Why the euro is a mistake for Ireland

Irish National Platform secretary Anthony Coughlan summarises the organisation's reasons for arguing the folly of the Republic of Ireland decision to adopt the euro. Much of the reasoning set out below can be applied to Britain, where a government announcement of a referendum on the adoption of the euro is widely expected later this year.

Most Irish economists say No

ALTHOUGH MOST Irish economists and economic commentators were against Ireland joining the euro, all but six members of the Irish parliament went ahead regardless, impelled by the momentum of years of uncritical europhilia.

Fashioning a 'new country' called 'Europe

THIS POLITICAL purpose behind the introduction of the euro is probably more important than the economic one. We need this united Europe...We must never forget that the euro is an instrument of this project, said Spanish Prime Minister Felipe Gonzalez on the eve of the locking the eurozone exchange together in 1998. The two pillars of the nation state are the sword and the currency, and we changed that, said EU Commission president Romano Prodi.

Having got its own currency with the euro, the EU is now pushing ahead with its own army, the 60,000-strong Rapid Reaction Force, which Ireland's politicians have also signed us up for. At Laeken recently European leaders decided in effect to move towards an EU constitution and quasi-federal EU government.

All independent states have their own currency and all currencies belong to independent states

BY ACQUIRING its own currency the EU takes a giant step towards becoming a superpower or quasi-superstate, under the direction of an inner group of EU members led by Germany and France. These 'big states' want this directorate formally recognised in the 'two-club-EU' provisions of the Treaty of Nice, which Irish voters refused to ratify in their June 2001 referendum. At the same time, within the eurozone formerly independent states like Ireland become like economic 'provinces', with no controls over the rate of interest, credit or currency exchange rate appropriate to their economic circumstances.

Two-thirds of the Republic's trade is outside the eurozone

THE AVERAGE for the other 11 continental eurozone countries is around 15 per cent. Basically Ireland does one-third of its trade with the eurozone, one-third with the UK, and one-third with the USA and the rest of the world.

We get 75 per cent of our imports from outside the eurozone and send 60 per cent of our exports to countries outside it. The USA and Britain, both outside the eurozone, are the Republic's two biggest and strongest markets, whereas the continental eurozone market has stagnated for years. By signing us up for the eurozone the politicians of the main Irish political parties, Fianna Fáil, Fine Gael, the PDs and Labour have decided to tie the Republic's currency, in principle for all future time, with countries with which it does only one-third of its trade.

Meanwhile the countries with which we do the remaining two-thirds retain the freedom to pursue their own exchange rate and interest rate policies and to use these essential policy instruments of any sovereign government to boost their economic competitiveness, if necessary.

Eroding the basis of the 'Celtic tiger'

THE INTELLIGENT use of an independent currency is the principal single reason for the Irish economic boom. The key question regarding the 'Celtic Tiger' is why did the Republic's annual rate of economic growth, which averaged 3-4 per cent a year during the 1970s and 1980s, double to 7-8 per cent in 1993-4 and remain doubled since?

The principal reason is that 1993-99 was the only period in the history of the Irish state that it pursued an independent currency policy and allowed the exchange rate to float, following devaluation in 1993.The Irish economy took off on the back of the resulting highly competitive exchange rate. The punt depreciated in value from 110 pence sterling in January 1993 to 79 pence sterling at the time of the introduction of the euro. It also devalued heavily against the dollar. This boosted exports to the US and UK, our two principal markets, and reduced competitive imports from these countries.

From now on it is the EU, not the Irish government or Irish Central Bank, which will decide Ireland's exchange rate.

Unconstitutional approval

THE 1992 Maastricht treaty referendum, in which the people gave permission for the republic to join the euro, was pushed through by unconstitutional means --as the Irish supreme court later decided. The government spent huge sums of public money on one-sided advertisements advocating a Yes vote. Most of the public debate was on the abortion protocol rather than the abolition of the national currency. The people were deceived by an utterly false prospectus, put before them by the leaders of the Republic’s principal political parties.

A new dimension to the border

FROM NOW on any Irish nationalist advocating a united Ireland is saying in effect that they want the people of Belfast and Northern Ireland to put themselves under the economic rule of the European Central Bank (ECB).

It is already clear that the big EU states will push inside the eurozone to harmonise indirect taxes and public spending policies for smaller states like Ireland. That is likely to add further economic dimensions to the border.

One-size-fits-all interest rates

IT MAKES no economic sense to have the same money, and hence the same interest rate and exchange rate, for the economies of 12 eurozone countries, some of which are significantly different from others. Germany, the largest EU country, is now in recession and has 4 million unemployed. It needs low interest rates to encourage investment and consumption and stimulate its economy.

Ireland has had an 8-year boom. We need higher interest rates to prevent inflation and bring down house prices. But ECB interest rate policy is geared to what suits Germany, not Ireland. The result is that we have unsuitably low interest rates.

In the eurozone it will be Franco-German interests, not Ireland's, that will determine ECB interest-rate policy.

