NESC on Ireland and the Euro Post author By Karl Whelan Post date August 18, 2010 The National Economic and Social Council have released a report titled “The Euro: An Irish Perspective”. The media release is here while the full report is here. Categories In EMU Tags The Euro 46 Comments on NESC on Ireland and the Euro ← Honohan at Renmin University → Alternative Stress Tests from OECD and Citi 46 replies on “NESC on Ireland and the Euro” I agree the we should stay in the Euro and the conclusion of this report supports that albeit with more fiscal cohesion throughout the Union that what was the case. Something has to vary though and that will be wages as opposed to currency value. This will help us regain our competitiveness. McWilliams et al would no doubt disagree. Any group of people that can invent the word ‘concretise’ needs to be taken very seriously I welcome this very important and much anticipated report. We, the people of Ireland, are very fortunate to have such an venerable institution as the NESC. I shudder to think where the Irish economy would be without it. I don’t think Cormac Lucey is going to agree with NESC. You could point out that if we had not been in the euro in the first place the bubble might not have been as big. however, NESC seems to dance around that issue by point out it was the fecklessness of the government that belw it. Simpleton anybody that uses the word “concretised” deserves to be “concretised” preferrably in the support for a flyover. @simpleton concretize |ˈkänkrəˌtīz; känˈkrētˌīz| verb [ trans. ] make (an idea or concept) real; give specific or definite form to : the theme park is an attempt to concretize our fantasies. The report is broadly very supportive of EMU but it does not seem to actually address the McWilliams looney proposal to unilaterally exit. Maybe that is because the proposition is so preposterous that it does not warrant formal refutation. All the same it would have been helpful if the looney toons had been put in their box. By the way I don’t think we should have joined the Euro but once in there is no way ooot. We should have sought some reinstatement of the pre 1979 parity link with sterling which for the first 57 years of independence was solid as a rock. Sterling is our natural monetary habitat but I suppose the Republican Party could not resist the illusion of monetary independence from the old enemy. To be really provocative we should also have outsourced our financial regulation and monetary controls to London. Has McWilliams said anything lately about leaving the Euro? I dont think he has. The last thing I recall him saying about it was the idea the Germany woould leave the eurozone. ( “Concretisation” is a well established word. Concrete is the opposite of the Abstract, in philosophy.) Does it really need a report of 128 pages involving the participation of the top layer of the permanent government, senior representatives of the ‘social partners’ and, apparently, significant senior academic research and input to tell us that: (a) the GSP wasn’t very clever; (b) bank supervision and financial regulation were poor; (c) we screwed up big-time; (d) we need to buy-in seriously to any EU-level changes that will be made, but we won’t have much influence on these because we’re small and have been very badly behaved; and (e) some changes in distributional and structural policies might be helpful? It makes Nero fiddling (even if most likely was a lyre) while Rome burned look like the best and fastest ever emergency response. @Sean D The first hit from a Google search. You should be a researcher. The sub-headline in to-day’s Irish Times piece by Rory O’Donnell (which presumably summarises the main conclusions of the NESC document) reads “If Ireland had not joined the Euro, it is likely to have fared worse in the crisis of 2008-2010″. Without the ECB to hold our hands, maybe yes, but this carries ceteris paribus a bit far. Outside the Euro, we just might not have got into such a mess in the first place, or we might not have been allowed to by capital markets. I know that banking excesses were pretty widespread in the run-up to the present crisis, but would interest rates have remained so low for so long with an independent Irish Pound? There are optimal currency area arguments which were never very favourable to Eurozone membership in the first place. However that’s all as might have been and the fact that the decision to join just might have been questionable does not mean that a decision to leave should be regarded as a runner. A couple of weeks ago in the Friday business section of the Irish Times, both Dan O’Brien and Charlie Fell coincidentally had very similar pieces on exit from the Euro. Anyone reading them would realise that leaving is a crazy idea, and maybe they even convinced D McW. @simpleton You claimed they made up the word. I copied and pasted the words definition from my laptops dictionary showing they didn’t coin the term. Rather than thanking me for the correction you simply resorted to a bitter retort. If a simple Google was all that was needed to confirm whether it was or wasn’t a word. It begs the question, why