Euro displaying resilience, tranquillity for a decade: Patrick
Mr Patrick Honohan, Governor of the Central Bank of Ireland addressing the David Hume Institute and the Scottish Institute for Research in Economics said how is it that the euro, having confounded its critics by displaying resilience and tranquillity for a decade, is suddenly plunged by the global financial crisis into a severe structural crisis.
The view from Ireland, one of the economies most damaged in the crisis, allows us to see just how release 1.0 of the euro was underdesigned, and robust only to moderate shocks. Also evident from Ireland is how the plausibility and credibility gained from the outset by the system resulted in market and official complacency that allowed imbalances of indebtedness to grow too large.
The debts reached such a point that, when a crisis of confidence hit, it was likely to have consequences too large to be coped with by conventional tools. Now nonstandard measures of monetary policy and intergovernmental lend- ing have been put in place, while the institutional architecture of the euro area is being rapidly overhauled towards a fairly early release date for euro 2.0.
Although it is said that Celts are prone to analysing and re-analysing the historical antecedents of present woes; and although I cannot claim to be free of this vice, if vice it be, I will try not to rake over at any length the sorry story of how Ireland's macroeconomic performance became bogged- down in the first years of the new millennium. Instead I want to speak more about how the euro is involved in this story, and how a way forward is being mapped.
Scotland and Ireland in the crisis I know I will be understood in using a bog as a metaphor when speaking to a Scottish audience. Indeed, I am aware that, although Ireland prides itself on the extent and richness of its bogs, raised and blanket, Scottish naturalists claim that you have to go to Caithness and Sutherland to find "arguably the finest blanket bogs on the planet".