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In the 1980's the punt had lost a lot of value relative to Sterling based not on trade or competitiveness issues, but because the rating's agencies etc. decided that a small currency always constitutes a greater risk of volatility and were generally dismissive of such a small economy/currency.

From a consumer point of view my newly acquired mortgage was at 14% interest and inflation was similarly high. Industrial relations was bedeviled by disputes because everyone was trying to catch up/leapfrog over everybody else. Companies didn't like a high inflation environment because it played havoc with budgets.

There was quite significant exchange costs associated with all foreign transactions - especially for consumers. People lose track of what is a reasonable price when "everything keeps going up so fast" and become hyperanxious about prices. Overall the economy was paying a price for uncertainty, volatility, and exchange margins.

I'm not saying that the Government/Central bank couldn't have managed all of this a lot better, but the fact is they didn't. The value of the punt was probably too low for much of this period, but there seemed to be little the CB c/would do about it. It became part of the folk memory- a bit like German hyperinflation, and so the Euro was welcomed with open arms.

The Euro associated low interest rates where a large part of the reason for the emergence of the celtic tiger. The problem was that when the time came when we need much higher interest rates to curb the emerging  the ECB did nothing because it was far more concerned with German recession post re-unification. It was this failure to act in the interests of the broader eurozone and the almost complete lack of bank regulation either in Ireland or in Europe which led to the subsequent crash.

So we've seen both the good and the bad sides of the currency union to date. I don't think the majority want to ditch the Euro at this stage, but we need an interest rate regime more suited to the entire zone and much better bank regulation and resolution mechanisms which, in an integrated financial market, can only be done properly at a Eurozone level. Hence the current frustration with Germany wanting to have it's cake and eat it - to have the Eurozone run in it's own interest and then do nothing when the inevitable fall-out happens in peripheral zones.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Sep 24th, 2013 at 07:24:24 AM EST
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