eye on the economy
A SOURED RELATIONSHIP
If ever there was a horse designed by a committee, the single
currency is it, asserts Brendan Keenan, who says the euro had design faults right fromthe off, and governments did not use the intervening years to correct them
Something is strangely wrong when someone who is willing to lend you unlimited amounts of money at cheap rates is seen as your arch enemy. So it must seem at any rate to the European Central Bank,which has lent over €100bn to the Irish banks at rates of 1pc. Yet, as the loans have
mounted, so too has the anti-ECB rhetoric. A psychological explanation for this apparently perverse behaviour was given by Donal Donovan, the former senior IMF official who is now a part-time lecturer in economics in Limerick and Dublin. Donovan likens borrowing from the EU or ECB to tak-
ing a loan from a friend. It is almost certain to lead to a damaged relationship. Borrowing from the IMF is more like dealing with a distant bank manager. One does not expect to like it, and the lender does not expect to be liked. Despite all the loans, whether directly from the ECB or
guaranteed by other governments, there is clearly a wide- spread feeling that the Europeans have let us down. It does not help that the IMF wanted a different kind of bailout deal; one which, on paper at least, looks more attractive in some ways – especially the bit where the IMF thought lenders to Irish banks should shoulder some of the costs. But the ECB especially can be expected to feel like the lending friend. “Not only may he not pay me back, he’s complaining that I left himwith all that debt,”might be its attitude. Wemust all hope that, as a large, professional institution,
?
the ECB does not have this attitude. If the naysayers are right, and the underlying plan is to bankrupt the Irish state to save European banks, then we can only expect relations to turn even more sour. But the evidence still points more convincingly toward there being no plan at all.
Design by committee There certainly wasn’t one at the creation of the euro, which was the messiest of compromises. If ever there was a horse designed by a committee, the single currency is it. One has always felt this witticism was unkind to that
most remarkable of animals, the camel. Let’s see a horse go 10 days without water. But a camel is pretty certain to fall at the first fence in a steeplechase – which is more or less what happened to the single currency.Wemight allow that it cleared the first fence of the 2001 dotcom crash, but it simply was not equipped for the Beecher’s Brook it faced in 2008. The design faults affect both the ECB and the EU itself.
The single currency came into existence by the narrowest of margins. The fact that it happened at all owed a great deal to the diplomatic skills of Ruairi Quinn, who was financeminister at the critical summit inDublin, but there was much unfinished business. The pious hopewas that this could be dealtwith after the
currency was established, but of course politics does not work that way. It ismore depressing that eurozone govern- ments, even if they could not implement desirable changes, seem not to have used the intervening years to work out what might be done if and when a crisis exposed the fun- damental weaknesses. One glaring weakness was the imprecise role of the ECB. As Central Bank governor Patrick Honohan said recently,
Summer 2011 Irish Director 19
Brendan Keenan
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