Vincent Browne and the Euro

Vincent Browne is one of Ireland's most venerable journalists. He and I will agree on some things and not on others. One area of accord is probably (based on Vincent’s writings to date) the belief that the study of economics is not a science. Note that I did not write “exact science”. It is not a science at all. It is a set of beliefs that are held by individual practitioners and invoked under any and all conditions. Economists are Keynesians, Monetarists or follow the Austrian School in the same way as the devout adhere unquestionably to Mohammed or Christ or L. Ron Hubbard. Economists cannot agree among themselves on the right course of action under any given set of circumstances and they most certainly cannot predict what will happen in the future.

Vincent doesn’t claim, of course, to be an economist although I understand he has standing as a lawyer. His piece (Irish Times Wed Jan 4th 2012), on the possible upcoming referendum on fiscal measures that have been mooted in the context of resolving the debt crises of certain members of the Eurozone, seems to rely on a legal interpretation of the relevant treaties, especially when he claims that no country can be expelled from the Euro zone, and also when he implies that Ireland can veto the proposals and thereby do a “service to all the people of Europe”.

Taking the last point first, we need only look back a short number of weeks to when the British attempted to use their veto to block EU Tobin tax proposals. In short order they found themselves completely circumvented by the other EU states and at the same time pushed noticeably closer to the EU exit door than even the most rabid Euroskeptic could have wished for.

With regard to the existing treaties not allowing a state to be expelled from the Euro, no nations have better illustrated, through history, the adage that there are many ways to skin a cat than the Germans and the French. In the limit, both of these (along with other fiscally responsible states such as Finland and The Netherlands), could themselves opt to leave the single currency and put in place an alternative that would satisfy their requirements. For those left in the rump Euro the effect would be just as devastating as if they were expelled from the original. I cannot tell the future any more than Vincent or an economist can, but history has indicated a high probability that they would be subjected to very high interest rates, including on home mortgages, speculative attacks on the currency that they would not be in a position to defend, an inability to borrow internationally to repay either the amounts owing as a result of the bailouts or for current requirements, and a fall off in Foreign Direct Investment (FDI) due to uncertainty and a lack of confidence in the currency. The rump Euro would also be subject to significant devaluation, which Vincent and others would probably welcome as an aid to exports and tourism, but this also carries a price, and that price is excessive inflation. We would be back, at best, to the situation that pertained in Ireland in the 1970s, when savings and pensions were destroyed and when profiteering was rampant.

Vincent Browne, and all the rest of us, should be very concerned that he might just get what he has wished for.

The sovereignty myth

Walk down any high street in Ireland and you will see the outlets of large companies that have their head offices in the UK, and who regard their Irish shops as nothing more than elements of their domestic chains. Some English Premiership teams have more Irish support than all home soccer clubs put together.

92% of Irish primary schools are under the management of an organisation that has its headquarters, and the formulation of its philosophy, in Vatican City, which is in the middle of another nation’s capital. Not too long ago a senior Irish politician could start a debate about whether, spiritually, Ireland was closer to Boston or Berlin.

It’s not entirely fanciful to believe that if “Coronation Street” were to be abruptly discontinued on Irish TV we would have rioting in the streets. Almost one hundred thousand Irish people receive their salaries from US companies established here, in return for which they happily embrace US corporate culture. This includes the understanding that they are expected to work without Trade Union representation, unlike their compatriots in indigenous industries, many of whom are forced to acquiesce to exactly the opposite condition in return for being vouchsafed a job.

None of the above facts has ever given rise to as much as a murmur about the fear of Ireland’s identity being undermined. Yet, when it looks like we are about to be the recipients of necessary fiscal discipline by certain countries with whom we freely entered into a monetary union, and who now want to save that union in order for it to continue in operation for our mutual benefit, we hear no end of bleating about how our sovereignty, no less, is being attacked and undermined.

As my American friends might say - give me a break.

OMG! A new referendum

There is a growing expectation that there will have to be a referendum in Ireland on EU treaty change, to allow for shared decision making on budgets and taxation by the countries within the Euro zone, which is known as fiscal union. Up to now the Euro zone has only had monetary union, which has meant that member countries have ceded their powers to set interest rates or regulate the money supply to the European Central Bank, but were left free to decide on such matters as taxation rates and whether or not the national budget should be balanced.

For some, like the current government, the need for a new referendum is unwelcome news. It is likely to be divisive and there is no guarantee it will be passed. Because of the attitude of certain of our Euro zone partners, most notably Germany and France, it is looking likely that Ireland’s not agreeing to fiscal union could create serious issues about the actual survival of the Euro as a hard currency and / or the part that Ireland might play in a re-designed European single currency system.

Readers of Stack Six will be aware that we follow an enthusiastic European line here. It is not too much to claim that the development of the European Union and Ireland’s place in it have been the most significant macro events that have occurred during this writer’s lifetime, having been born just a few short years after the end of World War II.

It is easy now to forget the changes that were forced upon the Irish Republic as a condition of entry to what was then known as the Common Market, and which evolved into the European Union. Some examples include: the end of the rule that meant that women had to resign from all Civil Service and many other jobs on getting married; the repeal of legalised discrimination that existed against gays; an end to corporal punishment in schools; a ban on capital punishment; and a general requirement to abide by the anti-discrimination measures of the Treaty of Rome, which set the whole thing off.

Even the NCT car test, which has contributed, along with a zero tolerance for drunk driving, to a halving of the annual rate of road deaths in Ireland since it was introduced in January 2000 [the actual reduction between 1999 (413 deaths) and 2010 (211 deaths), is 49%], was only established in Ireland because of an EU directive. It is easy to argue that we would have moved with the times in regard to these matters anyway but our history does not give any scope for comfort in this regard – we needed that external stimulus.

All relationships suffer from time to time. Those that are worth keeping are also the ones that are worth working on when difficulties arise. Ireland’s membership of the EU falls squarely into this category. An important element of our association with Europe, and a highly desirable facility in its own right, is our use of the Euro as the unit of currency. It has given us significant trade benefits, a defense against speculative attack on what would be our own ‘soft’ currency if we were not part of a currency bloc, very low mortgage rates, elimination of currency exchange costs and risk for travelers and businesses in the rest of the Eurozone, pricing transparency for same, and an additional incentive for US and other foreign direct investment into Ireland.

All of that is worth holding onto.

Nouriel Roubini thinks Ireland 'has a chance'

Nouriel Roubini, the US Economics professor who has gained fame for predicting the housing bubble, the disaster that would come of poorly understood mortgage backed securities and the eventual recession, and who is now best known for his brutally frank judgements on current economic matters, actually had some kind words for Ireland recently. He believes that we are “in with a chance” because of our long standing policy of attracting high-tech foreign direct investment.

You can hear what the professor has to say in the video above, which was recorded during a discussion on the margins of an economic conference in Australia.

For what it’s worth, the Dutch far right also seems to give Ireland the benefit of the doubt, even if by default. They have been quoted as calling for the expulsion of Greece, Italy and France from the Eurozone, the first two because they have blotted their copybooks and France because Nicholas Sarkozy is seen by them to be interfering too much in the economic affairs of other nations. To illustrate that logic or consistency was never a far-right area of strength, they say nothing about Germany, whose Chancellor has, if anything, been even more prescriptive to her Euro neighbours than the French president.

Should we be worried that the Dutch far right has not singled out Ireland? What are we doing that would please them, or can we hope that they just forgot we were members of the GIIPS group (this is the format I will be using for this group of countries – acronyms that make up pejorative terms are not only intellectually lazy but also fail to add anything helpful to the debate)?

One way or another, the Euro story keeps on rolling.