Disadvantages to Ireland of EU Membership

Dont be at yourself

Could the contribution be covered by "becoming more competitive"? Probably - the question is whether we would become more competitive or less.

Well, that's the nub, I guess. Have there been any impartial studies or papers on this? Listening to either side, it seems we'd either be doomed forever, or booming.

We're not required to do any of those things to be in the EU.

Fair point! That said, it does look like our corporate tax rate is going to take some protecting.

All of them, bar any agreed areas of exclusion. There's a couple of long answers to this, from review papers on Norway's EU relations

Thanks for those quotes. I guess it boils down to exactly how deep EU regulation would go into our own domestic one, and in what areas. Those papers suggest it's quite deep, and quite wide-ranging. It'd be interesting to see the areas that *aren't* regulated by the EU for these countries.

You're begging a large question there - is Switzerland's high FDI "precisely because they're not a full EU member", or because they operate an unparalleled regime of banking opacity?

Forgive the shorthand. Isn't one of the key reasons for Switzerland not being an EU member that they want to protect that banking opacity? I'm not suggesting that Ireland try to foster a banking sector like the Swiss, because that race has probably already been run. But surely there are other areas that EU member states are somewhat hamstrung in being competitive in due to EU regulation. We could position ourselves as the Wild West of Europe in these areas. The British are trying to do the same in protecting the City of London from the financial transaction tax.

Switzerland's 2010 FDI/capita was $65,340, ours was $54,285. Norway's was $26,626, and Iceland's was $38,526. So it seems to me you're picking the best possible FDI, and ascribing it not to any unique features of Switzerland but purely to it not being an EU member - looking at the other EEA/EFTA members, the explanation doesn't hold up.

To be honest, I don't know the figures or the details. I'm talking in very broad brush strokes (and not advocating anything, just talking through ideas...), but Switzerland is a useful example because it shows what *can* be achieved for a European country outside the EU. It's interesting that we do share much in common with the Swiss though - lots of European HQs for multi-national companies and positioned very much towards providing services rather than manufacturing etc.

So, currently we're doing very well in FDI terms inside the EU, and one the basis that one of the EFTA countries with a very different profile to ourselves does slightly better, while others do worse, you believe that we would also do better. I don't see it.

To be clear, I don't believe anything. I'm trying to find information on the different scenarios, that's all. But I think a key point in your argument is 'currently'. To me, it looks like the sun is very much setting on Ireland's competitiveness inside the EU. We're not going to be receiving massive amounts of investment, and if we're brought into a tighter fiscal union, our competitiveness will not be the driving agenda of EU decision making - the competitiveness of the eurozone itself, led by the German economy, will be the one that dictates the tune. If we got 5 or 10 years down each line, which Ireland would be more attractive for FDI?

More likely to to be the worst - we too could then apply most EU legislation, pay for market access, and have no say in EU policy-making

Seems much of a muchness, with the devil in the detail.

Stay in the EU, apply all EU legislation, free market access, very small say in EU policy-making.
Leave the EU, apply most EU legislation, pay for market access, no say in EU policy-making.

The size of the three variables (the amount of legislation applied, the fee for market access, and the say in EU policy making) are what makes or breaks it, really.

K-9

Dont be at yourself wrote: »

Forgive the shorthand. Isn't one of the key reasons for Switzerland not being an EU member that they want to protect that banking opacity? I'm not suggesting that Ireland try to foster a banking sector like the Swiss, because that race has probably already been run. But surely there are other areas that EU member states are somewhat hamstrung in being competitive in due to EU regulation. We could position ourselves as the Wild West of Europe in these areas. The British are trying to do the same in protecting the City of London from the financial transaction tax.

We kind of have positioned ourselves as the Wild West of the EU though, lax financial regulation of the IFSC and lax tax rules for multi nationals. I'd assume that is why the Government isn't as perturbed about the financial tax.

Its hard to know how we would position ourselves out of the EU, its been such an integral part of the marketing for FDI for 40 odd years.

Dont be at yourself

But that's kind of the point. The EU seem to be seeking to tighten our lax financial regulation and tax rules for multinationals on which our economy is so heavily based. To continue with the analogy, they're trying to tame the 'Wild West', and I don't know if that's in our interests.

I suppose those two areas, along with access to the European market, are our main selling point to attract FDI. The question is if we can maintain the first two without damaging the last one.

K-9

Dont be at yourself wrote: »

But that's kind of the point. The EU seem to be seeking to tighten our lax financial regulation and tax rules for multinationals on which our economy is so heavily based. To continue with the analogy, they're trying to tame the 'Wild West', and I don't know if that's in our interests.

