One more roll of the dice

Tom McDonnell24/11/2011

Tom McDonnell: There seems to be a growing consensus (finally) that only the ECB has the capacity to end the immediate crisis in the Euro zone. The French are now pushing ECB intervention as indeed are the Spanish, Italian and Belgians. Our leaders will get maybe one more roll of the dice to save the Euro. Unfortunately the Merkel doctrine of "no lender of last resort", "no fiscal transfers", and no "countercyclical fiscal mechanism" may yet prevent a happy ending to this story. No number of agreed Treaty changes about interference in national budgets and imposing discipline is going to change that fact.

To prevent meltdown of the currency some form of Treaty change is required to alter the mandate of the ECB. Treaty change to make the ECB a lender of last resort and the introduction of Eurobonds should be expedited. If tighter fiscal oversight is the price then it is worth paying.

Treaty proposals and changes seem inevitable and in that context it is the responsibility of the Irish Government to fully engage with this process to ensure that the proposed new rules and decision making architecture are fit for purpose and consistent with long-term recovery. There is a danger that the events of the last eighteen months have permanently changed the decision making process in Europe in a way that excludes small countries. This is a disturbing development that needs to be reversed.

Posted in: Banking and financeEuropeBanking and finance

Tagged with: lender of last resortECBEuro crisis

Dr Tom McDonnell

McDonnell, Tom

Tom McDonnell is senior economist at the NERI and is responsible for among other things, NERI's analysis of the Republic of Ireland economy including risks, trends and forecasts. He specialises in economic growth theory, the economics of innovation, the Irish and European economies, and fiscal policy. He previously worked as an economist at TASC and before that was a lecturer in economics at NUI Galway and at DCU. He has also taught at Maynooth University.

Tom obtained his PhD in economics from NUI Galway.



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