didn’t you? Since you weren’t familiar with it you presume others weren’t. Presumptions of universal knowledge is something that is commonly exhibited in virtually all children under the age of three. Besides, this is an otiose argument with no relevance to the subject at hand. Your argument against the organization was using a word that you thought was some marketing buzz term they conjured on the spot. This is hardly a valid point to hold against them especially considering the word has accepted use. I happen to expect another ad hominem rather than a “alright, fair point” comment. @ tull mcadoo Some weeks ago, Brain Lucey said to Cormac Lucey that he was open-minded to listen to an argument for leaving the euro if a proponent could present a case that such a decision would not inevitably be followed by economic chaos. Cormac ignored the bait. It’s easy to be a Monday morning quarter back! @ John Sheehan Outside the Euro, we just might not have got into such a mess in the first place, or we might not have been allowed to by capital markets. The Celtic Tiger fairytale would have lasted long enough for plenty damage to be done. Icelandic level interest rates would have brought in loads of hot money; the banks wouldn’t have had to offlaod building or borrow from Europe to fuel the boom. With Bertie Ahern effectively as the CB governor, interest rates would likely have been lower — maybe matching the BoE’s but still low enough to maintain the bubble. My 10 questions for pub-stool economists: http://www.finfacts.ie/irishfinancenews/article_1019972.shtml Interesting article in the FT that has some bearing on the discussion here http://www.ft.com/cms/s/0/e8a3cc8c-a958-11df-a6f2-00144feabdc0.html Apparently eurozone membership has left us in a position where we are more likely to default than if we had remained outside. @Michael Hennigan That Kirkegaard guy talks real sense. The IT articles also pointed out the sheer logistic impossibility of Ireland leaving the Euro. This impossibility arises from a very simple fact – the successor currency would be expected to be a dog – there never has been a currency change to a perceived weaker version, they have all been attempts to turn a new leaf. That would not apply to Germany which could feasibly announce a 6 month timetable to reintroduce the D-Mark without causing domestic chaos. Bit Kirke has allayed my fears on that one not so much because of the 60 year political U-turn on Europe but because Germany and its banks are hugely dependent on the coherence of the Eurozone. Kirke is right, the Eurozone is safer than ever, unfortunately the same cannot be said for the Euro. Suppositions about what would have happened if we stayed out of the Euro dont really help us much, do they. Surely there are more important things to discuss first. “Do we stay or do we leave” has been the key question, and I reckon the “stay” argument has won convincingly several times over. I dont even think McWilliams is contending that one anymore. Does the Eurozone have inherent structural flaws that need to be fixed? I think so; the incongruity of the peripherals and the Germany and the rest of the “core” countries is the most commonly posed one. What to do about these flaws? The internal devaluation for the peripherals is one strategy, Germany and the Cores breaking off to a new currency zone is another. Surely that is where the debate should be at this stage. @ Kevin O’Brien We hear a lot about peripheral countries in the West and South but in the East, the peripheral countries are eager to join the EMU. Swedish economist, Anders Åslund, said last week that the conventional wisdom was that Estonia, Latvia, Lithuania, and Bulgaria, countries which had pegged their currencies to the euro would be forced to devalue. But none of them has. Nor will they. Estonia has already been approved to adopt the euro next year. By sticking to their fixed exchange rates, these governments forced through the long-needed reforms of the public sector, for which their electorates are thanking them, and the public majority for their adoption of the euro remains massive. The European economic convergence is proceeding because the east is reforming faster than the inert centre. http://www.finfacts.ie/irishfinancenews/article_1020351.shtml OK. I take it you mean we go full throttle at reforming the economy here so, and stop worrying about the Euro. Is it fair to say Germany is inert – considering their massive export strategy? What a wonderful Report. Here are my favourite bits… 1. The Policy Conclusions in the Executive Summary. There is nothing really amounting to a definite policy conclusions, just abstract statements regarding recent developments and proposals at an institutional level in the EU and Official Ireland’s invariably supportive attitude towards them, together with vague Apple Pie-isms concerning learning lessons from the bust and bringing the public along with the aforementioned closer coordination/surveillance/”recommendations”/sanctions. 