Should we have joined the Euro in the first place ?

crusher000

This may have been posted before but for what it's worth here's my view/opinion.

Root cause to all our economic woes , The Euro. Our politicians decided it was the right way to go. For a small economy like ours we should have stood for fiscal independence. The Euro is a failing project , The governments and powers that be in Brussels won't admit it and it's akin to keeping a relative on life support. The decision to turn off the machine isn't easy. Our politicians backed this project and they're all held to account wheter they were inpower or not.We always get the Vote Yes for Europe as it will reflect favorably for us. SH1T I say. The discussion on being part of the Euro hasn't been given the due time and care that is needed.

Smiles35

crusher000 wrote: »

Root cause to all our economic woes , The Euro.

I don't know. When we had our own currency there were recessions. And the European union didn't make the worlds banks invest in dodgy deals, nor order us to take the measures we have. So what do you know that I don't?

grenache

The Euro is not, and never was, the problem.

Our current predicament has to do with our failing financial system brought about by unsupervised and unregulated banking. And our equally gormless politicians.


(Although i dont believe the Euro was to blame, there is one big advantage to having an independent unit of currency - the ability to devalue it. Something the British did to huge positive effect in 1976)

crusher000

Well I suppose in order to get the Euro up and running the powers that be in europe had to get the cash flowing. To do this they eased the rates of lending to Euro members and encouraged lending. Yes some countires fiddled the books but it's akin to the drug dealer outside the school yard handing out free samples. Get them hooked first and then add the charges. European policy was to fast track the euro so it could take on the dollar and other world currencies. (look at us over here mentality). There weren't enough tight measures put in place to ensure discipline in borrowing by it's members. Europe had a currency put the European Parliment didn't have the power to determine members budgets or spends. Like giving a gambler a free run in a bookies. By not having the tight measures required the European Parliment left itself open to the abuses that have now caused/added to the member states woes. This would not have happened if we kept fiscal independance.

crusher000

keithob wrote: »

I agree with you about the failing financial system and unregulated banking.

However the core of the problem was effectively the ''cheap credit'' this what fcuked us up no end.

The euro was destined to fail in my eyes... where there is money to be made there is greed where there is greed the controls go out the window....

The country is in a heap with the euro or the punt nua regardless...

Don't agree with the euro or punt argument. Before the euro all countires borrowed at different rates depending on the strenght of their currency and their borrowings etc. When the euro was introduced everyboday got the same rate. So for example (these are not exact figures) Greece were borrowing at a rate of 16% and Germany around 6% . When the Euro was brought in Greece got money at the German rate. Ding the Greeks said lets go shopping.

n900guy

crusher000 wrote: »

This may have been posted before but for what it's worth here's my view/opinion.

Root cause to all our economic woes , The Euro. Our politicians decided it was the right way to go. For a small economy like ours we should have stood for fiscal independence. The Euro is a failing project , The governments and powers that be in Brussels won't admit it and it's akin to keeping a relative on life support. The decision to turn off the machine isn't easy. Our politicians backed this project and they're all held to account wheter they were inpower or not.We always get the Vote Yes for Europe as it will reflect favorably for us. SH1T I say. The discussion on being part of the Euro hasn't been given the due time and care that is needed.

Strange. root of all our economic woes, I thought, was a corrupt political system that loaded massive private sector banking debt onto the national debt.

Euro seems to be fine in Germany, Netherlands and other countries. So why is it the euro's fault? And Iceland, they had the same problem as us (private investment banking debt) but weren't in the euro.

Farmer Pudsey

n900guy wrote: »

Strange. root of all our economic woes, I thought, was a corrupt political system that loaded massive private sector banking debt onto the national debt.

Euro seems to be fine in Germany, Netherlands and other countries. So why is it the euro's fault? And Iceland, they had the same problem as us (private investment banking debt) but weren't in the euro.

Part of Ireland problems is that when the euro was formed Germany was in recession and needed low intrest rates ( they were not in the same part of the economic cycle we were in this is why the UK did not join) whilw we needed high rates. Also when the Euro was set up it masters forgot that you need all bank regulated by one central bank which did not happen

Now I agree it was not all the issue. If we were not in the Euro we would not through the noughties have had as much access to cheap money that we got because ordinary Germans were saving. German banks to make a profit had to lend this extra money at low rates. Hence all Irish got bonds at very low rates. Some banks did not bother with bonds rater they used very low inter bank rates to fund long term loans.

