Fears over ‘United States of Eurozone’

French President Nicolas Sarkozy and German Chancellor Angela Merkel have presented proposals for a Eurozone government to carry out centralised European decision making on economic matters and extract a new tax on all financial transactions within the Eurozone.

“We have to converge. The status quo is impossible,” Sarkozy declared. “We are convinced it is right for Europe,” said Merkel, speaking side-by-side with Sarkozy at a press conference on Wednesday.

French and German officials have decided that the Eurozone, consisting of those European Union (EU) nations which have adopted the single euro currency, should be protected at all costs -- even if it means the loss of national sovereignty for smaller nations, including Ireland.

Sarkozy says he and Merkel want a “true European economic government” that would consist of the heads of state and government of all eurozone nations.

The new body would initially meet only twice a year and be led by Belgian technocrat Herman Van Rompuy. Among its duties would be to ensure that new limits on national spending and deficits are passed into the constitutional law of all of the eurozone member states.

“On economic policy, we are ready to show that France and Germany can move closer together and have chosen corporate tax as an example for stronger harmonisation of both tax base and rates,” Sarkozy said.

His comments indicate that the coalition government in Dublin faces huge difficulties in maintaining its low corporate tax rate, considered crucial to maintaining high levels of US multinational investment in the 26-County state.

Despite public concern, Minister for Finance Michael Noonan lauded the announcements by the German and French leaders.

“I welcome the beginning of this new initiative by President Sarkozy and Chancellor Merkel which once again reaffirms their absolute determination to defend the euro,” he said.

He said any constitutional changes to limit national deficits would have to be approved by the Dublin government.

“Any proposal for a constitutional amendment is a matter for government consideration,” he said, adding that his government would “constructively engage” on negotiations toward a new Eurozone rate of corporate tax.

There were also Irish concerns that an EZ-wide tax on financial transactions would devastate the financial services industry in Dublin, as banks and other institutions would quickly move their operations to a location outside the eurozone, such as London.

“This issue was considered at the last European Council meeting and it was not included in the final agreement,” Noonan said.

Efforts to dramatically expand French and German influence on the 26-County state, beyond that already endured in the EU/IMF austerity programme, is likely to meet considerable resistance. In particular, any new treaty to approve a Eurozone government would face great difficulty in winning the support of a majority of 26-County voters in a new referendum. However, while the EU’s Nice and Lisbon Treaties were both initially rejected by Irish voters, both were approved following a second referendum.

Speaking earlier in the week, Sinn Fein President Gerry Adams said that many people in Ireland were opposed to Britain, the European Union or the International Monetary Fund (IMF) ruling over Irish affairs.

Mr Adams’s comments came in a speech at a south Armagh rally to mark the 30th anniversary of the prison hunger strikes of 1981, when he spoke of the growing support for Irish republicanism in Ireland.

He said there were “many people” who wanted “rid of outsiders ruling us whether from London or the IMF and EU. They want a free and united and independent Ireland.”

Sinn Fein TD Peadar Toibin described Merkel and Sarkozy’s proposals “as out of touch with reality” and “arrogant”.

Mr Toibin said all EU leaders had missed an opportunity to come up with a comprehensive solution to the debt crisis and that it was “both presumptuous and condescending” of the French and German leaders to decided unilaterally on a way forward for the euro area, “even to the point of who should head a so-called economic government”.

Reports from the meeting “would be laughable if this situation wasn’t so serious,” he said. “Talk of implementing laws to run balanced budgets when half of Europe is financially imploding is absolute and utter nonsense.”

He said it was a classic case of trying to shut the stable door when the horse has already bolted.

“Some Irish commentators have alleged today that it doesn’t matter who decides how our budgets are decided because we have already ceded so much economic sovereignty. They are wrong.

“We are currently subjected to a badly negotiated deal, signed off on by the last government and implemented by this one, but that has room to manoeuvre within it.

“That is completely different to becoming the outpost of a European fiscal federation and having all of our financial matters decided for us.”

Urgent Appeal