GREECE WILL decide to leave the European Monetary Union (EMU) but Ireland has a good chance of “staying the course”, a British commentator on monetary affairs predicted yesterday.
David Marsh, co-chairman of the monetary think tank Official Monetary and Financial Institutions Forum, told a Dublin audience that Ireland had done the right thing in facing up to its problems early. The country was “taking its medicine”, although he believed it was only about half-way through this process.
Addressing an event at the Institute of International and European Affairs, Mr Marsh said Ireland had a very good chance of staying the course and “coming out as a member of the new euro”, which he believes is likely to be a much more “steely”currency.
He envisages that the EMU is likely to be a “less forgiving, less pleasant place to be” with more fiscal rules.
Mr Marsh, a former European editor of the Financial Times, advised Ireland to forge alliances with countries such as Sweden and Denmark to strengthen its position in Europe.
He believes Greece will leave the EMU, although this will be as a result of a sovereign decision rather than a “diktat” from Europe. One or two other countries might also “find it in their better interests” to leave the single currency, though “not right away”. In the event of a Greek departure, ring-fencing would be necessary to prevent a domino effect from spreading to Spain.
He went on to describe the growing gulf between what he referred to as debtor and creditor countries.
“Creditors have less and less certainty they will be repaid,” he said. “Those that are lent to feel increasingly embittered. They feel the conditions are increasingly onerous and driving them into a spiral of debt-deflation.”
He argued that the euro – which he described as the most emblematic and important European project since the second World War – as originally conceived had come to an end.
He said the EMU’s one-size-fits-all approach meant interest rates descended to German levels. Instead of using low interest rates in a “wise way”, governments “let rip” and decided to go on a “long drawn-out binge”, fuelling consumer booms and speculation in areas such as property.
Mr Marsh said although the UK was not part of the single currency it had been affected by the fallout because it carried out a significant amount of trade with the EMU area.