On top we had poor regulation a government that stoked the fire.

If we had no euro would we have had a recession at some stage yes it is part of the economic cycle. The question is would it have been as bad the answer to that I believe is no because bondholder would have demanded higher intrest rates and would not have lend as much. We also would not have had access to so called low risk interbank money.

We would also have'n had the ability to devalue and we would have'n been able to reneage on anglo bond holders.

GCU Flexible Demeanour

Farmer Pudsey wrote: »

Also when the Euro was set up it masters forgot that you need all bank regulated by one central bank which did not happen

They didn't forget; they just couldn't agree. So the single currency project went ahead, without the institutions that it needed to work safely.

Where you can fault our domestic decisions is in taking the decision to join so lightly, and not anticipating that any real national discipline was necessary to be part of the single currency. Our euro changeover plan was all about making sure everyone knew it was worth about 80p.

Farmer Pudsey wrote: »

If we had no euro would we have had a recession at some stage yes it is part of the economic cycle. The question is would it have been as bad the answer to that I believe is no because bondholder would have demanded higher intrest rates and would not have lend as much.

I think this point is crucial, and correct.

And, incidently, the euro is meant to reflect conditions across the eurozone, not just Germany. Germany wants to protect the value, because it denominates their savings. However, if you consider conditions not just in Ireland, but Spain, Italy and even France, it is reasonably clear that the euro is overvalued. We can decry bad lending decisions all we like. But, one way or another, savers across Europe have to get used to the idea that their money just ain't worth want it was.

I agree with the OP. The euro issue is out there, but not given the promenance that it deserves.

Damien360

But if the euro was run from the start the way it was originally designed the mess would have been avoided. Far too much local politics was allowed in finance.

Euro Central bank would have controlled run-away inflation instead of allowing low interest rates to help german unification. Yes it helped Germany but it was detrimental to the rest of the euro zone that needed higher inflation rates to curb run-away inflation.

Until the European Central Bank is permantly seperated from the Bundesbank, we will see this mess again.

The euro is good for comparing cost of goods, services and lets be honest, travel in the EU. We would still have made a mess of things with or without the Euro but it would have been much smaller. Our economy would equally be smaller due to lack of cheap funding. Overall the euro was a huge benefit but we failed to be diligent with our new cheap money.

Manach

IMHO, whilst the Euro had been an issue - it was the vastly increased governmental share of the generated wealth that was/will be the millstone around the economy. The social-welfare system, like other systems in western Europe, has gone from a needed safety net to that of 1000lb gorilla that consumes capital which could otherwise have generated wealth.

ardmacha

it was the vastly increased governmental share of the generated wealth that was/will be the millstone around the economy.

The governmental share of the wealth did not increase. Government merely took a broadly similar share of wealth that wasn't real. When this disappeared there was a problem.

Toshchiy Imperatritsy Vselennoy

Irish society was corrupt beyond belief with politicans and business men optaining loans they could never service and people manipulating share prices and woefully bad decisions leading to the crisis.

That was not helped by th design of the EURO..we would really have to regulate the industry and stand up to some very powerful individuals abroad and here.

Entrepeneureship needs an enforced code of ethics and regulation.

It would not hav stopped Mc Creevy and co obtaining personnal loans they oul not afford from impevrished banks they then intended to bail out.

Perhaps the Euro system contributed to lack of regultion through relying on repo contracts and credit agencies but Irish business international business Irish banking and politics really was cold and psychotic.

The corruption would have been more obvious that does not mean we could have got a handle on it.

GCU Flexible Demeanour

Toshchiy Imperatritsy Vselennoy wrote: »

Perhaps the Euro system contributed to lack of regultion through relying on repo contracts and credit agencies but Irish business international business Irish banking and politics really was cold and psychotic.

The corruption would have been more obvious that does not mean we could have got a handle on it.

