Friday, October 28, 2011
The Euro zone rescue deal - "them and us"
The announcement of the Euro zone rescue package, which included a 50% loss on Greek bonds for those banks that held them, led to a number of reactions here in Ireland. One was from Mr. Peter Brown of the Irish Institute of Financial Trading, who said, on the RTE news on Thursday 27th. October:
“If they’re that keen on keeping the Euro intact, Ireland needs a deal”.
Who are “they”, in this context? The ECB? Angela Merkel and Nicholas Sarkozy? The European Commission? Ireland is a member of the ECB and the EU Commission. France and Germany are our comrade states in the entity that has given us massive social, equality and consumer legislation improvements at home and free access to a market of over half a Billion consumers, not to mention significant capital transfers through the EU Common Agricultural Policy and the Structural and Cohesion funds.
Our membership of the Euro zone provides us with protection from speculative raids on what would otherwise be our local currency, such as that which cost the Bank of England an estimated £3.4 billion in 1992. As a result of Irish government attempts to protect the Punt at the time, interest rates on Irish mortgages reached a staggering 16% at one stage.
We have vitally important price stability through the determined and consistent actions of the ECB, although we undo some of that by our own inflationary actions here at home. Our most recent crisis has shown that use of the Euro gives us access to technical and monetary assistance from those other member states, such as Germany, The Netherlands, Finland and France, that have the discipline and experience to be able to deal with low interest rates and increases in the money supply, and to impose adequate regulation on their financial institutions. Our recent property related bubble and its subsequent bursting has shown that we in Ireland are still only in the learning mode with regard to these matters.
An important consideration for travellers is that the Euro gives us the convenience of a common currency as well as valuable transparency in pricing throughout those states that use it.
And being in the Euro zone is yet another asset to go along with our educated workforce, our status as the only English speaking state in the zone and our competitive corporation tax rate to help us attract Foreign Direct Investment (FDI).
In a nutshell, when Mr. Brown talks about “them” he really means us - in order to make good on the implication of his remark, Ireland would have to be prepared to leave the Euro zone and, in so doing, jeopardise the whole EU project. In the light of the benefits we have and can continue to expect from remaining in, this would constitute the greatest example that can be imagined of cutting off one’s nose to spite one’s face.