When you think about Lisdoonvarna, what comes to mind? If you are of a certain generation, it’s probably the first music festival you went to. The weekend was immortalised by Christy Moore’s iconic song, Lisdoonvarna, which included the fabulously evocative line: ‘‘Anyone for the last Choc Ice?” For others, Lisdoonvarna is famous for match making.
The arranged marriage was a feature of our society for centuries and, therefore, the ‘matchmaker’ was a significant person in traditional Irish communities.
The matchmaker gauged whether couples were suitable or not. He met the future husband and wife and undertook a general checklist of essential attributes.
Having done this, he deemed whether or not they were suitable. If he was happy with the match, there was a good chance that the marriage would work. In a world of no divorce, it was crucial to minimise the risk of separation.
Joining a currency union is the economic equivalent of a marriage. If a country decides to give up its currency and get into bed with another currency, it would seem ludicrous to entertain this move without being sure that the union was suitable. As we all know, there is a difference between fancying someone and making the thing last.
To avoid single currency arrangements going sour, there is also a ‘matchmaker’ in economic theory. The economic matchmaker goes by the typically incomprehensible name of the ‘optimal currency area theory’. This theory is a checklist of economic attributes which need to line up in order for a monetary union to work.
For a currency union to work for a country, the most important thing is that the country trades overwhelmingly with the other members of the monetary union.
This ensures that all the countries in the union move roughly in the same economic cycle. It is also important that the structures of the respective economies are broadly similar, so that one country doesn’t experience a huge boom, while the rest are just motoring along nicely.
Having similar structures in banking and housing, for example, will imply that a country should not suffer a monumental bust, while the others are merely experiencing a normal recession. Equally, it is important that there is significant movement of people within the currency union – like there is in the US between its states – so that, if a country does slump, its citizens can move to find work in another member country.
In general, for a currency union to work, there should also be a single fiscal policy so that, when one area of the currency slumps, the rest of the union’s taxes go some way to ease the problems in the region in difficulty. This is how the currency unions in the US, Canada and Australia work.
Guess what? None of these attributes was in place when Ireland joined the EU economic and monetary union (EMU) and the euro. So it is clear that we didn’t join for economic reasons. So why did we join? It seems that we were too insecure to behave logically and this national insecurity – particularly among our senior mandarins – prevented us from having a debate.
Could it be that the people who dictate policy in this country are so in awe of the ‘big boys’ in Europe, and so desperate to be in the club, that they signed up for EMU just to be in the big league? Could it be that they didn’t have the confidence to question whether they should be in the marriage in the first place?
The reason we should ask these questions is that it is clear the euro has been a disaster for Ireland, and will ensure our slump lasts considerably longer than it has to. When we look at other countries, we see that, of the three entrants into the then EEC in 1973,we are the only ones using the euro. However, we trade less with other eurozone countries than either Denmark or Britain.
The Danes and the British had the confidence to know that they would still be full members of the EU without the euro. They kept their own currencies because they knew they’d need them at times like this. The Swedes made the same decision. They assessed the risks and concluded that monetary union was not for them.
In fact, when you examine the EU, you see that many countries have opted out.
There are four distinct exchange rate regimes operating with the EU. First, the euro members; secondly, Britain and Sweden, which float their currencies; thirdly, Denmark, Poland, the Czech Republic and Hungary, which are tied informally to the euro but can devalue in a crisis; and fourth, the Baltic States, which have a currency board with the euro – which means that they need to keep euro in the vaults of their central banks so that the local currencies are totally convertible.
Even with these four distinct exchange rate arrangements, the union still works fine.
Ireland doesn’t belong in the euro. That is abundantly clear from the queues of Irish people who choose to shop in the North. Irish people shop in Newry, not Nuremberg. We are locked into an arrangement which means we have to try to be more competitive than Germany. But no one is more competitive than Germany – it is the world’s most successful exporter.
So the question I have for those who rightly suggest that we need to get our wages and prices down by 30 per cent to claw back the competitive losses we suffered since joining the euro is: how are we going to do it? In particular, how are we going to do this without leaving the euro?
What is the alternative to leaving the euro? How high does unemployment have to go for us to be competitive again?
