Wednesday, 18 January 2012

What has the Euro done for Ireland?

Despite Ireland having complied with every cut in public expenditure, every tax rise asked for, done more to satisfy the conditions under which the international bailout plan was granted and generally been more successful in turning around her almost fatally damaged economy than any other country in the Euro Zone, Ireland could still end up as a major casualty of the currency union.

It is now admitted that Ireland should never have joined the euro in the first place as none of the conditions for entry were met satisfactorily, if by that is meant with enough room to spare in order to ensure the new currency would be a success. Academics in Ireland, as well as not a few of her politicians, argued strongly that the long term consequences for Ireland would be very detrimental to her whole economic structure. That advice ran counter to the mood at the time and the fantasists in Ireland, as in other countries like Greece, had their way. The sceptics were right of couse and the outcome for Ireland has been a disaster.

I am always reminded of the old Irish saw about the travellor asking for directions in Ireland and being told, "Well I wouldn.t have started from here" every time the discussion gets around to asking, "What does the country do now?" Unfortunately the country is ~"here" and "here" has to be the starting point but again unfortunately, the Irish are not masters of their own destiny, as far as the Euro is concerned. If the Irish government and their economic advisers were to be brutally honest, they would tell the Irish people that the Euro cannot be saved in its present structure and if, the Irish want to continue with membership of the currency union, they will have to be prepared to give up what little sovereignty they have left.

The loss of its credit rating may make the French, and other governments whose credit ratings have just been downgraded, think seriously about the Euro and what they actually want from it. The economic and political elites in the EU have always known the end game and what it meant in terms of loss of sovereignty. What they could never agree upon, was the route that would best take them there without causing the populations in the members states to take to the streets. The collapse in Greece, the problems in Portugal, Spain, Italy and other countries which have been preparing their citizens for entry to the Euro but are not yet members, such as Hungary, have had to watch while their citizens took to the streets anyway. The reality of membership of the Euro Zone, for those countries least prepared for membership, hit home harder and much more quickly that the elites were prepared for.

Any honest assessment of what membership of the Euro means has never really changed. What it means, what it has always meant, is the creation of the United States of Europe. For the euro to work, as it was argued by the Euro fanatics, it means the member countries must ensure their various economies work and function as one. Anyone who needs an example needs just to look at the UK and the currency union that is sterling. If there are parts of the currency union which are far enough away from the centre, as to need special help because they are incapable of competing, have fewer resources, have less economic and political power, that help must be given. If it isn't, there will be economic consequences, leading inevitably to political consequences.

Regional policy went through various phases over a fifty year period but none were successful enough to bring Scottish productivity levels, output levels and growth levels up to the same levels as the South East of England enjoyed. Despite transfer payments from the centre to other parts of England, the same scenario applied, with all the economic consequences that that entailed. Transfer payments are simply taxes collected at the centre and spread to other parts of the country which are deemed to need special help for whatever reason. That system is a consequence of centralised control, which if it was not applied, would have other consequences which would be equally unpalatable for the less favoured regions of the country.

Apply that system to the EU and the centralised control, which allows for transfer payments to the less favoured regions/countries is what is missing. Seventeen countries cannot have one monetary policy but seventeen different tax regimes. Fiscal or tax policy is supposed to complement monetary policy, not compete with it and, now that the Euro elite have been forced to finally admit to what is required to make the Euro work, they are desperately scrabbling around trying to find a way to introduce the required changes. Centralised taxation is a must, as is centralised control of the various budgets. The Euro Zone already has centralised control of monetary policy ie interest rates and money supply so, what would be left if they addedd tax and budgetry control? The answer is nothing.

Meanwhile Ireland, meets all the tasks set it to qualify for the continued aid, knowing that it won't mean a toss because the Euro cannot work as it is currently set up. If you were an Irish politician, would you relish telling the Irish people that they fought for eight hundred years to throw off the shackles of English/British control and now must relinquish their hard won freedom to Brussel's control? Or would you just continue to pretend that even if there is centralised tax and budgetry control, Ireland will still be independent? Meanwhile, back in Scotland what about fiscal autonomy? More to follow.

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