Ireland and EMU

The Daily Telegraph gives prominence today to the recommendation by David McWilliams (made on RTE radio over the weekend) that Ireland should consider leaving the euro area: you can read the article here. The notion that Ireland or some other member country might leave the euro area is now a factor in the government bond market.

However, the adverse economic consequences of leaving the euro area are so large that this option should not be taken seriously. Barry Eichengreen has written a comprehensive paper on this topic, which you can download here.

The benign scenario described in the comments attributed to McWilliams in the Telegraph article envisages Ireland being able to use monetary independence to achieve real exchange rate depreciation in a stabilising fashion. However, a new Irish currency would be emphatically not trusted by the markets (a government that is willing to take the steps to exit the euro area is not a government that can be counted upon to keep its promises), such that either the new central bank would have to offer high interest rates or the government would have to impose capital controls. Neither is a recipe for a growth recovery.

More on Fiscal Adjustment

I have written an article for today’s Sunday Business Post on the economics of public sector pay cuts: you can read it here.   Although Karl is correct in saying that public sector pay cannot be the sole factor in the fiscal adjustment, it is clearly the most contentious issue in terms of the range of views that are being expressed.

The ICTU Plan

ICTU has made a set of proposals for economic recovery.  You can read the document here.

Things Fall Apart: FT on the Irish Economy

The FT devotes its Analysis page today to a profile of the Irish economy. Overall, it is a fair and balanced overview of the current situation. You can read it here.

Why the UK Should Join the Euro

As reported by Eurointelligence,  a new publication collects the views of 31 contributors that advocate the entry of the UK to the euro area. (This initiative was convened by Peter Sutherland.)  An executive summary of “10 years of the Euro – New perspectives for Britain” can be download here. The full report is available here.