The Rebel and the Ruler

Since it was conceived and partially implemented, the European single currency has caused the countries that adopted it endless trouble. First there was the mad dash and creative accounting by some states to force their financial data to conform to the established convergence criteria. Then there was the almost instant plunge in the trading value of the euro. Then there arose circumstances that reminded the European Central Bank (ECB) and the European Commission of the hitherto apparently ignored fact that each of the eleven economies within the euro-zone is unique and experiences different growth rates and needs. It seems rather ironic that an economically prosperous state such as Ireland should deliver the message.

Throughout its history Ireland has known fiscal success and misery. Most of this legacy has been filled with misery. Industrialization did not occur until the late nineteenth and early twentieth century and never acquired prestige compared to the rest of the British economy. After passage of the 1801 Act of Union, Ireland continuously proved itself the rebel among imperial subjects. After decades of terrorism, riots, and political protests, Ireland gained independence from Britain in 1937 and established the Republic of Eire (also known as the Irish Free State). During the second world war Ireland declared itself neutral, but the British government considered it a de facto German ally. It was only during the 1960s that Ireland assumed more significant participation in European affairs, and at that time its main interest was collecting subsidies.

Britain and Ireland continued their antagonistic relationship throughout the 1960s and 1970s, but both states were admitted to the European Economic Community in 1973. Unlike Britain, Ireland did not play a very vocal role. Its economy grew very slowly, but the influx of subsidies and grants eventually yielded results.

During the 1990s the Irish economy entered a boom cycle. From 1996 until 2000 growth in terms of GDP averaged 7%-10% annually. This created a rather intricate fiscal balancing act for the Irish government. It seemed the economy might grow too quickly and that Ireland would need to pursue a course of taking decisions which would not well serve its goal of joining the euro-zone. The policies that would ensure Irelan entry to the euro-zone were the same policies that would impose tight restrictions on the economy.

One problem was interest rates. To conform to the euro criteria, Ireland needed to lower its interest rates. That would wreak havoc on the value of the punt and lead to the real hazard of inflation. Ireland had spent many years grappling with inflation problems, but the ECB told it to implement inflationary policies. Ireland conceded some ground, but it vehemently informed the ECB that it would not fully comply with the proposed policies because its first loyalties lay with sustaining its flourishing economy. The ECB was briefly silenced.

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