Opinions & Ideas

Category: John Bruton’s post Page 2 of 14


I have just finished reading “A Concise History of Greece” by Richard Clogg, published by Cambridge University Press. I am travelling to Greece next week to talk about economic development and the book was part of my preparation.
Modern Greece came into being in stages. The Greece that gained independence from the Ottoman Empire in 1831 consisted only of the southern portion of modern mainland Greece. Other bits were added in 1864, 1881, 1913 and 1920. 
 In 1923, Greece, after an unsuccessful war with Turkey, had to take in about 1 million Greek refugees who had to leave Turkey.
This war had been initiated partly on foot of Allied promises to Greece of “territorial concessions” in areas of what is now Turkey, but which were then inhabited by people of Greek heritage. These promises were designed to induce Greece to join the Allied side in the Great War. Involvement in the Great War was a matter of deep and lasting division in Greek politics.
For much of the 19th and early 20th centuries, Greek politics had been bewitched by the so called ”Great Idea” of uniting all people of Greek heritage in the Near East, in a state whose capital would be Constantinople. This would, in effect, have reversed the 1453 conquest of Constantinople by the Turks, and would have brought together in one state, Greek communities in parts of what is now Turkey, in Cyprus, parts of Albania, as well as all of modern Greece.
Through much of recent history, the energies of Greece, and of its people, have tended to be devoted to this type of territorial ambition, rather than to the   development of lands the Greek state already controlled. This has also led to Greece spending more on military affairs than was the European norm.
The Second World War was a terrible experience for Greece. Having defeated an Italian invasion, it was overwhelmed by Germany, and suffered a famine under the German occupation. This was followed by a civil war between anti Communist and pro Communist resistance forces, which retarded post war recovery.
From early on, Greece had a much larger public sector than was usual, and public sector jobs, often obtained by political patronage, were the chosen route out of poverty for many families. One very prominent early 20th century Greek politician, George Rallis, reputedly had 1000 godchildren, whose parents must have hoped he could find them all public sector jobs when they came of age!
 Public sector workers are an important constituency in Greek politics. But the effectiveness of the public sector is questionable. Greek courts get new cases at a rate of 8000 per year, but only decide them at a rate of 3000 per year. The pupil teacher ratio is about half that in Germany, but Greek educational performance is not commensurately better.
Greece has a history of poor export performance, and of debt problems in the public sector. In 1893, and again in 1933, it got into financial difficulties with its overseas creditors, partly because its limited foreign earnings from tobacco, olive oil, and currants were insufficient to service its foreign debts. Even today, Greece’s export sector is weak, and this must be put right.
Pensions in Greece were recently at an average rate of 93% of general earnings from work, whereas German and British pensions are only 40%, and 30%, respectively of general earnings in those countries.
Today’s problems in Greece have deep roots, some going back even to the times before it gained its independence.

Richard Clogg’s book will help readers put them in context, and should encourage patient support for today’s Greek politicians, as they try to overcome a legacy that is far less simple than instant 


On the same day that the UK Prime Minister, David Cameron signed an agreement with the Scottish  First Minister Alec Salmond  on the terms of a referendum on Scottish  independence, in which they will be on opposite sides, a party that favours the breakup of the Belgian Kingdom won a resounding victory in local election in Flanders.

