The Case for a Partial Withdrawal of Ireland from the Eurozone

Dan O’Brien rates the collapse of the Euro as more likely than not.  Meanwhile, George Soros has commented that the Eurozone fiasco could well prove lethal.  David McWilliams highlights the ‘lootocracy’ effect the Euro is having in Greece – the same is going on here in Ireland.

This blog sets out the case for a planned partial withdrawal of Ireland from the Eurozone which could take place during 2013.

The main options available for the Eurozone appear to be (a) further integration of Eurozone members involving a pooling of sovereignty or (b) the break-up of the Eurozone with members reverting to national currencies.  In the current euro sceptic environment option (a) is not viable, as citizens of the Eurozone would not support such a move.  Option (b) on the other end of the spectrum would pose existential questions for the whole European Community project – in the case of a disorderly disintegration of the Eurozone the potential for catastrophic wealth destruction is alarming.

Option (c) should be considered – an orderly partial withdrawal of peripheral countries involving devaluation, debt restructuring, but protecting selected cross-border segments of their economies which would remain Euro denominated.

In April this year Arnab Das and Nouriel Roubini set out the formula for an orderly Eurozone divorce where a fundamental restructuring of debt in Greece, Portugal, Ireland, Spain and Italy took place.  As part of this process, these countries exit the Euro through a devaluation and revert to their original currencies on an agreed basis with the core Eurozone countries.

I agree with the Roubini approach of amicable divorce, but think we should seek to retain the Euro for three elements of the Irish economy: IDA clients (i.e. foreign multinational firms), the IFSC and the SEPA payments infrastructure.  Banks in the IFSC should be subject to regulation by a pan-European regulator rather than the Central Bank of Ireland and should also be subjected to the Financial Transaction Tax.

With this selective Euro exit strategy, Ireland would be able to achieve debt sustainability whilst also regaining export competitiveness.  The vexed question of how to reduce government spending would be resolved – public service and social welfare would be paid in Punts.

Partial withdrawal would be a complex and difficult process – one which would need to be carefully planned and might require the temporary imposition of capital controls on domestic bank accounts.  It would nonetheless be a process which addresses the fundamental issues of debt sustainability faced by Ireland, and other peripheral Eurozone countries.

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13 Responses to The Case for a Partial Withdrawal of Ireland from the Eurozone

  1. Writeangle says:

    Germany is the biggest economy and owns the EU which means that it is what Germany wants that matters. The EU is a pretend democracy in that all control lies with the commission and the commission is controlled by Germany. Germany will lose trillions from breakup of the Euro. Germany thinks that only Greece should leave as it is bankrupt.

    • Agree that EU is a pretend democracy, but do not agree that what Germany wants is all that matters. Germany, French and British financial institutions have unwisely over-invested in peripheral Europe, causing boom-bust cycles in the property market, destabilizing the financial sectors of the wider global economy. For the Eurocrises to be resolved losses must be written down. This is ultimately more of a problem for creditors than debtors. The focus for Euro crises resolution must be on how to achieve an orderly dismantling of the Eurozone – this is one of the few variables in which all the protagonists have a common interest.

  2. What would happen if George Osbourne decided to capitalise the UK loan to the Republic as – say – Anglo-Irish [sic] shares? Would a transfer of Irish banking sovereignty to London or Belfast be subject to a Euro-Zone financial-tax?

    As a final point: The UK temporarily devalued against the Euro. No doubt this hit US-owned entities in Dublin and Kerry. [I was contracted to one many-moons-ago.] How will an Irish devaluation be ‘maintained’ against a free-floating Sterling? On what conditions would it be optimal for Ireland to rejoin the Euro when her biggest-trading partner is following a more liberal, free-market approach…?

    • The Punt would float initially within and agreed band (similar to the Exchange Rate Mechanism that preceded the Euro). After the transition phase is completed, the Punt should float freely and find its own level against the Euro, GBP, USD and other currencies – as determined by the market.

  3. sjultan says:

    The Rhythm Method?

  4. Billi says:

    Allow the use of both the £ and the Euro. Then let the markets (people) deside which to use.

  5. The Remittance Man says:

    Partial withdrawal would be a complex and difficult process

    Translation: Partial withdrawal would offer countless possibilities for both cockups and corruption.

  6. Chas says:

    Two points: please don’t use the term ‘pooling of sovereignty’. There is no such thing; it is a typical piece of EU Orwellian doublespeak. Sovereignty means independence; nothing more and nothing less. And independence cannot be pooled, because pooling involves dependence, which is the opposite of independence.

    Second point: you say “option (a) is not viable, as citizens of the Eurozone would not support such a move”. The citizens of the Eurozone have never been given a say in any element of the EEC, EC, EU or Eurozone. The whole European project was predicated on a few French and German political elites knowing what was best for the poor, benighted people of Europe. Indeed, the political elites have always done this for the people of Europe. There was never any intention to ask the people anything, let alone listen to them and this has not, and will not, change. Which is why, sooner or later, the whole sorry affair will end in the spilling of a lot of blood.

    I suggest that Ireland, and any other nation which has democratic pretentions, gets the hell out as quickly as it can.

  7. Chas, defines sovereignty as “supreme and independent power or authority in government as possessed or claimed by a state or community.” In the case of currency unions such as the Euro, this means the Eurozone states agreed to relinquish their national currencies in order to form the Euro. Each member state has partial ownership of the ECB and is involved in its governance through the Governing Council. Of course the political power driving policy is dominated by Germany, reflecting their position as dominant economic powerhouse in Europe.

    Now don’t get me wrong – I think there is a giant sized democratic deficit in the EU. Citizens exercise their democratic rights primarily at national levels – and national governments respond to this reality by adopting stances that may benefit their own national interests, but prevent wider well-being across Europe (e.g. the Eurocrises, the Balkan Wars).

    I don’t accept your point that citizens of Europe have not been given the opportunity to have their say in the shaping of the EU. There have been many referendums on European questions across EU states (none more so than Ireland) – and national electorates vote in national governments based on their programmes for government which set out policy positions on EU matters. Is it perfect? Far from it. Is it completely undemocratic? Certainly not.

    My objective in publishing this piece is set out options for an orderly Euro dismantlement and stimulate discussion on same. Many thanks for your contribution.

    • hillclimber says:

      I disagree with your comments about the citizens of Europe being given their say in the shaping of the EU. The EU is not merely undemocratic. It is anti-democratic and it encourages the continual undermining of democracy.

      This is reflected in various governments ignoring the wishes of the electorate. When all or most of the parties offer minor variations on the same EU position, when voters want something completely different, who do you vote for? Consequently several EU countries have governments whose EU stance is at odds with their voters.

      Secondly what about referendums which have been repeated until the right vote is acheived? What about referendums which have been bypassed by stealth? The EU constitution is a perfect example – rejected by voters of several nations – but now we have its provisions included in treaty instead.

      Key players in the EU hold that democracy itself is dangerous. Look at Baroso’s views for example. And he is far from alone. The European Parliament is mere window dressing. It is the anti-democratic EC that shapes the agenda..

  8. Good point. I assume that “public service and social welfare paid in Punts” would also pose IUnion existentialist questions. Mw

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