2. Part 8. This is all about the ongoing controversy surrounding proposals for ever-tighter surveillance of member state budgets and sanctions for inappropriate fiscal policy. Only it isn’t. Instead of being given a sense of the ins-and-outs, and pros-and-cons of the debate, the whole thing is presented as a mixture of fait accompli and plain common sense. Again, it is stated that this is all in Ireland’s interest, without much of an effort to explain why, and how initially acceptable measures could mutate in time to something less agreeable. It also contains this delicious “Conclusion” (imagine writing something like this in a Report commissioned for the private sector): “Our purpose has been to identify the challenges that the EU has to get to grips with in the current crisis, rather than to recommend specific lines of action.” It then follows in the next sentence with a bit of of the aul Skibereen Eage: “The above discussion has sought to identify a context—of ideas and understandings—in which it might be possible for the EU to discuss and agree a pragmatic combination of measures.” Ah yes, I’m sure the NESC Report will be towards the top of the Commission’s reading list, not to mention the Council of Ministers. 3. The overall language of the thing. It is pure, fluent civil-service speak. All abstract verbs and elegant, tastefully-worded waffle. As noted, there are no real policy proposals, no action points, no clear lessons from the past other than the blindingly obvious, phrased in the most ginger, diplomatic, understated (and hence most offensive) way possible. I’m no Eurosceptic, but I am increasingly skeptical towards our homegrown Eurotrons from the social partners. This Report is shallow, smug, and offensively bland on matters of real public importance and the future of the state. @ Kevin O’Brien Germany has the experiece of convergence and after almost two decades of big spending in the former East Germany, the GDP of the former GDR is about 70% of the former West Germany. NYT columnist Thomas Friedman wrote today: ” A decade ago Germany was the ‘sick man of Europe.’ No more. The Germans pulled together. Labor gave up wage hikes and allowed businesses to improve competitiveness and worker flexibility, while the government subsidized firms to keep skilled workers on the job in the downturn. Germany is now on the rise, but also not free of structural challenges. Its growth depends on exports to China and it is the biggest financier of Greece. Still, ‘Germany is no longer the country with the oldest students and youngest retirees,’ said Kornblum. “ I made the same point last Monday and previously. http://www.finfacts.ie/irishfinancenews/article_1020365.shtml India will produce the greatest number of graduates annually from 2020. The good life of recent times can no longer be guaranteed: The OECD says for women, the longest retirements are in France, where retirement stretches on for about 27½ years; France also holds the OECD record for men – – 24 years spent in retirement, compared with just over nine in Mexico. Be a dependent until 25; retire at 59 and then live 24 years on state support! Thomas Friedman writes: “America’s two big parties still cling to their core religious beliefs as if nothing has changed. Republicans try to undermine the president at every turn and offer their nostrum of tax-cuts-will-solve-everything — without ever specifying what services they’ll give up to pay for them. Mr. Obama gave us expanded health care before expanding the economic pie to sustain it.” Germany should not be included in teh inert group. @ Libero This Report is shallow, smug, and offensively bland on matters of real public importance and the future of the state. On the other hand… Could you imagine after the period of reckless mismanagemnt in the late 197’0s, a secretary general of the Dept of the Taoiseach chairing a group that produced a report saying: “To succeed within the euro, Ireland must ensure that future fiscal policy is counter-cyclical and sustainable, prices and costs maintain Ireland’s competitiveness, and financial supervision prevents irresponsible banking practice.” This is hardly civil-service speak: ““The tax windfall created by the property boom allowed the unresolved issues to be glossed over and the macroeconomic perspective on fiscal policy to fade from view. The policy lessons are hard, but also broad. They certainly demand that government maintain a clearer focus on stabilising the economic cycle and the long term sustainability of the public finances.” May I say, well said to John Sheahan above: “The sub-headline in to-day’s Irish Times piece by Rory O’Donnell (which presumably summarises the main conclusions of the NESC document) reads “If Ireland had not joined the Euro, it is likely to have fared worse in the crisis of 2008-2010″. Without the ECB to hold our hands, maybe yes, but this carries ceteris paribus a bit far. Outside the Euro, we just might not have got into such a mess in the first place, or we might not have been allowed to by capital markets. I know that banking excesses were pretty widespread in the run-up to the present crisis, but would interest rates have remained so low for so long with an independent Irish Pound?” The Dan O’ Brien and Charlie Fell pieces in the Irish Times were also very