Conventional wisdom, the royals and the Republic
By Samuel BrittanPublished: November 18 2010 22:08
Those whom the gods wish to destroy they first make mad – Euripides (attrib.)
The last few days have been extraordinary. The announcement of Prince William’s engagement has been accompanied by suggestions that there should be an austere royal wedding in keeping with the spirit of the times – as if we should counter the threat of a double-dip recession or an inadequate recovery by encouraging people to spend less.
Meanwhile, in a reversal of the normal creditor-debtor relationships, Ireland’s European Union partners have been thrusting a loan at the country that its own government, far from requesting, was originally anxious not to receive.
The Irish euro problem is more complicated in detail than the royal wedding but also lends itself to simplification. The Irish government believes that its financing needs are covered well into next year. The immediate crisis is a banking rather than a fiscal one. But European leaders fear that worries on both counts are tending to push up the premium on the bond rates of most of the peripheral countries.
Nobody knows if the euro itself will survive a debt default – which will be called a “rescheduling” – by some or any of its members. But euro supporters hardly want to find out. Meanwhile German public opinion will not countenance a generosity of lending to its partners that would put these problems to bed.
What is the role of the UK? Appearances do matter. If David Cameron, the prime minister, had yielded to voices in his own party urging him to stay out of an Irish aid package with a standby contribution equivalent to much less than 0.1 per cent of UK gross domestic product, this would not simply have been seen as a reaffirmation of separation from the euro, and still less as a gesture in favour of floating exchange rates. Rather it would have been seen as a hostile gesture towards the EU itself, something we could do without.
I have, however, a long-term suggestion for Ireland that I hardly dare whisper. Until the country joined the European exchange rate mechanism in 1979, the Irish pound was virtually identical with the UK pound. It was more than a fixed exchange rate. If you went on holiday to Ireland from England you did not have to convert any money. UK currency was generally acceptable even in the most fervently Republican areas. This did not always work completely the other way round. London cab drivers were not overenthusiastic about accepting Irish “punts”, but they ran no real risk in doing so. At a different level, some Irish banks operated indifferently across the island, as if the border with the North did not exist. And while some UK citizens liked and others disliked the many Irish residents in the country, there was no real feeling that they were foreigners. (I have always been struck by the parallel with Germany and Austria, a comparison disliked by my Austrian friends).
The breakaway from sterling in 1979 and later reflected as much political as economic factors. If the UK and the EU were at a parting of the ways, the natural instinct of Irish leaders was to go with continental Europe, even though it had some dubious economic consequences. There were times when Ireland had to go along with relatively low euro interest rates even when the Irish central bank made it quite clear that, given a free hand, it would have raised rates in the Republic. While the problems of other peripheral countries have reflected failure to align their costs and competitiveness with the euro heartlands, the Irish recession and debt are much more the after-effects of a financial binge, as in the case of the UK but on a magnified scale. The two economies hang together more than it is fashionable to admit.
The Good Friday agreements and subsequent progress may not have finally “solved” the problem of Northern Ireland, but the political atmosphere is much better than it has been for several decades; and in any splintering of the eurozone there should be fewer political obstacles to Ireland adopting sterling again, if that were in the country’s economic interests. As in the case of the royal wedding, it is the commonsense view that may seem eccentric.
Meanwhile, in a reversal of the normal creditor-debtor relationships, Ireland’s European Union partners have been thrusting a loan at the country that its own government, far from requesting, was originally anxious not to receive.
The royal wedding discussion brings to mind the cancellation of feasts by Cambridge and Oxford colleges in the Great Depression years of the early 1930s, not because they could not afford them, but as a contribution to the national economy – oblivious of the fact that one of their own number, John Maynard Keynes, was desperately trying to popularise the elementary insight that severe recessions reflect inadequate rather than excessive spending. It would of course be understandable if the royal couple did not feel like going over the top while the rest of the country was supposed to be bathed in doom and gloom. But there are sensible halfway houses.
They could have a decent but non-extravagant wedding, with the money thereby saved being explicitly channelled to charitable bodies and good causes operating in the UK. This would combine good taste with economic literacy.
The Irish euro problem is more complicated in detail than the royal wedding but also lends itself to simplification. The Irish government believes that its financing needs are covered well into next year. The immediate crisis is a banking rather than a fiscal one. But European leaders fear that worries on both counts are tending to push up the premium on the bond rates of most of the peripheral countries.
Nobody knows if the euro itself will survive a debt default – which will be called a “rescheduling” – by some or any of its members. But euro supporters hardly want to find out. Meanwhile German public opinion will not countenance a generosity of lending to its partners that would put these problems to bed.
What is the role of the UK? Appearances do matter. If David Cameron, the prime minister, had yielded to voices in his own party urging him to stay out of an Irish aid package with a standby contribution equivalent to much less than 0.1 per cent of UK gross domestic product, this would not simply have been seen as a reaffirmation of separation from the euro, and still less as a gesture in favour of floating exchange rates. Rather it would have been seen as a hostile gesture towards the EU itself, something we could do without.
I have, however, a long-term suggestion for Ireland that I hardly dare whisper. Until the country joined the European exchange rate mechanism in 1979, the Irish pound was virtually identical with the UK pound. It was more than a fixed exchange rate. If you went on holiday to Ireland from England you did not have to convert any money. UK currency was generally acceptable even in the most fervently Republican areas. This did not always work completely the other way round. London cab drivers were not overenthusiastic about accepting Irish “punts”, but they ran no real risk in doing so. At a different level, some Irish banks operated indifferently across the island, as if the border with the North did not exist. And while some UK citizens liked and others disliked the many Irish residents in the country, there was no real feeling that they were foreigners. (I have always been struck by the parallel with Germany and Austria, a comparison disliked by my Austrian friends).
The breakaway from sterling in 1979 and later reflected as much political as economic factors. If the UK and the EU were at a parting of the ways, the natural instinct of Irish leaders was to go with continental Europe, even though it had some dubious economic consequences. There were times when Ireland had to go along with relatively low euro interest rates even when the Irish central bank made it quite clear that, given a free hand, it would have raised rates in the Republic. While the problems of other peripheral countries have reflected failure to align their costs and competitiveness with the euro heartlands, the Irish recession and debt are much more the after-effects of a financial binge, as in the case of the UK but on a magnified scale. The two economies hang together more than it is fashionable to admit.
The Good Friday agreements and subsequent progress may not have finally “solved” the problem of Northern Ireland, but the political atmosphere is much better than it has been for several decades; and in any splintering of the eurozone there should be fewer political obstacles to Ireland adopting sterling again, if that were in the country’s economic interests. As in the case of the royal wedding, it is the commonsense view that may seem eccentric.
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