I know someone who sees the euro as a violation of the Star Trek Prime Directive, which demands non-interference in inferior cultures. The euro was technology that ourselves, the Greeks and the other peasants couldn't handle.

http://en.wikipedia.org/wiki/Prime_Directive#Philosophy_and_allegory

"The Prime Directive is not just a set of rules. It is a philosophy, and a very correct one. History has proven again and again that whenever mankind interferes with a less developed civilization, no matter how well intentioned that interference may be, the results are invariably disastrous."
—Jean-Luc Picard

hmmm

The Euro gave us great opportunities. It lowered the interest rates at which we could borrow. It saved us a fortune on our existing government debt. It opened up massive opportunities for exporting companies.

Unfortunately Irish people choose to instead splurge on property and consumer goods. You can't blame anyone else but us for our greed and stupidity.

Jake the dog

Does anyone remember what a pain it was before the euro getting foreign currency? For this alone I think it was a good idea. Also there's the low low mortgage interest rates.

I don't think remaining outside the Euro would have had many advantages, e.g. I don't see the UK having any particular advantage in crawling out of the current recession

_Kaiser_

Jake the dog wrote: »

Does anyone remember what a pain it was before the euro getting foreign currency? For this alone I think it was a good idea. Also there's the low low mortgage interest rates.

If I read that right then your argument is that easy foreign holidays and the ability to sate the Irish obsession with owning your own apartment/house makes it all worthwhile then?

I'm not being smart with that - I just don't see either reason as being enough of a "win" to offset the 5 years of recession (with no end in sight) we've had to endure as a result - and by "we" I mean predominantly the 30-50k worker (private OR public) who seems to be getting squeezed from every angle while others at both ends of the scale escape relatively unscathed in the larger scheme of things.

Personally I think the Euro has been more trouble than it's been worth. Aside from the dubious benefits above, I suppose we got all the foreign investment which can and does/will leave at anytime the situation turns too sour for them, or offers jobs that many of our own people aren't (for a variety of reasons) able to fill.

I suppose we got a lot of investment in the country too, although most of it seems to have been squandered on overpriced, sub-standard motorways (if the fact that relatively new/underused examples like the M8 are partly closed for repairs on an ongoing basis - have a look over on the Roads forum for more examples), 3G broadband rather than proper land line/cable/fibre broadband (we have a "smart" economy where outside of the main cities or towns you're lucky to get broadband at all, never mind sufficient broadband to actually run a business on it), and ... well I suppose Dublin Bus/CIE got nice new shiny buses and trains over the last decade too!

HOWEVER, although I think our problems now are compounded by the fact that we are tied to this "one size fits all" solution that clearly isn't working and more worryingly is now obviously being made up as we go along by the Eurocrats - who's to say all these panicked half thought out reactionary measures to "calm the markets" won't prove disastrous in other ways 5/10 years from now - "all of this has happened before, and it will happen again" (for the BSG fans among us) - I think the ultimate fatal problem we have in Ireland today is the Irish.

We've shown no evidence that we've learned from our mistakes of the past decade, our "leaders" still carry on like schoolyard children while filling their own pockets and setting up the next generation of TD's who will contribute feck all to the country, and we as a people still sit back - more concerned about what our neighbours might be up to (an ironic turnaround from aping them I suppose in the good times with a new BMW in every driveway), and still trying to get one over on each other than actually GROWING UP as a country, accepting responsibility for the decisions we made (like that overpriced mortgage that you fudged the figures for because you knew deep down you could never afford it) and demanding that EVERYONE pay a share (a realistic and fair share I might add depending on means) to get us over this mess.

Of course parallel to that must come a demand for change in how we govern ourselves and the standards we hold them up to - but in a country more concerned about the price of a pint, the English soaps and Premier League, and their 2 weeks in Spain, is it any wonder really the leadership and civil service of this country is the shambles it is? They are merely a reflection of ourselves and the grumbling on forums like this about the latest scandal or outrage isn't so much "how dare they!" as "why can't I?!"

Until THAT changes then this country will just plod along, allowing others - directly or indirectly - to set our destiny for us and we'll have no one else to blame but the man/woman you see in the mirror.

andrew

The bit of economics that deals with things like the Euro is called optimum currency area theory. Basically, it examines what kind of characteristics a geographical area needs to have if it is to have the same currency throughout.