useful but didn’t address the problem of either (a) Germany leaving, or (b) big countries getting into deep trouble, e.g Italy and Spain. There’s an awful lot of self delusion going on, one just has to look at the likes of Italy to see the real problems, it’s as much a political as an economic problem this euro mess. http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7923246/Italy-trapped-in-slow-lane-as-political-crisis-deepens.html The NESC, and some others, will say anything to justify not just the single currency but the centralisation of power inherent in “ever closer union”. That, the green agenda, and socialism, are creeds whose adherents make up justifications just to fit the agenda. Logic doesn’t come into it. Theirs is the view of today’s elite, just like the view that Church dictatorship was right in the 1950s or the view that socialist dictatorship was the way forward in the 1970s. Fashionable nonsense from the unthinking. @ Michael Hennigan: the type of economic upheavel implicit in your comments are very serious. the last time such economic upheavel took place in europe lead to world war. @ Michael Hennigan I’ve read your comments before about how the people in Estonia and Latvia are grateful to their governments and been a tad surprised. Are people in these countries really happy with governments that delivered declines in GDP of about 20 percent. Perhaps the Baltic people are an exception but governments presiding over economic collapses usually aren’t too popular. Back @ Michael Hennigan: I don’t know about the prevailing standards in the late 1970s, I was hardly alive then. But surely by any standards, save perhaps an opinion piece by Noel Whelan, the sort of points you’ve recited are uncontroversial, and pretty much universally accepted. I don’t see how their recital by the NESC is somehow especially perceptive or challenging. And I think that second quote is awful. For one thing, it’s all phrased in the abstract “…allowed the unresolved issues to be glossed over and the macroeconomic perspective on fiscal policy to fade from view.” Who allowed the glossing over? When did the macro persepective fade from view? To who’s eyes did it fade from view? What replaced it? Wasn’t the EU Commission and OECD, amongst others, raising various coloured flags on that front? To my mind, a report worthy of serious consideration wouldn’t pull its punches so visibly, and it wouldn’t confuse – whether deliberately or not – the idea of economic policy dissent “fading” with the idea of economic policy dissent being ignored by a permanently electioneering government. I want to marry a Icelandic woman. @Karl W, Michael H is well able to defend his analysis and views, but the Irish aren’t alone in a having a long history and long memories. The limited recent contact I’ve had with people in two of the Baltic states suggests that there is a widespread popular acceptance of the need to endure some economic pain both to maintain a degree of sovereignty within the EU and to achieve increasing economic convergence with the core EZ countries. @Michael H, I think you’re being a bit harsh on Libero. His critique is far more nuanced and perceptive than mine. Should we really be encouraged by statements of the bleedin’ obvious long after the damage has been done and Ireland no longer has the sovereignty to remedy the damage on its own? (And one shouldn’t discount a bit of jostling between the DoTaoiseach and the DoF.) The civil service favourite, “an briathar saor”, dominates the policy discussion – such and such a thing should be done. There is absolutely no sense of the urgency or importance of tacking the sectoral problems whose remedy remains within Ireland’s control. @Libero – this is a NESC report, what else would you expect of a report written by committee (at least approved by committee). @Michael Hennigan “Could you imagine after the period of reckless mismanagemnt in the late 197′0s……”. The statement is nothing but words. Throughout the boom the govenemnt made similar statements that they were going to ensure fiscal sustainibility – we know where we ended up. Overall it is disappointing that the government did not commission an independent assessment or Euro membership – this was not a sign of confidence. @ Ciaran Daly/Karl Whelan I’m not a Jeffrey Sachs ‘shock therapy’ fan! In recent months there have been many references to peripheral members of the EMU and the dim prospects for the euro. It would have been easy to miss that on the EU’s eastern periphery, there were countries eager to join. As regards the detail of fiscal consolidation in the Baltics, I would give my own view if I was more familiar with the situation. The contractions followed property bubbles, boosted by emigrant workers as land tax was low while labour tax was high; contractions were inevitable but devaluations were not viewed as an option. Has devaluation of sterling brought an export surge? I try to deal in facts and my own personal experiences e.g. in regions like Asia, Middle East, Western Europe and US. Whether it’s Newsweek profiles or the Eurozone collapse, there is plenty misinformed commentary about. I quote