I suppose those two areas, along with access to the European market, are our main selling point to attract FDI. The question is if we can maintain the first two without damaging the last one.

I prefer to wait and see what is actually in the treaty first. People should realise what politicians say rarely ends up the reality, particularly the EU. Usually ends up in watered down versions due to compromising.

Hungary and the Czech Republic have already come out against pressure on tax rates so we'll have allies.

Scofflaw

Dont be at yourself wrote: »

Well, that's the nub, I guess. Have there been any impartial studies or papers on this? Listening to either side, it seems we'd either be doomed forever, or booming.

I sometimes wonder whether there's any such thing as an impartial paper in economics.

Dont be at yourself wrote: »

Fair point! That said, it does look like our corporate tax rate is going to take some protecting.

True - still, France I suppose feels its hands are tied, since were it not for EU rules, they'd simply out-compete us on subsidies.

Dont be at yourself wrote: »

Thanks for those quotes. I guess it boils down to exactly how deep EU regulation would go into our own domestic one, and in what areas. Those papers suggest it's quite deep, and quite wide-ranging. It'd be interesting to see the areas that *aren't* regulated by the EU for these countries.

In general, that's by agreement, such as Norway leaving out agriculture and fisheries - but in our case we couldn't even afford to subsidise our farming ourselves, because we lack the oil revenues to do so, and we'd probably still want EU market access for our agricultural exports, which means we'd have to accept EU regulation of it. So we'd end up in a position where Irish farming rationalised very heavily, with all the small grant-supported farms disappearing and a lot of the marginal land going out of farming entirely. We'd wind up with a much more efficient and productive farming industry, but it would mean the end of Ireland as a rural country.

Dont be at yourself wrote: »

Forgive the shorthand. Isn't one of the key reasons for Switzerland not being an EU member that they want to protect that banking opacity? I'm not suggesting that Ireland try to foster a banking sector like the Swiss, because that race has probably already been run. But surely there are other areas that EU member states are somewhat hamstrung in being competitive in due to EU regulation. We could position ourselves as the Wild West of Europe in these areas. The British are trying to do the same in protecting the City of London from the financial transaction tax.

We seem to have managed that quite nicely anyway, even inside the EU.

Dont be at yourself wrote: »

To be honest, I don't know the figures or the details. I'm talking in very broad brush strokes (and not advocating anything, just talking through ideas...), but Switzerland is a useful example because it shows what *can* be achieved for a European country outside the EU. It's interesting that we do share much in common with the Swiss though - lots of European HQs for multi-national companies and positioned very much towards providing services rather than manufacturing etc.

Actually, we're a surprisingly manufacturing-oriented economy.

Dont be at yourself wrote: »

To be clear, I don't believe anything. I'm trying to find information on the different scenarios, that's all. But I think a key point in your argument is 'currently'. To me, it looks like the sun is very much setting on Ireland's competitiveness inside the EU. We're not going to be receiving massive amounts of investment, and if we're brought into a tighter fiscal union, our competitiveness will not be the driving agenda of EU decision making - the competitiveness of the eurozone itself, led by the German economy, will be the one that dictates the tune. If we got 5 or 10 years down each line, which Ireland would be more attractive for FDI?

I'm not sure there's anything in there that couldn't have been said about euro entry, though, and euro entry certainly didn't decrease FDI. Our loss of labour/capital competitiveness seems, if anything, to have resulted from the increased competitiveness of a position inside the euro.

We actually managed to stay within the Maastricht criteria for the entire pre-crisis euro (the problem was a shift of the tax burden from income to property), so I don't see how an agreement that recapitulates those criteria with tougher penalties and more automatic sanctions is going to erode our competitiveness.

Dont be at yourself wrote: »

Seems much of a muchness, with the devil in the detail.

Stay in the EU, apply all EU legislation, free market access, very small say in EU policy-making.
Leave the EU, apply most EU legislation, pay for market access, no say in EU policy-making.

The size of the three variables (the amount of legislation applied, the fee for market access, and the say in EU policy making) are what makes or breaks it, really.

And curiously enough the only countries in the EEA/EFTA are those whose governments have been unable to persuade their electorates to allow EU entry. Iceland, Norway, and Switzerland all have some money-spinner in place - fish, oil/fish, and banking respectively - which might be impacted by EU entry. What do we have? Agriculture and a convenient business environment - but not to do business with us - to do business with the rest of the EU and eurozone.

cordially,
Scofflaw

Scofflaw

Dont be at yourself wrote: »

But that's kind of the point. The EU seem to be seeking to tighten our lax financial regulation and tax rules for multinationals on which our economy is so heavily based. To continue with the analogy, they're trying to tame the 'Wild West', and I don't know if that's in our interests.

