Ireland's pain, Euro's shame

Ireland's Celtic Tiger is dead, a stake through its heart.

Even when the ugly truth has been exposed, people still can't admit to what has gone wrong. The Euro wasn't right for Ireland (or, by extension, for the UK). How much more proof does anyone need? The cause of the Irish crisis was, in essence, that Irish banks went on an orgy of irresponsible lending to fuel an unsustainable housing bubble. Sound familiar? Oh yes....

But here's the thing - the Euro. You can't get away from it. Well, Ireland can't anyway. And that's the problem now.


Everyone - and I mean everyone - can see that Ireland's economy diverges from the Eurozone. It is cyclically opposite, and is linked more closely to Sterling (and the dollar) than the Euro, the latter of which is in essence an expanded Deutschmark. That's why we in the UK are so lucky that we're not in D'uh-Euro (I made that one up).

The Irish elite grabbed the Euro with both hands because it enabled them to tap into a mountain of money - other people's money. In fact a lot it was British money, filtered through the EU's budget. It was money out of thin air, bought by low interest rates that had been set by the EU, for the primary benefit of the German economy, the engine of European growth, rather than the Irish economy, which is small and peripheral. The Irish people at the very least acquiesced in this fraud. They were more than willing to feed an unsustainable housing bubble by borrowing beyond their means. Remember it takes two to tango - one to lend, one to borrow.

It was the same mistake as was made in the UK, only the Euro made things much, much worse for Ireland. Stuck at the wrong interest rate, the Irish had no flexibility to ease the every tightening noose around their necks.

But let's go back to fundamentals. The European Union (formerly the EC, formerly the EEC) was always a politically-driven project. The British people have been consistently lied to by advocates of the Euro (and some EU-enthusiasts) who said that financial union does not mean political union. As has been demonstrated again and again, you can't have one without the other. That's why so much financial regulation is now coming from Brussels, aimed at the City of London.

The Euro has been built on sand. Its rules have been a sham: countries have broken the rules of fiscal discipline over and again, but got away with it if they were one of  the bigger economies. You are not supposed to leave the Euro; but you are not supposed to run up huge debts as a percentage of your GDP either. You can't devalue; but you cant default either.

So now that we can see that the Euro isn't working, either the political project or the financial union will fail. Arguably the financial project is already failing, as it breaks its own rules to fit square pegs (Ireland) into round holes (the Euro). Ireland's problems (and Greece's, Portugal's and Spain's) will continue until they leave the Euro and let their currencies float again. It's not a perfect solution but it's better than what they've got.

As for the nonsense of a supra-national EU government, a 'superstate' as some call it, as advocated by the absurd (and unelected) Herman van Rumpy: it will also fail. Why? Well because financial union isn't working, for starters. But more crucially because of the following: there can be no such thing as a European democracy - because there is no such thing as a European demos.