By Business & Finance 
The new Government’s biggest challenge is to restore credibility among international investors, writes John Walsh.
The reputation of Ireland Inc has been on the ropes for the past few years. It reached its nadir when the Government was forced to negotiate a €85bn bailout package from the EU and IMF in November 2010. One of the biggest challenges facing the new Government is to rehabilitate the image of the country among international investors.
Rory Gillen, founder and CEO of the InvestR Centre, says that it is impossible to even contemplate rehabilitating Ireland’s reputation among international investors until a line has been drawn under the banking crisis. “It is a bit of a confidence trick,” says Gillen. “You have to convince investors that the banking system has been sorted and that money will start flowing into Irish banks again. The markets are saying very clearly that banking crisis and the debt problem are unsustainable.”
Gillen argues that the EU is “trying to kick for touch” by hoping that banks across the region will spend the next few years improving profitability and repairing their balances sheets. Then in a few years time, the banking sector can start taking writedowns on loan losses. “The periphery countries cannot take this approach. There are two banking crises in the EU; what is happening in the core and what is happening in the periphery. Ireland is serious about tackling the banking crisis, but we cannot do anything without the help of Europe.”
Ireland’s relationship with the EU is key. This magazine was going to print just at the EU leaders’ summit was coming to an end. As widely predicted, there was no resolution to Ireland’s debt problem. The Taoiseach Enda Kenny made a request to the European Council President Herman Van Rompuy that negotiations on the terms of Ireland’s bailout package are postponed until the results of the stress tests of the banks have been completed.
But Ireland has had a fraught relationship with the EU over the past few years. And it wasn’t all to do with the rejection of the Lisbon Treaty referendum in June 2008.
The former tánaiste Mary Harney once commented that Ireland was much closer to Berlin than Boston. Certainly during the heady days of the Celtic Tiger, Irish politicians reserved a swagger for Brussels that rankled with fellow euro zone members.
One senior Brussels-based Irish official says that relations between the last government and its EU counterparts had reached breaking point before the dissolution of the last Dáil. “It was horrific what was going on. Ministers were not even turning up for meetings. There was a huge feeling of distrust. Brussels felt that the Irish government were giving them the two fingers”
Mark Mortell, a director with the PR firm Fleishman Hillard and most recently adviser to the Fine Gael leader Enda Kenny during the general election, says that mending relations with the EU has to be a priority. “The set of circumstances that happened between 2008 and the change of government did a lot of damage. There was a breakdown in relations and there was almost an abandonment of our relationship with our key [EU] partners.”
Head of Ibec Danny McCoy says that there has to be a change of mindset in this country about its place in Europe. “I don’t think we ever got it in this country that we are part of Europe. Our approach has been to take opportunistic advantage of Europe. We see it as a separate patch. Our focus has always been on the US.”
“Even when the IDA started promoting Ireland as a location for US foreign direct investment, it was seen as a bridge to the European market, rather than part of the European market,” says McCoy.
Moreover, the reaction to proposals to introduce a common consolidated corporate tax base [CCCTB] across the EU has been met with disproportionate level of mistrust.
“Its [CCCTB] motivation is well intentioned. It just hasn’t worked out the way the commission intended. It has dynamically different outcomes for Europe as a whole. But to believe that this is simply about tax harmonisation through the back door is incredibly offensive to our European partners – to bring that level of suspicion to proceedings”, says McCoy.
Indeed, successive Irish governments have consistently blamed Europe for any unpopular legislation that had to be pushed through while taking full credit for the benefits that came with membership.
Against this backdrop the Taoiseach attended his first EU leaders’ summit with the contentious issue of corporate tax on the agenda. The Franco-German axis is looking for a quid pro quo from Ireland in return for concessions on the terms of the bailout package. That means an increase in the corporate tax rate. One of the few issues that unites this administration with the last government and indeed all political parties in the Dáil is the commitment to stand four square in defence of the corporate tax rate.
But the corporate tax issue goes well beyond Ireland’s semi-detached position within the EU over the past few years. French President Nicolas Sarkozy and German Chancellor Angela Merkel are both facing mounting domestic pressures. Sarkozy is desperately looking for bogeymen to fight off a rearguard action by the right in the run up to the presidential election.
But now Ireland needs the help of the EU.
If Ireland attempts to take any unilateral action in terms of debt restructuring, then the reputational damage would be harsh and the backlash from Europe could far outweigh the potential benefits.
Constructive engagement
The implosion of Ireland’s banking system is perhaps the single biggest source of reputational damage to this country. To many, it confirmed the view that Ireland was indeed the ‘wild west of the financial markets’. There is no doubt that there were massive regulatory and governance failures in the Irish financial sector in the years leading up to 2008. According to the Economist magazine Ireland has experienced the worst property bubble in the history of any western economy.
Former taoiseach John Bruton says that even though the primary responsibility lies at the national level, the ECB also has to shoulder some of the blame.
“I would argue that, under any reading of Article 3.3, these things were the ECB’s business, as well as of course being the business of the Irish authorities and the authorities of the countries whose banks lent irresponsibly into the Irish property bubble. Clearly, as we now know all too well, the expansion of credit in question did affect the “stability of the financial system”, in the words of Article 3.3 of the ESCB (European System of Central Banks) statute. So I would argue that my reference to Article 14 and the responsibility of the ECB was in fact correct,” said Bruton in a recent speech.
“I repeat that this does not mean that the ECB had the primary responsibility for failures of supervision of individual institutions, like Anglo Irish Bank, but it does mean that it could, and should, have seen the overall imbalances in the lending patterns to and within Ireland, and their potential to upset the stability of the financial system, which is clearly the ECB’s responsibility.”
As it stands, Ireland is a tale of two economies. The fiscal position, escalating debt burden and banking crisis are the focus of international media attention. But increasing competitiveness means that the export sector is showing signs of robust growth. Moreover, indigenous Irish firms in sectors such life sciences, technology, alternative energy and greentech are becoming carving out lucrative international opportunities.
But it is highly unlikely that the export sector will enable the economy to lift the debt crisis. There will have to be some sort of debt restructuring. The ECB and the bigger member states are against the idea on the basis that it poses a serious threat to financial stability. It is going to take a considerable amount of diplomatic maneuvering over the next months and years to reach a successful outcome.
To this end, Mortell says that it is imperative that Ireland re-integrates itself into the heart of Europe. “It is about investing in relationships and that is not going to happen overnight. The new Government has to be rebuild trust and confidence and that will take time. It is unfortunate that the opening gambit is a battle which is made worse by a relationship which is so sour. It is about showing what has to be done at a community level.”
Reputation Management: Balancing Ireland’s PR
In the early 1990s when Denmark suffered a considerable amount of reputational damage on the back of a banking crisis and the rejection of the Maastricht Treaty, a group of Danish business people came together to devise ways to counteract the bad publicity. The Copenhagen Goodwill Ambassadors Programme was conceived. The idea was that senior Danish business people would take responsibility for promoting Denmark as a place to do business and orchestrating PR campaigns within specific geographic areas.
Towards the end of 2010, this magazine had a conversation with a senior London-based investment banker who is Irish. He made the point that during the height of the crisis, it was very noticeable the there was no coordinated national PR campaign to balance the wave of bad news flowing through the markets. Mark Mortell says that it is a priority that this changes.
Moreover, he argues that the Taoiseach and Tánaiste Eamon Gilmore have to travel as much as possible in order to improve relations with key trading partners such as the US and the UK. The IDA must be given as much resources as possible and there has to be a campaign to promote arts and tourism, according to Mortell.
