Posted tagged ‘Euro zone’


October 16, 2010

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.

Casting off the Euro?

February 22, 2010

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.