I suppose those two areas, along with access to the European market, are our main selling point to attract FDI. The question is if we can maintain the first two without damaging the last one.

I don't know to what extent one would want to develop the position of being an anarchic tax haven, since a culture of light regulation tends to breed corruption. Also, I think we'd find that - certainly were we outside - the banks that do business here, being largely foreign banks, will get regulated anyway.

cordially,
Scofflaw

nesf

Scofflaw wrote: »

I sometimes wonder whether there's any such thing as an impartial paper in economics.

Theoretical, sure; applied, sometimes; policy advocating, never.

Scofflaw wrote: »

Actually, we're a surprisingly manufacturing-oriented economy.

GDP wise, yes. Employment wise, not so much.

Fromthetrees

Scofflaw wrote: »

No, I don't think so. That was based on the data available up to 2008, which had a constantly rising level of Irish contribution based on our GNI and VAT position - this was then projected forward.

Our contributions were in fact at their highest in 2008:

Year|Contribution (€bn)
2005|1.5
2006|1.53
2007|1.57
2008|1.59

Projections based on continued growth meant that our expected contribution by 2013 would have been higher than our expected receipts (c. €1.9bn).

Of course, as we know, it didn't work out that way, and instead our contributions have fallen back fairly dramatically:

Year|Contribution (€bn)
2009|1.49
2010|1.35

Even assuming we returned over the next couple of years to the galloping growth of the Tiger years, it will still take us several years to reach where we were in 2008, never mind where we were supposed to be in 2013!

cordially,
Scofflaw

Yeah, fair enough, we probably won't become a net contributor to the EU until some time after 2013, but we will sooner rather than later, that'll be an obvious disadvantage when that comes about. I do think it's important to note though that a lot of the money we receive is through CAP, this is a very important policy to the EUs short, medium and long term plan to ensure food security for the continent, Ireland produces enough food to feed 36 million people and the EU rightly wants to secure this, it benefits all concerned.
I found reading your posts on this thread quite interesting.
You say though that Europe isn't really to blame for our banking crisis, much of what I've come across is that blame is to be attributed both domestically and to overseas, John Bruton said The European Central Bank was guilty of a 'major failure of supervision' in not restraining lenders from fueling the property bubble in Ireland, do you disagree with his analysis? Didn't joining the Euro fuel the credit bubble through low interest rates? Didn't the Irish banks borrow large sums from foreign banks? By bailing out our banks haven't we helped other eurozone members avoid contagion?
Is it really fair that the entire cost of our banking crisis falls squarely on Irish taxpayers?

nesf

Fromthetrees wrote: »

John Bruton said The European Central Bank was guilty of a 'major failure of supervision' in not restraining lenders from fueling the property bubble in Ireland, do you disagree with his analysis?

The failing was clearly and firmly placed at the feet of our Regulatory system. The problem for the ECB looking in was that it was told everything was fine over and over and the banks looked healthy enough from their general accounts and so on. Yes the ECB could have taken a more proactive role sure, but the failing were in our system both political and regulatory.

Scofflaw

Fromthetrees wrote:

You say though that Europe isn't really to blame for our banking crisis, much of what I've come across is that blame is to be attributed both domestically and to overseas, John Bruton said The European Central Bank was guilty of a 'major failure of supervision' in not restraining lenders from fueling the property bubble in Ireland, do you disagree with his analysis?

I would say, rather, that the ECB lacked the appropriate tools to do such supervision or restraint. As with the euro, the system was one largely based on national supervision, so when the Irish Central Bank said everything was fine, that was what the ECB took to be the case. To be fair to the ECB, that's also what the ratings agencies were saying - Anglo had an A credit rating, which is above quite a lot of countries (including, currently, Ireland).

Fromthetrees wrote:

Didn't joining the Euro fuel the credit bubble through low interest rates?

To some extent - far more important, as far as I can see, was the lack of banking prudence. Salary multiples exceeded historic multiples in Ireland even for low interest rate periods, while notional salaries were inflated in ways apparently sometimes suggested by the banks themselves. Lenders offered tracker mortgages they were always going to struggle to make a profit from, 100% mortgages, remortgages. Commercial lending seems to have been equally imprudent, with questionable titles, assets pledged several times over, and so on. Meanwhile, the banks urged the government to make it easier and easier for them to access the wholesale money markets.

