Notion of winning back our sovereignty too simplistic
OPINION:Sure we feel humiliated. But the idea that Ireland ever was – or will be – economically autonomous is delusional
The collapse of the Irish economy and the recourse to the emergency EU-International Monetary Fund bailout in late 2010 sparked a wave of criticism bemoaning Ireland’s loss of economic and financial sovereignty.
Political leaders and many commentators have unanimously stressed that saying goodbye to the troika and regaining sovereignty is a critically important goal of government.
The sight of AJ Chopra and his colleagues making regular well-publicised inspection visits to Dublin to “check up” on the Government’s performance before agreeing to dole out the next tranche of the bailout funds is understandably viewed by many as a source of loss of national pride, if not indeed humiliation.
Yet, there is a danger that this emphasis confuses form with substance.
Even before the bailout, how much economic sovereignty did Ireland, as a small, open economy, really possess? And when the rescue ends, what degree of flexibility will we have to conduct our own financial affairs?
There is a danger that public expectations post the bailout will be raised to unrealistic levels. Moreover, there is very often a trade-off between accepting a significant diminution of economic sovereignty and the goals of pursuing growth and increasing living standards.
In the globalised world virtually no country has full economic sovereignty. The freedom for national governments to make decisions independently of other governments and even corporations is increasingly restricted .
Even larger countries enter into trade agreements that limit their scope for action, while very many decide to adopt exchange rate arrangements which often place major constraints on national macroeconomic and financial policies.
Crucially, a country that decides to open its economy to foreign direct and financial investment – and to take advantage of the net benefits this entails – cannot avoid having to accept external market judgments .
In the current globalised world, economic sovereignty is inherently a relative concept: the ability to negotiate key issues varies – some aspects are flexible while others may be largely non-negotiable.
Like many small countries, Ireland has wrestled with the issue of economic sovereignty ever since independence. From the outset, the link to sterling effectively ensured our financial policies were fully aligned with those in the UK.
However, until the late 1950s, government policy was aimed at keeping the economy closed-off from significant foreign direct investment, which meant Ireland missed out entirely on the post-war boom in Europe. Sovereignty was maintained, but at a huge cost in terms of lower living standards, higher unemployment and mass emigration.
Following the liberalisation of foreign direct investment in the Lemass era, Irish policy has shifted towards greater openness via increased Europeanisation. This has involved a gradual, but very significant erosion of sovereignty, accompanied, however, by what would be generally viewed as major economic benefits.
Joining the Exchange Rate Mechanism in 1979 meant that credit and interest rate policy largely followed that of the German Bundesbank (with devaluation of the Irish pound against the Deutsche mark to maintain competitiveness). The later adoption of the euro copperfastened Ireland’s relinquishing of monetary policy. Those unhappy about this loss of sovereignty could seek solace in the belief that Ireland’s fiscal policy was still under national control.