What Currency Is Used In Ireland - The euro 20 years later: Ireland's long journey towards monetary union The first episode of the series examines the concessions made to participation in the single currency
The euro is now the currency of 340 million people in 19 countries and meets the main criteria for being widely accepted as a medium of exchange and a store of value. Photo: iStock
What Currency Is Used In Ireland
Sometimes European politics found a way to take a step forward. In December 1991, at a summit of European Union leaders in Maastricht, the Netherlands, the question of whether an irreversible step could finally be taken towards the creation of a single European currency was discussed.
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Politics was complex. Germany had just been unified and was historically associated with a sound monetary policy. British Prime Minister John Major called for a reversal of moves in social policy and labor law.
After hours of endless talks, a definitive agreement was reached. EU leaders had to assess whether at least seven countries met the criteria set in 1996 to create a single currency.
But the decisive decisions were the second deadline, which would begin in case of non-compliance with the first. They say that French President François Mitterrand crossed the line with his old friend, German Chancellor Helmut Kohl, in exchange for words on how to manage the currency.
When Britain decided to stay out, this inevitably led to the breaking of the one-to-one bond with the sterling that had existed since independence.
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EU leaders will reassess the situation in 1998, and as long as at least two countries meet the criteria, the single currency will take its place next January. And so, 20 years ago, on January 1, 1999, an almost irreversible path was set for the creation of what would become the euro.
At the time, Kohl, Mitterrand and those who led the project at the European Commission saw the single currency as a move towards a single European economy and a kind of federal Europe. In the event, Maastricht was one of the last major steps forward in European economic integration. The Euro remains in some respects an unfinished project.
A region with similar economic characteristics and a single government budget will often have a single currency to transfer wealth from the rich to the poor and, above all, to ensure the protection of any region affected by an economic shock. It will usually have a fully integrated financial system. The Eurozone's failure to fully meet these criteria adds to concerns about its future during the economic and financial collapse that began in 2008.
But the euro survived the crisis when European Central Bank chief Mario Draghi said in 2012 he would do "whatever it took" to protect the single currency. It is currently the currency of 340 million people in 19 countries and meets broad international acceptance criteria as a medium of exchange and a store of value – a currency to invest in. Maybe we have more tests ahead, but the Iroquois will allegedly be here to stay.
Ulster Bank And Bank Of Ireland Bank Notes, As Used In Northern Ireland Stock Photo
Ireland's crucial decision to join the Euro came in two stages. First, in 1979, we came to terms with a system then called the European Exchange Rate Mechanism (ERM) that limits the amount by which currencies can change value against each other.
Britain's decision to stay out inevitably led to the breaking of the one-to-one relationship with the sterling that had existed since independence. As Patrick Honohan and Gavin Murphy wrote in a Trinity College research paper examining the decision: "While the debate was dominated by financial issues, the final decision to join was based on a strategic vision that Ireland's economic and political future lay in Europe's former colonial power. "
In terms of continental-style inflation and interest rates, the benefits were not apparent at first. In fact, shortly after the decision to create the euro was made, the ERM was rocked by a major crisis – the currency crisis of 1992-1993, which caused interest rates to rise here.
Following the inevitable devaluation of the pound against the German mark – the acknowledgment that we are not yet a core EU economy – but a subsequent boost in Irish economic growth has cleared any doubt that Ireland will qualify for a single currency by fulfilling the necessary debts and obligations. clear rules.. But the question was: Should we join or should we split up like the UK and Denmark?
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In the 1990s, there was intense debate among economists about the idea of the euro and Ireland's potential membership. An ESRI article in 1996 supported the official view that Ireland should continue, but pointed to the risks and said net gains would be modest. Receiving substantial EU funding was also clearly a weighting factor in the decision.
Counter-arguments were based on our trade links with the UK and the fact that our economic cycle is not in line with that of other societies dominated by large continental economies - so interest rates and monetary policy may not suit us.
The impact of a possible weakness of the pound against the new currency was also discussed at length. More broadly, there have been international economic criticisms of the euro, particularly in the United States. One poll summed up the economic mood regarding the euro in the US: "This can't be, it's a bad idea, it won't last long."
As in 1979, the policy and desire to move from the UK to the EU was a major impetus for Ireland. In the mid-1990s, economic growth was strong, and with the help of EU funds, the long-discussed convergence of EU living standards began.
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The economic debate may have been well-balanced, but there was little political support for it not to continue. And so we became one of 11 countries that joined in 1999 and three years later, in an almost seamless transition, issuing euro notes and coins.
Irish people welcomed the currency and the convenience it brought to travel, even though the initial promises to consumers were never fully fulfilled. You can spend the same currency in the Eurozone, but you still can't get a mortgage in Germany or insure your car in France.
Twenty years later, Ireland is a much wealthier and more developed country, and the convergence process as measured by traditional economic indicators is complete. Our trade with Europe has grown tremendously and businesses have benefited from the ease of trading in a single currency.
But we didn't get there in a straight line - instead, the economy tumbled into a big bubble, followed by a massive drop, followed by a strong rebound. The key question - and which we will never be able to answer - is how our experience will be compared to what would have happened if we had not joined the euro.
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The first question is, would the asset and credit bubble be so harmful if we weren't in the Euro?
Economist Frank Barry has argued that the massive influx of international finance that fueled asset loans to the Irish banking system and inflated the bubble would not have been so extreme if we had stayed out of the euro. Others disagree - they argue that the globalization of international finance will lead to an explosion in cash flow to Ireland and real estate loans even if we don't participate in the euro.
No one can dispute that Irish domestic policy has not adapted to euro membership and is blind to the risks of bubble inflation while European oversight is inadequate. No one from the authorities in Dublin, Brussels or Frankfurt noticed the risk associated with the Irish banking system.
The second important issue is whether it helps or hinders Ireland's response to the crisis by becoming a member of the euro. There is no doubt that the reaction of the European Union and the European Central Bank was very flawed, especially at the beginning of the crisis.
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The tools weren't there to regularly shut down delinquent banks or harm bondholders, and the ECB insisted Ireland shouldn't risk it. On the other hand, the ECB's one-to-one liquidity support to the Irish banking system. Pointing to Ireland's entire GDP, it left the local banking system open.
Perhaps if we weren't in the Euro we could hit the bumpers faster and more dramatically and get into the arms of the International Monetary Fund faster.
Since the crisis, Ireland has benefited from the lowest interest rates set in Frankfurt and the massive monetary easing program that has kept interest rates at record lows. For a heavily indebted country, it was an invaluable incentive for recovery.
Since the crisis, eurozone reform has been more reactionary than visionary. Not surprisingly, the priority was to take measures to stop a similar crisis in the future. Banking regulation has been strengthened by key decisions currently being made in Frankfurt. Regulators insist bank funds are now stronger than before
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