Meanwhile, in Spain, a party in power in Barcelona that favours Catalonia ultimately becoming completely independent, has called a general election.  It is unhappy that the beleaguered  Government in Madrid, that has plenty of other problems on its plate, will not give Catalonia  the  right to raise and spend its own taxes.
If the pro independence party wins the Catalan General Election, it will press for measures eventually leading, either to complete Catalan independence, or to a total clash with the  Government in Madrid. Spain’s central Government takes a firm line against all secessionism anywhere, because it could  create precedent that might lead to the decomposition of the entire country.
In Belgium, the biggest city in the country, Antwerp, will have a new Mayor, Bart de Wever, who is the leader of a party which favours the establishment, by peaceful means, of a Republic of Flanders, splitting the Kingdom of Belgium.
He obtained almost 38% of the vote in Antwerp, and another pro independence party, the Vlaams Bloc, got a further 10%. Mr de Wever’s party obtained strong support in other parts of Flanders, especially in the east, but not as much as it got in Belgium’s biggest city.
This raises really difficult issues for the European Union.
If an area were to secede from an existing EU member, that area would thereby cease to be a member of the EU.
It would have to apply anew to become an EU member state, as if it had never been a member of the EU, and was applying for the first time.
A state can only be admitted to the EU, only if ALL existing members agree. The more countries there are in the EU, the harder it becomes to achieve unanimity of all states. Turkey’s case illustrates the problem well, so does General de Gaulle’s veto of UK membership of the Common Market in the 1960’s.
Some countries have a rooted objection, on principle, to any splitting of existing countries, often because they do not want to set a precedent that might encourage the secession of parts of their own countries.
For instance, on the basis of this principle, a number of EU countries -Spain, Romania, Slovakia and Greece- have refused to recognise the secession of Kosovo from Serbia, and refuse to have anything to do with the new state of Kosovo.
Let us suppose that either  Scotland, Catalonia, or Flanders succeed in becoming independent, and want to stay in the EU, they will have to apply to join, and will not be readmitted  to the EU unless Spain, Romania, Slovakia, and Greece all agree, and overcome their current objections of principle, to secessions.
Meanwhile, as if things were not complicated enough, the Conservative component of the UK Government is contemplating a renegotiation of the terms of UK membership of the EU, and then holding a referendum on the  result.
This raises the obvious  question, now that the Conservative UK Prime Minister has accepted in principle the right of Scotland to make  an independent sovereign decision,of what would happen if , in the referendum, Scotland  favoured staying in the EU, while the rest of the UK voted to leave, or vice versa?
Europe is facing an economic crisis. This crisis is causing stress in the vicinity of long buried fault lines. The blame game is in full swing. But none of this stress, and none of this blame, solves the economic crisis for families throughout Europe.
The European Union’s political system makes some decisions by majority vote, but, because it is a union of sovereign states, it has to make many decisions by unanimous agreement. This is already causing a lot of problems in dealing sufficiently speedily with the economic, banking, and fiscal crises that now afflict us.
However difficult this may be to accept in Scotland, Flanders or Catalonia, it might be wiser to agree to sort out the economic crisis first, and deal with issues of separation, and or of rearranging national boundaries, later.
 But that is not an easy proposition to sell to an impatient and proud public opinion, as John Redmond, who faced the same dilemma in Ireland in 1914, could tell us, if he were alive.


I was invited to speak this week at the World Knowledge Forum in Seoul 
I shared a platform with  four other former European Prime Ministers or Heads of State, Wim Kok of the Netherlands, Jose Maria Aznar of Spain, Christian Wulff of Germany and Esko Aho of Finland.
 We discussed  how the problems of the euro can be resolved, a topic of  passionate interest to Koreans, who rely heavily on  Europe as a market for their exports.
Jose Maria Aznar said that the future of the EU and the future of the euro are interlinked. If the euro failed, so too would the EU itself. He is right. If the euro broke up there would be trade wars and competitive devaluations within the EU, which would destroy 60 years work.
I argued that five things were needed for the euro to survive , and confidence to be restored
a substantial further write off of Greece’s debt
an effective firewall against contagion
a new robust system to govern economic policy in the eurozone
a downsizing and recapitalization of  Europe’s banking system,  within a banking union with mutual deposit guarantees
policies to increase growth through targeted investment
I said I believed we were making substantial progress on the first four, but none yet on growth.
The Forum heard from many distinguished economists, who also offered their prescriptions for the euro. 
Paul Krugman said the ECB should act as a lender of last resort, and explicitly say that it would accept a higher inflation rate. It is interesting to note that inflation has been lower in Germany under  the ECB and the euro, that it  was when the Bundesbank was in charge of the deutschmark  prior to the launch of the euro. I think he is right on this point.
Nouriel Roubini said the euro should be devalued to parity with the dollar.  This would give countries like Greece, Italy and Spain a chance to regain lost competitiveness. It is worth noting that when the euro was first launched it had a lower value than the dollar. While structural reforms and austerity could eventually deliver a similar improvement in competitiveness, he felt it would take far too long. I would argue that the experience of Latvia, Estonia and Lithuania would suggest the contrary. They cut dramatically, without devaluing, and have returned to rapid growth.
Martin Wolf said that the problem in both the EU and the US was that monetary easing by the central banks was not leading to more credit being issued. The money was out there, but it was not being passed around, because of a loss of confidence. He is right. The EU needs to act quickly to give people the confidence to start lending to one another again, even if  some loose ends remained. But that is difficult when every country has a different agenda, and there is no common European public opinion, and no venue, like an EU Presidential election, in which to create one.
Dominique Strauss Kahn said that there was a good agenda agreed of the things that needed to be done. The problem was the ability of the 27 Governments of the EU, and of the EU institutions, to do the these things quickly enough. 
He said the crisis had brought windfall gains, in the form of artificially low borrowing costs, to some counties, and that these countries should pass these gains over to countries that were having to pay artificially high rates.   He explained that the crisis of confidence had meant that  that there had been a flight of money into safe assets like German Government bonds. This meant that Germany and a few other “safe” countries were borrowing at unnecessarily low rates of interest. He suggested that this windfall gain should be transferred as an interest subsidy to other euro zone countries that were borrowing at unduly high rates of interest.
He felt that this would be politically easier to bring about than would any mutualisation of debts already incurred or Eurobonds, because  it could be withdrawn if circumstances changed. 


