Noonan defends euro as markets question future
Published 25/11/2011 | 05:00
Finance Minister Michael Noonan yesterday launched a robust defence of the single currency after the euro fell to a seven-week low and with signs investors are pulling out of the eurozone.
He made the comments at a lunch for business executives in Dublin, a day after Germany felt the first brush of the crisis when it held a failed bond auction on Wednesday.
The spiralling crisis has prompted unprecedented concerns for the future of the currency, and prompted many investors to question the future of the euro.
"The euro is a great currency, it is going to be one of the lead global reserve currencies," Mr Noonan told a lunch attended by hundreds of executives at US companies in Dublin.
The comments came in a break from a prepared speech delivered to around 200 business leaders from the likes of Intel, Hewlett Packard and Pfizer that have operations in Ireland.
The event hosted by the American Chamber of Commerce in Ireland to mark Thanksgiving. Around 600 US firms employ 100,000 people in Ireland, the event was told.
Mr Noonan said the biggest risk to Ireland's return to growth, especially in the near-term, comes from wider euro area developments.
"The situation is undoubtedly very difficult and people are rightly concerned about the future."
"The problem is not the euro," he said.
He said the currency has been the driver of a 50pc growth in euro area trade since it was launched 12 years ago. The euro will survive the current crisis but tools to maintain the currency were missing when the euro was launched, and now have to be retrofitted, he said.
But, he said, European leaders need to step up their efforts to contain the fiscal crisis.
He said in the early stages of the crisis a "kick and hope strategy" had been adopted but had failed.
"We in Europe remain behind the curve and more needs to be done," he said.
"The debate is about to reach a climax," he added.
Despite opposition from Germany that was repeated in Strasbourg yesterday Mr Noonan said the European Central Bank's ability to print what is effectively an unlimited amount of money should be used to help restore financial confidence.
If the ECB is legally constrained than the cash could be deployed by proxy through the European bailout fund or the IMF, he said.
The US and other big economies have better tools to fight financial crisis but the terms setting out how the ECB operates have left it "deeply constrained," he said.
He said those tools now have to be retrofitted, after being left out in the original deal to launch the single currency.
He signalled that he thinks Germany could come around to such a loosening up of the ECB's current straight-jacket.
What Germany is looking for in terms of treaty changes is to make sure that no indisciplined country can endanger the system, he said.
The minister signalled his support for that position. The Irish view is that increased budget surveillance is inevitable -- that there cannot be a single monetary policy with divergent economic and fiscal policies.
But he reassured his audience that this will not include tax harmonisation.
Ireland fought "the good fight" in relation to corporation tax, and the issue will not be reopened.
He hopes to see "significant progress" at the upcoming meeting of European leaders on tackling the fiscal crisis.
"As countries come under pressure, when you see Italy and now France, the first of the AAA countries affected then the policies have to change," he said.