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The truth about the Irish economy

A No vote on the Lisbon Treaty will not harm the Republic. Even on the contrary. The Mad Hatter told Alice that "words mean what you want them to mean." He would have been at home in the EU, where "no" means "yes" and political propaganda is passed off as info. If Ireland votes No to Lisbon, the EU will continue and Ireland will be part of it, but if they vote Yes the Irish will find they have even less leverage in Europe than today. In the course of the second referendum campaign in Ireland some extraordinary claims have been made about the economic consequences of voting No: it would frighten investors, cost jobs and condemn Ireland to economic isolation; while a Yes vote, to quote the Taoiseach, is the "critical first step on the path to recovery."

This is but part of a wider piece of propaganda, namely that the EU is responsible for Ireland's economic resurgence and a No vote will put this at risk. Of course Ireland has benefited from fiscal transfers from Brussels, or more accurately from taxpayers in other member states, but for many years this did not prevent Ireland's economy performing badly: slow economic growth, especially given its relative opportunity to catch up; high inflation, large budget deficits and high unemployment. Ireland's more recent economic success is best explained by other factors and in fact its current problems and difficulty in remedying them have been compounded by membership in the EU, or at least its monetary arrangements. This fact is at odds with the suffocating consensus that dominates much establishment thinking, whether in Brussels, Dublin or even the International Monetary Fund, which continues to peddle the merits of exchange rate stability.

However, it was the large devaluation within the Exchange Rate Mechanism in August 1986 that made it possible for the Irish government to begin the process of fiscal consolidation and restoring the country's international credit standing (in 1985 Ireland was paying spreads as high as Mexico's). That Irish devaluation was followed by a domestic boom in Britain, which was then by far Ireland's biggest trading partner. Later, Irish growth suffered a setback as a result of Britain's recession -- created by the exchange rate mechanism -- at the beginning of the 1990s. Sterling's depreciation after September 1992 led to intolerable strains for Ireland. Reluctantly, the government did the rational thing in January 1993 and devalued massively for such an open economy. That devaluation, followed by the widening of the ERM bands in August 1993, in effect gave the Irish authorities monetary policy independence for the first time in the country's history.

This was accompanied by a whole range of market-oriented policies and Ireland's economic performance was spectacular: strong GDP and employment growth, low inflation and large budget surpluses, underpinned by the repatriation of the Irish diaspora and huge capital inflows attracted by high anticipated rates of return. Toward the end of the decade, however, problems built up because entry into the Economic and Monetary Union meant that interest rates were kept lower than if they had been set by Ireland's central bank: a spectacular boom became a spectacular bust. Of course countries like the U.K. have their own economic difficulties, for a variety of reasons. But if London takes the right measures it can begin to put things right because monetary policy is in the hands of the Bank of England

As a result of the boom, Ireland's competitiveness has deteriorated by about 15% against its trading partners in the EU since the early 1990s. To remedy this, one way or another, the real exchange rate has to fall. Nominal depreciation is not possible, so Ireland has had to deflate and hard. The process has only just begun, but Ireland is running merely to stand still. Unless the euro depreciates by a large amount against the pound and dollar, real wages will be squeezed, output will fall further and the public finances and debt ratios will explode even more. Ireland, like others within the economic and monetary union, has avoided a currency crisis that might have arisen had it not adopted the euro, but the so called "zone of stability" is not quite as benign as it sounds. The abandonment of individual currencies simply transfers the problem elsewhere -- if a patient is sick, throwing the thermometer away doesn't constitute a cure.

Those who put Ireland's recent success down to the European Union and the monetary union are wrong—they are the same people who say Ireland must vote Yes to Lisbon. Ireland has made its choice on the euro and all it can do is try to minimize the impediments this imposes on its room for maneuver. Ireland is in a less dire position than some other countries in monetary union, such as Spain, because it is a more open and flexible economy, meaning a relative improvement in competitiveness will have a larger impact on growth. It would be mad to erode these advantages. In the short term, the Lisbon Treaty may have little direct impact on the economy of Ireland one way or another, but over time it consolidates an economic and social model at odds with the factors that nursed the Celtic Tiger.

Leonard Shapiro wrote of Soviet Russia that "the true object of propaganda is neither to convince nor even to persuade, but to produce a uniform pattern of public utterance in which the first trace of unorthodox thought reveals itself as a jarring dissonance." Within the EU nomenklatura, dissonant voices are not tolerated. But Ireland should have the confidence to challenge the prevailing consensus that a No vote would be bad for the economy, because it's bunk.

Dit commentaarstuk van Derek Scott verscheen oorspronkelijk in "The Wall Street Journal" en werd nadien ook elders overgenomen.

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4 Reacties:

At 11:12 Mike Van der Veer said...

Dit artikel is grotendeels gelogen. Het Verdrag van Lissabon heeft geen enkele repercussie op vlak van fiscale concurrentie.

"A leading taxation expert has told Members of the National Forum on Europe that the Lisbon Treaty would preserve each EU Member State’s ability to control corporation tax, including Ireland."

"Responding to concerns that the European Court of Justice might overrule the declarations and assurances for Ireland on the Lisbon Treaty recently agreed by EU leaders, Mr Sanger said that no such conflict should arise. He said that the Declaration on taxation would simply make clear that the Lisbon Treaty would make no change of any kind to the extent or operation of the EU competencies in taxation."

At 11:14 Anoniem said...

@ Mike Van der Veer

De jure verandert er inderdaad niets en ook de facto zal er weinig veranderen. De EU-Commissie zal niet meer verdragsrechterlijke macht krijgen om belastingen te gaan gelijkschakelen, maar dat hoeft ook niet. Nu is de EC al bezig met allerhande interpretaties en samenlezingen van losse verdragen om haar eigen macht te usurperen en naar fiscaliteit uit te breiden. Dit zonder referenda of zonder nieuwe verdragen.

At 11:15 Evelyne said...

Daarbij maakt Lissabon via al haar passerelles dit soort machtsusurpaties nog veel eenvoudiger dan voorheen. Indirect is Lissabon dus wel een verdere bedreiging voor onze fiscale vrijheid.

At 11:16 Geert Van Nauwelaerts said...

Een interessante diepgaande analyse van de Ierse economie vind je hier.


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