My wife, Finola and I have just spent an enjoyable few days in part on the Valencia region on the east  coast of Spain.

One of the highlights of our visit was the spectacular walled mountaintop city of Morella, which is about 70 km from the coast. It is one of the oldest recorded settlements in Spain, was occupied by the Berbers in  714, but reconquered by King Alfonso in 1117. Its walls are well preserved and are more than 2km long and were besieged many times, most recently in the Carlist civil wars of the 19thcentury. The castle is magnificent and intimidating, but unfortunately, as seems to be a pattern in this part of Spain, the famous basilica was closed both to visitors and to would be worshippers.
We were staying close to Peniscola. This fortified town is on a peninsula jutting out into the sea. It was occupied at different times by the Carthaginians, the Romans, the Moors and the Knights Templar. During the time of disputes about the Papacy, one of the claimants, Benedict XIII lived in Peniscola from 1417 to 1423.


There is one thing we need, all economists agree, to get us out of our financial and banking difficulties…..economic growth.
What ideas can we in Ireland contribute to the debate on how best to restore sustainable, robust, and fair economic growth to Europe’s economy?
The adjectives are interdependent.
Temporary growth, funded by unwise borrowing or inflation, would not be sustainable.
Nor would growth that ran down limited non renewable material resources be robust
Growth that enriched one section a community while leaving others behind would certainly not be fair, but it would, in practical terms, not be robust or sustainable either.
It is also important to specify what it is we want to see growing, when we aim for economic growth. 
In statistical terms, an increase in numbers in hospitals or prisons adds to GDP, but it is not the sort of growth we are looking for.
Taking time off from paid work to look after children or sick relatives subtracts from GDP, but it does not subtract from human welfare, and may add substantially to it. 
That is not an argument for abandoning GDP as a measure of growth, but it should be complemented by other measurements that look at resource sustainability, and at people’s own assessment of their wellbeing taking into account of things like their connectedness with their family and friends, their physical and mental health, and their sense of control of how they spend their time.
 Some of these measures will be subjective, but just because something is subjective, does not make it less real.
Economic growth is really an expression of a society’s ability to adapt quickly to new opportunities or needs.
 A flexible society will “grow” faster than an inflexible one.
 But economic growth is a means to an end, not an end in itself.
 A society that is contented and well ordered, and in which people enjoy democratic  freedoms, may not need to grow quite as fast, to keep its people satisfied, as a society which does not enjoy these “non economic” advantages.
 Perhaps China has to grow faster, to satisfy its people, than India does because Chinese citizens do not enjoy the same democratic freedoms as Indians do.
But the strange thing is that mainstream economists often have very little to say about what makes economies grow, at least before the growth happens. 
They frequently can explain growth after the event, but not before.


My sense is that growth occurs in an economy when six factors are present

1. Spare capacity and unused resources.

 It is easier to get an economy to grow after a period of stagnation than on the back of a boom, because there will be more spare unused resources around at moderate cost after a period of stagnation. 
 There have been rapid recoveries   in the past, for example after the second world war, but those rates of growth could not be sustained once full capacity had been achieved.
 The rapid recovery after the economic troubles of the 1980s, and the currency crisis of 1993, in Ireland misled some people into thinking that those exceptional “bounce back” rates of growth could go on forever, and this mistake led them to borrow foolishly.
 I believe there is considerable pent up consumer demand in the Irish economy at the moment, and when the people who have money feel confident they will start spending again. That will lead to a spurt in growth, which will not necessarily endure, although it will be very welcome when it happens. 
 During a downturn in an economy, scientists do not stop inventing, so when the upturn comes there is often a disproportionately large stock of readymade inventions waiting to be marketed.  There is a great deal of unexploited scientific invention, especially in the pharmaceutical and energy fields, and a healthy European venture capital industry is vital to exploiting this as part of a strategy to promote economic growth.

2. A market for what one produces. 
The EU provides a big potential market, but that potential will only be realised if consumers and businesses have the confidence to spend.
Creating confidence in the global economy is difficult, but one of the requirements for it is political stability, and a sense that the political leadership in Europe has a medium term plan. 
 That is beginning to take shape, but far too slowly.
 For Ireland, a political agreement on a banking union in the EU is a vital national interest. 
This is not so much because it may lead to some the banking debt taken on by the taxpayer may be relieved.
 Compared to the amount we are saving on day to day interest to borrow to fund the excess of what we spend over what we raise in tax, the extra interest we pay on the bank related portion of our national  debt is  a smaller figure.
 The really big gain for Ireland from an EU banking union being agreed is the huge  boost in confidence it would give to the  global and European economy, on which Ireland depends for its prosperity.
It is also important that the EU Single market, which was  supposed to fully open  twenty years ago, be fully completed. There are still barriers to  business, especially in services, the professions and energy. New barriers are arising in banking. Retail banking cannot be conducted across borders because  property rights differ from  jurisdiction to  jurisdiction. This is a gross waste of scarce resources, at a time when  EU can afford to  waste nothing

