Weak link Greece should not have joined eurozone, says ex-IMF leader

Greece should never have been accepted into the euro area and its departure would remove the weakest link, a former deputy director of the IMF, Donal Donovan, said.

Dr Donovan was speaking at the Institute of Certified Public Accountants annual conference in Cork yesterday.

“The markets have already built in the prospect of Greece leaving the euro zone, so we won’t see Armageddon. Indeed, it could be argued that the eurozone will be stronger for cutting loose the weakest link.”

Dr Donovan said there was a fundamental underlying question that no one was addressing: The shape of the Irish economy that would emerge from the European crisis. He asked whether Ireland was too dependent on foreign direct investment and cautioned against any government placing all their eggs in a single basket.

“I think it is insane for any government to put all their eggs in one basket,” he said. “Some politicians have come out and said a change in corporate tax would be disastrous as it is the only engine for Irish growth.”

Dr Donovan said the issue of Ireland’s corporate tax rate had not gone away, and Ireland’s corporate tax rate will be under attack from both sides of the Atlantic.

Dr Donovan said that the corporate tax rat ehad become a bipartisan issue in the US, where there is support in theory for a change in the regulations governing repatriation of earnings from foreign operations of American companies. Dr Donovan felt that if Barack Obama wins a second term their could be a change in taxation that might affect Ireland-based American companies.

Dr Donovan was dismissive of the issues surrounding the fiscal treaty, although he did concede to being a member of the fiscal council. “The Fiscal compact is not really any different from the updated Stability and Growth Pact that we signed up to in late 2011, except that it is now in national legislation and there is a national Fiscal Council which independently monitors the Government’s adherence to achieving budget targets.”


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