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THE CELTIC CONNECTION • MARCH 1993
A SINGULAR EUROPEAN COUNTRY
Ireland is Left to Stand Alone
By SEAMUS McMAHON
COUNTY CLARE, IRELAND — On January 1, 1993, the European Community officially became a "single market without frontiers." It was meant to be the realization of a dream which
started 35 years ago with the Treaty of Rome. It was intended to be the ultimate peace treaty that would banish war in Western Europe forever. Twelve nations speaking nine languages became a single market of over
360 million citizens.
Outsiders call the new economic power bloc "Fortress Europe." Similar re-groupings of nations are being put into place across the globe. Canada, Mexico and
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the United States became the North American Free Trade Area in 1992.
A free market is supposed to be about the free exchange of goods and services. Transactions are financed either by barter or by money.
In this free market, however, within hours of this European Act becoming law, Europe found itself in the throes or a massive currency crisis.
The crisis began with the unification of Germany, which has had an enormous cost. In order to put East Germany's economy and environment into order, Germany's Bundesbank needs money. To attract funds the bank pays high interest rates to foreign investors. But what is meat for one European currency is poison to another.
In September, the United Kingdom pulled out of the European exchange rate mechanism (ERM) and allowed its currency to devalue.
Interest rates were dropped to six percent so as to stimulate its depressed economy. Italy, Spain and Portugal followed suit. Ireland stayed within the ERM and saw its currency soar.
For the first time in history, the Irish pound was worth ten percent more than sterling.
The net effect of being a "good European" was to create havoc for the Irish economy. Interest rates doubled to protect the
pound and Irish exports became more expensive in foreign markets.
The new Irish partnership government looked to Europe for support. Currency speculators moved in and attacked the beleagured Irish pound. Germany's Bundesbank offered sympathy and platitudes — but no cash. On January 30, 1993, Ireland swallowed the poison pill. It devalued its currency by 10 percent. The speculators cleaned up. A ten percent profit in 30 days is not banking — it's usury.
The exercise in being a "good European" has cost Ireland an estimated £1 billion. This is a tragedy for Ireland's dynamic young population.
Dick Spring, Ireland's Taniste (Deputy Prime Minister) and also Minister for Foreign Affairs, lashed back publicly in the first ever televised meeting of Europe's foreign ministers. He warned that unless Europe acts together, "we will be picked off one by one" by the currency speculators. As he spoke, the attack on the French franc and Danish kroner began. Both these countries face elections within months.
There is a folk expression that says "What is sauce for the goose is sauce for the gander." Both France and Denmark would be wise to learn from Ireland's bitter experience. When it came to the crunch, Ireland found itself alone, a singular European.
The Volatile Drama of Irish Currency
By LI AM FERRIE
DUBLIN — There was intense interest in how the Irish punt would fare when the money markets opened on Monday, February 1, after the devaluation of the Irish currency. In fact, it held up extremely well, trading at the top of its narrow band within the ERM (European Exchange Rate Mechanism). Against sterling it was in even better shape, although that may not have been such a good thing.
The British currency was under pressure when markets opened in the Far East and this pattern continued in Europe. Throughout the day the punt traded at between 102 and 103 pence sterling. It finished at Stg £102.72 or just 6.5 percent below the previous Friday's level.
More than £500,000 came back into the country. The devaluation prompted a rally on the Dublin stock market and a reduction in interest rates. The Central Bank reduced its overnight rate from 100 percent to 14
percent and its one-month rate from 42 percent to 16 percent. The building societies warned that if the rates did not fall further before the end of the week there would be another increase in mortgage rates.
When the speculators turned their attention to the Danish kroner, it pushed Irish interest rates up by a few percentage points. That was quickly reversed the when the Bundesbank finally reduced German interest rates.
Later in the week, there was a further reduction and the one month rate fell below what was seen as the crucial 14 percent mark. This eliminates the need for a further increase in mortgage rates.
Most people were given the option of having their repayment period extended, rather than increasing their monthly repayments. That deal was for just three months and home owners will be faced with a greater burden in the coming weeks.