2. A young population.

 Young people are more innovative that older people, and they have more unmet needs.  Both of these factors stimulate economic growth.
 Ireland has a comparatively young population, many other euro area countries do not. The age profile is one of the reasons why some countries have a bigger medium term growth prospect than others. 
The OECD has done some estimates of the annual  growth potential of different counties  for the period  2016 to 2025.
 Whereas Germanys   growth potential is estimated at only 1.2%, Greece’s and Netherlands  both at 1.4%, and Italy’s at 1.4%,  Spain’s is estimated to be 2.3%, Potrugal’s  2.1% and Ireland’s  2.7%.
 Sustainable growth requires sustainable demographics, and policies and social values that depress the birth rate, by making it economically costly to have children, may boost shorter economic growth, but they are not compatible with sustainable long term growth in an economy. Families who have children are meeting the cost of educating the people whose work will pay the pensions of everybody else, including the pensions of those who do not incur the cost of having children and can save the money instead or spend it on themselves. A tax code that ignores the cost of having children is inequitable in this respect.

4 Available capital at moderate cost.

 It is very difficult to set up or operate a business if banks are afraid to lend because they themselves are unable to access funds at moderate interest rates. That is the situation we are in now, in places like Ireland but also in the southern European euro member states.

 Just as lax regulatory policies which fuelled the credit boom were both pro cyclical and disastrously mistaken, the present, severely contractionary, and exacting credit policies, which are just as pro cyclical, may be adding to the damage.

  I am not talking about prudential regulation here, but about policies that progressively increase capital ratios at a time when the shock of recent losses is so seared into the memories of both lenders and borrowers, that they are most unlikely to repeat the mistakes of the 2000 to 2006 period, for a good while to come no matter what capital ratios are.

 One must ask if the higher capital ratios proposed in Basel Three and Solvency Two make any sense in present circumstances. One must also ask if  regulators fully comprehend the full impact on availability of money in our economy of the closing down of so called shadow banking and interbank lending.

 I believe there is a need to clean up the banking system and  liquidate unviable positions, but the last three hundred years of history have shown that we do need banking and credti, and a lot of it, if economic potential is to be realised. Without them, the West would never have developed and  the Est would  have continued  to dominate economic activity in the globe, as it had done  for  two thousand years up to 1750.

5 A competitive workforce.  

This means more than just moderate pay expectations and low rates of inflation.

 It also means good skill levels, adaptability, and willingness to work in new ways.

 It means having service professions where restrictive practices do not apply

 believe Ireland has great strengths in this area. Our workforce, many of whom have worked abroad, and understand the needs of a competitive global market, are very willing to try new ways of doing things. 

6 An efficient state. 
If a country has poor security, poor tax collection, an inefficient legal system, a costly and ineffective health service, and an education service that emphasises the rights of education providers over the achievement of deeper understanding and higher competences by students, the country will not grow as quickly as it should.
 Part of the challenge faced in Greece is that of reconstructing state institutions.
 In Ireland , we also have to ask ourselves some very hard questions about the efficiency of our health and education systems. 
“An efficient and effective public service is essential for a growing economy and we have to ask ourselves some very hard questions about the efficiency of our health and education systems. 
Reforms in these sectors are essential and I hope that the Government extracts long term meaningful reforms from the Croke Park Agreement.   This week’s deal with consultants on more flexible working and rosteringneeds to be replicated across the heath and education sectors.
It is all about management of resources to obtain results. The tendency in the past was to put more resources into a service and hope for the best.
 Between 1997 and 2009, there were increases in numbers in management grades in the civil service of 82%, while numbers generally rose by only 27%. Managers did not manage well enough. I believe that is now changing using the instruments of the Croke Park Agreement.
From 2000 on there were very big increases in the number working in, and spending by, the health service and one must ask oneself whether there have been commensurate improvements in health outcomes. 
For example, between 2001 and 2006, the numbers employed in the health service increased by 20,000 people, and , between 2000 and 2009, the  number of items prescribed in the GMS increased from 22 million items to  53 million. Did we become proportionately healthier during that period?
In education, between  2001 and  2006, the numbers employed increased by 27%, yet our comparative performance in international comparisons in science and mathematics has been slipping , and ” teaching for the test”, to game the Leaving Certificate points system, has distorted education. 
I am in favour of compulsory Irish and  time spent on teaching Irish in primary school is of course essential, but one must ask if it might not be better if some of that time(say 25%) ought not be diverted to science and mathematics. If students fall behind in those subject, particularly maths at primary level, they may never catch up. 

