Ireland “A society that disappeared up its own backside”

Whilst we witness the awful events unfold relating to Ireland’s economic difficulties, it is vitally important, for democracy in the future, that the mass of the voting population acquires a basic understanding of the mechanics of this disaster.

Following on from my previous post on the warnings by Mrs. Thatcher, I was about to write an article, using the Republic of Ireland as an example, depicting the link between National Sovereignty, democracy, currency and the ultimate prosperity of a Nation. Then yesterday, I read Newton Emerson’s excellent article in the Sunday Times. When I read it, it made me wonder if it was possible to solve regional inequality by setting up different regional currencies within a sovereign state. Then I thought the better of it. The best that a Nation can do about its regional inequalities is to have regional development plans to address it. 

In the United Kingdom, it was the Conservative Party which led the way with regeneration policies for inner urban areas in the 1980s. Today, it has a long-term regional development policy for Northern Ireland. At the heart of that policy is the proposal to bring down the rate of Corporation Tax. Will Northern Ireland’s politicians grasp this nettle? We shall see.

As there is no free link to the Times website, I have reproduced the full text of Emerson’s article below in coloured font:

The prospect of Northern Ireland’s corporation tax going down, just as the republic’s may be forced up, has huge implications for the relative competitiveness.  There are problems and opportunities galore, and a large number of individuals will be personally affected, but the plain fact is that with three quarters of all economic activity directly due to public spending, and welfare not developed to Stormont, Northern Ireland looks to British budgets rather than Irish business for its economic fate.  And the dole cheque is still expected to arrive.

That leaves people free to discuss the constitutional ramifications – always the preferred northern pastime.  “Could the republic actually afford unity, now or ever?” mused one Belfast Telegraph headline.  ‘Partition hampers the economy,’ Sinn Fein is increasingly wont to claim.  Talk of a British bailout has raised the usual eyebrows.

It is all tired, predictable nonsense.  There is no correlation between the strength of republican sentiment and the strength of the southern economy.  The financial implications of Irish unity can be argued either way, and no financial argument persuades either side.  Nationality is above) or perhaps beneath) economics.

There is one grown-up discussion on economic sovereignty that can be shared across the border.  Northern Ireland is a text-book case of the problems of a currency union.  Indeed, it is such a glaring illustration that it is almost rude of the south to have ignored it before joining the euro.  Like most big countries, the UK suffers from having one currency across the disparate regions, without an exchange rate, varying productivity can be reflected only by prices and wages, which are rarely flexible enough to do the job.  So the less productive regions end up with higher unemployment, while the more productive regions end up with higher taxes.

This is the internal bargain all nations strike, but it is rare to find such a clear example as Northern Ireland.  Because of its huge public sector, whose wages are often agreed nationally, Northern Ireland has too many people expecting British pay in British pounds with no allowance for the geographical consequences of their Irish location.

Many public-sector workers get a London weighting, but there is no equivalent Belfast lightening.  Instead, throughout Northern Ireland, there is persistent long-term unemployment, the UK’s highest level of economic inactivity, and a subsidy of about £10 billion a year, more than the one-off bailout London is considering for the republic.

As well as contributing to these problems, currency union denies even a region as developed as Northern Ireland the tools to solve them.  Stormont is unable to print money or set interest rates, but it also has little scope to vary taxes because of the legal, political and practical problems of having different fiscal regimes under the same currency.  The possibility of lowering Northern Ireland’s corporation tax has been debated for years, but it will still require London’s permission.  Even then, there is no guarantee of getting it past the European commission. 

When such policies are discussed, Stormont’s status as a glorified county council becomes apparent.  This is precisely the status Dail Eireann acquired when Ireland joined the euro.  It may have taken a crisis to make it apparent but the surrender of economic sovereignty was complete from day one. 

Taxes and public sector wages have not yet been harmonised across the continent, but convergence is the inexorable logic of the euro, whether it is hastened by a bailout or not.  If Ireland is rescued, it will be rescued as a region, and compensated by subsidy for being a region.  It will be just like Northern Ireland. 