If there is an alternative way to get costs down which doesn’t involve changing the currency, and that doesn’t involve massive unemployment and job losses in the trading part of our economy, I would love to hear it. Irish wages are not that flexible, despite the spin being put out.
Think about it. Irish wages, on aggregate, rose last year when the economy contracted by 9 per cent. If we can’t get wages down when we are in such dire straits, how are we going to grind down wages in the next few years?
I realise that even talking about leaving the euro is heresy to the mainstream in Ireland, who try to dismiss this suggestion as the nuclear option, one which would have dreadful political and economic ramifications for us. To them, the question has to be: what is the alternative?
And, more crucially, if they can point to a welfare state like Ireland with a young population which has managed a 30 per cent cut in real wages so that it traded its way out of a recession, I will accept that it can be done.
Until those questions are answered, there will be significant question marks over the wisdom of Ireland using the euro. We need a break. We can’t keep cutting expenditure when there is no offsetting stimulus coming from a cheaper exchange rate, which allows the trading sector to grow. This is basic economics, the sort of stuff you learn in first year.
We know that there was no way Ireland would have joined the euro had we applied even the most basic criteria for suitability.
Are we expected to remain in this loveless marriage? As we saw in the past decades, divorces are now part of life. Ireland is, today, in a bad marriage – with no divorce.
Like those Catholic fundamentalists who suggested that divorce would threaten the fabric of our society, the euro fundamentalists who run policy in Ireland suggest that, to leave the euro, would undermine the fabric of our economy. Like all fundamentalists, the thing they hate most is a sceptic. Lets hear it for the sceptics.
Go sceptics !
Irish men and women need to wake up and smell the coffee. The European ‘dream’ does just what is says on the tin. The honeymoon is now over and the German French will make us pay dearly for our orgy of borrowing.
The only defence we could possibly have is our own currency, bring back the PUNT.
Totally agree with this Article David.
The powers in the Institute of International and European Affairs (IIEA) probably won’t agree, watch them come out to defend the Euro, just like they pushed Lisbon 2.
http://en.wikipedia.org/wiki/Institute_of_International_and_European_Affairs
By leaving the Euro you are advocating that the State decides (mandarins or otherwise) to let the currency float and obviously outside the value of our currency would fall if we undertook our own quantative easing to pay the public servants what they want and he services provided by the state. This does not cover the past debt we owe and of course all the interest to be paid for borrowings in Euro and if the currency is devalued then the cost of that debt sours and as we roll the printing presses on the new PUNTs we will suffer… Read more »
Sounds like a good idea but…if we left the Euro and devalued our currency by 30%, would our national debt – in euros – not increase suddenly by 30% and be even more difficult to pay off?
Doolin – The Aran Islands hold a past history with Clare and Doolin prospered from the visitations made by the locals there in a time before the time we all know it now to be .They brought their music and dance and their search for their loved ones .All families in Aran Islands have a Clare grandmother or a grandmother who was found in Lisdoonvarna at some time by the island buccaneers then. The island found it’s natural affinity with Clare and the burren landscape was part of the umbilical chord of the local landscape that once entwined with theirs… Read more »
I am sceptical about the Euro being the problem….I reckon “we is the problem”….or more specifically the modern Irish tendency to throw money around like a collection of drunken sailors. And anyway, the time for getting out of the Euro was before we joined. The real problem was the behaviour of our bankers in using the Euro as a means of getting cheap borrowing…. I reckon the Euro will divorce the Irish…a bit like the husband who is married to a retail therapy dame….or a woman who is married to an alcoholic…. Irish consumption culture is the problem. And that… Read more »
{ Ireland is, today, in a bad marriage — with no divorce. } Actually, Ireland is a wreckless selfish wasteful party to the arrangement. As evidenced by the Depfa scandal, Anglo Irish Bank, INBS, etc… Ireland’s gombeen class, and Ireland’s reckless consumers, both driven by Irish “Pride” (arrogance) is the problem. Ireland is the problem with the Euro, along with the other PIGS. If Spain hits a crisis – and I am expecting the Spanish financial sector and the Spanish construction sector to crater badly this year, then the Euro could be very soft. The hardworking, cautious, retrained part of… Read more »
