ireland's tax sovereignty has yet to be legally enshrined, and it's uncertain if it ever will be.

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Meghan McBride Kelly is project manager for transatlantic relations at the Bertelsmann Foundation.

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