Jim O’Leary discusses Ireland’s EMU membership in his Irish Times column today. An interesting question is whether Ireland would have avoided a bubble had it opted not to join EMU. The issue here is the relevant counterfactual. Since quite a number of non-member European peripheral countries that were growing quickly for convergence reasons also enjoyed credit booms due to the global decline in risk aversion and compression of spreads, it is not so obvious that staying outside EMU would have delivered stability (think of Iceland and various CEE countries).
If expectations of price appreciation grip the housing market, small differences in the level of interest rates do not make too much difference. To the extent that high levels of immigration helped to fuel perceptions of strong fundamentals in the housing market, that dimension is orthogonal to EMU: the two other countries that were early liberalisers were also not members of EMU (Sweden and the UK).
Accordingly, if the relevant comparison set is composed of other non-advanced European countries (in terms of income levels relative to potential in the late 1990s), then it is not clear that EMU was a fundamental factor. Rather, key differentiating factors may include the quality of banking regulation and the probity of fiscal policy.
Clearly, this is a very open debate that calls for more research!