Anders Aslund, a very experienced economist in the region; he may be right or wrong. Last week, World Bank president, Robert Zoellick said Latvia: “not only achieved its fiscal consolidation target, but it did so while protecting the most vulnerable groups through the Emergency Social Safety Net program.” Maybe or maybe not. These countries have minority Russian populations and that history is of course one of the factors in being closer to Europe. What I do highlight is reform and last May when Germany was lambasted for insisting on reform in Greece, it was convenient to ignore that Germany itself enacted painful labour and welfare reforms which cost Angela Merkel’s predecessor his job. Reform shouldn’t be about screwing the poor and we know that there are still Irish bubbletime fees and payments in both the protected private sector and the public sector. Prime office rents are 60% above levels in Belfast. In the US this year, the poor were the main beneficiaries of the landmark health reform program. As the educated workforces of the emerging economies grow, we can see the impact already on the US, with its middle class income stagnation and the now world’s third biggest economy Japan, where over one-third of the workforces are temps with few rights and earning less than the Irish minimum wage. @ Paul Hunt Paul, It’s all relative I suppose. I have a lot of exposure to the jargon, spoofery and misuse of superlatives, which characterise enterprise policy announcements and reports. In contrast with that, the report was more direct. Of course its purpose was to keep staff occupied on a subject where all the partners were united. Maybe it should do a final report and declare itself redundant. A Fianna Fáil minister once called publicly for his department to be abolished – – a rare event in the Irish political system where the modern Age of the Spoilsmen has eclipsed the notion of public service first and self-interest second. http://www.finfacts.ie/irishfinancenews/article_1018043.shtml @ Scorpio Overall it is disappointing that the government did not commission an independent assessment Maybe like the Innovation Taskforce? — 28 members and not room for one critic! @Michael H, Points noted. I suppose I’m just a bit exasperated that this is the ‘creme de la creme’ of those who formulate and influence social and economic policy in this state – and this is what they come up with. Wrt the Euro all key fiscal, monetary and banking sector decisions are out of Ireland’s hands. But Ireland had, and retains, some measure of control over domestic costs and prices. Keeping these in line with the EZ average was and is a key requirement of sustainable EZ membership. They went seriously out of line and, though there are patchy declines, there is a long way to go. But is there any sense of the urgency or importance of this task? But wait, isn’t there another body, the NCC, that looks at this? That’s OK then; they’ll sort it. Another advisory report to An Taoiseach is probably being prepared. It’d be hilarious if it actually weren’t serious. And when, finally, finally, something really has to be done the cry goes up “Call McCarthy”. Now I yield to no one in the extent of my respect for Colm, but surely he cannot be the sole respository of wisdom and knowledge to inform government policy in crucial areas? I can’t understand how anyone can claim that the Euro didn’t fuel the housing bubble and we would be worse off now without it. Besides the issue of having low interest rates for so long, there is no way the banks would have been able to borrow all that German money to fuel the boom without our own currency depreciating. The authors of this report and the likes of Peter Sutherland like to gloss over the joining of the Euro, as it was essentially a terrible political decision and not an economic one. However, now that we are in the Euro, I agree with the others who say we need to stay. However, Cowen et al need to get tough with the Germans and ECB. One of the main reasons why Anglo was included in the bank guarantee, was because the govt feared that the European wrath that would come if one of our banks failed. The Germans are always moaning about the Euro, but it means they can sell their exports at an artifically low price. The ECB need to provide more help with clearing up the Anglo mess and not just by buying a token amount of Irish debt. Of course Cowan would never do anything to upset Frau Angela. The messy stuff is really going to hit the fan when the ECB needs to put up rates to slow down the German export train that is being fueled by a low Euro that is caused by the peripheral countries who will be more likely to default if rates go up… Tell me why the Euro was a good idea … As pointed out before, Iceland also had a credit bubble despite not being in the eurozone. Essentially we could have just as easily ended up where we are without joining the Eurozone. Also there are eurozone countries that did not experience the credit bubble. The primary “fuel” was government policy. Had the government taken a very different view of the housing boom, it could have easily shunted out the effect of the low interest