Economics / Politics

The Apple i-Punt

The vote for prosperity [Ireland’s 1972 referendum on joining the European Community] overwhelmed the vote for tradition. The Sinn Féin party, opposing Common Market entry and invoking the ghosts of the martyrs of Ireland’s bloody fight for independence, went down before the prospect of wall-to-wall carpeting and colour TV.

Martin Pawley, The Private Future (Random House, 1974)

When I was young and ambitious, an old Fleet Street hand, who sat next to me at the news agency by which we were both employed, cautioned against haring after fame and fortune. He reminded me that I currently enjoyed a four-day week (each day was meant to last ten hours, but didn’t), opportunities for generous overtime, and an agreeable lack of oversight.

‘You’ve got a nice little number,’ he intoned. ‘Why spoil it?’

Why indeed? I did, of course.

Ireland, currently being ordered by the European Commission to demand extra taxes from tech group Apple – taxes that the Irish government itself does not want – is unusual in that, well within living memory, it has experienced three quite different currency regimes. For that reason, it may be worth looking at the monetary side of the equation before turning to fiscal issues, not least Apple.

From 1922 to 1978 Ireland’s currency was tied to, and pretty much identical with, sterling. The notes and coins were similar and British denominations circulated freely in the Republic. Irish currency may have encountered shopkeeper and taxi-driver resistance in Britain, but that was not because of any innate hostility to the country and its people but for the same reason of unfamiliarity that often led to Scottish and Northern Irish note issue being deemed unacceptable.

Since 1999, Ireland has been part of the euro-zone, with neither its own currency nor control over interest rates.

And in the middle? The Republic had full control over its currency, known variously as the Irish pound, the punt or the IRL, this last description evoking nostalgia among those of us who recall writing out Euro-cheques (Remember them? They had nothing to do with the euro) in that very denomination for holiday accommodation.

Were Ireland’s monetary history a controlled experiment, the winning regime would be beyond doubt. Figures from the International Monetary Fund (IMF) and World Bank tell the tale. The golden era for growth in the Irish economy coincided with that middle period, the heyday of the IRL.

The Irish had a nice little number. Why spoil it? Yet spoil it they did.

In part, of course, this can be put down to the unknowability of the consequences of a certain action. European Community/European Union membership had been deemed good for the country. Surely joining the euro could only intensify the economic boom? And for a while, of course, that is just how it worked out. Until the calamitous effects of the 2007 credit crunch and the subsequent Great Recession.

One of George Osborne’s better decisions as chancellor of the exchequer was to make a £3.26 billion ‘bi-lateral’ (i.e. nothing to do with the EU) loan to Ireland in 2010, on the ground that here was a friend in need. That Osborne is heir to a baronetcy in Co. Waterford may have seemed either a conflict of interest or rather wonderfully Woosterish – I take the latter view and, more seriously, believe the then chancellor was right.

The euro crisis and its impact across the Irish Sea spurred some of us to hope for a return to the status quo ante 1978 and a restoration of a pan-British Isles monetary union (reviving the IRL despite its excellent record was a non-starter given the circumstances). The Osborne loan, we thought, could pave the way for this.

It was not to be – not yet, anyway, and probably never. Why not? Europe, again.

Ireland left the sterling area 38 years ago not out of a sudden desire to cut ties with its former master but because the European Community was launching the Exchange Rate Mechanism (a sort of forerunner to the euro in which all member currencies were tied to the system’s ‘anchor’, the German mark), and while Ireland wanted in, Britain did not. Thus, in order to qualify, Ireland needed a properly independent currency.

By the time of the euro crisis, the Republic’s political class had thrown in its lot so irreversibly with the joys of single-currency membership, even when there was little joyful about it, that a reversal out and back into the British monetary embrace was almost certainly never a serious option. Furthermore, it is quite likely that Britain at that time, reeling from the recessionary gale and slashing public spending with merry abandon (remember Nimrod, the Harrier Jump Jet, Child Benefit?), was not exactly in a position to reconfigure its monetary arrangements to take in a nation of 4.6 million people.

Anyway, the Irish establishment could content itself with the thought that monetary non-independence mattered little given that the country retained autonomy over ‘fiscal policy’ – taxes and spending. This is an entirely valid argument. Monetary policy can be presented as being a purely technical matter, akin to public health or environmental protection. Fiscal policy is intimately bound up with what a nation or society is, its character and heritage.

Taxing and spending is at the heart of national democratic accountability. Monetary policy is not. Nobody ever mounted the barricades with a cry of ‘no alteration to Bank Rate without representation!’ Hong Kong, which has never been a sovereign state, has its own monetary policy. Ireland, as we have seen, has been a sovereign state for nearly a century despite enjoying its own independent currency for just 21 years.

Indeed, few countries have made as much of the fiscal advantages available to a relatively small economy as has Ireland. There is the low rate of corporation tax, there is the ‘internal offshore’ centre in Dublin’s International Financial Services Centre in the capital’s old docklands area, with its own tax regime, and there is, of course, the tax treatment of giants such as Apple.

Now, to put it bluntly, the Irish government has learned that it does not, after all, enjoy fiscal autonomy. This week Big Brother in Brussels has decided to re-label allegedly favourable tax treatment as the equivalent of state aid, i.e. subsidies. We can be fairly certain that the European Court of Justice (only the first of those four words is moderately accurate) will back up the Commission. That’s the job of the ‘court’. The Commission’s big guns will doubtless then turn on the financial services centre.

Irish Euro (and euro) philia is taken as a given, particularly among the Republic’s political class. But nothing lasts for ever. Could the Apple decision, and subsequent rulings, re-awaken a long-dormant scepticism in an Ireland convinced, in large part, that it was low taxes, among other things, that put the Celtic Tiger in the tank?

Well, possibly. British-Irish relations, monetary or otherwise, are never straightforward. Fifteen years ago, when the UK was debating whether to join the euro, I chatted to a friend who was (a) pro euro and (b) a former Army officer who had served in Northern Ireland.

I happened to mention (I sort-of assumed he knew) that at least some members of the Northern Irish bit of the pan-Irish nationalist party Sinn Féin were in the ‘save the pound’ camp. Yep, they preferred the ‘colonial’ currency to the EU’s money.

‘You,’ he said, ‘are kidding me.’

I wasn’t.


EuropeIsn'tWorking

Dan Atkinson’s latest book Europe Isn’t Working, co-written with Larry Elliott, is published by Yale University Press and available from all good booksellers.


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