Confident Ireland leaves UK behind
The Irish are ready for monetary union and don't care if Britain stays out, writes Tony Barber
If the Irish government has its way, conversations like that will be going on up and down Ireland by the summer of 2002. Whether Britain opts in or out, Ireland wants to be among the first participants in European monetary union (EMU) and, what is more, it has a good chance of achieving its ambition.
If Britain does not initially join EMU, but Ireland does, the implications for popular British perceptions of Ireland (and popular Irish perceptions of Britain) could be profound. Britons would have no choice but to use the Continental-sounding "euro" in a predominantly English-speaking country.
It might dawn on them that, despite the special bonds of language, culture and family between Irishmen and Britons, Ireland was altering a centuries- old historical pattern and building stronger ties with continental Europe than with Britain. Britons might think of Ireland less as a family relation and more as a foreign country, as they eventually did with the United States.
Ireland's Europeanisation began when, like Britain, it joined the then European Economic Community in 1973. Ireland started to diverge from Britain's path in Europe in 1979, when the Irish joined the European Monetary System, a mechanism for managing currency fluctuations. Britain kept out, subsequently spending just two years in the Exchange Rate Mechanism of the EMS from 1990 to 1992. Now Ireland has set its sights on monetary union, which is supposed to start in January 1999 with the irrevocable fixing of exchange rates among participating countries, and end in July 2002 with the total replacement of national currencies by the euro. In an authoritative report, the Economic and Social Research Institute (ESRI) of Dublin suggests that the Irish government is right to go for monetary union.
In particular, it says that Ireland need not worry too much if Britain stays out and the pound devalues. Some Irish businessmen fear this would devastate exporting companies by making their products too expensive in Britain, but the report says that Ireland would survive even an extreme British devaluation of 20 per cent, however damaging in the short term.
"Assuming prudent policies, EMU membership will be favourable for Ireland. Interest rates will be lower than if Ireland were to be left outside," the report says. "The net benefit of lower interest rates, coupled with savings on currency costs, will be more than enough to offset competitiveness losses. This conclusion holds whether or not the UK also joins."
Ireland would prefer it if Britain entered monetary union simultaneously. The report estimates that joining with Britain would increase Ireland's gross national product by 1.4 per cent and create 20,000 jobs. That is no small matter in a country where unemployment is expected to average 284,000 this year. However, if Ireland joined the single currency without Britain, GNP would rise by only 0.4 per cent and there would be a net gain of only 10,000 jobs. The ESRI report dismisses the argument that Ireland should not join EMU but let the punt depreciate with the pound against the euro.
"The long-term costs through higher inflation and a loss of confidence both at home and abroad in Irish economic management, would have very damaging implications for future employment growth," the report says.
Some Irish exporters would clearly suffer if Ireland adopted the euro without Britain and the pound lost value. But whereas the shock would have been enormous 20 years ago, when 60 per cent of Irish exports went to Britain, now the figure is only 30 per cent - enough to translate into business closures and job losses, but not enough to wreck the Irish economy.
All this may seem academic to people in Britain, including John Major, who say that monetary union may never happen. However, Ireland is well on course for meeting the Maastricht treaty's conditions on low public debt and budget deficits. When the EU decides in early 1998 which countries should launch the euro, expect Ireland to be among them.
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