Irish test for Emu
Ireland’s high inflation, say eurosceptics, shows that Emu is a failure. Without higher interest rates, the boom will shortly turn to a bust, they argue. Emu supporters recognize the problem but think a soft landing is still possible. The outcome may have profound consequences for Europe. An Irish crisis could hasten the arrival of a common economic government in the eurozone. It clearly shows the dangers of tying export-led tiger economies, such as Ireland, to mature restructuring economies, such as Germany. But in the end, the failure to raise productivity may be more crucial to Ireland’s future than its euro difficulties, reports Brian Caplen
European Central Bank president Wim Duisenberg, now being criticized around Europe for undermining the euro, would certainly not win a popularity contest in Ireland. With a booming economy and inflation of over 6%, Ireland badly needs an interest rate hike to slow things down. But when Duisenberg breezed in and out of Dublin in September he made it clear that Irish inflation was an Irish problem and there was no room for further debate.