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Merkel to welcome Taoiseach as poster boy for bailout success

Statement by Werner Weidenfeld

16.11.2011 · The Irish Times

GERMANY NOW: WHEN ENDA Kenny last met German chancellor Angela Merkel in Berlin, he had to introduce himself in the reception of her political headquarters.

Nine months on, his return visit as Taoiseach is in another league entirely.

Merkel has rolled out the red carpet to welcome him with full military honours, followed by a working lunch and a joint press conference.

The full-on treatment continues into the afternoon when Kenny delivers a keynote address on the State’s reforms and shares a podium with German finance minister Wolfgang Schäuble.

The most remarkable thing about the Taoiseach’s visit is not so much that it is happening – such trips are the bread and butter of European politics – but that Berlin has turned it into such a gold-plated affair.

The reason is simple: there is something in this visit for everyone.

At a time when Merkel’s critics accuse her of imposing Germany’s economic will on its neighbours, even interfering in domestic politics to replace prime ministers in Athens and Rome, Kenny’s visit offers Merkel a chance to present Ireland as proof that bailouts can work.

For Der Spiegel magazine, Kenny is the “anti-Papandreou” and Ireland is an example of how diligent reform yields dividends for all. “The Irish people aren’t throwing incendiary devices,” the magazine noted, “they are quietly taking the pain, practising self-denial and have accepted their fate.”

Self-denial always plays well in the land of Martin Luther.

For Kenny to get what he wants out of the visit, though, he will have to tread a fine line.

On the one hand, he has to express Ireland’s thanks for EU financial support and spread confidence that Ireland is a reliable EU-IMF programme participant. But on the other hand, he wants to communicate what he sees as Ireland’s right – obligation even – to renegotiate the terms of the programme as economic realities dictate.

“All is not rosy in the Irish garden,” said one senior Irish official yesterday. “The situation is encouraging but continues to be very difficult. We need to sensitise Merkel to the fact that difficulties lie ahead.”

With cutbacks of €3.5 billion in the upcoming budget and unemployment lines as long as ever, the Taoiseach’s message in Berlin will be: what’s good for Ireland is good for its EU sponsors, not the other way around.

Happily for Kenny, media reports ahead of his visit have already made this point, highlighting in particular the close link between Ireland’s reform ambitions and an economic recovery dependent on exports.

Economic realities aside, the mood music today is important, too, after three bumpy years of bilateral relations.

When former finance minister Brian Lenihan announced the blanket bank guarantee scheme in September 2008, German officials were speechless with fury and frustration.

Not just because the surprise step risked a run on European banks, but because it came just as Berlin was racing to save struggling property lender Hypo Real Estate (HRE). The Munich lender was teetering on the brink of ruin because its Dublin-based subsidiary, Depfa, was dangerously short of cash in the post-Lehman Brothers liquidity drought.

HRE’s collapse could, analysts warned, trigger a financial catastrophe to put the Lehman Brothers failure in the ha’penny place.

Days after Ireland’s bank guarantee, a visibly shell-shocked Merkel appeared on national television to insist she was doing everything possible to save HRE.

She added: “We are telling all savers that their deposits are secure, the government will vouch for that.”

What sounded like a German bank guarantee scheme was, at second glance, merely a political guarantee. But it had the desired effect: the waters calmed and HRE/Depfa was saved.

But forcing the German leader into that position in this land of prudent savers strained bilateral relations to breaking point and in effect ended co-operation with the Fianna Fáil-led government.

It was in that chilly climate that the standoff over the Republic’s corporate tax rate began. The row was defused by the new Government after it argued that the changes Berlin demanded were more trouble than they were worth and should be part of a wider EU tax review.

Putting that unpleasantness behind them, Kenny’s visit underlines the political ties that bind: Fine Gael and Merkel’s Christian Democrats (CDU) are both members of the European People’s Party. The Taoiseach’s EPP membership card has opened the doors to the CDU-supported Konrad Adenauer Foundation, including valuable face time with Wolfgang Schäuble and an address to Berlin’s movers and shakers.

The Taoiseach will find himself addressing a sympathetic audience, one that already accepts that “Ireland isn’t Greece”. There is understanding here, too, that smaller EU states are wary of intergovernmental deals to tackle the euro-zone crisis if it undermines the authority of the European Commission.

“We see that the Merkel method is creating major problems for Germany if countries have the impression that solutions are being imposed under German control,” says Gerhard Schick, financial spokesman for the opposition Green Party.

“We need a stronger political union where we decide together with democratic controls through the European Parliament.”

Three years into the euro-zone crisis, as the EU debates closer economic and political union, German political and economic analysts are sanguine about Ireland’s prospects.

“Merkel is extremely dextrous with the politics of power even if she doesn’t embrace smaller EU members as Helmut Kohl did,” says Prof Werner Weidenfeld, political scientist at Munich University. “But if I were Irish I’d relax: Merkel’s strategy is no reason to set pulses racing.”

The two words German analysts use most often to describe Merkel are pragmatic and practical: a politician anxious to keep her voters happy and the euro-zone show on the road.

“Any compromise European leaders reach on a future economic model – and it’s going to be a compromise – will lie somewhere between the German and Greek models,” says Dr Ferdinand Fichtner, chief economist at Berlin’s DIW economic institute.

“Ireland has always had a model somewhere between the two so it could find itself in a very comfortable position.”

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