Britain has just promised £7bn towards a €90bn package aimed at rescuing Ireland’s economy. But the bailout has not worked. Instead, we are sinking billions into a temporary rescue of the euro that will prolong Ireland’s economic misery. So we should change course and prepare to offer a dramatically different solution – help Ireland decouple from the euro and allow the country to default on its debts.
A prosperous Ireland is in Britain’s interest, as the chancellor, George Osborne, was quick to tell the House of Commons. It is not simply a case of economics. There is scarcely a street in Britain in which family ties do not bind the fate of our two islands. It is precisely because we want to see Ireland prosper that we should help it escape from the euro. It was euro membership, with ruinously low interest rates for more than a decade, that plunged Ireland into the economic abyss. Diehard euro advocates might ignore reality, but if Ireland had had interest rates set according to the needs of the Irish economy rather than a wider eurozone, it would not be in this credit-fuelled mess today.
For all the fanfare, the bailout has not reduced the amount Ireland owes by a single euro. Rather, it has seen Ireland accept more debt. Ireland has now gone beyond the point at which it can pay back what it owes. The country can either spend miserable years trapped in debt, with high taxes and higher emigration, or it can decouple from the euro – and default.
Decouple and default works. Remember how the political elite in Argentina, as in Ireland, pegged their own currency to another? Yet when the peso was decoupled from the dollar and Argentina defaulted in 2002, it was free to grow again. Argentina has been chugging along at an enviable 7% to 8% annual growth each year since.
Defaulting on its debts – impossible while Ireland remains in the euro – could follow if it were to decouple. While no one would ever then want to lend Ireland such mountains of money again, would that be such a bad thing?
What is certain is that as long as Ireland remains in the euro, its economic anguish will not end. Unable to devalue, Ireland will never become properly competitive – unless it suffers a dramatic fall in wealth. Yet a collapse in Irish wages is the inevitable outcome of the policy being pursued on both sides of the Irish Sea. How can that be in the interests of either us, or our closest neighbour?
Britain faces a time of unprecedented austerity. Yet many of the savings we have made in public services have now been soaked up by our massive contribution to bailing out the euro. Failure to bail out Ireland, some say, would place British banks in difficulty. But it is precisely because our banks are not out of the woods that we should keep any spare billions we have, for what still lurks on their balance sheets.
And the Irish bailout is also drawing us into potentially unlimited eurozone debt liabilities – in effect, it makes Britain a member of the euro as a debt union. Despite Osborne’s best efforts to present it as an act of neighbourly goodwill, Britain had little choice but to cough up. Article 122 of the Lisbon treaty means we will have to hand over billions through the European Stabilisation Mechanism. Even if the chancellor were to say «no», the council of ministers would quickly overrule him. Thanks to the small print of our existing treaty obligations, should Portugal, Spain, or even Italy now seek a bailout, our potential liabilities would be unlimited.
Britain is discovering that it has been drawn into a long line of euro «debt dominoes», each one at risk from any of the others falling. Allowing the break-up of the euro could prove less ruinous than paying to keep everybody in line.
Douglas Carswell, conservative MP for Harwich and Clacton.