Is there anyone who still thinks it would be a good idea to abandon Sterling and join the Euro? Of course we euro skeptics are enjoying saying “I told you so” to all those who thought disparate economies would all suddenly become Germany simply by adopting the D-Mark. For that is what the Euro is – the D-Mark, and if your economy is running up too fast with unsustainable asset bubbles and construction booms (Spain, Portugal and especially Ireland) then you cannot use monetary levers to calm your boom, unless Germany is too, which means the bust, when it comes is especially painful. Ireland is a case in point. Having lost control of the monetary levers, they lost control of their economy.
Ireland ran a surplus in 1999, 2000, 2001, 2002, 2003, 2006, and deficits in 2003, 2005, 2007 so from 2002 to 2007, during the boom, the Irish budget can be said to be broadly balanced, erring on the side of a surplus. Whereas Britain’s deficit was a direct result of idiot policies by a spectacularly venal and incompetent government, Ireland’s was due to a collapse in tax revenues as the boom came to an end and was replaced by an epic crunch. Tax revenues fell from €47 bn in 2007 by 30% to €33 bn in 2009. Expenditure of €41bn in 2007 rose by a modest 9% to €44bn in 2009. Financial services and construction, mainstays of Ireland’s (and Britain’s) boom were especially hard hit.
Spend, spend spend.
Compare this with the UK where tax revenues from 2007/8 to 09/10 fell by 9% whereas expenditure rose by 16%. Remember Britain was running a Maastricht-defying deficit of 4% of GDP in 2007, prior to the ‘credit crunch’. Despite this the response to the crisis was keep spending. Our deficit is as a result of spending. The Irish, a collapse in revenues.
The Irish Government were persuing a reasonable, low-tax, high growth strategy with a balanced budget. Reganomics, this was not. Of course they were unable to do anything about thier boom, nor were they able to devalue their way out of the bust: the Euro remained stubbornly high hurting the Irish badly during the bust. The bust was as bad as it was because for a decade, the Irish economy was subject to inappropriately low interest rates: The bigger the party, the worse the hangover. What happened to Ireland was EXACTLY what the Euroskeptics said would happen to the UK were we in the Eurozone, and for the same reason: Our economy is not aligned to that of Germany.
As it happened, we had an idiot chancellor, who spent a decade firehosing money unsustainably at the public sector, running insane deficits at the top of a boom; but because we are a large country able to borrow in our own currency, and with one of the few flawless track records in repaying debt left in the world, the Government got away with it. Imagine if we were borrowing in Euros. Imagine if we couldn’t devalue our currency in responce to a catastrophic financial crisis.
Leftists will look at that data and conclude, self-servingly, that it was the “stimulus” (by which ‘punk keynsians‘ mean ‘a big deficit’) which kept Britain’s economy, broadly afloat. The fact is that confidence in the UK government’s ability to maintain its AAA rating hung by a thread in 2009, and this was maintained largely due to the expectation of a Conservative victory in the May 2010 election. UK bondspreads were correlated to polling numbers. Had the Labour party won, the markets may have lost confidence in the Government’s plans to bring the public finances under control; there would have been a run on the pound, interest rates would have risen sharply and people would be feeling more like Ireland now, and less like a country pulling steadily out of recession, as Britain is. Where the multiplier effect of government spending works is in a gold-standard country with a small state. In Gordon Brown’s UK the state was already consuming half of GDP, and was already crowding out private sector employment. Ricardian equivalence and the lack of availabitily of credit saw to it that consumers (70% of UK GDP) snapped their wallets shut and deleveraged at an astonishing rate during the crisis. There was therefore no overall stimulus from Government spending, not in the UK, where the effect was more likely to be negative, as people hunkerd down and waited for the inevitable tax-rises. Extra state spending PREVENTED an equal and possibly greater amount of private expenditure.
The “stimulus” didn’t save us; the pound’s moderate decline in 2007-09, the continued confidence ability of the British Government to borrow and repay in its own currency saved the UK from a catastrophic financial crisis. We euroskeptics were right, and you federasts were wrong. Keeping the UK out of the Euro will remain the only positive contribution the Rt. Hon. Dr. James Gordon Brown (Ph.D from Edinbrugh on James Manxton & the History of the Labour party) made to his country in a carreer of self-serving ambition, bullying, hypocrisy, willful ignorance, arrogance and socialist lunacy. The real reason for Brown’s opposition to the Euro is probably control freakery: he just did not want to giva anyone else a say. History may just be kind to him for his right decision for the wrong reasons, but it will have to have forgotten his insane (and almost certainly corrupt) fiscal recklessness by the time it does.