The Euro pulling us down

We’ve been part of the Euro for a good while, since it started in fact. And for many who haven’t thought about it more in dept it could generally be seen as a good thing.

Sure prices went up a little with it’s introduction but that’s pocket change for most. I mean we can go on holiday or do business with most of mainland Europe and not have to change our money (forget that the US & UK are our largest trading partners). And isn’t it great that we’re part of something big during this whole upheaval in the global economy, a country our size would get swallowed up in the chaos if we weren’t part of the Euro, look at Iceland.

Despite these advantages the Euro is a double edged sword, and we are now getting caught on the backstroke.

When we joined, with other members we gave up our control of interest rates and foreign exchange, interest rates hit a record low and a weak Euro served export business well.  The Euro hit us as the Celtic Tiger was in full swing and brought us to new heights.

The low interest rates (coupled with 100% mortgages, again thanks to the EU) caused house prices to rocket and brought a new wealth to those (usually older) who had property before it all kicked off. The low value of the Euro against the U.S. Dollar & Sterling made us cheap & competitive when exporting to these economies; with genuine competitiveness being eroded behind the scenes by high costs (of living & doing business). Soon we were the most wealthy (when you included the puffed up value of our homes) and expensive country in Europe, and all was good.

Then everything changed, like getting thrown by a car into oncoming traffic we were hit by a double blow that has left us in our current situation.

Our property bubble was at it’s peak, the financial crisis began to unfold, and the European Central Bank which had already increased interest rates a number of times made further increases, and kept them there until the crisis was at melting point with large mainland European banks failing. But for us it was too late.

Being part of the Euro robbed us of the ability to react to the crisis, at a time when we should have (and, had we had the power would have) lowered interest rates, which would have significantly slowed the decline (not stopped it, overpriced is overpriced, no financial wizardry can change that). Our bubble would have wheezed to lower levels instead of the sudden burst we have undergone. Or may never have happened had we raised the rate sooner. It would give us more a sense of control over our own destiny instead of this victim persona that has overcome our country folk.

Along with higher interest rates has come a stronger Euro, our exports became more expensive in the UK & US, the easy competitiveness we had was now gone, and we now bear the full brunt of being the most expensive country in Europe. The country is bleeding jobs to Eastern Europe, and now bleeding business to the UK because of the lower Sterling. Our businesses can’t compete, shoppers are going north to save (big savings), buying from English websites (I bought a trip to China on an English travel site, over €250 cheaper, not to mention books, music, digital camera’s etc).

This second blow could very well be the finishing one if we remain in the Euro; had we our own currency, the Punt, we could have devalued it to match the Sterling, it would have protected us from the forces of pure competition. We are not competitive. We can either get cheap fast, get out of the Euro, or get in the dole queue.