Thursday 26 April 2018

Leo should demand an apology from Europe

The dysfunctional common currency regime of the past decade should acknowledge the suffering it has caused, writes Colm McCarthy

Taoiseach Leo Varadkar. Photo: Collins
Taoiseach Leo Varadkar. Photo: Collins
Colm McCarthy

Colm McCarthy

Ireland's return to levels of economic activity not seen since the credit bubble began to burst 10 years ago is not the only "lost decade" that deserves notice this summer. A decade has also been lost in reforming Europe's dysfunctional common currency regime and the same air of premature celebration is taking hold. Just as there is no guarantee of plain sailing for the Irish economy, critical weaknesses in the common currency design remain unaddressed.

In August 2007, the first tremors of the great financial crisis were felt when the French bank BNP-Paribas suspended withdrawals from bond funds it had sold to investors. The money had been carelessly invested in dodgy mortgage-backed securities in the USA, and the retail borrowers had begun to default.

BNP's action started a mini-panic in wholesale credit markets, but the European Central Bank in Frankfurt acted quickly, releasing a large injection of funds into the system, just as a lender-of-last-resort is supposed to do. The bank in trouble was French, after all.

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