Casting off the Euro?

On 1 January 1999 the Euro replaced the European Currency Unit (a kind of virtual currency that you could trade for certain purposes but which was never legal tender anywhere), and on the same date the Euro became the official currency of a number of EU member states, which collectively make up the ‘Euro zone’.  Today the Euro is the currency of 16 EU member states and five non-EU countries. It is the second largest reserve currency in the world, and the Euro zone is the second largest economy (if you feel you can call it that).

Of course as we all know, Ireland was in the Euro from the start. I wasn’t in the country in January 1999, but when I arrived back in 2000 I was struck at the low level of ‘Euro-consciousness’. Back then the currency in the shops was still the Pound, and when occasionally I asked people whether they knew how much an item they were just buying in that currency would cost in Euro I was always amazed to discover that pretty well nobody had any idea or cared much. When the Euro eventually appeared as notes, coins and the balance on your current account in January 2002, it did so without very much fanfare; people just got on with it and the currency became the money in our pocket. You couldn’t help contrasting that with the convulsions caused by the Euro in the United Kingdom, where it isn’t even the currency.

But the relaxed way in which we adopted the Euro also signifies, I suspect, our lack of any close relationship with it here. In fact, we don’t seem to feel strongly about our currency. When the Irish Pound separated from the Pound Sterling in 1979 there was equally no big noise, and then when we lost it there wasn’t as much as a collective shrug or sigh of relief. It just happened. As a nation, we don’t seem to identify culturally with our currency. But one side-effect of this is that we don’t really debate or think about what it means. I recently asked a well educated friend what the issues were, in his opinion, in being part of the Euro zone, rather than having a separate currency. He thought for a moment, and suggested it was not having to change money when travelling to France.

But in reality that really is the very least of it. The significance lies, on the one hand, in having a currency which is less vulnerable to speculators aiming specifically at our economy, and on the other hand, not having independent monetary tools we can use at particular points in an economic cycle. So for example for much of the over-heated Celtic Tiger years our interest rates were too low because that suited Germany better (but probably worked against us). But then again, as Euro members we haven’t been buffeted around in quite the same way as Iceland has been over the past year or two.

But now some commentators, including David McWilliams, are suggesting that Euro membership is preventing us from staging a quicker recovery, because it doesn’t allow us to devalue our currency in order to become competitive. He has been beating this drum for a few weeks now. But when I ask people to comment, their eyes glaze over and they talk about football. We still cannot work up an interest, and if McWilliams is intending to start a national movement I doubt he’ll manage it. As it happens, I don’t think he is right anyway, but I do believe that we should have a better sense of what this currency union means for us and what we should be doing with it, or without it as the case may be. There are few things that are more important, and we should be much more active in our grasp of the issue. I have seen no significant expert response to the kind of talk McWilliams is promoting, and maybe it’s time there was.

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3 Comments on “Casting off the Euro?”

  1. Below is a link to a discussion over on the Irish Economy blog. My own two cents? Well, the complaint about the euro is that it is monetary union without sufficient political/economic union – so let’s get more of that going…. we need to hang with each other more and realise our interdependence, fracturing the euro sounds disastrous to me. I am no expert, it’s just a joe soap’s viewpoint.

  2. Vincent Says:

    McWilliams argument is much more nuanced than you are presenting. He is saying that there are two way of getting out of the situation we find ourselves, either devalue the property or the currency. He was advocating finding a floor for property values based on rent income. But this was seen as being unsuited to the Irish economic model -pronounced Essex fashion-. So what’s left is an across the board devaluation by pulling out of the Euro. This way everyone drops but stays in the same place, mostly.
    But all that’s happening at the moment is the determination to retain property value at a notional price which when presented as collateral to a bank cannot be accepted, rendering them totally valueless.
    If you cannot sell it because no one wants it or is unwilling to pay the price expected. And you cannot borrow against because there is no income from it. What earthly difference does it make if we are in the Euro or not except for about 10,000 persons.

  3. Neil Says:

    Dear Ferdinand

    I wonder have we misused the NAMA strategy? Rather than being divisive could a properly structured NAMA be used to form the basis of a new Collective Bargaining?
    I often think the model for economics should be the 1970s housewife. She had a certain sum of money to spend and thought long and hard before she did so, balancing the pros and cons carefully. The celtic tiger era saw Irish people behave as if they suffered from mania or hypomania ruining themselves financially and indulging in unrealistic delusions- the likes of the Bertie Bowl for example. We saw none of the clever thinking that Germans, for example, display. Similarly NAMA is a rush to throw money at a problem exclusive of reality- and that reality is the economy is in no shape to weather wage cuts and price reductions given the unrealistic levels of debt that employers and employees have volunteered for. Unrealistic? Yes. In the celtic tiger it was not unknown to see small community developments arise in the middle of nowhere- a block of apartments, a pharmacy, a cresh, a spar and a small coffee shop with no one going into any of the businesses save the cresh and people employed all day to sit around. This is the legacy we face and the credit that drove the impossible business plan forward has stopped and reality has hit home: none of these enteprises could ever have been successful given our minature size as a nation.
    NAMA could be used as a vehicle to eleviate the cost of reducing wages and prices on the social partners. Gather the social partners and begin talks on structured wage/price reductions in conjunction with a freezing of a similar amount of personal and business debt by the banks in return for national cooperation. For example, my union agrees to a 20 % wage cut. My employer issues me a certificate and I present it to my bank who reduces my payments by 20 % for the period of partnership. Similarly, my employer lowers his prices 20 % and receives a relief of 20 % on his debt from the banks….and the banks get NAMA.

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