Northern Ireland is a text-book case of the problems of a currency union. Like most big countries, the UK suffers from having one currency across the disparate regions. Without an exchange rate, varying productivity can be reflected only by prices and wages, which are rarely flexible enough to do the job. So the less productive regions end up with higher unemployment, while the more productive regions end up with higher taxes.Hat-tip NI Centre-Right
This is the internal bargain all nations strike, but it is rare to find such a clear example as Northern Ireland. Because of its huge public sector, Northern Ireland has too many people expecting British pay in British pounds with no allowance for their location. Many public-sector workers get a London weighting, but there is no equivalent Belfast lightening.
Instead, throughout Northern Ireland, there is persistent long-term unemployment, the UK’s highest level of economic inactivity, and a subsidy of about £10 billion a year, more than the one-off bailout London is considering for the republic.
As well as contributing to these problems, currency union denies even a region as developed as Northern Ireland the tools to solve them. Stormont is unable to print money or set interest rates, but it also has little scope to vary taxes. The possibility of lowering Northern Ireland’s corporation tax has been debated for years, but it will still require London’s permission. Even then, there is no guarantee of getting it past the European commission.
When such policies are discussed, Stormont’s status as a glorified county council becomes apparent. This is precisely the status Dail Eireann acquired when Ireland joined the euro. It may have taken a crisis to make it apparent but the surrender of economic sovereignty was complete from day one.
23 November 2010
Ireland - me and mini-me
"At least Ulster isn't a victim of Euro disaster" wrote Newton Emerson in the Times (£). But then he went on to point out that Ulster was already the victim of a currency union - sterling.