On Ireland’s financial sovereignty and our “Gallant Allies in Europe”
The 1916 Proclamation declared the establishment in arms of the Republic by the Irish Volunteers with the support of Ireland’s “exiled children in America and by gallant allies in Europe”. For Connolly, Casement and others, the world war had been engineered to destroy the threat to the British Empire represented by a new Europe with “German Socialism” at its core. Ireland’s future would be secured through a close alignment with Europe.
The world financial crisis since 2008 has again forced the hand of Europe, and required it to develop along a new path by consolidating the Eurozone outside the structures of the increasingly marginalised and atrophied “European Union”. The moment of truth came in November 2011 when Britain ensured that monetary consolidation could not occur through the EU structure.
Political conflict in Ireland towards resolution of the financial and European crisis reawakened the conflict of 1914 between the Irish Volunteer position of a Republic aligned with Europe versus the New Redmondism which proposed a partnership with Britain in running the Empire.
From 2008 a strong agitation developed proposing debt default and ultimately an Irish economic re-alignment close to Sterling. Proponents of this approach ranged from right wing commentators like Cormac Lucey (former adviser to Michael McDowell) and Morgan Kelly to left wing advocates of a false kind of financial Keynesianism like Fintan O’Toole. This agitation was reinforced centre stage by the Financial Times – the organ of the financial markets of the City of London – which became something of a household organ for the Dublin commentariat. The FT cynically advocated the flooding of debtor states with cheap money, which of course would have had the effect of weakening the Euro and fatally disabling the main power of the Eurozone, Germany, much to the benefit of City of London traders. The agitation was accompanied by a revival of crude wartime anti-German propaganda.
The alternative line was to maintain a close alignment with the Eurozone and, through its consolidation with monetary union, resolve the Irish crisis. This perspective must assume that the Eurozone project under its Franco-German leadership is a benign and positive development and promises in the long run to secure Europe against the depradations of global – or rather Anglo-American – finance capitalism. But the Anglification of public commentary in Ireland in recent decades meant that it was a perspective that was slow to find articulation. The case was forcefully put first only in the small circulation Irish Political Review, but Ireland’s Europeans eventually found their feet, notably through the case being put by John Bruton and Lucinda Creighton in The Irish Times which dramatically made itself a vehicle for the message in a week long series on Germany and Ireland in August 2012. The general population, for its part, had retained its Republican instincts sufficiently to have ratified – however grumpily but decisively – the Fiscal Compact. As those Irish Times polls showed, they had also stubbornly maintained a fundamentally positive and benign view of German intent, despite what Stephen Collins described as “the anti-German rhetoric emanating from a range of politicians and high-profile media commentators” (Irish Times, 25th August).
The Euro crisis is well in hand and moving towards resolution through a radical deepening of European integration via its currency. The “EU” project had become derailed in the backwash of the collapse of Soviet communism and, under British influence, had indulged itself in a binge of mindless expansionism and free marketeerism in the 1990s. The federalist project was shelved. At the time Jacques Delors, who as Commission President had been the great architect of “Social Europe”, convinced the then French socialist president Francois Mitterand that the project of European integration could only be saved by creating a fact on the ground – a common currency – whose eventual logical consequences would force the revival of a development towards economic integration. Mitterand convinced German Christian democrat chancellor Helmut Kohl – in fact making it a condition of French support for German re-unification - and thus the Euro project was born.
The Germans are slow and reluctant leaders of Europe. Recently in Die Zeit the highly regarded Slovak social democrat leader, Richard Sulik, chided Germany for its continued self-restraint due to its war crimes in the Second World War. He argued that German “guilt” had been resolved and that Germany should not go down the road of financing a European recovery and ruin itself in the process from a sense of historic duty (‘Deutschland ruiniert sich’, Die Zeit, 19th August). The Polish Prime Minister on the other hand appealed last year for the opposite, saying what Poland feared more than German power was German inactivity, and calling for Germany to push ahead with the Fiscal Compact. Probably more than any other factor, voices such as these from Eastern Europe have galvanised the German will to see the Euro project through to success, and Irish Foreign Affairs congratulates them on this.
There is an uncanny resonance in the current process of resolving the crisis to what happened in Europe and Ireland in the late 1970s when then too international markets were threatening to destroy the European project.
There is much nonsense spoken at the moment about “restoring Ireland’s financial sovereignty.” This is a hangover from the 2010 election campaign when the then opposition parties claimed they would “restore Ireland’s economic sovereignty” - which Fianna Fáil had lost - by renegotiating the agreement with the Troika. This useful lie remains a fundamental part of the mythology of the current Government, repeated ad nauseam by the Taoiseach, the Tánaiste and various Ministers.