David – you postulate that we joined the Euro to play with the “big boys”. This I would term the “Canary Suit approach to national policy” – after Ahern’s famous canary suit that he wore to stand out in when he was chairing the EU meetings with other world leaders. Basically we got in it for pscychological and pride reasons, and not as a result of any intelligent rationale. What mattered was that our leadership showed the sceptics back home that “we have arrived”. (which interestingly enough was a term the Ditherer once used). Beyond the superficial garishness there is… Read more »
Unless EU offer us some other economic towline, on the lines of what you imply US states get when they get into difficulty, then it makes sense to break ties with the euro for all the reasons you say. I’d say it makes sense to go back to the punt and initially make it follow Britain and Sweden exchange rate. I wouldn’t join sterling as UK faces a sunami of rising debt. A more radical solution would be to have the punt follow the dollar, parity would mean immediate 30-40% devaluation. Currently sterling is approx 1.11 to the punt. Parity… Read more »
It’s easy to declare the euro has been a disaster for Ireland and imply that Bertie Ahern and the central bank would have behaved differently to Iceland. This however, is not a credible stance. Three of 16 countries of the Eurozone were badly misgoverned during the boom – – Ireland, Spain and Greece — and they now have to deal with the consequences. Shopping in Newry accounts for about 0.4% of the value of annual exports. You write: “For a currency union to work for a country, the most important thing is that the country trades overwhelmingly with the other… Read more »
David, David! I must disagree with you that Ireland has to get its wages down! It is debt and lack of wherewithal that has sent you down the gurgler, so you’ve got to ensure that labour and capital start to get their FAIR SHARE of GDP in order to to get out of the deep rut. (I was going to say deep something else!) I tried to explain this point in my blog today in connection with the US. Other countries are similar to the US: the big boys have been stealing the public’s rent and robbing us blind with… Read more »
Responses –
I believe this article will be the most important contribution made by David not for what he has written but for how the responses are calibrated and their fluency to the facts as we know them and the unknowns.It has an Onion appeal with a puff of Garlic and a mechanism for delayering of the foundations we trade upon to find the true Principles we need to start to build up from again.So let the Music play and enjoy the Dance.
Newstatesman – Failed by Fianna
http://www.newstatesman.com/economy/2010/01/ireland-irish-social-dublin
“If there is an alternative way to get costs down which doesn’t involve changing the currency, and that doesn’t involve massive unemployment and job losses in the trading part of our economy, I would love to hear it. ” The answer is simple in theory, but in reality it is not going to happen: Ideally, the Irish government, employers, retailers, professions and trade unions would all get together and cut the cost of everything (prices and wages) by about 25%, phased over 12 months. Anyone who would not take part would be named and shamed and would, as a result,… Read more »
I have had a read of this artical with great interest and its obvious that the thinking of david behind this seems very radical to many. but an interesting view of this can be braught if you have a look at the following link from Doug Casey from the daily crux which he wrote last week on his long term view of the euro as a currencey http://www.thedailycrux.com/content/3779/Doug_Casey/eml from this there is also a case to move from the euro on a purely economic sense i can forsee that many of the perifial states within the EU that are currently… Read more »
Ireland imports as much from the UK as it does from the entire EU 25!.If domestic companies are not servicing the indigenous market employment will continue it’s downward spiral.When Irish people speak German as their first language, follow the fortunes of Bayern Munich and read Le Monde, that will be the time to join the euro.Any politican in favour of leaving the euro??.Fat chance!.
So are the mainstream starting to get a little clarity on what the options really are? Perhaps they are: ‘Leave the Euro’, or ‘Fix the political system’.
Clearly, fixing the political system is preferable for the majority of the population, but also equally clearly, it’s the last thing that those in and around the political system, want.