So while low interest rates explain to some extent the willingness of people to borrow - admittedly foolishly on the basis of ever-rising house prices and ever-low interest rates - they don't really explain the behaviour of the banks.

Fromthetrees wrote:

Didn't the Irish banks borrow large sums from foreign banks?

They did, but not really from eurozone banks, which seem to have stayed well away. Nor, importantly, did anyone make the Irish banks borrow such large sums - they did it because they thought they had discovered an entirely new business model, and the depth of the hole in each of the bailed out banks is in direct proportion to the extent to which they followed that business model - Anglo invented it, AIB followed it pretty slavishly, while BOI was more cautious.

Fromthetrees wrote:

By bailing out our banks haven't we helped other eurozone members avoid contagion?

Again, yes and no. By including Anglo in the guarantee, rather than putting it immediately into insolvency proceedings, we managed to entwine sovereign and bank debt, to the detriment of all eurozone members. Our action there was felt by other sovereigns, not just in the eurozone, to have pushed them to do similar, and when the depth of the hole in the banks began to hove into view, it became a sovereign debt crisis rather than a banking crisis.

The moment at which we undertook our guarantee was, in fact, the moment when a clear line could have been drawn between salvageable banks and unsalvageable banks, with bondholder burning likely to happen to the latter - much as has been done for Greece. That would have caused a market panic, certainly, as people tried to shift debt to the better banks, but the result would have been some dead banks and some strengthened banks, rather than every bank being in limbo.

Unfortunately, it seems the government had no idea of the problems in Anglo - which in turn is because Anglo didn't believe there were any, and the Irish bank regulation regime was so light-touch as not to know any better.

Fromthetrees wrote:

Is it really fair that the entire cost of our banking crisis falls squarely on Irish taxpayers?

On who else would it fall? Other countries' taxpayers? Who are already paying for the bailout of their own banks? In some cases banks that grew their problems under the Irish regulatory regime, like Depfa?

Nobody owes us the money, and our government didn't have to do what they did. Our government guaranteed the banks, and they legally had the power to do so. Again, they thought that they were going to, in effect, bail out the banks without ever injecting any money, and make a tidy profit off the uncertainty surrounding other countries' banks, which would (and did) suck money into the Irish banking system. Muy cunning, grand stroke...big CF. Sucks to be us.

I'm entirely in favour of laying off any debt we can, and bargaining for any kind of reduction, rate drop, or maturity extension we can get - but I'm not in favour of pretending we have some kind of right to anything, because we don't.

cordially,
Scofflaw

Doc Ruby

Scofflaw wrote: »

Nobody owes us the money, and our government didn't have to do what they did. Our government guaranteed the banks, and they legally had the power to do so.

This the same government that got buried in the last elections?

meglome

Doc Ruby wrote: »

This the same government that got buried in the last elections?

Yup the one we had repeatedly elected.

Scofflaw

meglome wrote: »

This the same government that got buried in the last elections?

Yup the one we had repeatedly elected.

And, vitally, the one that was at the time the duly elected and legally constituted government of Ireland.

If we don't want the government to have the ability to take on liabilities that can cripple the state, I'm afraid we have to have that written down and agreed in advance. Otherwise, saying afterwards that we don't really like what they did is crying over spilt milk.

cordially,
Scofflaw

hatrickpatrick

Scofflaw wrote: »

Unfortunately, it seems the government had no idea of the problems in Anglo - which in turn is because Anglo didn't believe there were any, and the Irish bank regulation regime was so light-touch as not to know any better.

Do you really believe this? Call me a cynical gobsh!te but I still say it was a case of bailouts for buddies. Now that we know how much dodginess there was between that bank and FF (and Irish Nationwide/FF)...

Those who made the mess have walked away with the cash. Whether this was incompetence or collusion on the government's part we'll never know, but the fact that the government apparently knew about the Golden Circle and chose not to tell anyone about it until it found its own way into the media is very telling.

I know a lot of people here think I'm overly harsh in my judgements of cronyism but all evidence seems to suggest otherwise. Anyone else remember that documentary about how at a certain point politicians could phone managers of Anglo and get massive loans, no questions asked?

If I'm wrong, I'm wrong, but I'd put money on that having been more than just a "mistake".

And if I lose the bet, I'll accept that I chose to gamble and my loss is my own fault... Unlike some people

Scofflaw

hatrickpatrick wrote: »

Do you really believe this? Call me a cynical gobsh!te but I still say it was a case of bailouts for buddies. Now that we know how much dodginess there was between that bank and FF (and Irish Nationwide/FF)...