However, in many fundamental respects, the republic’s position within the eurozone is worse than the north’s within the UK.  The republic is a smaller part of its currency area by GDP and population.  It is less connected to the eurozone’s centre than Northern Ireland is to the Southeast of England.  The eurozone is an expanse of 16 countries encompassing far more economic variation than is found within the UK, which makes a one-size-fits-all monetary policy that is much less likely to fit any one in particular.  Finally, Northern Ireland still has the relative flexibility of sterling, whatever its imperfections.

Since the recession began, every British employee has taken a 25% pay cut compared with the UK’s main trading partners.   Few even noticed it happening.  In the republic, with no exchange rate between most of its trading partners and the euro-sterling rate going the wrong way, public and private employers have had to cut salaries directly – a process that is slow, demoralising and politically toxic.

Perhaps it is a bit much to expect those in the south to look north for any kind of lesson, but it is surprising that they do not recall their own quite recent example.  Between 1979, when it uncoupled the Irish pound from Sterling, and 1999, when it joined the euro, the republic had a freely floating currency. 

It was not meant to float quite as freely as it did – the ill-fated European Exchange Rate Mechanism was supposed to keep it within bounds.  It swung all over the place, going considerably below and above sterling and depreciating significantly against the deutschmark.

This helped Ireland’s competitiveness when foundations for its growth were laid down.  It also imposed enough financial discipline on Irish governments to stop them bankrupting the country.  Floating currencies start to sing, rather quickly and obviously, under the weight of excessive spending and borrowing.  It was enough to rein in even Charles Haughey.

It is one of the great ironies of the euro that it is promoted as a means of enforcing financial discipline.  Instead, it has become a means of running up enormous debt without the symptoms showing until it is too late.   The republic’s history proves it, and also disproves the common claim that without the euro it would have ended up like Iceland.  This puts the cart before the horse.  Without the euro, the republic would never have got into as much trouble as Iceland in the first place. 

Still, there they are – or “we are where we are,“ as Brian Cowen, the Taoiseach, so eloquently put it – with no visible route back to a currency of their own.  Recessions and depressions come and go, but Ireland’s financial sovereignty is gone forever.

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5 Responses to Ireland “A society that disappeared up its own backside”

  1. Richard says:

    I completely agree with your analysis of what happening in the Republic and the Eurozone Seymour.
    The concept of the European superstate dreamed up by federalists many decades ago (taking the disguise as an agreement between trading partners originally the EEC) did not take into account economic realities in merging currencies.
    States that entered into the Euro and are now proving the most vulnerable, Portugal, Ireland (Rep Of), Greece and Spain (known as ‘PIGS’) are the reality of this ill-conceived idea, the driving force of which is a unitary state eventually.
    The United Kingdom is perpetuating the problem in the Republic by investing 7 billion pounds. I can understand the reasons why it is being done but throwing credit at the problem won’t make it go away. A withdraw from the Euro is the necessary action.
    Margaret Thatcher as you rightly point out foresaw this ratchet mechanism in stages happening in the late 80’s and that an attempt was being made to erode the sovereignty of parliament.
    Unfortunately, Seymour her successors one by one have not slowed the process and it has culminated in the Lisbon Treaty which the UK still should have the vote on in a referendum.
    David Cameron has conceded the right to a vote on the AV by referendum yet not on the Lisbon Treaty yet the Lisbon Treaty makes votes to Westminster whether by AV or first past the post largely futile anyway when so much power has shifted to Brussels.
    The UK should immediately withdraw from the European Union and end this present agreement whereby could end up bailing out any Eurozone members. Utter madness.

    • Seymour Major says:

      David Cameron has conceded the right to a vote on the AV by referendum yet not on the Lisbon Treaty yet the Lisbon Treaty makes votes to Westminster whether by AV or first past the post largely futile anyway when so much power has shifted to Brussels.

