Sunday, 30 December 2012

Ulysses S. Grant

It is an unusual experience to finish reading a book , wishing it was longer. That was my feeling on completing   “Ulysses S. Grant, unlikely Hero” by Michael Korda (published by Harper.)
Grant was the most successful General on the Union side in the America Civil War. He went on to be President of the United States.

But he was a perennial failure in every business endeavour he took up, and finished his life, suffering a fatal cancer, but working to the very end to complete an autobiography, that  he hoped would provide an income for his wife and children, after he was gone. It did. It was a bestseller.
Grant was slovenly in appearance, and did poorly in his exams at West Point.  In the peacetime army, his solitary drinking became a problem, and in response to criticism , he resigned from the army. Then he changed his mind, and sought to be reinstated, but the then Secretary or War, Jefferson Davis, refused his request. 

Davis went on to become President of the Confederate States of America in the Civil War, and Grant’s spectacular victory at Vicksburg cut the Confederacy in two, and led to the end of Davis’ career, and of his cause.
As a General, Grant was always willing to go on the attack. Unlike his analytical and political predecessor as Union commander, McClellan, who conserved his men, Grant’s tactics involved substantial casualties. But he had an instinct for the battlefield, and  was able to win battles.
After the Civil War, in 1868, he was elected as President of the United States.
His term of office coincided with a depression in 1873 which, along with a variety of scandals, tainted his reputation. After the Presidency, he again went into business, but with even less success than before.
Korda’s book bring out the humanity, as well as the genius, of this modest man 

Saturday, 22 December 2012


I am shocked to learn of the death of Shane McEntee. He was deeply devoted to his family, his wife, Kathleen, his children, mother, Madge and wider circle. He is a huge loss.
He was a man of unlimited emotional, and practical, commitment to any task he took on. It absorbed him totally. No effort was ever spared. I remember recently asking him to assist a disabled neighbour in getting adequate care, and the lengths he and his office  went to, to help out in this  case, were without limit.
He was a great success in politics. His victory in the 2005 by election testified to his deep identification with the people of Meath, and theirs with him. This by election victory was, it transpired, to be a turning point in Irish politics and greatly strengthened Fine Gael leading to its eventual success in the 2011 General Election. He always gave immense time to listen to people and their problems, and to be with them in their times of sorrow.
As a Minister, Shane was able to bring unique expertise to bear in promoting Irish food and horticulture. He had deep practical experience as a farmer, but he had also run a very good restaurant in Nobber, which had attracted custom from far and wide. So he understood, and could speak with unequalled authority, on every aspect of the business.
He was passionately interested in Gaelic football, and had a deep practical and theoretical understanding of the game. He trained , at different times, the Nobber, Ballinlough, Castletown and Walterstown teams and was very successful. He brought from  football to politics a deep sense of loyalty and of being part of a team.
He leaves a gaping void in the life of his family, his county and his country.
I extend heartfelt sympathy to his grieving wife and family

Wednesday, 19 December 2012


90% of parents who are rearing children on their own are women, and average pay of women in the Irish workforce is below that of men.  This is despite the fact that more young women than men are likely to have a third level qualification.
The Irish Central Statistics Office published an interesting statistical analysis of differences between men and women in 2011.
Irish boys are 50% more likely to leave school without a qualification, than Irish girls are -12% of boys do so, as against 8% of girls.
But only in the Czech Republic, Slovakia and Bulgaria do girls outnumber boys among early school leavers.
The unemployment rate for men in 2011 was 17.5% in Ireland, as against 10.4% for women.
Ireland is unusual in this respect. Only Lithuania and Latvia had a similarly large gap between male and female rates of unemployment.
Since the recession began, there has been triple the rate of growth in male, as in female unemployment in Ireland, which is most unusual in European terms.
The higher unemployment rate for men is probably  linked to the  fact that , in the 25 to 34 age group, 50% of Irish women have a third level qualification, whereas 40% of Irish men in that age group do.
It is also probably linked to the disproportionate size of the construction sector in Ireland during the  boom. But Spain had a similar construction boom, without this difference between male and female unemployment rates arising.
In Ireland, men are more likely to go to gaol than women. Although Ireland’s rate of imprisonment is only one seventh that in the United States of America, it three times that of India.
In Ireland, eight times as many males are in prison as females. This is because males are more likely to commit the sort of crime that attracts terms of imprisonment, but also, to the extent that environmental factors induce criminality, it suggests that young men face a more difficult environment. 
This is probably linked to the fact that Irish boys tend to leave school earlier, and with poorer qualifications, than Irish girls,  but there are bound to be other explanations as well.
Boys and girls are different.
The onset of puberty comes two years earlier to girls, at 11 years of age, than it does to boys which is at 13 years of age. I have been told that that process of puberty inhibits educational development for a whole year in each case.
But a setback in education may be a lot less disruptive in our current educational system at the age of 11, than it is at the age of 13, which is the age at which some boys may begin to  contemplate dropping out of education altogether, with disastrous consequences for their long term earning ability.  I do not know if this has any link to the fact that males are three times as likely to be killed in road accidents as females.
These issues deserve to be studied.

