Daniel Hannan is a writer and journalist, and has been Conservative MEP for South East England since 1999. He speaks French and Spanish and loves Europe, but believes that the European Union is making its constituent nations poorer, less democratic and less free. There is a way out for Ireland, and Britain should stand ready to offer it
By Daniel Hannan
The EU has destroyed Irish sovereignty more thoroughly than the Act of Union ever did
Almost everyone now sees that, for Ireland, the euro has been a disaster. 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.
Denied the ability to devalue, undercut by sterling and obliged to borrow even more money in order to participate in the Greek bail-out, Ireland’s position has become calamitous: debt and unemployment are rising, prices and incomes are falling. GDP is down by an almost unbelievable 20 per cent 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.
Alright, so the euro was a disaster. How, though, does Ireland get out of it? If it were simply to reissue its own currency, that currency would devalue, pushing up its debt level even further. This might be a lesser evil than continued euro membership, of course, but it is an evil none the less. Is there any solution?
Yes. Ireland could adopt the pound and treat its loans as having been issued in sterling. Immediately, Eire would be able to start exporting its way back to growth. And, because the UK and Ireland move in a synchronised, mid-Atlantic cycle, trade substantially with one another and have similar economic profiles, the problem of inappropriate monetary policy would disappear.
In theory, of course, Ireland could simply declare sterling to be its currency without asking anyone’s permission. But this would be unsatisfactory on several levels. For one thing, Ireland is a sovereign country, and would presumably want to be represented as such: it would, for example, want to appoint its share of members to the Monetary Policy Committee. And, of course, much of the advantage of such a merger would be lost if Britain did not agree to accept the sterling denomination of existing Irish loans.
Why should the UK be prepared to do such a thing? Because Ireland is our friend, because we have been through a great deal together, because we are intermingled and interrelated, because Ireland’s prosperity swells our own and because there is a risk that an economic breakdown would be followed by a political breakdown – which would be in no one’s interest. Is there any chance that we would agree? Interestingly, when Mark Reckless, the ancestrally Irish MP for Rochester, raised the idea with the Europe Minister David Lidington at a parliamentary committee meeting yesterday, the response was friendly.
Ah, but could a Fianna Fáil government countenance rejoining the sterling area? It depends on the alternatives. Accepting an EU bail-out would mean sacrificing economic sovereignty, but wouldn’t solve the underlying problem. Adopting the pound, with a proper recognition of Irish independence (unlike the pre-1979 arrangement), would put Ireland on a sustainable road to recovery. It’s Brian Cowen’s call, obviously. But, as the euro-zone finance ministers line up to tell him what to do, we ought at least to let him know that, if he were to look for a different option, he could count on us as allies