Sunday 4 December 2016

Our economy needs more than luck, we need a Plan B

Published 29/11/2015 | 02:30

'If external trade is in currencies, such as sterling and the dollar, where the exchange rate can fluctuate substantially, this is an extra headache'
'If external trade is in currencies, such as sterling and the dollar, where the exchange rate can fluctuate substantially, this is an extra headache'

The life of the 31st Dail is coming to a close and it is time to consider the issues which should preoccupy its successor. First among them should be the identification of policies to ensure steady economic progress in the years ahead without courting any more boom/bust cycles.

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The economic recovery has already created jobs, boosted tax revenues, helped close the budget gap and begun to encourage private investment. But it has restored some familiar habits in economic policymaking, including some of the bad habits which created the crisis in the first place. Some of these bad habits are already on public view as the general election approaches. It is also being taken for granted that the eurozone architecture has been fixed and that a renewed crisis in the common currency area either will not happen or will be easy to survive.

Any country which has accumulated large external public and private debts has limited room for manoeuvre in economic policy. This limit can come quickly into play where the country has abolished its own currency: Ireland is a eurozone member and uses what is essentially a foreign currency. Should external finance dry up for either government or banks, it will be made available on terms dictated by the European Central Bank which will impose conditions on the creation of liquidity. These conditions, as Ireland has learned to its cost, can be both arbitrary and punitive.

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