Eurotroubles?

One of the articles of faith, you might say, that has been around in Ireland over the past decade is that the country’s membership of the Euro has been a critical condition of economic success. Foreign direct investment was helped by the Euro, as companies could ensure that their position in Ireland would give them access not just to a single market but also to a single currency zone in which exchange risks and costs were removed. Then when the recent recession broke out, and when people started making comparisons between Ireland and Iceland, the received wisdom was that Ireland’s membership of the Euro would protect it from the worst consequences of the crisis.

But over this past while other views have also been expressed. David McWilliams, for example (if you can get over his rather irritating self-satisfaction and self-importance) has been arguing that the Euro is preventing Ireland from taking the economic measures it needs to adopt to restore competitiveness and that it would be better to leave the Euro zone, and others have picked up this theme. But now more commentators are beginning to wonder about the usefulness of the Euro to anyone at all, including the central and western European core member states.

We have not yet reached the point at which the future of Ireland’s Euro membership, or indeed the future of the Euro per se, have become a respectable topic for discussion. But as the recession remains resilient and worries about recovery prompt an ever-increasing focus on budget cuts and tax increases, should this debate be made respectable, if only so as to have an intelligent conversation in the open about why the Euro is still a good prospect?  If Ireland should stay in the Euro – which is still my default position – at least we should be able to articulate clearly why, and why the arguments to the contrary are misguided.

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3 Comments on “Eurotroubles?”

  1. Pidge Says:

    Two major reasons (right now) come to mind.

    First off, firms which would have to move, reprice, and redo systems to accommodate the Euro would have some fairly massive expenses, especially given how many are so close to going under.

    Secondly, Irish sovereign debt, interbank loans, and international credit is largely owed in Euros. Should Ireland ditch the Euro, our debts don’t magically move to punts or whatever or new currency is. We’d still owe the debt in Euros. Given our economic weakness, I don’t imagine that we’d be getting a fantastic exchange rate.

  2. Vincent Says:

    Our main problem is our economic tradition which is speculative in nature.
    If on entered the Euro we changed our systems then we would be in a very much better position than we are now. Instead we took the entry to the Euro as access to cheap money for betting.
    All our depressions/recessions have this very aspect. We made fortunes during the WWI and WWII from agricultural produce but within a year we plunged. Why, because the banks and those with liquid cash had better prospects elsewhere, like the UK or the USA.

  3. kevin denny Says:

    Given that the idea of leaving the Euro is indeed heresy, I think David McWilliams deserves some credit for raising the idea. If someone wanted to maximize their importance they would keep very quiet about that opinion. In general David has made very useful contributions to economic conversation in Ireland & I don’t find him irritating at all.
    The practical and political barriers to defecting from the Euro are probably sufficient reason not to but we need to be clear that there is going to be a price to pay for all this. There is no painless way of restoring competiveness. For good or ill, we gave up probably the only sure-fire way.


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