I am now being asked if we should join the Euro to have stability and more financial discipline! Have people learnt nothing? The Irish experience shows why the answer is a thousand times “No”.
Ireland joined the Euro with an Anglo-Saxon economy in very different shape from the German. For several years it gave her interest rates that were too low for Irish conditions. That felt great whilst it lasted. House prices rocketed. There was a construction and financial services boom. It meant an even bigger credit bubble in Ireland, relative to the size of the economy, than the UK got from a misguided MPC. The MPC kept our rates too low, but at least they were higher than Euro ones. Now it means a bigger bust, as the exchange rate is too high for Irish inflation. They have to make the adjustment by cutting wages and trying to price themselves back into world – and UK -markets by cutting costs.
The UK is also pursuing a government policy of cutting living standards after the huge policy errors, and after official encouragement to live beyond our means. So far that is happening through devaluation, making us all poorer as the price of food and other imports soars.
What do we need? A monetary authority which understands how to calm rather than augment the cycle. Would we get that from the Euro? Of course not. We would have been on an even bigger roller coaster than we were from home made mistakes. That should not be difficult to understand. It would be the Exchange Rate Mechanism experience all over again, if you have any history. It would be the Irish experience if you have any geography.
PS: Thanks to BBC Newsnight for a sensible interview last night on an important topic.