rates. “Tell me why the Euro was a good idea …” Why not discuss how to fix Ireland’s problems first. Iceland is a very different country to Ireland with less than a tenth of the population, so to equate the two cases is not entirely fair. In any case, there was a worldwide boom in property triggered by the stock market collapses in 2000-01. However, the Irish case was exacerbated by a low Euro (although I agree that govt policy was the main reason). And of course there were other countries in the Euro zone without a credit bubble – like Germany and France and those that actually required low interest rates. That’s the whole point. Population has absolutely nothing to do with interest rates or government policy , and therefore it does nothing to invalidate the comparison. On the worldwide housing boom point, where else in the world has there been a bubble like Irelands? Spain and Dubai are probably the two most famous. Irish public policy is the main cause of Ireland’s property collapse. Warnings about the Irish property bubble were ignored for years. While the point about interest rates isnt wrong, the key issue was the governments failure to act when advised to do so. These advised actions would have counteracted the low rates. Unfortunately the powers that be thbought they knew better. “Germany and France .. actually required low interest rates. ” Why did they require them? Actually, if the Germans has their way, the interest rates would probably have been higher. Invisible wall endures for trade 20 years after German reunification; Convergence can take at least 33 years A View from 2020: The Eurozone break-up of 2013 The NESC Press Release says it all “In the past decade, Ireland’s approach to fiscal policy, prices, costs and financial regulation were not sufficiently adapted to the disciplines of a single currency.“ As the Secretary General of the Government chairs NESC, we now have an admission from the government that it was out of control. So we are back into an era of political economy and thus we also have sort out how we govern ourselves, as part of the process of sorting out our economy. As Madison put it more than 200 years ago “Ambition must be made to counteract ambition. In framing a government which is to be administered by men over men the great difficulty lies in this: first you must enable the government to control the governed and in the next place, you must oblige it to control itself.” In 1999, the IMF raised precisely this issue. We need to learn what consideration, if any, our Government (elected and appointed) gave to the issue raised for discussion by the 1999 IMF report on Ireland.( http://www.imf.org/external/pubs/ft/scr/1999/cr9987.pdf) “If the risks of overheating and a subsequent hard landing to a more sustainable rate of growth is a concern, what policy actions can be taken in the context of monetary union?” On the basis of “ Reculer pour mieux sauter” what can we learn from a thorough understanding (based on all papers, documents, records and personnel being made publicly available) our government’s response to what the IMF Directors also suggested on banking in that same review “a peer review, particularly by supervisors from a country that had undergone a real estate boom, might be helpful” What this peer review done? When? Who/what group did it? Was the report published? If not, why not? Plus ça change, plus c’est la meme chose. In order to start the process of devising better ways of governing ourselves, I suggest repealing the 2003 Freedom of Information Act as a first step. In all sectors, bad management, ineffectiveness and corruption thrive on secrecy, as we have learnt from journalists, tribunals, web-sites like this and other enquiries. Freedom of Information(FoI) is one means of ensuring that we, citizens of a republic, can keep an eye on our governing classes, both elected and official, public and private. In a posting on politicalreform.ie (http://politicalreform.ie/2010/06/21/freedom-of-information-and-corruption/), I quoted a Swedish journalist’s comments on Britain (from which we draw much of political, government and public administration practice) “But if you ask me for one example where my country shines, I would have no doubt what to choose. Sweden’s Freedom of Information laws are a beacon to the world….In 1766, when a new young radical government came to power convinced that only transparency could deal with the corruption that was looting the Swedish state and society Freedom of Information Act was passed… Freedom of Information… is still a bedrock for transparency and accountability in Swedish democracy…” If readers feel that “looting” is not a good word to be used in our context, I refer you to Frank Galton’s posting in another thread http://www.irisheconomy.ie/index.php/2010/08/19/money-pit/#comments) which linked to a 1993 paper with the title “ Looting: The Economic Underworld of Bankruptcy for Profit” @Michael H, Goodhart presents an interesting scenario. It’s possible, of course, but I think he is underestimating the political commitment of the original founding members to preserve the Euro and the EU – and this is being