      It is worth recalling why these concessions were made. In the case of the AV, this concession was what wrenched the Lib Dems away from Labour. By co-incidence, a week before the election, I suggested that the Conservatives should be prepared to make this concession in order to give it the best chance of saving FPTP

      http://torystoryni.wordpress.com/2010/04/26/gambling-first-past-the-post-may-be-the-best-way-to-save-it/

      In relation to the Lisbon Treaty, the treaty had been ratified by the time of the election and it would not have been possible to have a meaningful referendum on Lisbon.

      The case for withdrawal from the EU altogether has not been made IMHO for many reasons. The main one is that, whethere we are are inside or outside of it, it is too near to us and too important to ignore. It is in our national interests to steer it in the direction that we want it to go in. Very importantly, we are about to impose on our own constitution, a locking mechanism which will prevent more power being ceded to Europe. That will not only protect the interests of the UK.

      Britain will protect the interests of many other countries in Europe too. I have always said that the Europeans are driven towards greater european union by emotion. The ghost of World War II devastation still haunts Europe. It never affected Britain. Britain is the only cool head in Europe. Europe needs Britain’s leadership.

      http://torystoryni.wordpress.com/2010/04/26/gambling-first-past-the-post-may-be-the-best-way-to-save-it/

  2. Richard says:

    I take your point about Cameron inheriting the problem of the Lisbon Treaty, Seymour, but since Brown had promised a referendum and didn’t deliver Cameron should proceed anyway.
    Although I think a referendum should have several choses, one of which should be withdrawal which I believe has the broad support of the British people.
    Only this week a Daily Express poll showed 96% of people polled favoured complete withdrawal. Now I accept that may not be as high as that but it does indicate sprong opinions against membership.
    So what are the arguments for withdrawal? The biggest has to be the structure (as undemocratic and unrepresentative) with which the EU has evolved into. Successive treaties have been signed since Britain entered into what was the EEC yet the British people have not been consulted. In short, too much sovereignty has been ceded.
    The EU, like some massive socialist superstate has managed to find its way into every aspect of people’s lives. Everything from telling us how to weigh our vegetables to how much fish we should catch. The common agricultural policy has been devastating to farming.
    The argument continually thrown up by federalists that leaving the EU would affect the economy is false. Norway and Switzerland continue to enjoy the EU as their major traders and Norways fishing has thrived without the burden of EU red tape.
    Anyone who thinks that Britain can remain in the EU and not continue the train journey to a fully integrated EU superstate is deluded, this train is going in one direction and the lesson from the Republics bail-out, if that lesson is even needed, is that it’s time we got off.

    • Seymour Major says:

      Richard,

      I said that the case for withdrawing for the EU has not been made. I said that because I have not, personally, seen a detailed analysis of it or carried out my own detailed research. I have not yet read a convincing case for staying in and I am therefore not going to disagree with you at this stage.

      I think that the arguments over whether we stay in or leave Europe are likely to be complex. It could also very well be that since the Eurozone was formed, the arguments for staying in the European Union have weakened considerably. By contrast, if the Euro is unlikely to survive, the arguments for staying in Europe may be stronger.

      What is apparent is the lack of any thorough analysis in the media or from the politicians. Also, the democratic deficit, which you have identified, is a matter for concern.

      There may well be a case of Britain leaving Europe but a decision to leave should not be taken without a lot of detailed information being made to the public. For that reason, I would like to see a commission set up to provide a comprehensive analsysis on the benefits and detriments of remaining in the European union before we go straight into a referendum.

      With nearly 40 years of European membership, I think we are overdue such an investigation.

  3. Richard says:

    Fair do’s Seymour.
    I have attended the Bruges Group meetings, Margaret Thatcher is their President. I met her at a dinner in her honour to mark the anniversary of her Bruges speech in London.
    It’s worth looking at their website, its full of all the reasons why the UK should leave.
    I think the case for the Irish Republic leaving is very strong at the moment also. I am hoping it will focus attention on this very important issue.
    Thank you for raising the debate.

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