Jason OMahony - Irish political blogger, Irish politics, EU politics
 

Supposing we had never joined the EEC?

Posted by Jason O on Apr 7, 2011 in European Union, Irish Politics |

I met someone recently who gave out yards about the EU and France and Germany, and suggested that we would have been better off if we had never joined the EEC. This got me thinking: What would Ireland be like if we had never joined?

Would we have had a banking crisis? We never would have joined the euro, and so would not have had access to as much cheap money to borrow, so we would not have had a property boom to the same degree. But aside from the sheer volume of money, the same rules that got us to where we are today would have applied, and don’t forget that, contrary to popular opinion, much of the money borrowed came from British banks outside the eurozone. Nor is Ireland the first country to have a property bubble. Our interest rates would have been higher, if we had an independent currency, and this would have slowed growth and also restricted borrowing. Overall, we’d be a poorer country but probably without as big a bank debt burden as we have now.

That doesn’t actually sound so bad. But just remember what Ireland was like pre-Celtic Tiger. I do, and we were a markedly poorer country than even now. In terms of actual standard of living, the standards of living of most people were considerably lower. People forget that. Property would be far less expensive, but it would also have been harder to get a mortgage. They also forget that the property bubble funded the income tax cuts, huge public sector pay increases, and massive improvements in infrastructure we have now. Indeed people are today protesting against pay and tax rates that were standard fare in pre-Tiger years. None of the tax cuts, pay rises or infrastructure improvements would have occurred at anywhere near the level that they did. Just look at the cars on the roads, and count how many of them are pre-Celtic Tiger. All those new cars were funded by the bubble too. Before that, we were a nation of rusty bangers, or without cars at all in many cases. The bit of orange twine holding on a bumper was not an oddity. 

Having said that, if we had had an smaller banking collapse caused by bank mismanagement, banking regulation being decided then, as now, in Dublin, by the “elite” elements of the people who got us to where we are today, there’d be far less onus on other countries to bail us out. After all, our default would not be a threat to the euro, as we would not have been a member. We would have to rely still on the IMF alone, perhaps with help from Britain and the US if we begged enough, and with very similar criteria to what we have to heed now.

Would we be able to default? Of course. As we can now. But with even bigger risks, as we would not be part of a German-funded bailout mechanism. We would simply be telling the bond markets that our name doesn’t count for much, which is fair enough as long as we don’t want to borrow at competitive rates. We’d be cutting spending more savagely, although, having said that, the gap between spending and tax revenue would not be as wide as we’d be paying public sector workers less, and social welfare rates would be lower than the rates we object to today. We would not be cutting as much as today because, quite simply, we would not have had it in the first place. 

As for trade, British eurosceptics suggest that outside the euro, we could devalue our currency to make ourselves more competitive. It’s true, it would, in the short term, help our exports, but it would also make our imports, such as oil, cars, food, white goods, etc, more expensive then they are now. Again: I ask people to remember pre-Celtic Tiger times. We did not have the same selection of products that we have now, and many services, such as telephones and airlines were far more expensive than they are now. We had to seek permission from the government to bring money on holidays. On balance, Ireland would be a cheaper place for certain non-manufacturing businesses to locate, as we’d be poor and willing to work for less, although the fact that we’d be outside the single European market would be a disadvantage.

We had emigration before we joined the EEC, and there’s little reason to believe it would have changed much, except that it would have continued through the late 1990s and early 21st century. We would have had far less immigration, on the other hand, as we had pre-Celtic Tiger. As a country, we’d still look the way we looked in the mid 1980s. There are some who would be delighted at that. I wouldn’t. A country that no one wishes to immigrate into is a dying country.

