What does President Sarkozy think of Ireland?

13th May, 2010

Eiffel-TowerOf course I don’t know the answer to that question. But I have just had a remarkable 4 days in Paris that has really allowed me to understand what France thinks of the situation in Europe and Ireland.

I was honoured to participate in a programme that is organised by the French Government. It picks figures who they think will be of influence in the future and organises a themed visit to Paris. Ireland hasn’t participated in this programme since the ’90s. One of the then participants is now our Tanaiste! As I said, a real honour which I thoroughly enjoyed.

During this visit I met economic and political advisors to the Government. I could not have arrived at a more opportune time. The efforts made by member states to stabilise the eurozone was a fascinating backdrop to my conversations.

So what did I learn?

Firstly, the world really has changed. The decision to fund a billion stabilisation fund has come at a huge political and economic cost to Germany. It is important to remember that the euro is a creation worth saving for the German economy. It has supported an export led model of economic growth from a base of low domestic demand and high saving. Nonetheless member states have stumped up to protect this creation.

So, what will be the price for this support? The crux of this problem has been a common monetary policy but no real fiscal coordination. Massive attempts will now be launched to change this. I see that the debate on this has already started in Ireland!

At the least this will mean more fiscal cooperation, at the most attempts will be made to unify fiscal decisions. If this fund is to be sustained and if such a sovereign debt crisis is to avoided in the future then one way or another this will be tackled. How Ireland responds to this challenge is our new National Question. Get this right – then a secure era of prosperity awaits. Get it wrong, then the ferries and flights will be full of our best and brightest.

Thirdly, Europe must move beyond a focus on fiscal performance. This may seem stunningly trite in the middle of a sovereign debt crisis but I’m just convinced that our big problem is about the real economy – our competitiveness, productivity and growth prospects. Spain is a perfect example of this. This country has been meeting their stability and growth pact objectives. They have a history of very recent budget surpluses. Despite this they are in a crisis.

But this issue has two important dimensions, national and global. Nationally the so called peripheral economies have been delivering economic growth. Europe badly needs Germany, France and Italy to deliver big growth figures. Globally, Europe will be easily outpaced by China, India and the US. This is not an academic problem. It will mean a lower standard of living. The need to move beyond mere fiscal performance is shown by considering the aggregate fiscal deficit performance of these different regions. Europe is actually healthier than the UK or the US when our total budget performance is considered.

Fourthly, we should not lose sight of the fact that Ireland does have something to gain in fiscal coordination. For example, if Ireland had to increase it’s VAT rate again this would be far more effective if this happened in unison with other European countries.

Finally, there will be changes in the Growth and Stability Pact. At the very least it’s implementation will be improved. I think that it is possible that the economic factors that it considers will be considerably widened. They could included the gross savings rate of a country. The measures of budget performance could focus more on structural budgets and not just the grossEU budget. I’m preparing a report on this subject for the EU Affairs Committee.

On a final note the whole trip showed to me the worth of meeting experts and politicians in other countries. You understand how Ireland is viewed abroad and the challenges that others are grappling with. My sense of urgency is renewed and more informed.