We also need to ensure that the public service operates in a cohesive manner to achieve government objectives and live within budgets set for them by Government. If budgets are exceeded, there has either been a failure to estimate demand properly, or a failure to manage supply. Neither should happen.
My own experience of Government was that Departments of state focussed almost exclusively on their own goals, with little reference to the broader purposes of Government. In the US, they refer to this as government operating within vertical silos.
 This failing places undue stress on the cabinet of the day as it is the only place where an overall view was being taken. I believe the Secretaries General of Government Departments should be required by law to come together on a  weekly  basis as a collective” implementation council” to ensure that government decisions are implemented coherently, and thoroughly.
 This would go some distance towards removing the vertical silo problem.

Speech by John Bruton, President of IFSC Ireland, and  President  of the European Sustainable Materials Platform, at a meeting of ACCA in the Gibson Hotel Dublin at  4.15pm on 19 September 



There is one thing we need, all economists agree, to get us out of our  financial and banking  difficulties…..economic growth.The strange thing is that mainstream economists often  have very little to say about  what makes economies grow, at least before the growth happens. They frequently can explain growth after the event, but not before.
My sense is that growth occurs in an economy when seven  factors are present
  1. Spare capacity and unused resources. It is easier to get an economy to grow after a period of stagnation than  on the back of a boom, because there will be more spare unused resources around  at moderate cost  after a period of stagnation
  2. A market for what one produces. The EU provides a big potential market, but that potential will only be realised if consumers and businesses have the confidence to spend. Creating  confidence is difficult, but one of the requirements for it is political stability, and a sense that the political leadership in Europe has a medium term plan. That is beginning to take shape, but far too slowly.
  3. A young population. Young people are more innovative that older people, and they  have more unmet needs and both of these stimulate growth. Ireland has a comparatively young  population, many other euro area countries do not.
  4. Available capital at moderate cost. It is very difficult to set up or operate a business if banks are afraid to lend because they themselves are unable to access funds at moderate interest rates. That is the situation we are in now, in places like Ireland but also in the southern European euro member states.. 
  5. Previously unexploited technical and scientific advances. During a downturn in an economy, scientists do not stop inventing, so when the upturn comes there is often a disproportionately large stock of readymade inventions waiting to be marketed. 
  6. A competitive workforce.  This means more than just moderate pay expectations and low rates of inflation. It also means good skill levels, adaptability, and willingness to work in new ways. But a competitive workforce, on its own, will not produce economic growth unless capital is available. The EU/IMF programmes for Ireland, Greece, Portugal  will run into this difficulty.
  7. An efficient state. If a country has poor  security, an inefficient legal system, a costly and ineffective health service, and an education service that emphasises the rights of education providers over the achievement of deeper understanding and higher competences by students, the country will not grow as quickly as it should.
Readers may has other items to add to this list.


One of the big worries, of anyone going into hospital in recent times, is the possibility that  a drug resistant infection will sweep through the hospital  while one is  there, and the time spent in hospital will make one sicker, rather than better.

This was not as big a concern twenty years ago, as it is  today.  The risk can be mitigated by emphasis on cleanliness, but the danger remains, and is increasing all the time.

One reason is that dangerous bacteria have been evolving faster, and developing  antibiotic resistant strains faster,  than pharmaceutical companies have  been  inventing   new  antibiotics.
To counter drug resistant bacteria , hospitals are having to fall back on older antibiotics, some of which have bad side effects.

So far the problems have been managed by these methods, but it is easy to envisage a catastrophic outbreak, and a really large number of lives being lost across the world. 
A recent article in the “Washington Post” highlighted the fact that 13 new categories of antibiotics were invented by the pharmaceutical companies in the 23 years between 1945 and 1968

But in the 44 years  since  1968, only 2 new categories of antibiotic  have been invented!
According to the Washington Post, Pfizer recently closed down their antibiotic research centre in Connecticut, with a loss of 1200 jobs.

Other areas of research are more profitable for pharmaceutical companies than research on new antibiotics to counter new  antibiotic resistant infections, and they are putting the money where the profits are to be made. Pharmaceutical companies are businesses, and there shareholders want a financial return.

Research aimed a inventing drugs aimed at preventing or treating chronic conditions is more profitable, because those drugs  will be  used more often if they work,  than is research aimed at developing new antibiotics to deal with the rare, but catastrophic,  events that occurs  when there is an outbreak in a hospital of infection by an antibiotic resistant bug.

All  new medicines are incredibly expensive to research, test ,and have approved(about  100 million euros each),  and a high proportion of them never make any money, either because they do not work in the  way  hoped for, or they are beaten to the market by another  medicine from a rival company.

So , if a company can make ten times as much from  researching  a new  treatment  for a chronic condition,  than  it can developing  antibiotics, it is no wonder that  new drug resistant bacteria are winning the war in our hospitals.

Perhaps it is time to find a new way of setting priorities in pharmaceutical research.
Would it not be better for pharmaceutical companies to come together and pool resources to do research on medical problems that are of major public health importance, but which yield less short term profit?

