THE RAPID PACE at which events are unfolding in the eurozone makes it difficult to focus on much else. Last week we saw a change of leadership in two member countries, Greece and Italy, the UK confirmed that it is drawing up contingency plans for a break-up of the euro, and the likelihood of further structural changes to properly manage the zone were brought centre stage. In a matter of months we’ve moved faster than we have for decades.
Describing this as a crisis point for the eurozone doesn’t quite get at it – this is its defining moment in time: that point where it dies a painful death, or stands up stronger, bolder and better than before. Much commentary has focussed on the chaos that would most certainly follow the former, and the perhaps impossible leaps required to get us to the latter.
We may still muddle on for a bit, as we have since the crisis first erupted early last year. But we’re only delaying the inevitable. The eurozone question must be answered, by each of us.
In order for us here in Ireland to better understand the options facing us, and so be better prepared, we have to ask ourselves two questions. The first being: is the euro essential to our economy? And the second: is the euro essential to the future of European political and economic cooperation?
Is the euro essential to our economy?
There was an economy in Ireland before the euro and there will still be one if we leave the euro or if the currency itself disintegrates. The euro is the currency denomination in which we trade with others. We could, as we have in the past, trade with another denomination if needs be. What is essential to our economy, what our economy is based upon, is what we produce and how our resources are organised to produce it (also known as the factors of production).
Exit from the euro in whatever form – moving us to a different, less valued currency denomination – would be incredibly chaotic and would damage parts of our economy certainly. It would also strengthen others. Life would get a lot tougher, very quickly. But it wouldn’t be the end. Some would argue that it would in fact be the beginning of our economic recovery proper because it would dramatically reduce production costs and increase competitiveness, make exports even stronger and make imports more expensive, helping a seriously sluggish domestic economy to get moving.
But perhaps the only certainty across these two positions is that a lot of people will lose a lot of money.
Is the euro essential to the future of European political and economic cooperation?
We are mistaken if we believe that the euro is the natural progression from the European Coal and Steel Community set up in the 1950s, or some essential step in the European project. This betrays both an improper understanding of history and a poor grasp of what Europe is. The ECSC was designed to centralise control of the European market for two key raw materials in the industrial war machine, coal and steel, in the understanding that shared control of such vital materials would keep those in the market from raising armies against each other. It did this. And in doing this, leaders realised that there was room for greater cooperation, on a range of fronts. And the project continued. Independent nations working together.
My point here is that the EU can continue without the euro and it is scaremongering to suggest otherwise. A simple fact is that the EU already exists for 10 members without it. So it may just be that a common currency is one aspect of cooperation that is just too far for some, if not all of us. But if the euro fails or if its membership changes it does not by necessity mean the EU itself is over. All that was built before the euro, all the good aspects of our cooperation, from preventing war to making life better for a lot of people, does not have to come tumbling down. (Whether it would or not would depend on how a possible currency break-up and the resulting sovereign defaults were handled.)
Why do I make these points? Not because I want us to leave the euro or because I want it to break up – I don’t; the government is doing an excellent job putting the country’s finances back on a secure footing and in building a path to future prosperity and financial and economic independence. Disruption of the euro will yield massive disruption here at home, an economic hurricane perhaps not witnessed since political independence. But we must have no jingoistic affection for the currency – it is a financial tool.
I make these points because I believe we could be faced with a choice in the near future in relation to our participation in the eurozone, a should I stay or should I go moment.
Now going would be trouble. But staying could mean the end of the state’s fiscal autonomy.
Much commentary would suggest that for the euro to survive and thrive more than a strengthening of the Growth and Stability pact or giving greater powers to the ECB is required. This belief is premised upon a position that currency union requires greater fiscal union – giving up national control of what we tax and spend and how much we tax and spend. And Angela Merkel shares this belief.
Control divested to leaders of other countries, who would control all our financial affairs and could penalise us if we step out of line. No equal sovereigns at one table, no veto. The Taoiseach and Minister for Finance would report to a committee of other world leaders and be directed by them.
We’re actually kind of in that situation now because we’ve suspended financial control in return for financial assistance. But that’s only meant to be a temporary arrangement. Our ambition remains to return to the markets and the international system as an independent sovereign state with full control over our domestic fiscal affairs.
Staying in the euro, if it required a loss of fiscal controls, would mean giving up that part of our political independence for good. Choosing to have no more choice in what is a pretty fundamental (perhaps the fundamental) aspect of the governance of the state. As it stands, governments stand or fall by their ability to pass money bills. But what if they’re no longer really responsible for them – who stands or falls then? Who takes responsibility?
If someone tells you how to spend your money, is it really your money? If someone tells you what to choose to spend it on, is it really a choice? The answer is no. Under this vision of where the euro must go from here, how much we tax and how much we spend would no longer be in our control. We need to understand this, now.
It would be the biggest decision ever taken by this State and it is not one to be marshalled in to blindly or hastily. The government’s position is that there should be no more treaty changes and I support that. The euro should be made to work within its existing powers.
And if it can’t then it can’t. The question then though will be a lot more fundamental than what currency we choose to trade in. It will be one that will challenge our future existence as an independent and sovereign nation. Is this what the European project was meant to be about?