Assuming protection as member of euro zone ‘a major flaw’

Honohan points finger at wrong policy thinking

Central Bank Governor Patrick Honohan said: “Neglect at home and in Europe of the fact that euro members could still get into macro-economic trouble despite being part of the euro area was a major flaw in policy thinking in the early 2000s.” Photograph: Matt Kavanagh

Central Bank Governor Patrick Honohan said: “Neglect at home and in Europe of the fact that euro members could still get into macro-economic trouble despite being part of the euro area was a major flaw in policy thinking in the early 2000s.” Photograph: Matt Kavanagh

Fri, Sep 20, 2013, 22:01


Assuming that being in the euro zone would save the country from macro-economic trouble was “a major flaw” in policy thinking, the Governor of the Central Bank said yesterday.

Prof Patrick Honohan made his comments at the University of Limerick as part of a visit to the city which included a meeting of the Central Bank Commission.

“When Ireland joined the euro it seemed to some macro-economists that Ireland was no longer an interesting case to study, just a region within the euro area,” Prof Honohan said. “But what those people missed was that it was a sovereign region with its own budget, its own banking regulation and its own implicit backstop for banks.

“Neglect at home and in Europe of the fact that euro members could still get into macro-economic trouble despite being part of the euro area was a major flaw in policy thinking in the early 2000s.”

Prof Honohan was speaking at the launch of a publication written for macro-economics students at under-graduate and post-graduate level.

The book, Macroeconomics: An Irish and European Perspective by University of Limerick academic Dr Anthony Leddin and UCD emeritus professor Brendan Walsh, was launched at an event attended by Minister for Finance Michael Noonan, Limerick mayor Kathleen Leddin and representatives from the university community.

The book contains a new examination of macro-economics that deals with topics relating to economic growth, unemployment and inflation, with particular emphasis on contemporary Irish and European economic issues.

Irish perspective
According to Prof Honohan, the hallmark of the introductory macro-economics textbook was the way it analysed all issues from an Irish perspective.

“This new ‘great recession’ edition uses current Irish data and draws on the national experience in the crisis.

“If anyone thought that the arrival of the euro would end interest in Irish macro-economic developments, the events of the past six years has dispelled that illusion.”