EUROPE requires and is going to get its own minister for finance, economist Alan Ahearne predicts.
At the Shannon Chamber of Commerce president’s lunch at Dromoland Castle, Dr Alan Ahearne said setting up the new ministry doesn’t mean all the tax money raised here goes to Brussels.
He said: “Some of it will be ring-fenced and sent into a pool at the centre of the euro area.”
A former economic adviser to the late minister for finance, Brian Lenihan, Dr Ahearne said that the eurozone requires a big stock of money at its centre to rescue banks and rescue sovereign counties and that will require a ministry for finance.
“It is going to take years to get to this, lots of treaty changes, but if governments announce that this is somewhere they would like to go, the European Central Bank (ECB) may respond positively to that and the ECB may become temporarily the lender of last resort,” he said.
Dr Ahearne said: “That it is not what we have today, the strategy being used is that we are muddling through this crisis. We don’t have a definite comprehensive solution.”
A number of components are required for the overhaul of the architecture of the euro area. He said these include stricter surveillance of national fiscal and economic policy; a proper crisis resolution framework at the core; and the need for centralised banking supervision.
He said those sceptics who said you cannot have monetary union without a form of fiscal union have been proven right.
The NUIG economist said that the euro will survive, but the costs of the strategy in place to save the euro “to the real economy are very large”.
The academic said the eurozone response to the crisis is similar to the Japanese response to its 1980’s recession that would resulted in two lost decades for its economy.
Dr Ahearne said: “They are putting in place lines of defence that will keep the euro from collapsing, but without taking a comprehensive approach, it is going to affect and depress the economy.”
Dr Ahearne said that there is “a lethal cocktail of pressures” leading to Europe going into recession in 2012.
He added: “We in Ireland may be able to fight off the coming euro area recession better than most countries, but let’s not fool ourselves and believe we won’t be affected at all . That just wouldn’t be true.”
Dr Ahearne said the banks have been recapitalised and Ireland has regained its competitiveness.
Dr Ahearne pointed out that “a lot of the hard work in terms of the reform has been done” pointing out that if you include the 2012 budget, €24 billion of the €32 billion adjustment between 2008 and 2015 is in place.
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