Friday, November 26, 2010
When Ireland rocks the world
Ireland, which accounts for 0.3% of the world GDP, has been sending shock waves through the world economy. Earlier, it was Ireland and Greece. How do contain disruptions of this sort emanating from relatively small economies? I touch upon this in my ET column, Small economies, big headaches.
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4 comments:
Sir,
Why was it that this blooming economy had this steep fall in last two years... What is the main reason for this domestic crisis??
Thanks and Regards
Siji
Dear Sir, the 'troubles' of smaller European economies are on account of having a single currency. Subsequent to adopting the Euro, countries have found themselves hamstrung with respect to the autonomy that currency adjustments offer. The main reason why the PIIGS are in dire straits is because the Euro benefits Germany. By not allowing devaluation, a critical weapon of monetary policy has been taken out of the hands of small nations. They cannot improve the competitiveness of their products by devaluation, hence it is only reasonable that some EU regions will be in surplus and some in deficit. And as per Robert Mundell's axioms, a critical enabler of a foreign currency is a system of centralized transfer of funds so the EU bailout should be seen as a natural concomitant to a single currency system. Just as any nation redistributes finances through taxes and government spending, the EU needs to get used to doing so on a continental scale. The lesson to be learnt I guess is that you can't have monetary union without an overall economic and political union.
This might be not particularly relevant; however men sporting skirts is a national symbol of Scotland, Ireland is more known for its legendary immunity to alcohol, and potatoes farming.
-Irfan M
Irfan, You are right, men sporting skirts is more common in Scotland but this is also to be found in Ireland. I checked out this fact before finalising my column.
-TTR
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