Why is Britain committing £7 billion to a bailout which will trap Ireland in its present discontents?
Would you trust an economic forecaster who had recently said this?
The euro has done more to enforce budgetary discipline in the rest of Europe than any number of exhortations from the IMF or the OECD. If we remain outside the euro, we will simply continue to subside into a position of relative poverty and inefficiency compared to our more prosperous European neighbours.
The euro has already provided great internal stability to the eurozone.
Alarmingly, the author of the first two quotations is Nick Clegg, the Deputy Prime Minister. The author of the third is Chris Huhne, the Environment Secretary. Not that I want to pick on Lib Dems. Michael Heseltine thought it was ‘barking mad’ not to join the single currency at the beginning. Peter Mandelson averred that ‘the price we will pay in lost investment and jobs would be incalculable’. Ken Clarke agreed, saying ‘Britain’s economy would be damaged if we stayed out too long.’
Almost precisely 20 years ago — 22 November 1990 — Margaret Thatcher was forced from office, largely because she understood that scrapping the pound would be disastrous. As one of my Conservative Association chairmen put it yesterday, ‘Margaret has had the last word over the November Criminals.’
Of course, those who got it wrong will still be wheeled out by the BBC as disinterested experts, while those who got it right will still be presented as doctrinaire hardliners. And — I’m afraid there is no way of putting this without swanking — we did get it right, we Eurosceptics. When the euro was first launched, we predicted that a monetary policy dictated by the needs of the core members would cause strains for peripheral states such as Greece, Ireland and, if we were foolish enough to join, Britain.
In a pamphlet published in 1998 by a number of Tory MPs, and drafted by me and Mark Reckless, now the member for Rochester and Strood, we warned that the Europ-ean Central Bank would give ‘the peripheral states a double-dose of what they don’t need: low interest rates’. The consequence would be an unsustainable credit boom and, in due course, a commensurately painful crash. The UK, we cautioned, should pay particular attention to what happened in Ireland:
The UK and Ireland would be especially badly affected by monetary union with the Continent. With regard to Ireland, which intends to join EMU at the outset, this is already becoming clear. Of all the EU member states, Ireland is easily the closest to the UK. Not only are the two states linked by trade, investment and labour mobility, but their economies are similarly structured. The strains which EMU is already causing in Ireland should serve as a vivid warning to Britain.
All right, all right. As a Euro-integrationist friend told me just now, ‘there’s nothing more irritating than being wise during the event’. The Chancellor of the Exchequer adds that ‘I told you so is not an economic policy’. True. But it can be a guide to avoiding past errors.
Ireland is in this mess because of the single currency: the euro forced it to follow a pro-cyclical monetary policy during the credit boom. Its economy diverges cyclically and structurally from continental Europe: save by occasional and fleeting coincidence, its interest rates and exchange rates will always be wrong. The bailout might allow the republic to limp along until the next crisis; but, until it leaves the euro and starts exporting its way back to growth, Ireland will be trapped in a cycle of rising debt and unemployment, falling prices and incomes.
So why is Britain committing £7 billion to a bailout which will trap Ireland in its present discontents?
Seven billion pounds, incidentally, represents the total saving that would be made by all the welfare cuts. You know: the cuts that the BBC, the Guardian and the Labour party insist will destroy social security. The cuts that Tristram Hunt says will mean ‘a return to the Victorian workhouse’. The cuts that Jon Cruddas says will ‘drive a million people from their homes’. The cuts that Polly Toynbee calls ‘a final solution to the poor’.
Every penny saved by these cuts will go to prop up the euro. To put it another way, at a time when Britain’s public sector debt stands at £955 billion, we are borrowing a further £7 billion to send to Ireland.
This isn’t to say that we shouldn’t help the Irish. We should. They are our neighbours and our allies, our suppliers and our customers, our friends and, in many cases, our relatives. But we don’t help them by keeping them in the euro. On the contrary, we could assist them far more usefully by helping them to leave.
There is one factor, above all, that is keeping Ireland in the currency union which almost everyone now sees as a failure. Irish debts are overwhelmingly denominated in euros. If Ireland were to re-establish a national currency tomorrow, that currency would devalue, and its debts would grow commensurately. This may well be a lesser evil than remaining in the euro, of course, but it is an evil. So is there any way out?
Yes. Ireland could, perhaps temporarily, join the sterling area. Immediately, it could start exporting its way back to growth. And, because the UK and Ireland move in a synchronised mid-Atlantic cycle, trade substantially with one another and have similar economic profiles, the problem of inappropriate monetary policy would disappear.
Unlike the pre-1979 arrangement, in which Ireland unilaterally linked its currency to the pound, Britain should be prepared to recognise the Republic’s sovereign interests. We should, for example, invite Ireland to nominate a member of the Monetary Policy Committee. And we should treat Irish loans as having been denominated in sterling.
Doing so would offer practical assistance to a friendly state. The bailout, by contrast, is simply throwing bad money after bad.