One thing is for certain: Doing nothing is not going to work – ‘muddling’ is not going to get us through this one.
http://www.businessweek.com/globalbiz/content/jan2010/gb2010017_293141_page_2.htm This is the latest from the Icelandic situation. Notice the behaviour of the Icelandic government. This is the government that replaces the previous corrupt administration. The new administration basically wants to finish the country off in a new way, and complete the job started by the other shower. The Icelandic President is a real leader of substance. He wants his people to have their say. He knows that politicians lie once they get into power. Maybe John Allen might be able to do some research and see if President Grimmson has any Irish relatives. In Ireland you cannot be… Read more »
Thought I’d share a piece that I received back at the end of late October. Irish property prices will fall for next 2 years at least – massive oversupply, sales activity is near zero, lack of mortgage credit availability, consumers & potential FTBs fearful of further price falls, and yes of course JOB INSECURITY – unemployment will not peak until 2010/11. So a very bad time to buy. Plus estate agents are saying prices -50%, whereas the actual fall in new homes from the peak (a homogenous comparison) is -34% on average. So more to go. I was on 4FM… Read more »
Exiting the Euro or Indirect Cost dropping assumes we can control all our input costs on this island. Even if our Punt and our controllable costs were zero, we still would not be competitive. ireland’s big problem is funnily enough not export performance or indeed cost based competitiveness. Figures in that regard suggest we are doing well. The problem is margin. We churn a lot of cash, but keep little of it. And this is across the board…take milk exports…on one hand we are near the top in volume but on the other we are bottom of the league in… Read more »
Maybe this forms part of the solution:
http://www.ft.com/cms/s/0/8c166a9c-fbf7-11de-9c29-00144feab49a.html?nclick_check=1
Perhaps : A postdoctoral fellow from the University of Cambridge has argued that Iceland’s legal obligation to pay Icesave would face considerable difficulty to prove in a court of law. Dr. Michael Waibel of the Lauterpacht Centre for International Law, writing in a letter to the Financial Times, says in part, “The UK would likely face substantial obstacles in court. The chance of winning is no more than 60 per cent, and even then the UK is very unlikely to obtain more than in this settlement.” Waibel continues that a prolonged legal battle “is in nobody’s interest,” and that both… Read more »
I am not suggesting there is a solid path forward through the quagmire that follows, but at least it deserves to be on the table for discussion. Fact: The evidence is all around us that the island of Ireland has suffered almost continuous conflict since partition in 1922. Fact: The evidence is all around us that Irish Constitution, introduced in 1937 has never really worked for the people. Fact: The evidence is all around us that The Republic of ireland, as established by Dev in 1948 is a failure. Fact: The evidence is all around us that our membership of… Read more »
Should this photo show itself it will reveal the following:
1 the mountain on the left is the killing fields where Irish Monks and others were slaughtered :
2 The mountain on the right is the new volcanoe in early 1970’s.
3 The photo at home is something in-between.
http://eyjar.net/
To David McW. Perhaps it would have been more fruitful to have examined history of Ireland and its currency post 1979 when we broke from Sterling. Apart from a honeymoon period lasting a few months in 79 – the punt / Euro has consistently lagged (and at times massively so) sterling until February 2008. Surely we can recall the kicking the punt got in the early 90’s as it was booted around by the currency speculators (they were bigger than us). As mentioned by MH facts – Germany has been consistently a top world wide exporter – granted China has… Read more »
Uroh Krack – should this be about to happen very soon I will be up on Hill of Tara and surrounding ‘hidden tunnels’ with my new metal detector and searching for my new currency in the form of lost treasures from the lost ‘arc of the covenant ‘ buried there and my wealthy jewish neighbours will find me a good price that would be irresistable……bleeep bleep bleep
While leaving the Euro now might be “a way out”, joining the Euro in the first place was one of the best things we did. It has meant stability and a strong currency for savers. It’s not the fault of the Euro that some people, egged on by the government binged on “cheap” (ha! not so cheap now it seems) credit. It’s not the fault of the Euro that the public sector mainlined on “benchmarking” to such an extent that they became the highest paid in Europe. What’s clear is that the government and some part of the population were… Read more »
Many years ago – nearly 2 decades now – I worked with a group on the deployment of smart cards. These things are not much different from what is used for ATMs etc. One of the strangest situations I came across was when the then telecoms operators was issuing smart cards which held value to make calls from public phones (before the mobile era). They sold loads of cards, but could could not pay back vat on what they collected until the service was consumed (people made calls on the card credit) . What made things awkward was that 30%… Read more »
ah Lisdoonvarna what a racket that was too, over priced B & B’s on the only main street and soft wet burger buns , oh the ‘good olde days’ Leaving the Euro will not solve ANY of our problems. I don’t know where you re worked this article from David, but just looking at our Government this last week , you have O Keffee closing schools on the possibility of a snow storm which hasn’t now happened but he’s sticking to his guns!, and our Transport minister who wouldn’t be out gritting the roads decides to go off to the… Read more »
So…
Country that would do anything to save its banks’ bondholders, now would pay them with the new devalued currency?