Those who made the mess have walked away with the cash. Whether this was incompetence or collusion on the government's part we'll never know, but the fact that the government apparently knew about the Golden Circle and chose not to tell anyone about it until it found its own way into the media is very telling.

I know a lot of people here think I'm overly harsh in my judgements of cronyism but all evidence seems to suggest otherwise. Anyone else remember that documentary about how at a certain point politicians could phone managers of Anglo and get massive loans, no questions asked?

If I'm wrong, I'm wrong, but I'd put money on that having been more than just a "mistake".

And if I lose the bet, I'll accept that I chose to gamble and my loss is my own fault... Unlike some people

Do I really believe it? I guess I'd say it's an adequate explanation, unfortunately - no corruption is actually required to have things work out the way they did. The close links you allude to are enough by themselves, even where everybody involved is being as honest as they can be.

Looked at another way, the emphasis on the idea of corruption is, or can be, a red herring in terms of learning from what happened. We could see the same pattern of close links again, go in looking for corruption and not find any, and think there's therefore no problem, whereas the closeness itself is a problem whether there's corruption or not.

cordially,
Scofflaw

Doc Ruby

Scofflaw wrote: »

Otherwise, saying afterwards that we don't really like what they did is crying over spilt milk.

Too easy an answer. Any government can take things to excess, that's why we have dictatorships, and why normal democracies can turn into dictatorships. Unless the government got 100% or even 51% approval ratings in a referendum over the bailout, you can't blame the voters for unexpected dementia.

When the people that write the laws themselvs go bad, especially when there's no checks and balances like in Ireland, your only choices are sit there and grit your teeth or take them down by main force.

Thankfully we chose the former.

I admit it was a bit short sighted of the constitution writers not to have foreseen the possibility of gargantuan bank bailouts and nipped it in advance though.

Scofflaw

Doc Ruby wrote: »

Too easy an answer. Any government can take things to excess, that's why we have dictatorships, and why normal democracies can turn into dictatorships. Unless the government got 100% or even 51% approval ratings in a referendum over the bailout, you can't blame the voters for unexpected dementia.

When the people that write the laws themselvs go bad, especially when there's no checks and balances like in Ireland, your only choices are sit there and grit your teeth or take them down by main force.

Thankfully we chose the former.

I admit it was a bit short sighted of the constitution writers not to have foreseen the possibility of gargantuan bank bailouts and nipped it in advance though.

Well, it was a little off-hand, but I don't think you're actually disagreeing so much as extending the same point - we lack some necessary checks and balances, and we don't have a constitutional limit on the debt our government can get us into.

The former is really the more important of the two - the inner Cabinet seems to have decided on the details of the bailout, presented it as a fait accompli to the rest of the Cabinet, and then had it rubber-stamped by the Dáil. All perfectly possible and legal as the system works, but something that suggests the system is badly wrong.

Where was the parliamentary debate about the guarantee? Where was the opportunity for constituents to put pressure on their representatives to vote against it?

cordially,
Scofflaw

K-9

I suppose the argument was we didn't have the time to have a debate over the guarantee, barely time for a cabinet meeting. The worry was 1 or 2 banks would go the following day or two and the focus was on stopping that.

Scofflaw

K-9 wrote: »

I suppose the argument was we didn't have the time to have a debate over the guarantee, barely time for a cabinet meeting. The worry was 1 or 2 banks would go the following day or two and the focus was on stopping that.

Sure - but I think the markets might well have held their fire if the government had announced its plan to create such legislation within days. As it was, even the Cabinet didn't discuss it:

In Crisis – Inside the Cowen Government Willie O’Dea and Mary Hanafin are both critical of the manner in which they were “bounced” into making a decision which would, ultimately, lead to the IMF-EU bailout.

Both said they were given no alternative but to back the decision to offer a blanket guarantee to all of Ireland’s banks in a tele-conference held between cabinet ministers in the early hours of September 30th, 2008.

Ministers were told by the Department of Finance that “the markets were opening in the morning and there was the possibility of no money in the ATMs” and that “nothing short of this full absolute guarantee would save the situation”.

“It was probably the most far-reaching decision I ever participated in in my five years in cabinet and I would have liked to have sat around the table to discuss it,” Mr O’Dea said. He also admits “the government did not have a mandate” to offer the bank guarantee and suggests that “in retrospect, it would have been better for the country if a fresh government” had come to power at that stage.

cordially,
Scofflaw