Sir, - Your correspondent Anthony Sweeney (June 2nd) highlights the dilemma confronting the Irish Central Bank as the months tick away inexorably towards the merging of the currency with ten others in January 1999. The dilemma being, how to reduce the Irish interest rate by as much as three per cent to converge with the others, at a time when the only sane course of action should be to raise rates here.
To reduce the interest rate by three per cent? Many people will shrug their shoulders and say: "So what? Why all the fuss?" The answer is that what is involved is much more serious. A reduction from seven per cent to, say, four per cent represents an actual drop of 43 per cent in the price of that most critical commodity, money. No market in any commodity can possibly cope with a move in price of such staggering proportions, even when conditions are normal. When one also takes into account the current escalating demand for money for mortgages and business loans you have a receipt for chaos.
Ireland is not unique, however. Other countries will have similar dilemmas under the straightjacket of the single currency. For some it will work the other way, in that they will be forced to live with a high rate when their economy is screaming for lower rates. It might well happen to Ireland in another economic cycle in, say, three years time.
The interest rate dilemma highlights only one of the features of EMU, which without doubt renders it fatally flawed before it even starts. Add to the list creative accounting, fudged Maastricht criteria, fraud and corruption, conflicts of interest, loss of sovereignty etc.
EMU is a political project, not an economic one, which has been steam-rollered through with very little mandate from the people of Ireland or Europe in general, in a dangerously undemocratic way. - Yours, etc., David Woodcock,
Carrickboy,
Co Longford.