Should the European Union, and governments generally, do more to ensure that public money, and tax concessions for R and D, are devoted to  less profitable, but potentially more severe, medical issues, like antibiotic resistance?


The Austrian Foreign Minister is reported as having said recently that

 “We need the possibility to throw someone out of the monetary union”

And the Finnish Foreign Minister supposedly said 

“The break up of the euro does not mean the end of the EU. It could function better”

Both men should read a paper by a man who actually has some direct recent experience of  what happens after the breaking up of monetary unions.

He is Anders Aslund and he worked as an advisor to the Russian Government during the breakup of the  rouble currency union  between  1991 and 1994.
The rouble had been the common currency of the former Soviet Union. Aslund’s paper is  published on the website of the Washington based Peterson Institute of International Economics. 

The first thing to say about what the two Foreign Ministers are advocating is that it is illegal.
A country cannot be expelled from the euro under the existing Treaties, and those Treaties cannot be amended without the consent of all 27 EU states.

This is no mere legalistic point. The EU has no police force to enforce the provisions of its Treaties on those who have signed up to them. The entire existence of the EU rests on the voluntary acceptance of the rules laid down in the EU Treaties by everybody. If that is called into question, as it would be if an attempt was made to put a country out of the euro, the whole basis of the EU itself ceases to have any meaning.

The framework of trust within which business is done would be shot through. One could no longer rely on EU rules being respected. The rule of the strong would be inaugurated, and business between countries would become impossible.

Anders Aslund says that the result, of  even one country leaving the currency union, would be chaotic. 

The first big problem would be what value to put in the uncleared, interbank, balances that would be outstanding in ECB payments system at the moment of the departure of one or more countries from the euro. This system is automated and allows money transfers which are essential to keeping commerce flowing. These balances would probably be owed to countries like Germany, with a trade surplus, by countries that are running trade deficits, like Greece.  

If the valuation of these balances was disputed as between euros, and whatever new currency was issued overnight by (say) Greece, trade would freeze up, because no one would trust one another’s payments. 

Would the balances be settled in newly appreciated euros, or in the newly depreciated currency of the countries departing the euro? 

If one country had departed from the euro, which country would be next?

Everyone would send for their lawyers. The economy and trade could simply come to a stop because no one would trust the value of anybody else’s money 

There would be huge losses of output and money, which would affect every country, creditors and debtors alike.

Because there would be so much uncertainty about the value of currencies, and doubt about the value of securities held by banks, there would be a risk of people no longer trusting their money in banks at all. 

Since the abolition of the gold standard, all credit, and even money itself, are nowadays based simply on confidence and trust. 

An attempt to break up a supposedly irreversible currency union, as envisaged by the Finnish and Austrian Ministers, would undermine the confidence and trust upon which the entire European economy rests.

It would not be like a devaluation of an existing currency, but would instead be an attack on the entire framework underlying money in Europe.

Anders Aslund does not believe it would be possible for one country, like Greece, to leave the euro, without the whole system breaking up.

When the rouble based monetary union of the old  Soviet Union broke up, the newly independent central banks of the newly independent republics tried to give their  own countries an advantage over others, by loosening the purse strings, and printing more of their new currencies. This led to hyperinflation, rates of inflation of 100% or more. There was a dramatic fall in living standards in all the former Soviet Republics, of about 52%.

People became 52% worse off than they had even been under the old decrepit Soviet system!

Some countries are still recovering from the chaos unleashed by the break up of that   monetary union.  Creditor republics, like Russia, lost just as much as did the republics that owed them the money. 

That what actually happened the last time a multinational monetary and  currency union broke up in Europe, just 20 years ago. 
According to Aslund

“The causes of these large output falls were multiple: systemic change, competitive monetary emission leading to hyperinflation, the collapse of the payments system, defaults, exclusion from international finance, trade disruption and wars”

Similar events occurred in  Yugoslavia when its  currency union  broke up, and also when the Austro Hungarian Empire currency union broke up after the First World War.
People would not want to accept new local currencies, if they had the option of using dollars, or a strong currency, whose value would be more reliable. Money would flow into a few strong currencies and these currencies would appreciate artificially. 

This would mean a loss of competitiveness for the countries concerned, and that might prompt them to   reintroduce exchange and capital controls to prevent the loss of their export markets. That would destroy a pillar of the EU single market.

The single EU market would also be damaged if  other  EU countries used competitive devaluations to win market share.

The situation in the EU would probably be worse than in the Soviet case, because euro area economies are much more complex, and with automated and electronic trading, contagion can now spread even more quickly even than it could in the 1990’s. 

Some argue that Greece could gain from leaving the euro, because it could devalue, and thus make its exports more attractive.  The devaluation would be like an overnight wage cut of 50%.  But there could just as easily be a total loss of confidence, a rush of money out of the country, and hyperinflation. It is not clear anyway what export markets Greece could quickly exploit, with its new cheap currency, or how its neighbours would react.

