The Corner

Erin Go Bust: The Euro Did It.

Ireland’s collapse is a direct and immediate consequence of the euro. As early as 2001, Irish economists were warning that the boom was getting out of control, and that interest rates needed to go up. But, of course, there were no Irish interest rates any more: There was only the European Central Bank. Its policy of cheap money was arguably excessive even for the core European economies; for Ireland, it amounted to catastrophically pro-cyclical monetary policy. A credit bubble was inflated; the bust, when it came, was commensurately painful.

I know no one likes to hear this, but we told you so, we Euro-skeptics: We predicted right from the start that the euro would lead to an unsustainable boom in the peripheral members, followed by a terrible crash (see here).

The credit crunch was just the beginning of Ireland’s euro-related troubles. Unable to devalue, the country suffered as the United Kingdom, its largest export market, gave itself a 25 percent competitive advantage.

Ireland’s position has now become calamitous: debt and unemployment are rising, prices and incomes are falling. GDP is down by an almost unbelievable 20 percent from peak. And here’s the really bad news: These problems will carry on for as long as Ireland is in the euro. Bailout or no bailout, Eire’s economy diverges cyclically and structurally from Continental Europe: Save by occasional and fleeting coincidence, its interest rates and exchange rates will always be wrong.

The obvious solution, of course, would be for Ireland to withdraw from the euro, recognising that its trade patterns and economic cycle link it to the Anglosphere. (Since the British devaluation, the U.S. has overtaken the U.K. as Ireland’s largest market.) Once again, it would be able to suit its monetary policy to its own needs. Immediately, it could start to export its way back to growth.

Ireland’s political elites remain wedded to the EU, which has become a handy way for Irish officials and politicians to make a good living. Then again — I’m afraid there is no way of putting this gently — these are the same liars who promised that voting for the European Constitution Lisbon Treaty would lead to an immediate recovery. It’s surely time to try something different.

 – Daniel Hannan blogs every day at and is the author of The New Road to Serfdom: A Letter of Warning to America.


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