But the financial history of Ireland shows that since independence was declared in January 1919 the state has ever been engaged in seeking to expand its very narrow “financial sovereignty”. The first Dáil established a Department of Finance and planned an independent currency but following the Treaty the finances of the Free State remained both de jure and de facto subservient to the Bank of England. The Cosgrave Governments of the 1920s sought with some limited success to loosen this financial bondage.
The economic war with Britain in the 1930s, which culminated in the qualified Irish victory of the Anglo-Irish Agreement of 1938 (facilitated by the British turn to “appeasement” of its enemies and colonies), established a further degree of economic independence, or sovereignty. The Irish Pound, however, remained linked and subservient to Sterling – i.e. to the Bank of England – despite the formal break established in 1937 in Bunreacht na hÉireann.
In a proverbial “little known incident of the Second World War”, Churchill launched what might be called a “dirty” financial war designed to wreck the Irish economy. This major assault on Irish sovereignty is only a “little known incident” because the Irish school of “historiography” that has developed since the 1970s portrays Irish neutrality in WW2 as either, at best, a clever sham (Ryle-Dwyer), a mere matter of “security cooperation” (O’Halpin of TCD), or, at worst, in the words of current Minister of Defence, Alan Shatter, a declaration of “moral bankruptcy”. In such a view of things, the actual history of the war must be disregarded and written out of the record, as during its first two years British strategy had been to spread the conflict as far and wide as possible (including to Ireland) while Irish strategy revolved around an assumption that the prime threat to its neutrality came from a potential British invasion and re-occupation. (The story of Churchill’s economic war against Ireland within the wider war against Germany was last recounted, as far as we are aware, in Robert Fisk’s magisterial 1970s book In Time of War).
The Fianna Fáil governments of the 1960s had little perspective on issues of financial sovereignty. Their primary concern, as expressed by Seán Lemass, was to achieve a standard of living for Irish workers that approximated to that of British workers. When Britain applied for membership of the European Common Market in 1964, Lemass followed suit because he believed Ireland had no other choice in the matter. In 1969, over 95% of Irish exports – mostly in the form of unprocessed agricultural produce - was still to the British market.
When in the 1970s a financial crisis in Britain led to the IMF being called in, Irish politicians began for the first time to seriously consider breaking with Sterling. The true extent of Ireland’s “financial sovereignty” at the time was well described by the then Governor of the Central Bank, T.K. Whittaker, who wrote: “no small country dependent on international trade can defend itself in the end from the inflation prevailing in its main trading partners”. He further pointed out that as long as a sterling link was in effect, control of Ireland’s inflation would depend on that of Britain. In a moment strong with resonances for today’s readers, Britain’s financial predicament coincided with an initiative of the then German Chancellor, Helmut Schmidt, backed by the French President, Valéry Giscard d’Estaing (but opposed by the Bundesbank), to create a “zone of financial stability” for EEC member states through what was to become the European Monetary System (EMS), a move that had the ambition to be the first step on the path to a full monetary union.
The negotiations in this process were highly secret, and at the crucial moment, when Britain – then as again in 2011 – sought to scuttle the project by withdrawing from it in April 1978, Ireland was excluded from the talks because, in the words of Patrick Honohan, there was a general “perception that Ireland was, for monetary purposes, an adjunct of the UK.” It was in reaction to this exclusion, and particularly to Giscard’s statements reflecting European views of Ireland as an adjunct of the UK, that the Fianna Fáil government of the time announced that Ireland would break definitively with Sterling and join the proposed Exchange Rate Mechanism, with the somewhat reluctant Irish Central Bank and even more reluctant Department of Finance having to be dragged along in the process.
These developments – outlined in 2010 in an in-depth paper by Patrick Honohan and Gavin Murphy – form the start of Ireland’s deeper integration into Europe, as the EMS was accompanied by the programmes of Structural Funding intended to even out economic imbalances between central and peripheral regions of the Union as part of the process of monetary integration.
The break with Sterling was seen as the starting point for an industrial and economic take off, or, as the then Department of industry put it: to retain the fixed link with sterling would “perpetuate our trade dependence on the UK and tie Ireland to the high inflation, historically slow and uncertain growth of the UK economy.” This strategy largely worked, and by the late 1990s, the economy had expanded massively and trade with Britain had declined to less than 30% of all Irish exports. And even these exports were now more industrial in content and, where agricultural, processed prior to export. Of critical importance was the political nature of the break, with Government stressing the increased economic sovereignty that would accrue from a dramatic reduction in dependency on British markets.
The relationship with Europe was never perceived as an alternative dependency to that on Britain, but rather more of a set of relationships between equals, much as Connolly and Casement had seen it in 1914. As Honohan observed: “On March 30, 1979, just over two weeks after the start of the ERM, the sterling link was broken forever.”
We are at a similar moment again and, through the Fiscal Compact referendum, Ireland has taken the leap it needed to take and, in tune with the instincts of the population, has embarked on the historic project of European monetary union under a more assured Franco-German leadership than has been witnessed for decades.
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