The Austrian and Finnish Foreign Ministers should study a little more economic history before they make more statements.


It is indeed an honour, formally to open this summer school, and, more so, to do so here in Avondale, where , as a guest of the Parnell family, Tom Moore composed that lovely ballad “The Meeting of the Waters” celebrating the beauty of  the Vale of Avoca, long before Charles Stewart Parnell was born.
I am delighted that you are putting special focus this year on the 1912 Home Rule Bill, which finally became law in September 1914.
I have spoken in Woodenbridge earlier this year about the tremendous constitutional political achievement the passage of that Bill in 1914 represented, overcoming, as it did, the opposition of the House of Lords, armed threats, and the relative indifference of many members of the Liberal Government.
 John Redmond and his party demonstrated a thorough mastery of parliamentary negotiation in achieving that goal, something that could have been a stepping stone to complete  legislative and economic independence  for Ireland, without resort to the taking of life, the goal for which Redmond’s close friend  Charles Stewart Parnell had worked all his life.
It is significant that Gladstone, when he first considered supporting Home Rule, had in mind the then relationship of Norway with Sweden. As events were to prove, that relationship, which Gladstone saw as a model for Home Rule, did turn out to be a stepping stone to complete Norwegian independence.
I will not go over that ground again today, but will focus more, on Parnell himself, and on what his life  and work, has to say to Ireland of the 21st Century.  Surveying his career, one can find many themes that retain ,or have recently regained, contemporary relevance.
Parnell entered Parliament as a member for Meath in 1875 in a by election.
He had previously contested a by election in Dublin county, but was defeated there, by the Conservative  candidate , Colonel Taylor, of Ardgillan near Balbriggan, a result which demonstrates the invincibility of the Taylors in every century!
Interestingly, in light of subsequent events, the 27 year old Parnell relied heavily, in securing the Home Rule nomination to stand in both contests, on a fulsome endorsement  from his local Catholic Parish Priest, Father Richard Galvin of Rathdrum.
Fr Galvin described Parnell “up to the mark” on all the great questions of the day, which meant for him, Home Rule, denominational education and fixity of tenure.
After losing in Dublin, in seeking the nomination in Meath, Parnell also had an animated interview with the then Catholic Bishop of Meath ,Thomas Nulty. He secured the bishops support, and the highlight of his successful campaign, according to his biographer, FSL Lyons, was a great meeting in Navan, attended, inter alia, by many parish priests and curates.

In the campaign, Parnell committed himself to denominational education, “under the proper control of the clergy”, as he put it. Indeed he subsequently supported denominational education at university level too.
The issue of denominational education has been a live issue in Irish politics since the 1830’s, and remains so to this day. As Parnell recognized, Irish people saw a link between ethical formation and religious belief, and thus favoured denominational involvement in education, as most of them still do. Exactly how this is to be done is a matter of balance, which alters over time. Denominational education preserves diversity, something  Parnell wanted in a Home Rule Ireland.