Not likely to happen, if you ask me…
Innovation and Knowledge Economy are unfortunate terms which elicit dewy eyed trekkie commentary rather than say anything useful. From the so called “Get Go” you are presented with ivory tower images of white coat bespectacled enlarged craniums forever reaching higher academic heights to save and cosset all our collective asses in hi tech feathery beds. That’s what Coughlan sees. The knowledge economy very well explained to me the other day when I was chatting to a plasterer reading about the latest insulation techniques for retrofitting houses. He advertises on the web and makes a point about ensuring there is no… Read more »
David. Ireland s ‘controlling interests’ knew the euro offered them ‘untold’ access into the wholesale money markets. They knew the euro was a TREASURE CHEST. And it has proven to be so for the ‘controlling interests’. The concentric circles moving outward from the ‘controlling interests’ shared in the spoils in proportion too their proximity to the magic money making machine access / ECB. THey knew. Al of them knew the euro was one motha fu2ka treasure chest and they jumped head first in and plundered and pillaged and plundered and pillaged and plundered and pillaged some more until the MMMM… Read more »
“LET ME CONTROL A NATIONS MONEY AND I CARE NOT WHO MAKES THE LAWS”
Mayer De Rothschild.
I think that statement says it all really.
I think the question that has not been asked is why on earth was this country as well as Iceland pumped with International credit to create the false boom. Financial Terrorism ??? What i mean is you could take a country financially through this process , you just need the right kind of people in place to accept all this credit.
Hi David, Let’s look at this Punt idea a bit more:- Re-float the Punt? The Euro zone countries would want to work with Ireland (for their own stability sake) so Ireland should try to negotiate a ‘swap’ with the ECB for Punt bonds at some encouraging rate (It would be in the Euro zone interest to see Ireland leave sensibly) and then proceed to declare the Punt legal tender for all goods and services. Start to pay public sector wages in Punt while simultaneously demanding taxes in it. There is no need to touch bank accounts as the Euro is… Read more »
Leaving the Euro would make perfect sense but is not going to happen soon, at least not before the next general election. None of the political leaders would want to be seen supporting such a move so soon after all their effort to back the Lisbon Treaty in order to be “at the heart of Europe”. If Ireland is to leave the Euro, it would have to happen soon because within a couple of years deflation will have done the same job of bringing down costs. Irish politicians are just not decisive enough to move that quickly, as can seen… Read more »
David did point out, some time ago, that no country ever emerged from the type of crisis that we’re in, without devaluing its currency and I’m reasonably sure that that’s what’s driving his thinking. It’s a sobering thought, especially when you consider the reluctance by the top echelons to first of all, accept that there’s a serious problem and secondly, that costs including wages must come down if we’re not to have massive unemployment over the next decade or two. Trying to reduce wages/costs, is so difficult, that it’s effectively a none runner, so we’ll just muddle along with high… Read more »
Folks, maybe the difference between Iceland and Ireland is that the Icelandic people got ANGRY:
http://www.irishtimes.com/newspaper/finance/2010/0111/1224262051379.html?via=mr
It is simply ‘pure mule madness’ to suggest leaving the Euro. How convenient it is to say that our problems were all created by the Euro and beyond our control. If we leave now: 1. The currency speculators will eat us for breakfast. 2. Our debt will increase overnight. We are in ‘hock’ because of decisions taken by those overpaid ‘experts’ who are still in charge. REmember the German ambassador who shook his head at the wages paid to ‘senior’ people. WE, as a people, accept broad cliches which make no sense. WE still accept the cliche that you have… Read more »
For anyone interested in Dublin City Council, here is the link to the livecast meeting on right now:
http://www.dublincity.public-i.tv/site/player/pl_compact.php?a=34997&t=&m=wm&l=en_GB#the_data_area
We suffer a Slave mentality here in Ireland, screw the Landlord, screw the boss, screw the customer, the electorate / house buyer. But there comes a point when we are only screwing our-selves. Buying almost anything here is just a total rip off. Our stroke politicians have also done it again. Little do we realise that TD Paddy Joe who is “all right” case he put a bit of tarmac down ~ in fact did us the greatest dis-service. We pay for this tarmac with our sons & daughters. But you get the government you deserve… It has always been… Read more »
David,
How long do you think the Euro will last in its present form?
