In the 1990s, you used to hear the argument that Ireland was growing thanks to the EU. It wasn’t true. Ireland was growing because it had restructured its tax system so as to stimulate enterprise. The sectors which were doing best – notably software and financial services – were those which were untouched by Brussels regulation. Most EU money went into the part of the economy that was shrinking: agriculture. Indeed, to the extent that Brussels took an interest, it tended to attack Ireland for its “harmful tax competition”.
As the boom became deafening, alarmed Irish economists pointed out that, according to every model, there needed to be a stiff rise in interest rates. But there were no Irish interest rates any more: there was only the euro-zone, in which borrowing remained cheap to suit the needs of the large continental economies.
Sure enough, the crash was commensurately painful when it came. But the credit crunch was just the beginning of Ireland’s euro-related troubles. Unable to devalue, the country suffered as the United Kingdom, its largest export market, enjoyed a 25 per cent competitive advantage. Canvassing in Northern Ireland during the general election, I noticed that you could hardly park in the border towns, so numerous were the cars with Republic number plates. What individual shoppers are doing, whole businesses are doing too, sourcing from suddenly cheap British suppliers.
Faced with the worst financial crisis since the foundation of the state, Brian Lenihan imposed brave and necessary cuts. But his voters, looking at the opposite end of the EU, wondered whether, if they rioted instead, they might qualify for a Greek-style bailout. Worse, they learned that, as members of the euro, they would be obliged to join the rescue consortium, borrowing even more money in order to send it to Greece.
Ireland now seems to be inching towards a bailout of its own. Ministers deny it, of course, but the markets remember the way in which such denials preceded the Greek deal. Still, bailout or no bailout, the underlying problem won’t go away. Ireland is not suited to euro membership. Its economy diverges cyclically and structurally from the continent. It is an English-speaking country with a strong service sector; its main markets are the US and the UK. Until Ireland is able to suit its monetary policy to its own conditions, its woes will continue.