There are several characteristics which such an area needs, which I can't remember off the top of my head, [and the OCA wikipedia page is pretty crap]. To cut a long story short though, two characteristics which I do remember are labour/capital mobility, and symmetrical shocks. The Euro has neither of these things. People as a whole don't tend to move between european countries when work runs out in one part, at least not enough to be able to say that labour is 'mobile.' In addition, the Economies of the eurozone aren't sufficiently integrated to have symmetrical shocks. This means that a one size fits all monetary policy isn't appropriate.

There are other OCA characteristics which the euro doesn't have; that's just 2. It's objectively true that the Euro isn't an OCA, and the problems which currently exist are a function of that fact. So no, I don't think Ireland should've joined the euro. If Ireland could painlessly leave, there's a pretty strong argument for it doing so. But it can't, we're stuck with it, and so have to make the best of a bad situation.

[Jackass]

Interesting point regarding labour mobility. The open market place of the EU & Eurozone has the structure for this, but the fact that it is not happening probably comes more down to language barriers than anything. It's difficult to know if an incentive structure could be put in place to increase the mobility of labour.

It's also interesting that you mention integration, as some would argue that the reason the Eurozone hasn't worked as well as hoped is that there's not enough integration rather than having monetary policy that can't be applied to all.

I hear people often blame monetary policy for our woes, but having rock bottom interest rates is exactly what we would be doing if we had control over our own monetary policy and our own currency.

The Euro has also been weakening which helps to increase exports, as does having a single currency enable more trade, so in reality, I think Euro policies have suited us extremely well, and I think we would be doing the exact same thing with our own currency and that too much is made of the euro be the problem and not our own Economic mismanagement and overborrowing in the state.

I actually fail to see how the Euro has had any negative contribution to our predicament. I'm just curious as to how the anti-euro brigade think we would be better off without it, as in, what would we be doing differently if we weren't in the euro, and how would not being in the euro have helped us in the first place prior to the crash. How is the euro to blame?

Cheap money was never to blame, our very own Government were building endless expansionary policies to grow the Economy year on year and at no point did they try to curtail the growth or pull the Economy back in. Especially in the most inflated sectors such as construction they not only watched the bubble fill with air, they were the ones pumping it full of air with fiscal policy decisions. Cheap credit I believe would have been the case anyway.

You can't assume that the Government of the day would have inflated the Economy with fiscal policy (as they did) but would have controlled the level of borrowing through monetary policy. If they didn't identify the problem, how can we assume they would have done anything about it?

It's a failure of governance and regulation that ruined us. Not our currency..

It's ironic that we weren't integrated enough (such as single banking regulator) that was the problem, rather than being too integrated by having a single currency. We needed less control, not more, as we failed to manage the economy with the controls we did and do have.

andrew

[Jackass] wrote: »

It's also interesting that you mention integration, as some would argue that the reason the Eurozone hasn't worked as well as hoped is that there's not enough integration rather than having monetary policy that can't be applied to all.

That's what I meant too; because eurozone economies aren't integrated enough, a one size fits all monetary policy wasn't appropriate between 2000 and 2008.

I hear people often blame monetary policy for our woes, but having rock bottom interest rates is exactly what we would be doing if we had control over our own monetary policy and our own currency.

The Euro has also been weakening which helps to increase exports, as does having a single currency enable more trade, so in reality, I think Euro policies have suited us extremely well, and I think we would be doing the exact same thing with our own currency and that too much is made of the euro be the problem and not our own Economic mismanagement and overborrowing in the state.

The issue is monetary policy prior to the recession, which was much much too low for Ireland (as this piece from 2005 shows). Obviously, monetary policy was only part of the problem; the government's fiscal policy was pro cyclical, and the global savings glut might've led to cheap money existing anyway. So I'm not saying that this crisis would've been completely avoided had we not been in the Euro, just that the Euro certainly didn't help.