We would have seen radical change in the field of protectionism.When one considers that right up until the 1980s it was illegal to seriously compete with RTE, and that well-paid jobs in Aer Lingus made flying very expensive, people forget that protectionism and tariffs were the normal way to go. Every industry and sector of the economy (especially those who just happened to be close to Fianna Fail) made a special case pleading that Irish consumers should be “protected” from cheap imports and instead buy more expensive Irish products. There are some who still defend this, but the fact is that the Irish consumer voted (and continues to vote) with their wallets. They still have the choice to buy dearer Irish products, and many do, but pre-EEC we didn’t have the choice.  

Given the glacial change that occurred in Irish society from the 1920s until the 1990s, would an Ireland free of the pressure the EU brought on sexual, women’s and gay rights have brought progress itself without that pressure? There’s little to make one think so.

In summary, it’s reasonable to suggest, I think, that our banking crisis would not be as bad, if it occurred at all. Yet our standard of living would probably be considerably lower than the level of which we are being asked to accept as a result of cutbacks and tax rises. When one factors in the social freedoms,  and the fact that we do still have the infrastructure and “stuff” that we got during the Celtic Tiger, it’s hard to argue that we would have been better served staying out of Europe.

You’ll note, of course, that I have not mentioned the billions in direct transfer payments we received from the EEC/EU. These were important, but I think Irish people put too much emphasis on those funds as a reason to support EEC membership. What Europe did for us was wake us up to the possibility that we could be more than just a former British colony, and that new mindset was the greatest thing we gained from going into the EEC in 1973.  

4 Comments

mupp
Apr 7, 2011 at 6:03 pm

Agreed…….


 
Peter C
Apr 7, 2011 at 9:58 pm

Personally I don’t even buy the notion that we would have borrowed less or had significantly higher interest rates. No only was there no attempt to slow the boom, every attempt was made to accelerate it. Funny now after the crash mortgage relief is now going to be stopped.

Besides, Iceland managed it.

Blaming the EU for the mess we are in is, frankly, childish. However, criticising the EU for not having the proper mechanisms to deal with the current crisis is entirely valid but that’s another day work.


 
david morris
Apr 8, 2011 at 8:07 am

Fine post, but from the point of view of an Irish taxpayer (which I assume you are), the
facts are as follows. The economy has been ruined by the euro : a monetary policy designed to cement the two Germanys has meant real interest rates of minus one per cent between 1998 and 2007. Then, as your main trading partner, the United Kingdom, engineered a 20 per cent competitive devaluation, Ireland suffered a devaluation in output and jobs (Irish GDP is now down almost 20 per cent from peak). Then Brussels assumed control of your economy, and started demanding that you to raise your corporation tax. Now you learn that your government is obliged to send hundreds of millions of euros to Portugal, so that the Portuguese can suffer what you are suffering.

Control of the Irish economy has been ceded to the EU & whatever “loans” have been made to “assist” will end up in the pockets of European bankers and bondholders, with the repayment coming from taxpayers. The EU isn’t rescuing Ireland; Ireland is being sacrificed to rescue the euro.

Still happy with that ?

On balance, I suppose you are, as it all assists The Projekt. Never mind the democratic deficit though, just as long as you have the UK pinata to remind the other serfs
just how much they have gained since the bad old days.

Kind regards

Kind regards


 
Jason O
Apr 8, 2011 at 8:23 am

David: I think you are making a fundamental error in the difference between the British and Irish economies. Most British eurosceptics seem to regard devaluation ( in our case, a weak national currency) as the panacea for all problems. I disagree. Yes, a weaker euro helps our exports to Britain and the US, two very important markets, but Ireland’s lack of competitiveness was not caused by the euro as much as a rapid closing of the gap between the cost of doing business and profits. A Harold Wilsonian devaluation is a short term gimmick, and does not address core faults in the economy, as it raises raw material costs.

Secondly, the low interest rates caused by the euro did prime demand in the property market, that’s correct. But we could have done a huge swath of domestic things, such as tougher lending regulations or property taxes, to neutralise that. We chose not to. This was caused by excessive national sovereignty, not too little.


 

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