For better or worse, Ireland chooses Europe

With the threat of bailout fund withdrawal hanging over their heads, the Irish people have voted decisively in favour of the austere Fiscal Treaty and have shown they are in Europe for the long haul.

The Irish electorate’s decisive approval of the EU Fiscal Treaty has allowed Europe to breathe a sigh of relief, at least for now, with leaders in the region broadly welcoming the result. EU president Herman Van Rompuy tweeted that the move was "an important step towards recovery and stability”, while German Chancellor Angela Merkel remarked that the ‘yes’ vote deserves "particular recognition and respect” considering the economic difficulties the country has endured over the past number of years.

Ireland has proven itself once again to be the poster child of the bloc, because it knows when to toe the line. The Irish electorate is smart enough to know that their country needs Europe now more than ever. Irish Prime Minister Enda Kenny can hold his head high, proclaiming that the Irish electorate have spoken, and they have voted for Europe. Well, actually 60.3 per cent of the dismal 50.6 per cent who voted voiced their preference for the new fiscal compact.

But the Irish aren’t the only ones who see that the benefits of approving the fiscal treaty outweigh the costs. What we can glean from the latest developments in Europe is that EU member states are moving toward deeper integration in a bid to survive. This new dynamic is a paradox facing millions of Europeans as the economic crisis continues; moving to cede more sovereignty in order to assure survival of the nation-state.

Of course, those in Europe who favour austerity measures would say that it is up to each nation to decide whether or not to move forward with the rest of bloc. Ireland could have voted against the treaty, as the United Kingdom and the Czech Republic did. But such a move would likely have had severe consequences for the Emerald Isle.

In the run up to the referendum, the Irish were told on numerous occasions that a ‘no’ vote would result in the country not having access to the European Stability Mechanism, the proposed EU permanent bailout mechanism. The fact that Ireland had no veto in the treaty due to its intergovernmental nature will have served as a bitter reminder to the Irish electorate of the threat of a two-tiered Europe.

As the nation struggles with ongoing recession and crippling debt, the electorate had little option but to approve Merkel’s fiscal compact. In its current fragile economic state, Ireland can’t afford to not have the support of Europe. The country will almost certainly need access to funding from the ESM when its current bailout expires in 2014.

Chancellor Merkel and her ever-shrinking pro-austerity gang are no doubt aware of the vulnerability of Ireland and other nations in similar strife. What better way to ensure compliance than to threaten to cut off funds when a country is facing its toughest economic struggle in decades.

This is an issue facing not just the Irish, but Europe as a whole. The next step the EU takes will be crucial. As key players around the globe call for European leaders to come to a solution to solve the bloc’s ongoing crisis, Europeans are struggling with the notion of moving toward a federal superstate, akin to that of the US or Australia. While outsiders may believe this is the only long-term option for the bloc, such a move would prove near impossible for a region as diverse and divided as the EU.

The idea of a federal union has been an issue of contention for Europe since the beginning of the European Coal and Steel Community and the European Economic Community in the 1950s. While outsiders may consider a United States of Europe as the natural next step, Europeans are often horrified by the notion.

For a federal union to survive, its people need a shared sense of identity, a common culture and history, and an attachment to the same territory.

These commonalities simply do not exist in Europe. No one could suggest that Germans share a kindred spirit with Italians or the Irish. There are simply too many different cultures in the region, with too many diverse histories for a federal union to survive.

Throughout the history of the EEC, the EC, and finally the EU, there has been continuous debate over the level of integration that can be achieved. In attempts to further integration, the region has had to balance a combination of supranational institutions such as the European Commission and the European Parliament, alongside intergovernmental decision making by member states. In approving changes to the treaties over the past decades, member states have accepted further integration if, and only if, the benefits on a national level outweighed the costs of such a move.

With the advent of the financial crisis, the dynamic has changed somewhat. While the nation-state is as important as ever, countries across the EU have been forced to reassess exactly how much of their sovereignty they can hold on to as the crisis continues.

Though a federal union is not a viable option, neither is the break-up of the euro. The consequences of abandoning the common currency would be catastrophic for the region. The ill-conceived euro has been disastrous for the bloc and has steadily fallen against major currencies, including the Australian dollar, as investors seek refuge in safe-haven assets.

The only way out of the crisis is to move forward toward deeper integration. A solid fiscal policy to match its monetary policy is what the bloc needs now.

European Central Bank’s chief Mario Draghi’s proclamation that the euro is unsustainable unless a carefully laid out plan to ensure its future survival is agreed upon, gets to the root of the problem. The region cannot continue with a common monetary policy without a corresponding fiscal policy. The key players will need to come up with a comprehensive plan to deal with this massive deficiency.

It would be a lengthy process, but if we’ve learned anything from previous attempts to shore up the euro, it’s that there is no quick fix to the problem.

Recent proposals that have been outlined include the formation of a European-wide banking regulator that could watch over banks across the bloc. This has received the support of both the IMF and the European Commission. A centralised authority could take over the burden of bailing banks out directly, thereby allaying the pressure on flailing governments and reducing sovereign debt.

Other proposals would give more power to the European institutions over national budgets. But in order to give more authority to supranational bodies to manage the economies, budgets and banks of member states, there would need to be amendments made to the current treaties. If Chancellor Merkel is persuaded that this is what’s needed in order for the eurozone to survive, the Irish may be going back to the polls before too long.

Cliona O'Dowd is a journalist with Business Spectator and has a Masters of Economic Science in European Economic and Public Affairs, from the Dublin European Institute, University College Dublin.