24 MAR 2011
By David McWilliams | Irish Independent
Have you ever heard the expression "marry me now, the love will come later"? In the old days when a couple was forced together by the matchmaker, this gradual process of emotional osmosis was supposed to happen as time and loneliness took their course.
Often it didn't and, as a result, Ireland was a country of silent homes, filled with psychological terror, violence and sadness.
Watching the depressing 'Ballroom of Romance' on TV the other night, I couldn't help thinking of the dilemmas facing the architects of Economic and Monetary Union (EMU). The crisis facing the euro is one of a loveless marriage where the marriage itself has amplified differences that were evident from the start.
When assessing risks that might derail this bizarre construct, central bank economists focused on the risk of governments using the monetary union to borrow all they wanted. Therefore, the rules were drafted to prevent politicians of poorer countries -- those without much access to capital -- taking advantage of the monetary union to increase borrowing.
The economists forgot about the banks and the private sector and EMU became a financial crackhouse for large delinquent banks in the core of the union and their mini-wannabes in the periphery.
Take Ireland today. German and French banks only hold €10bn of our sovereign debt. But they hold €74.5bn of Irish bank debt. It is no wonder that the Europeans (led by the French and the Germans) are so keen this week to stop Ireland defaulting on the bank debt.
Anyone who pointed out this banking faultline in the early years of the 2000s was told that they "didn't understand". Well we understood, only too well.
We knew a monetary union without a supporting political union was a hopeful matchmaking exercise. Given that the single currency had no provision for divorce, the hope was that the unaccustomed newly-weds would learn to love each other and co-operate.
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