Saturday, 15 December 2012


One sentence in the recent article in the” Economist”, on Britain’s relationship with the EU, really alarmed me,
This was a”senior Labour figure” saying “Whatever our position on Europe, we cannot be seen as an anti referendum party”. If Labour adheres to that line, the UK, including Northern Ireland, could be out of the EU by 2016.
This is because,  in the next British General Election campaign, it would mean that both Labour and the Conservatives would be promising a referendum on whether the UK should leave the EU or not.
The parties are being driven to make this promise by the threat of UKIP to tip the balance in key constituencies. For example if UKIP took  even 5%  of its vote away from the Conservatives, this could send many tens of seats over to Labour, even though, under PR, these UKIP votes would have  transferred back to the Conservatives, when the UKIP candidate came to be eliminated. UKIP voters are primarily concerned about immigration and only secondarily  do they want Britain out of the EU.
The Conservative plan is to try to renegotiate the terms of UK membership and put the terms to a referendum. It looks as if Labour may adopt a similar policy, so as to prevent a leakage of its votes to UKIP.
 It is very unlikely that the results of any such renegotiation, whether conducted by  Labour or the Conservatives, will satisfy British popular expectations.  And if that is the case, the UK electorate may choose in a referendum to leave the EU, as a of protest against the perceived failure of their own politicians to negotiate a  good enough “deal” for Britain .
This negotiation is likely to be a disappointment because the expectations in Britain are simply unrealistic. It will not  be a  negotiation  with  bureaucrats in “Brussels”.
 The results of any renegotiation for Britain would have to satisfy the Governments of every one of the other 26 states. Britain may want to pay less, but other countries may want it to pay more. Many other EU countries see the very things British negotiators would most like to be rid of, like the working time directive, as  part of what they gained, in return for their opening  up to the Single Market in the first place. Concessions on these issues will, in particular, be anathema to left leaning Governments, of which there are an increasing number, on the continent. Exempting Britain from the CAP, another possible British demand, will get nowhere.
British popular opinion has been constantly  led to believe that the  EU is a foreign entity, with which Britain has a sort of treaty,  and not as what it actually is, a Union of which the UK is a  participating member with a vote on every decision. The role of British MEPS, British Ministers, and a British Commissioner in EU decisions is ignored.  All decisions are presented as emanating from an “unelected“ bureaucracy, and the role of “elected” British MEPs and “elected” British  Ministers in the whole process is passed over as if it never happened.
In the latest poll, 49%  of UK citizens say they would vote to leave  the EU, and only 32% that they would vote to stay in  a large margin of  17 points.
 If possible results of a renegotiation are hyped up in the next British General election, and if there is lots of talk of “red lines”, the margin could widen even more, if, as I expect, the actual results of the negotiation then prove to be  paltry.
 No matter how good the pro EU arguments might be, when the referendum campaign itself   actually starts in earnest, the mountain that might have to be climbed may simply be too high.  Referenda can deliver surprising results, for which no one has planned. Extraneous issues, anger, and complacency, can lead people to vote contrary to their own objective interests. And in the UK case, there is unlikely to be a second referendum.
I am particularly worried about the effect of Britain leaving the EU on the fragile situation in Northern Ireland.
 Northern Ireland, and its reversible peace process, is being completely ignored in the debate taking place in Britain on whether to have a renegotiation and referendum on the EU. It is also being ignored in Brussels, where the impatience with the British is palpable, and where there is little disposition to accommodate what are  seen as unreasonable British demands, being put forward when the EU has far more important things on its mind.
Obviously if the UK leaves the EU, it will negotiate a new relationship with the EU. All sides will agree on that. After all 50% of British exports go the euro zone.
But what sort of relationship will it be?
One of the big drivers of anti EU sentiment in Britain is immigration of EU citizens from central and eastern European countries, like Romania, Bulgaria, and the Baltics. Gordon Brown famously encountered this sentiment during the last British General Election.
 If the UK had left the EU, it would be entirely free to restrict immigration from these particular EU countries. But as a continuing member of the EU, the Republic could not restrict the entry of EU citizens.
 So if the UK wanted to prevent these EU citizens entering the UK through the Republic, it would have to introduce passport controls at Newry, Aughnacloy, Strabane and on all other roads by which such immigrants could cross the border from the Republic into the UK.
If the UK is outside the EU, tariffs would have to be collected on UK exports entering the Republic. Average EU tariffs are quite low, but some tariffs, on things like dairy products and clothing are quite high. Customs posts would have to be placed on all roads leading across the border to ensure collection of these tariffs. Smuggling, with all its potential as a funding source for other forms of illegality, would become very profitable again.
But the human and political cost in border counties would be the worst aspect of it. Nationalist communities would again feel cut off from the Republic by the inconvenience of passport controls, and the efforts to market Ireland as a single tourist destination set at naught. 
Some might say that these fears are exaggerated, because the UK could negotiate a free trade and free movement deal with the EU.
 To enjoy continued free access to EU markets for its goods and services, Britain would have to continue to apply EU rules, as now, but WITHOUT having had any say at all in them, something the UK does have as an EU member. This is what Switzerland and Norway have to do. It would also have to continue to contribute to the EU budget, as Norway does. That would be even more annoying to British euro sceptics than the present situation.
Furthermore free movement of people is one of the drivers of anti EU sentiment in Britain, and UKIP voters would be very dissatisfied with any deal that did not give back to Britain itself, the right to decide who could, and could not, work in Britain.
I believe the Irish diplomatic service, which had remarkable success in the 1980s in laying the foundations for previous Anglo Irish Agreements, should intensively brief all  British MPs on the possible dangers to the settlement we have achieved  in Northern Ireland , of  setting off a train of events, including a referendum, that could lead  to an unplanned and precipitate exit of Northern Ireland, along with the UK, from the European Union.

