Opinion

All-Ireland currency not the most outlandish idea

Newton Emerson

Newton Emerson

Newton Emerson writes a twice-weekly column for The Irish News and is a regular commentator on current affairs on radio and television.

Could an all-Ireland currency replace the euro and pound?
Could an all-Ireland currency replace the euro and pound? Could an all-Ireland currency replace the euro and pound?

In all the parallels being drawn between Northern Ireland and Greece the most interesting one has been missed. Like Greece, we are also in a currency union whose Teutonic standards we fail to meet. That goes a long way to explaining some of our economic problems, including the ultimate problem of not being able to raise our standards.

An hour worked in Northern Ireland is 48 per cent less productive than an hour worked in London, 25 per cent less productive than an hour worked in the south-east of England and 17 per cent less productive than the UK average.

This is due to history, geography and demography. While it is not destiny, it is a fact for the foreseeable future and the least painful way to reflect it would be through an exchange rate. If there was a Northern Ireland pound, it would drop on separation from sterling until our labour and goods became competitive.

Of course, there is no Northern Ireland pound so the only ways to reflect our weaker productivity are through lower wages, higher prices or additional unemployment. We suffer from a mixture of all three but unemployment - or more specifically ‘economic inactivity’ - tends to bear the brunt. Wages and prices are rarely flexible downwards and we have the additional rigidity of UK-wide pricing by retailers, UK-wide pay settlements for public sector workers and UK-wide benefit rates giving us the UK’s worst benefit trap.

In return, London sends us £10 billion year, which it calls a ‘subvention’. This is seen as a product of the Barnett Formula, which tries to average out public spending per head across the UK. However, an economist would see it as the cost (and reward) of a currency union and would call the £10bn a ‘transfer’. If the transfer was invested in making us more productive we might gradually need less of it but as Stormont has no incentive to do that, it becomes in effect a regional benefit trap.

When Brussels started planning its single currency it was aware of the risk of turning southern Europe into an enormous Northern Ireland. So it invested in productivity in peripheral countries (the Republic’s motorways were an example) but banned Eurozone transfers as a general rule, while prospective members were told to bring spending under control - a bit like giving Stormont a decade’s notice before withdrawing the £10bn. In the EU’s ‘British as Finchley’ vision, everywhere was to be as German as Dusseldorf.

This proved too much to expect and even more naivety was shown towards the other danger of a currency union. A one-size-fits-all interest rate sloshed waves of cheap credit around Europe’s less productive edges, where it was squandered on property speculation that warped entire economies. From the ruins, a second Stormont is now being assembled on the Acropolis one bail-out at a time. Bail-outs will be called ‘subventions’ soon enough.

It is strange that we never think of Northern Ireland in these terms, given the lengthy and illuminating lesson of the Irish pound. Between independence and 1979, when Dublin maintained parity with sterling, the south’s economy stagnated. Once the so-called ‘punt’ was floated it sank by up to 25 per cent against sterling throughout the 1980s, then by up to 15 per cent against the Deutschemark throughout the mid-1990s. This allowed the Republic to extricate itself from subsistence on British trade and create the first half of the Celtic tiger boom (ie the real half, before the Euro-fuelled property speculation killed it.)

More recently, we could have paid some attention to the prominent role currency played in the Scottish independence debate.

There will never be a Northern Ireland pound for obvious reasons but there was a period in the 1990s when more currencies rather than fewer was a fashionable idea, with electronic banking making it practical and a single global trading currency making it safe (the latter was seriously considered after World War II and China is proposing it again.)

The Euro seemed to put this on the wrong side of history. Dublin only floated the punt to prepare for monetary union, so it was wilfully blind to the floatation’s success. Scotland restricted its argument to ways of staying with the pound because the credit crunch left it scared of both the Euro and of going it alone.

But now that the Euro looks reversible, or worse still a recipe for turning everywhere into Germany’s Northern Ireland, is an all-Ireland currency not a thought experiment worth having?

newton@irishnews.com