If any good can come out of the Irish disaster it is via the realisation that the classic German perspective on the problems of the eurozone is mistaken. Any currency union among diverse economies is bound to be a risky venture. But, with mistaken ideas about how it should work, it may prove calamitous.
What, then, is this canonical perspective? It is that the core problems of the eurozone are those of fiscal incontinence and economic inflexibility and so the right solutions are fiscal discipline, structural reform and debt restructuring. Ireland, however, is not in difficulty because of fiscal failings, but because of financial excesses; Ireland has needed rescue, notwithstanding its astonishingly flexible economy; and an emphasis on restructuring of debt has, predictably, triggered a crisis. These realities should make Germany rethink. Will it? I doubt it.
Ireland is nothing like Greece. Back in 2007, Ireland’s net public debt was just 12 per cent of gross domestic product. This compares with 50 per cent in Germany and 80 per cent in Greece (see chart). Spain, too, had net public debt in 2007 at just 27 per cent of GDP. If the fiscal rules had been applied as ruthlessly as German policymakers say they now want (though their predecessors resisted their application to themselves in the early 2000s), they would have affected France and Germany more than twice as often as Ireland or Spain between inception of the eurozone and the current wave of crises.