Dan White: As eurozone lurches from one crisis to the next, should we quit the single currency?

Dan White

Things cannot go on like this. For almost three years the eurozone has lurched from one crisis to the next as Europe's leaders have failed to come up with a solution to the underlying problems of the single currency.

It's hard to resist the suspicion that, if they weren't so desperate for a credible alternative to the dollar, the Chinese and the other major creditor countries would have killed off the euro long ago.

The euro, which was supposed to lead to greater European integration, has, by imposing a tight monetary straitjacket on countries which were total unprepared for it, exposed the divisions between the prosperous, mainly Germanic, core and the weaker peripheral economies as never before.

Ever since we first joined the then EEC in 1973, it has been an article of faith in this country that Europe and everything associated with it was a wholly "good" thing. And for the first quarter century of our EU membership, that was broadly true.

But maybe you can get too much of a good thing. While our European experience between 1973 and 1998 was overwhelmingly positive, things have changed since we joined the euro as a founder member at the beginning of 1999.

Even now, the close relationship between our membership of the euro and the explosion in Irish property prices over the previous decade is not widely understood.

In the decade to 2007, Irish property prices almost quadrupled. This was largely funded by a near-sevenfold increase in bank borrowing.

However, over the same period Irish bank deposits only trebled. So where did all the extra money come from? Until we made the decision to join the euro, the amount that the Irish banks could lend to their customers was effectively capped by their deposits. As late as the end of 1990, Irish bank deposits still represented almost 90pc of Irish bank lending.

Our membership of the euro changed all of that. Suddenly the Irish banks were able to go out and borrow virtually infinite sums from other eurozone banks with no foreign exchange risk. They were then able to lend this money, mainly to Irish homeowners, builders and property developers.

Now the shoe is on the other foot. Having facilitated the Irish property boom with its excessively lax monetary policies, now the ECB is threatening to throttle us with a series of utterly inappropriate interest rate increases.

Even if Europe's leaders manage to cobble together another ad hoc solution to the eurozone crisis, the fact remains that the monetary policies being pursued by the ECB, too loose when this country is booming and too tight when we are in recession, are fundamentally unsuited to Ireland's needs.

By sticking with our membership of the euro we are condemning ourselves to a permanent pattern of boom and bust, with disastrous economic consequences. The euro is the problem. If that's the case then leaving the single currency could well represent part of the solution.