Monday, July 28, 2008

Irish Media: Top earning journalists promote anti-EU position; Some question the benefits of being in the Eurozone

It's interesting that most of the top earning Irish journalists have taken an anti-EU position and some are also against the Euro - - Browne, Myers, Arnold, Dunphy, McGurk and Cooper.

An example of being divorced from reality as they will continue to do well in a recession or boom! How many have ever been on a factory floor or understand what it is to work in international tradable goods and services sector?

In the Sunday Times on July 27th, Matt Cooper, the former editor of the Sunday Tribune suggests that Ireland made a mistake in joining the Euro.

"The first problem with the euro is that it is overvalued. The second problem is that the interest rate we are charged for borrowing money is way too high. This is costing us jobs and destroying our wealth. Worse, we are powerless to deal with these problems because we have signed away control of our monetary policy to the European Central Bank (ECB). As part of that process, we are also restricted in terms of how much the state can borrow," Cooper wrote. "The strength of the euro against the dollar and sterling in recent years has destroyed the competitiveness of our exports in vital international markets, reducing or eliminating their profitability. The cost of doing business in this country doesn’t help, of course, but our weakened position is bound up with the problems caused by our currency as its value has soared in recent years. Despite our euro membership we continue to do more trade with Britain and the US than any other country in the eurozone: about 60% of our exports go to these two areas, making us unique among EMU members in our dependence on countries trading in other currencies."

For starters, the ECB rate at 4.25% remains at a historically low level.

Outside the Eurozone, Switzerland is the only country in Western Europe with a lower rate.

The UK benchmark rate is 5%; Norway's is 5.75%; Sweden's rate is 4.5%; Denmark's 4.25%; Switzerland's at 2.75%.

Iceland, the open economy that is comparable with Ireland, has a benchmark rate of 15.5%.

Bizarrely, Cooper in his article doesn't suggest what rate he would expect an Irish punt to have against the backdrop of the current crisis.

As for the argument that Ireland has surrendered the flexibility to cut rates below the ECB rate, apart from the threat of an exodus from our own currency comparable with that of the majority owners of our public companies - in 2007 for example, 65% of AIB's shares were held by foreign investors - the Euro and the ECB shouldn't be blamed for a reckless Irish fiscal policy when current spending was allowed grow at double-digit rates and oil was thrown on the property fire with a bonanza of unnecessary tax incentives.

The argument about trade flows is also misplaced. It reflects a lack of understanding of the multinational sector, which overwhelmingly dominates Irish exports.

Raw trade statistics have been used to bolster the case of Sinn Fein and the expert scribblers that the Irish economy would be better in an Anglo-centric world.

Ireland's principal economic function is as a base for US multinationals. Our top home-grown tech company Iona is in the process of being sold and Xsil, the fastest growing Irish tech company of this decade transferred most of its operations to Asia last spring.

Foreign firms, mainly American, are responsible for over 90% of our exports. Even though the statistics show a high level of exports to the US, it is wrong to assume that US firms would see merit in returning to the punt or that it would serve an economy so dependent on foreign investment.

Some US exports to Europe have an Irish content and US companies can keep their profits abroad for many years for example for investment in the Eurozone. Ireland also provides US companies with the facility of parking patents here and the profits from other overseas operations, become Irish exports to the US. Besides, US companies are responsible for most of our direct exports to other Eurozone countries.

As for the potential of investment from the rising multinationals of the Emerging Economies, Ireland is the fourth most expensive economy in the world according to the World Bank. Anyone who would think that having our own currency would enhance our prospects compared with the sense of the security of the world's second reserve currency, should not be taken seriously.

Cooper writes: "...imagine how the usual suspects would respond if the issue (of leaving the Eurozone) ever became a live one. The soul-searching that has taken place in the wake of our rejection of the Lisbon treaty would have nothing on it."

Giving a second PFO to the EU, would please some but most of them would be found in the sheltered sectors of the Irish economy. It would of course be part of a national suicide pact.

And finally, the politicians who blew the boom would effectively get control of interest rates. Wouldn't 15% mortgage rates be something to worry us?