In a bid to stave off devaluation, interest rates went up by nearly 40% during the three months of the crisis, and it didn't do any good. In the end, the crisis of 1992 gave a huge added impetus to the creation of the euro and the European-wide fiscal system that underpins it.I remember that currency crisis well. First Britain, then Ireland trying to remain in the ridiculous Exchange Rate Mechanism. I was pretty new to Ireland at the time and none too pleased that the economy was being sacrificed in order to adhere to some ridiculously badly structured exchange rate control system. It wasn't the speculators that caused the problems, but the European ERM.
I don't pretend to understand that system, and I'm certainly not going to try to explain it. But as we read about the madness in worldwide stock markets and watch the frenzy on television, night after night, all I can say is thank God for the euro.
Finlay can thank God for the euro if he likes, but the problems of 1992 were not the result of an independent currency, but the failed attempt to lock the currencies when the various economies were badly out of sync.
Saturday's Examiner had a column by Matt Cooper asking if it's time to leave the euro because
[o]ur involvement as one of the 15 member states of the Economic and Monetary Union (EMU) contributed dramatically to the property bubble that has now burst and is the leading cause of the sudden domestic downturn.I'm sorry Fergus, but Matt Cooper knows what he talking about, while (as you say) you don't.
Our euro membership sees us suffer from excessively high interest rates and a currency valuation against the dollar and sterling that will damage many exporters just when we need to be stronger to cope with the international downturn.
Since the euro came into creation, the European Central Bank (ECB) has set the price of borrowed money to suit the economies of continental Europe, not little Ireland, even when its economy is out of kilter with the rest of the EMU members. The rate set was far too cheap and caused a lending boom by greedy bankers.
As our economy boomed and asset prices — particularly for property — soared, an independent Dublin-based Central Bank would have acted to make the cost of borrowed money more expensive. It couldn’t act because it no longer had the power.
The boom was allowed to get out of hand as a result of ECB inaction, despite a number of cautionary statements by the Central Bank, some economists and some media commentators. Their analysis that this would all go wrong eventually was right and now they are victims of vicious sniping about being allegedly unpatriotic in talking us into a recession.
However, I think Brendan Keenan's analysis with regards to Italy would be the same for us. We won't be leaving the euro anytime soon, but it will take its pound of flesh.