Our current economic problems didn’t begin with the debt crisis but have their roots in decision to join eurozone, says Cormac Lucey. It may seem odd, with the Troika having departed Ireland in December 2013, to call for a default on our debts and for exit from the eurozone.
Instinctively, people don’t want to do either of these things. The first would involve reneging on debts freely entered into. The second would involve reneging on the European Union’s current big project.
And the problems of the eurozone have been fixed, right? Listen carefully to the words of someone who should know – Mario Draghi, the head of the European Central Bank.
In January he dismissed as “premature” upbeat comments from European Commission president Jose Manuel Barroso, who had earlier predicted that the eurozone would put the crisis behind it in 2014.
Or consider the words the former head of the German Central Bank, Axel Weber. He told the World Economic Forum in Davos in January that the underlying disorder continues to fester and the region is likely to face a fresh market attack this year. “Europe is under threat. I am still really concerned. Markets have improved but the economic situation for most countries has not improved,” he said.
Since 2008, Ireland (and the rest of the eurozone) has been caught in a debt crisis. You might have thought that, having made enormous sacrifices, we are now slowly but surely paying down those debts. But look at the graph we have reproduced. It comes from an IMF publication last summer.
It shows total economy-wide indebtedness (that is, the sum of government, corporate and household debt) for selected eurozone countries compared to national income (GDP) for the years 2003, 2008 and 2012. Across the eurozone, aggregate debt levels have increased markedly (rather than decreased) since 2008. The increase has been greatest for the country on the left-hand side of the graph – Ireland.
We have the greatest aggregate debt level of those countries surveyed.
Why are we making so little economic progress despite enduring so much personal pain?
In my view, the authorities have misdiagnosed the problem.
Their policy prescription, Plan A, is not working. The authorities do not see that it was Ireland’s decision to join the euro which sowed the seeds of our financial crisis. Instead, senior policy-makers – such as Central Bank governor Patrick Honohan – would have us believe that the crisis was “three-quarters home-grown”.