The need for independent currency: Why Ireland hates the ECB

Journalist:
June 8, 2014
Why Ireland hates the ECB

A PROMINENT former adviser to the President of the European Commission has described the EU’s treatment of Ireland throughout the financial crisis as “outrageous.” Philippe Legrain – an academic, headhunted by European Commission president, Manuel Barroso, in 2011 to advise him on economic strategy – gave a highly damning condemnation of what he described as “bullying” by the European Union. The same European Union that is now imposing negative interest rates.

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[dropcap size=small]L[/dropcap]egrain, who quit his job as special adviser to the European Commission, earlier this year has just released a book describing and condemning the EU’s handling of Ireland’s financial crisis. Ireland was forced to give a guarantee to it’s banks that they would be bailed out and not allowed to collapse. This has amounted to paying an investment return to German Banks and Pension companies that invested funds in  ‘unsecured bonds.’

“It was outrageous of Germany, the European Commission and above all the ECB to threaten to force Ireland out of the euro if it did not follow through with that foolish guarantee, lumbering Irish people, who have already suffered enough from collapsing house prices and a sinking economy, with a €64bn bill to bail out bust banks, €14,000 for every man, woman and child,”

said Mr Legrain, who left his job at the Commission earlier this year to release a book condemning the EU’s handling of the financial crisis.

“Ireland’s partners abused the fact that it desperately wanted to be part of the euro.”

Legrain went on to state :

“I understand why the Irish government did what it did (agreed to implement a bank guarantee) but they could have stood up for themselves . . . the European Central Bank would have blinked.”

Regardless of what Mr. Legrain thinks, Ireland could not, at that time, have stood up for themselves. As a small open economy on the western edge of Europe, Ireland’s choices were stark. They could accept a bailout on restrictive, almost penal rates, or they could face down the EU and call their bluff.  During that time, their national income would not pay for policing, hospitals, unemployment, or for that matter, the politicians. Ireland has a very small population and GDP  within the EU and the role of the ECB is to manage inflation within the Eurozone, Ireland’s interests come a very long way down the list from those of a large economy like Germany.  That is one of the main difficulties with centralised currencies, the smaller the state, the easier it is to manipulate and indeed to bully. Smaller, and weaker, states must accept the wishes of their larger, and wealthier, neighbors.

The ECB will always act to maintain the Euro and the US will act to maintain the dollar. The same can be said of China and India, economies devalue and revalue their currencies to meet their own needs. If trade needs to be increased, a state will act to make it’s exports more competitive. If the country wishes to reduce their imports they will impose excise levies and increase the cost of the imports. What would be the effect, however, of a centralized currency? If rather than the Euro, or the Dollar, we used cryptocurrency, what would be the benefits? Well, if the value of the chosen currency was fixed, or was at least closed to political manipulation, then states would be free to act in their own interests rather than those of their more powerful neighbors. Germany’s influence on the Euro, as well as the US influence on the dollar, would be no greater than the weakest country using the currency. Inflation would be dramatically reduced and savings would be significantly more secure.  There would be potential downsides too. Courts would be forced to reinterpret legislation to account for cryptocurrencies, States would be forced to legislate for changes to taxation and accounting.

This might not directly assist Ireland at this point, but Ireland is not entirely powerless as Legrain goes on to point out:

“The State must use any leverage it can to negotiate a write-off,” he said. “Its best weapon is any proposed changes to EU treaties – because Ireland constitutionally has the right to hold referendums on these changes and can use this as a bargaining tool.”

Any decision that Germany really wants which requires a unanimous decision from all member states could be used as leverage.

“Ireland needs to play hardball now. It’s in a much better position, borrowing at record-low borrowing rates”.

The EU is no longer a group of equal countries, Germany has become too powerful and the commission has done little to stop it.

“The Commission has failed in that it has been much too keen to align with Germany,”

Ireland is a small country on he edge of Europe. We are, technically, a small open economy. Ireland is also a country that was extremely positive about the Euro and about deeper integration within the Eurozone. Ireland is no longer as positive about the ECB and the Euro.  In July, the country will host the Bitfin conference on July 3rd-4th. The conference promises to bring together the brightest minds in payments, finance, business, banking and Bitcoin. Perhaps cryptocurrencies are more attractive to smaller economies, maybe, just attractive to small countries that have been bullied. Either way, Ireland is now open to crypto.

Last modified (UTC): October 19, 2016 15:47

PJ Delaney @P.J. Delaney@delboyir

Masters in Public Administration, Bachelors in Mgt., I live in Ireland, I have a bit of a background in Economics and lots of opinions on everything else.