Very early in Parnell’s parliamentary career, Ireland faced something, with which we have unfortunately recently  had to cope with again, a sudden  fall in income, partly  due to the forces of globalization.
The heavy concentration of small holdings on the western seaboard meant that, in that heavily populated part of the country, people had a very precarious livelihood.
 In the 1870’s , the immensely fertile grain growing regions of the Mid Western United States gained  access to the global market, thanks to  massive railway construction and improved shipping. 
These regions were able to supply grains to Europe at prices well below those at which Irish, British, and  other European farmers could produce them.
 This meant an immediate fall in farm incomes in these islands, and a fall off too in the demand for migratory seasonal labour in Scotland and the east of Ireland, on which many western farmers had come to depend to supplement their incomes and to pay their rent.
 And then, in 1879, there was a disastrous summer, and blight afflicted the potato crop. Potato production plunged from 4 million tons in 1876 to only 1 million in 1879. People began to starve.
Parnell saw this crisis as an emergency, but also as an opportunity.
 He sent some of his lieutenants to the United States to raise funds to relieve starvation in Ireland , AND to fund a new National Land League to campaign for a  change in the basis of land ownership in Ireland. Through the New Departure, he won Fenian support for this campaign, by linking it with the cause of self government for Ireland.
Parnell’s ability to turn, what was objectively a humanitarian disaster into a vehicle  for political and economic reform, marks him out as a politician of exceptional talent. 
 The ideas were not all his own, but he could fuse into something potent. It  is fair to say that the disastrous fall in incomes that occurred in the late1870s would have happened, no matter what system of land tenure, or of  Government Ireland then had, so  it took someone of Parnell’s talent to turn it into something more far reaching.
 This is, I think, something that current Irish political leaders can draw from Parnell’s career, in facing today’s economic crisis. In a crisis, it is possible to get people to see things differently, and to agree to changes they might not undertake in calmer and less anxious times
 Parnell’s career  also  demonstrates the value of grass roots political organisation, and disciplined  parliamentary parties.
The Irish Parliamentary Party, of which Parnell became the  first leader in  1884, was the first disciplined parliamentary party of its  kind in the House of Commons, and perhaps in the  world.
 It became the model for others. Members were bound by a pledge, signed before they were accepted as candidates, and agreed to sit, act and vote on the basis of collective majority decisions.
I believe it is part of Parnell’s legacy that Irish parliamentary parties in Dail Eireann , 130 years later, are  more disciplined in the way they vote, than is the case in equivalent situations in the  UK, in most European countries, and certainly than in the US.  This is a  strength in Irish politics, which can be traced back to Parnell.
While party discipline has downsides, it creates conditions in which decisions, once made, can be quickly and coherently implemented. This is important in dealing with a crisis.  I would argue that party discipline in this Dail, and in the last one,was one of the factors which enabled the Irish Governments of the day to act more quickly in dealing with the financial crisis than most other European states were able to do, and certainly than has been the case in the US.
 Imagine what it would have been like in the last four years if the Dail consisted of 166 entirely independent members, responsible only to their own particular constituencies or of members , like in United States who were beholden to special interests and who could ignore the collective view of their party. A speedy response to the crisis would have been impossible. 
Where the party pledge proved, unfortunately, to be much less operative was in Parnell’s own case.
 He did not apply the principle of collective majority decisions to himself and to his own position as leader, after that came into question when Gladstone said that, in the wake of the revelations in the O Shea divorce case, that the Liberal Party’s alliance with the Irish Party would cease, because of the impact on opinion in the Liberal grassroots of the divorce court revelations. 
 Although a clear majority of the Irish Party MPs wanted Parnell to step down, partially or fully, Parnell would not accept the majority verdict, something that would not happen in any Irish parliamentary party today.
Parnell’s approach to the land question was more nuanced that  one might think. Unlike Michael Davitt and most of his own party, he did not favour what eventually happened, the outright and compulsory transfer of all land from the landlord to the farmer who was already farming it.
 He proposed an amendment in 1888 which would have restricted tenant purchase to holdings where the  rateable valuation(PLV) was 20 pounds, a  small farm of no more than  30 acres. Later he revised the figure up to 50 pounds  PLV.
Basically his position seems to have been that he wanted to allow the survival of small residential Irish landlords(like himself), and only wanted  compulsory transfer of the  holdings of the  absentee landlords. He argued that residential landlords were “well fitted” to “take part in the future social regeneration “of a Home Rule Ireland. Frank Callanan has speculated that that he took this course with a view to reducing Protestant landholding opposition to Home Rule,  and perhaps as a bridge  to Unionism more generally.
But his party did not support his position. Indeed this may explain why, when the party split over his leadership, Parnell’s support was weakest in  counties like Carlow, where there was a significant presence of large tenant  farmers who aspired to be owner occupiers, without Parnell’s upper limit.
As I said earlier, Parnell was first elected to represent Meath, a county it was my honour also to represent, ninety years later.
I remember in my first campaign in 1969 meeting a neighbor, Charlie Curley of Castlefarm, who told me his father had been ardent Parnellite, who had heard Parnell speak under the Big Tree in Dunboyne village. The tree still stands, a mute memorial to the deceased leader.
Dunboyne was a Parnellite parish, but during the split, the local parish priest preached a particularly strong sermon against Parnell. A majority of local people decided to punish the PP by not making offerings at funerals. As a result, until funeral offerings were finally ended in the 1970s , Dunboyne was the only parish in Meath where  they did not take place. 
The Parnell split in Meath is well described in an excellent book by David Lawlor, whose own grandfather was  involved.
 Reading his book ,I was amazed to discover how many of the descendants of  the protagonists in the split were still active in local politics. One was the longtime chairman of Meath County Council, and political ally of my own, Paddy Fullam, whose grandfather had been elected as an  anti Parnellite MP in South Meath, only to be unseated as a result of  a Parnellite election petition. 
I am delighted to declare the 2012 Parnell Summer School open.
Speech by John Bruton, former Taoiseach, at the opening of the  2012 Parnell Summer School on Sunday 12 August 2012 at  4.30pm


Finola and I spent a few days in her native county of Mayo recently.

We visited the beautiful, and almost deserted, beaches of the Erris peninsula, which is  one of the most remote places in Ireland . We were there on one of the few sunny days of what has been a disappointing Irish summer.  We enjoyed a lobster in the newly opened Talbots Hotel in Belmullet.

We also were in Westport for the Westport Music Festival, and were at a free concert of the Sawdoctors, whose music captures something of the essence on the  west of Ireland, and its people .

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