The real issue: how can we find an escape route out of the eurozone?

SO, the situation the Government was trying to avoid has come about. Whether or not it was strictly necessary, elected representatives have been elbowed aside by officials from Europe.

Looking back, was it all horribly predictable? Nothing is inevitable in life and the same is true in politics and economics. But don’t we have a right to question so-called expert opinion? Take economists. Few, if any, of them saw the financial crisis coming in 2007. Worse, many economists complacently imagined their genius had made such a series of events almost impossible.

Following the 1987 stock market crash, the Asian financial crisis and the end of the dotcom boom the profession began to believe it knew it all. Follow their prescriptions, we were told, and stability would be ensured — no more setbacks turning into global catastrophes.

How wrong they were, and how short their memories were. All those fine models have been shown to be just that — models — and useless ones at that without a periodic reality check. If economists suddenly admitted that some of their fancy models had been severely flawed, where would this leave economists’ authority to tell others what to think and do?

The current generation of economists was so stunned by the global financial crisis because it was not fully aware that such crises had been happening for centuries. Economics, we were told, was a social science. But without some grasp of economic history, the ‘scientific’ nature of the profession is highly questionable.

So much for economics. What about policymakers? Yes, they too owe us a mea culpa.

When the solution to any contentious issue produces only winners and no losers, be sceptical — especially if the solution comes out of Brussels where the habit of producing rotten compromises has morphed into a diplomatic art form.

When the euro was introduced, no one had foreseen that a member of the monetary union could ever face going bankrupt. That only happens in South America, they told themselves. So no mechanism for a crisis situation was provided for. When the financial crisis turned into an acute fiscal crisis earlier this year, the European elite was left confused and helpless.

Eventually the EU agreed on a €750bn stability package and we were told all would be well: the problem had been solved. Wrong again.

And why? Because, just as in the economics profession, there has always been violent resistance in the EU to facing reality. Brussels began to believe its own rhetoric: that it was acting according to economic rationality and not engaged in a costly political project. That Europe might be too diverse to agree on sensible rules and too diverse to have a common currency are thoughts the Eurocrats never allow themselves.

The Greek crisis earlier this year should have taught them that differences between European economies were the root of the monetary union’s problems. Where flexible exchange rates had once made it possible to adjust for differences between the economic performances of different countries, a common currency has prohibited such steps.

The predicted convergence simply has not happened — and is unlikely to happen for a long time to come. The eurozone countries are becoming more — not less — different over time while the sanctions against budget indiscipline have always been next to useless.

Thus, while Germany has been soaring ahead, other economies are stagnant — or worse. Nevertheless, they are still locked together under a one-size-fits-none monetary policy. The much-vaunted compromise agreed while helping the Greeks in May looks shabby.

Very few in Ireland asked the hard questions a decade ago. The consensus that the euro was ‘a good thing’ stretched across the entire spectrum of the Irish establishment.

But it is even clearer now than it was in 1998 that Europe is not ready for a common currency and that if Ireland wants a common currency, the euro is not the one to choose: European interest rates and exchange rates set in the interests of Germany will almost always be wrong, bar some cyclical fluke.

Still, expect everyone to fight very hard to save the beloved euro. As Herman Van Rompuy, the real ‘president’, put it revealingly: “We must all work together in order to survive with the eurozone because if we do not survive with the eurozone, we will not survive with the European Union.”

But who would dare to suggest contagion to other member states will not happen? What if it reaches Spain, one of the world’s largest economies? Will there be a reality check then? The chances are slim such is the arrogance Brussels affects even when it is proved wrong time and again.

That arrogance is well understood here, of course. Whenever people have dared to assert different interests to those of the EU, Ireland has been subjected to a welter of threats, accused of treachery and ingratitude. Now that contempt can become more explicit still as European officials discard even their pretence of respect for the elected government, however dim-witted, and take over the country’s financial affairs.

The Government affects surprise but their memories are short too. If there are such things as miracles, they occur in the bible, not economics textbooks. After two decades of explosive growth, virtual full employment and net inward migration, the country’s dire straits have come as a total shock, particularly to those who came of age during the boom years and don’t remember the 1980s.

MINISTERS look shell-shocked, unable to grasp what is happening on their watch. Ireland is supposed to be Switzerland without the yodelling, right? But, remember, Irish unemployment didn’t drop below 10% until as recently as 1998. The economy used to grow — a bit — but only because people got on a flight or a boat out of the place. There has been a staggering 81% increase in emigration since 2006.

The country is just back where it was, albeit in a much better position to crawl out of the mess than countries like Greece and Spain.

The homegrown policy choices that were made were pretty important. Given that membership of the euro meant no domestic control over interest or exchange rates, firm action was needed to be taken to make sure capital didn’t simply go into stoking the property bubble. Of course a small country can never remain immune to global recession, but the fall is all the harder because nothing was done, despite clear warnings that disaster beckoned.

Again, what is remarkable is the degree of consensus that existed within the political elite. When spending was out of control, who dared to shout ‘stop’? At least, social partnership has had one positive benefit as the EU sees it: unlike elsewhere in Europe, there is little capacity for sustained opposition to the current policy prescriptions. Can the Government now do something really radical? Get out of the euro, for instance? Unfortunately, reissuing the punt would only make matters worse. Could we adopt the pound or the dollar? Politically, no. Instead, ironically, the real miracle might only occur when things get worse in Europe. If only the Germans would finally say ‘enough is enough’ and take back the deutschmark. Then the rest of the eurozone would be free to devalue and start selling things again.