reinforced by the Scandinavians, Austria and some the newer, smaller member sin the east. Some form of debt restructuring will have to take place and it will impose strains. And, yes, there are ultra nationalist, xenophobic elements gaining support in some member-states (as Kevin O’Rourke points out in his post today), but most of the centre-right and centre-left in the core countries differ little in their commitment to cohesion and solidarity. He may also be underestimating the extent to which citizens in the South approve of some EU governance – and might welcome more – since it is far superior to what they produce locally. @kevin Look, my point is simply that the Euro exacerbated the property bubble in Ireland. You ask “where else in the world has there been a bubble like Irelands?” which is sort of my point. While there was a boom/bubble in property in many parts of the world (see http://www.ft.com/cms/s/0/1bde8dfe-a61a-11df-9cb9-00144feabdc0.html) Ireland’s was particularily bad, as was Spain’s, another euro-economy who needed low rates in the last decade. I agree that their govt and ours could have used other policy tools to cool the boom, but they didn’t, partly because they liked the free money and partly because they are incompetent fools (although many economists didn’t see this problem coming either). This is partly the reason why Gordon Brown devolved rate setting to the Bank of England so as to avoid political influence. As regards Germany and France and low rates. The German and French economies were in the doldrums for the past decade (I thought you were an economist). Remember “the angst of Germany and the malaise of France”? If they didn’t need low rates, why else were the Eurozone rates so low for so long? go back to first principles (pardon the simplification): Germany is a nation of savers, as opposed to a nation of borrowers like us . Germany is a lender nation. It doesn’t benefit a lender to have too low an interest rate. you didnt answer my question: Why did they, Germany in particular, require low interest rates. As Germany is central to the overall economic health of the economy, the ECB wouldnt set rates that would have a profoundly adverse effect Germany. But they dont put Germany’s interests ahead of everyone elses either. re: Euro. OK so we are both agreed that the government fan the flames of a fire they should have, and could have, put out? It wouldn’t make your point wrong, but it would confines it to be a side-issue. Germany had anemic growth in the early part of the decade and yes they saved more than they borrowed – too much, in fact, and low rates were partly meant to encourage the German consumer to borrow and spend more. Do you diagree that German growth was sluggish at best between 97 and 97? If not do you disagree that lower interest rates can be used to encourage growth? BTW, you didn’t answer my question. Why were Euro rates so low for so long? Was this not largely because the two largest economies in the Euro zone had poor growth? And as regards the Euro being a side issue in whether it was one of the causes of our problems. Many commentaters, mostly for political reasons, simply state that the Euro has been a big success and a benefit to all and did not play any role in causing problems in Ireland, Spain, Greece or other places (such as Peter Sutherland in the IT this summer). Did the govts of these countries mess up? Yes, but the Euros impact was certainly not neutral either. Given the unprecedented nature of the Euro, I hardly think this is a side issue. @Bazza, I agree it is not a side issue, but, to all intents and purposes, it is a done deal. The Euro is a monetary mechanism devised by the institutional EU as the key element in an over-riding political project. The biggest threat to the Euro is the risk of voters in the core EZ countries – particularly those in Germany – deciding that they will not endure economic pain to bail out the fiscally incontinent PIGS – even if it was their banks and pension funds that fuelled the gorging by the PIGS. Therefore any resolution that will be devised and administered by the institutional EU will be very limited in its generosity to the PIGS – and will be administered only when the institutional EU senses that enough voters in the core EZ countries are content that the PIGS have stewed in their own juices long enough. Hold on, you speak as if there are interest rates have two bivalent states. “high” and “low”. hy were Euro rates so low for so long? The ECB felt those rates optimizes the economoy of europe as a whole, and I actually did say that before. perhaps I could have used a phrase better than “side issue” , but for the housing bubble, it doesnt deserve anything like the importance it was given. [edit: .”and I actually did say that before..” shoot. I didnt. Well it was implied in a previous comment] Why has it taken so long for for the NESC to bottle conventional wisdom? Is it because it was waiting for a conventional wisdom to emerge? Nearly three years after the economy enters a tailspin and NESC voices its opinion. Radical indeed. Did Bord Snip recommend that NESC get the chop? Comments are closed.