There was a letter of complaint issued by people on the property pin dot ie website against the government scheme that earned the nickname “the builders bailout”. Basically it was a government scheme to help out Tom “now is a great time to buy a residential property” Parlon and his mates. The appeal to the EU Commision by many ordinary citizens has been rejected. It seems that the EU Commision is naive enough to believe the shite that comes from the Irish authorities. Here is the transcript of the letter that I have received from the Head of Unit for… Read more »
Posters –
The market system in ireland is controlled by special interests as revealed by NAMA.
Making any comments without bearing this in mind is pure fantasy.
This is my first time to post on DMcW’s blog. I found his last blog entry – the one comparing the flood of cheap credit into Ireland with the flood of silver and gold into C16 Imperial Spain. I thought it was instructive. What he didn’t mention was how the Dutch sold products to the Imperial Spanish and became a world power USING Imperial Spain’s gold (they sold them fur pelts from the Baltic Hanseatic League countries, sold them state-of-the-art sail ships and invented the government bond markets and the joint stock company). However, I don’t see the point of… Read more »
One other thing. A few posters mentioned ‘the collapse of the eurozone’. Surely you don’t believe ALL 16 states in the eurozone will return to their original currencies? That’s a pointless, time-wasting ‘alternative history’ exercise. The economies of the original 6 + Austria have basically converged. Ireland’s future is in Europe. David frequently castigates Irish who live in Europe as snobs. M. McWilliams, c’est dommage que tu ne t’interesse pas à nos voisins outre manche. On est en train de dévéloper une espace commun pour éviter les conflits du passé. I find it disappointing that David points up our ‘shared… Read more »
Amen, re that Irish Times article, Tim! But ‘get angry’ with the tax system that rent-seekers have set up for you that steals from your wages while they are permitted to privatise your publicly-generated land rent. Here, in Australia, they are even privatising our roads and airports! What happened to the principle of ‘the freedom of the highways and biways’? I certainly do ‘get angry’ when I see people who can’t afford to pay forced to turn off our freeways before the toll points. The Irish once did get angry and took Henry George to their hearts – but now… Read more »
@Malcolm McClure I’m from Dublin and I currently live in Dublin. When I say Ireland is continental I mean that now, post-Lisbon, the main centres of power that govern our civic life are the Commission in Brussels, the ECB in Frankfurt, the Parliament in Strasbourg and the Oireachtas. 2 of these are French-speaking, 1 German-speaking and 1 English-speaking. We need to reconfigure our identity around this new reality. I’m always annoyed when DMcW indulges in twee Oirish digressions about Christy Moore, macroom bars, choc ices and so on. We don’t need nostalgia at a time like this. We need a… Read more »
This is becoming very interesting.
Let’s keep at it!
@Ruairà Fair enough RE: Australia, or indeed anywhere in Anglosphere. We need all the alliances and opportunities we can. I guess I just visualized guys from the C class in school during the Celtic Tiger years speculating in property with what was in fact mainly CONTINENTAL EUROPEAN PEOPLE’S MONEY (!!!) while watching oh-so-British games on TV like cricket and rugby. Did many of these guys decide to hedge for the future by ‘investing’ in French, German, Spanish language courses ‘for a rainy day’? How many – I’d love it the CSO had statistics on that. About 0.05% I reckon. Why… Read more »