No democratic control over the ECB

ARTICLE 107 of the Maastricht Treaty states that the ECB shall not seek or take instructions from any national government or from any European institution. By signing us up to the euro our politicians have put the Republic under the economic control of a group of independent, irremovable, non-elected central bankers in Frankfurt for the indefinite future.

The ECB's anti-expansionary bias

IT IS pointless to criticise the ECB for this. The euro-bankers are only carrying out their Maastrict Treaty obligations by insisting on it. Their sole duty under Maastrict is to keep inflation low in the eurozone.

The Treaty does not require the ECB to adopt policies that would encourage economic growth, expansion of output and employment, or reduction of economic imbalances between different eurozone regions or countries.

Abandoning control over interest and exchange rates

A NATIONAL currency is essential for every independent democratic state because it enables its government to control or influence its rate of interest or exchange rate in a manner that can serve the interests of its own citizens.

Article 45 of the Irish Constitution lays down as one of the key principles of good public policy: That in what pertains to the control of credit the constant and predominant aim shall be the welfare of the people as a whole. This is now impossible with the euro, for control of credit in the Irish economy has been shifted from the Irish Central Bank to the ECB.

Wage cuts, migration and employment flexibility

WITH THE safety valves of interest rate and exchange rate changes abandoned, the only economic policy flexibility still left to governments in the eurozone is their ability to vary taxes and public spending. The Stability and Growth Pact which accompanied the Maastricht Treaty seeks to limit this by licensing the EU to impose heavy fines on eurozone states that run budget deficits greater than 3 per cent of their GDPs.

The EU's clearly stated ambition is to obtain the power to 'harmonise' national taxes inside the eurozone, if successful, would eliminate the ability of national governments to adopt virtually any independent measure to advance their people's economic welfare. The only response possible in an economic recession would be flexibility through wage-cuts and profit-cuts, or by workers and businesses choosing between unemployment at home or migration of labour and capital abroad.

Effect on currency speculation

THERE ARE numerous examples where big currencies like the dollar, the pound sterling, the yen and the deutschemark have fluctuated markedly within short periods of time in response to supply and demand. If currency exchange rates are fixed for political reasons, the real economy of people making and exchanging things must fluctuate to fit in with the exchange rate, rather than the exchange rate fluctuating to accommodate the real economy.

Globalisation does not eliminate small currencies. The number of new currencies increases all the time as new states come into being. The number of states in the world has trebled from some 60 in 1945 to around 200 now. So has the number of currencies. The number of states -- and currencies --in Europe went from 34 in 1989 to 50 ten years later.

There is no relation between the size of a state or its population and the strength of its currency, its economic prosperity or level of income per head.

Protection against globalisation

THE EURO is a key instrument for eroding national defences against the dangerous effects of economic globalisation, which transmit downturns in some major economies rapidly to others.

Free movement of capital is the locomotive of globalisation. Article 56 of the EU treaty forbids all restrictions on the movement of capital either within the EU or between the EU and the rest of the world. The Maastricht Treaty is a constitution for undemocratic rule by Central Bankers. It is a freedom charter for private capital, whereas progressive movements have always sought to impose rules and social controls on capital, to tame ìthe furies of private interestî through the only instrument that history has evolved for that purpose, namely independent national states that are responsive to democratic electorates.

Euro staying power

THERE IS no example in history of a lasting monetary union that was not linked with one state, said Otmar Issing, German governor of the ECB.

All sovereign states are fiscal as well as monetary unions. They have common taxes and public services throughout their territories. Poorer areas and regions pay, on average, lower taxes and receive more public services than their richer ones.These expressions of national solidarity mean that resource transfers from richer regions within a country compensate poorer regions.

There is no comparable solidarity at EU level, however, whereby richer EU countries are willing to compensate poorer ones for loss of key economic powers. EU monetary union is not a fiscal union. Taxes and public spending are overwhelmingly national in the EU, and likely to remain so. Brussels funds amount to a mere 1.3 per cent of the EU's annual gross product, whereas national taxes and spending typically amount to 35 per cent or more of national products.

There is thus no realistic likelihood of the richer EU countries being willing to pay vastly greater sums to Brussels in the name of a common 'Europeanism', to compensate the poorer EU countries for surrendering their ability to use exchange rate and interest rate policy to balance their national payments.

The EU does not have the solidarity that marks a nation or people. There is no EU 'demos', no EU national community with which citizens identify and for which in some circumstances they are willing to die. The single currency is bound to generate tensions and antagonisms between different EU countries in the eurozone, as the common interest and exchange rates that suit some do not suit others, and people gradually realise that their governments have surrendered key policy instruments for advancing the national welfare.

For this reason the euro project is doomed to fail, although it could last years or even decades, generating policy conflicts and significant international tension while it does last.

The National Platform is affiliated to The European Alliance of EU-Critical Movements (Team), a pan-European information network involving some 45 political party and non-party organisations inside and outside the EU committed to the defence of democracy and opposition to the creation of a federal European superstate.

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This document was last modified by David Granville on 2002-10-03 16:00:38.
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