New study: Euro set Ireland on a journey without a map

Joining the eurozone has proved to be a demaging step for Ireland now facing further economic deadline

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  Journey without Maps: Ireland and the Euro

Just a few days before the Irish citizens will have a chance to vote on the eurozone fiscal discipline pack, a new study “Ireland and the Euro – A Journey without a Map” published today by New Direction – The Foundation for European Reform argues that the decision to join the EU currency union and a number of EU driven decisions have proved to be damaging for the Irish economy and development of the country. Without taking necessary action the future of Ireland is likely to be one of unrelieved economic decline marked by plunging living standards, mass unemployment and emigration.

Brussels, 15 May 2012 – Contrary to the commonly accepted position that Ireland has mostly benefited from its membership in the EU, the new study argues that Ireland’s decision to join the eurozone in 1999 was wrong for two main reasons. The Irish economy is cyclically and structurally different from the other members of the currency union.  And the inability of its political leaders to foresee the disadvantages, led them to surrender key levers of economic sovereignty that would have been vital to retain during this extended financial and economic crisis.

The situation is far from being resolved: the continuous eurozone crisis has pushed again Irish economy into recession, increasing the danger that Dublin may require a second bailout. This study by Professor Tom Gallagher from University of Bradford assesses what Ireland needs to do in the short and long term to revive its economic growth and secure prosperity:

• Austerity policies should be spread more equitably between the public and private sectors as the commercial, small and medium business, are bearing the brunt of the prolonged downturn, while large financial and property institutions have been protected by state measures, and many public service  employees with strong unions have faced little squeeze on their incomes.
• Proposals to restructure private debt arising from the collapse of house values need to be actively considered. For example reform of Irish bankruptcy laws and partial debt relief to certain grades of house-owners could increase the likelihood of a revival in the property market along with economic growth.
• The need for a managed re-structuring of debt, the current level of which it is beyond the capacity of Ireland's small population to meet.  This would involve rolling over existing government debt and working with the ECB to find effective means of reducing the still high level of borrowing on private balance sheets.
• A tightening of the law on what constitutes bribery and corruption in order to reduce the hold of narrow economic and professional interests over public policy.
• Reforms to strengthen the oversight of parliament over the executive and a centralised and often inefficient system of public administration are overdue in order to increase the quality of political decision-making.
• The relationship between national EU members and EU institutions needs to be placed on a new basis in order to promote cooperation which enjoys democratic legitimacy.
• Such measures increase the likelihood that domestic investment and growth can recover and that a climate can emerge enabling Ireland to implement a broad range of structural reforms, essential for long-term recovery.

The main findings of the study are:

• Even before the financial and economic crisis, it was a fundamentally mistaken decision for Ireland to join the European Monetary Union. From the beginning, Ireland was acutely disadvantaged by belonging to a very diverse group of countries with different economic structures and outputs and whose governance mainly suited the needs of several of the core members.
• A large segment of the Irish political elite was convinced that, once Ireland was within the Eurozone, it would be possible to pursue an expansionary policy based (after 2003) on a property boom. The EU made more harm by having regularly praised Ireland for its model of growth and the European Central Bank, as the governing monetary body, did not use its powers to help restrain what became a speculative bubble.
• Ireland’s rulers committed a spectacular error by guaranteeing private bank deposits with tax-payers money rather than opting for a strategy of burden-sharing with lenders after a run on its banks ensued in 2008.
• Crisis management of the EU has largely consisted of protecting the financial sector and imposing an austerity regime on Ireland and the Mediterranean states of the Eurozone where the crisis is, so far hitting hardest.
• These priorities were fully displayed when, in 2010, the EU made Ireland accept a €85 billion financial bail-out.  A mountain of debt was imposed on Irish citizens rather than carrying out modifications to the eurozone structure which could have enabled Ireland and other distressed members to work towards reviving their economic competitiveness.

The full study is available at: http://newdirectionfoundation.org/journey.pdf

Note to Editors

New Direction - The Foundation for European Reform is a free market think-tank established in Brussels in 2010 to add innovative ideas and encourage reform efforts in Europe. Together with a strong network of partner think tanks around Europe, New Direction produces original and relevant research papers focusing on the most pressing issues in the area of economic growth, competition, financial regulation, energy security, taxation, agricultural policy, bureaucracy and EU institutional affairs.

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Johana Grohova
Communications Manager