Nat O'Connor: Earlier this week, Professor Ray Kinsella wrote a powerful critique of current austerity policy in the Irish Examiner.
For example: "The austerity doctrine imposed the burden of adjustment to the post-2008 economic collapse on the labour market. It is an indefensible misuse of economics that the eurozone “authorities” should seek stability on the back of tens of millions of unemployed — this month’s eurozone unemployment figures reached yet another record. It is equally indefensible that, within an economic epoch characterised by intellectual capital and innovation, youth unemployment should now stand at an average of 25% — and more than double this in some of the peripheral countries which are most in need of their intellectual capital and capabilities."
I agree with practically everything in the article, but not his conclusion that a break up of the Euro zone is inevitable and desirable for peripheral countries, including Ireland. While it may be inevitable, the example of Denmark is unconvincing, as their currency is strongly pegged to the Euro.
While Ireland could in theory use its own currency for quantitative easing or other monetary policy to create inflation and grow its nominal GDP, this could be a short-lived benefit compared to the long-term costs. If Ireland or other smaller countries go too far with expanding the money supply, we could quickly run out of dollars, sterling and euro as who would want to buy the New Punt if it kept losing its value in currency exchanges? Moreover, we'd lose our position as a hub of imports and exports, and we'd be vulnerable to currency manipulation and speculation by global funds.
But if we can't easily exit the Euro, what is more worrying is that there is no quick or easy solution to the flaws in the Euro monetary union. What the peripheral countries need to do is to meet and demand a new monetary policy regime for the whole currency area. That's maybe harder to do than simply exit, but there is no other way to fill the political void at EU level than for countries to come together in their shared interests.