With regard to what we would or could have done differently during the recession were we not in the Euro, there are a few things. The most obvious would have been the ability to devalue our currency. This would've meant that instead of having to wait for prices and wages to naturally fall (which is grinding and tough and generally horrible), we would've been able to achieve the same reductions over night. [I have heard that such a devaluation for a small open economy isn't actually that effective though, so that point's probably arguable]. Perhaps more significantly, the banking bailout might've been different. As far as I'm aware, the banks were guaranteed to the extent they were because there was a fear that there could be some sort of contagion from Irish banks to European banks. So we could've saved a lot of money on a bailout were we not in the Euro.

To be clear, I'm not 'anti-euro.' I just think that fiscal integration should've come before monetary integration, and that without such integration the Euro was a bad idea. The fiscal integration that's slowly coming now should've existed from the start.

GCU Flexible Demeanour

andrew wrote: »

The fiscal integration that's slowly coming now should've existed from the start.

I think the only additional point to make there is how fiscal integration means a substantial reduction in the ability of the Irish State to make independent decisions.

I'm not saying, especially, that this is right or wrong. I'm just observing that it would be very, very hard to envisage our ability to set the level of corporation tax being unaffected by such integration. Also, the need or point in us pursuing an independent defence policy would be moot - in the same way as the idea that Leitrim County Council might pursue an independent defence policy would be moot.

On the other side of the fence, Germans won't want to be stuck with the bill for keeping open acute hospitals in almost every Irish county.

I think it's important to bear all this in mind, as the reason the euro was established without the necessary institutions in place is because agreement on those things was and is very difficult to achieve.

the groutch

hmmm wrote: »

The Euro gave us great opportunities. It lowered the interest rates at which we could borrow. It saved us a fortune on our existing government debt. It opened up massive opportunities for exporting companies.

Unfortunately Irish people choose to instead splurge on property and consumer goods. You can't blame anyone else but us for our greed and stupidity.

but had we had control of our own interest rates, the powers that be in the central bank could have increased rates to stop inflation from spiralling out of control.

Damien360

the groutch wrote: »

but had we had control of our own interest rates, the powers that be in the central bank could have increased rates to stop inflation from spiralling out of control.

But we can control them. Euro rate of interest is 0.5% currently but nobody in this country is paying that. Many multiples of that on variable rate in fact.

It does always roll back to banks lack of regulation.

Corrupt and/or inept politicians and a woefully uninformed electorate caused the crisis. There were other methods a government could've used to take the heat out of the economy and didn't so why would we assume if they'd had the currency option they would've used it? The constant promises from opposition parties to increase spending more than the government, cut taxes more than the government, criticise the government for running a small surplus when inflation was over 5% shows that no party would've done things any different.

andrew

the groutch wrote: »

but had we had control of our own interest rates, the powers that be in the central bank could have increased rates to stop inflation from spiralling out of control.

Being in a monetary union means that we didn't/don't have control of our own interest rates.

Deleted User wrote: »

Corrupt and/or inept politicians and a woefully uninformed electorate caused the crisis. There were other methods a government could've used to take the heat out of the economy and didn't so why would we assume if they'd had the currency option they would've used it? The constant promises from opposition parties to increase spending more than the government, cut taxes more than the government, criticise the government for running a small surplus when inflation was over 5% shows that no party would've done things any different.

The reason we might assume that the central bank might've used the interest rate to control the economy (if the euro didn't exist) is that, in principal at least, the central bank is independent and has the power to do so. Obviously it might not have, but there would have been a significant amount of pressure on it to conform with a taylor rule-esque interest rate regime.

hmmm

the groutch wrote: »

but had we had control of our own interest rates, the powers that be in the central bank could have increased rates to stop inflation from spiralling out of control.

The Central Bank repeatedly stated that Irish property prices were moderately overpriced, but it wasn't a bubble. They were just as wrong as the rest of the regulators.

padser12345

The simplest answer is - yes!

Why? In the 'Union' context it has many benefits, much like speaking a common language. Stop and think for a moment...what would it be like, if for example Munster had their currency and Leinster had a different one.

Take the 'language' analogy.....most parts of Ireland speak English, and the odd part speak Irish, like the Gaelteacht area's. Alternately, if you can speak both languages quite fluently, there's no problem. But we know that's not the case!

I think the question posed deserves a simple answer, if not only for the 'obvious benefits'! However, if you were to ask, should we have joined the "European Union", then that might merit more argument. Or maybe the answer is just the same as the last!