Sunday, 9 December 2012


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 

Saturday, 1 December 2012


Ireland faces another difficult budget in the next week or so.  Irish people have seen the value of their assets fall, and most of them have seen a fall in their incomes through a combination of  wage reductions and tax increases.

But it is important to keep “austerity” in proportion
  • Real GNP is back now to the  level it was at in 2004, but it is still  60% higher than it  was in 1997 (in 2007 it was 90% higher than it  was in  1997)
  • Household net worth (which takes account of borrowings) is back to the  level it was in  2003 
  • Consumer spending in the first quarter of 2012 was  back  to the  level it  was  in 2006, but  is  still 80% higher than it was in 1997 (Admittedly there are more people in the country than there were in 1997, do  consumer spending per person is not 80% up on  1997)
  • Ireland has regained competitiveness. Its real exchange rate vis a  vis the rest of the euro zone has recovered from the worst excesses of the bubble economy and is now back to the  level t was at in  2000, but Ireland is still  a good deal less competitive than it was in 1997.

So, overall, the spending power of Irish people is  still there, but it is differently distributed than it was at the height of the boom, and than it was back in  1997, when  the country had a solidly based economy, that had not been  pumped up artificially by borrowing. Some of the changes that will be made in the budget  will be ones that we would have had to make anyway, evn if our creditors were not demanding them, because of the eventual  ageing of  our society and the extra costs that will bring.

Saturday, 24 November 2012


Work is now intensifying on the preparation of the budget for 2013.

It is part of a process of reducing the gap between revenue and spending (including spending on interest payments) to   3% of GDP, in accordance with EU rules and the Maastricht Treaty which the Irish people approved in 1992. This reducing of the gap is called ”fiscal consolidation”.

In 2009, the fiscal consolidation was 7.6 billion euros, 
in 2010, 6.4 billion,
in 2011, 6.1 billion, and
in 2012, 3.8 billion.

In the budget now under preparation, a consolidation of a further 3.5 billion has to be made for 2013.
For 2014, a consolidation of an extra 3.1 billion euros must be made.
And , finally, to  get on target, yet another consolidation of 2 billion  must be made for 2015.
While these figures show that a consolidation of 22 billion has already been made, and the remaining consolidation is “only” 6.6 billion, the truth is that the further one goes along a road like this, the harder it gets.

The “easy” tax increases or spending reductions are made in the earlier rounds, and the much harder ones tend to get postponed to the later stages. We are now getting to the hard part.

I think there is a strong argument for announcing, upfront next month, a full programme of all the  cuts and tax increases  for all three remaining  years- 2013,2014 and 2015. We should have a three year budget, rather than a one year one.

Doing the job one year at a time adds to the uncertainty, and does not reduce the pain. It also prevents people seeing what the real alternatives are.
The last time Ireland faced a similar crisis , in 1981, I was the Minister for Finance. Within 4 weeks of taking office I introduced and passed an emergency budget in July 1981.
I then prepared a White Paper on how the country could avoid getting into the same sort of mess again.

It  was entitled “A Better Way to Plan the Nation’s Finances”. Unfortunately, because the Government had no Dail majority, and fell on the proposed budget for 1982, I did not get a chance to implement the reforms I had proposed in the White Paper.
But the reforms proposed in that paper are just as relevant to today’s problem, as they were to those of the early 1980’s.

In “A Better Way to Plan the Nations Finances,  I suggested a new timetable for budget preparation for the following year which would see the proposed tax and spending measures published  in the previous October, allowing 2-3 months for debate, and even changes, before the measures took effect.

The 1981 White paper suggested that the budget be  accompanied by estimates of the tax changes and spending  changes that would be needed to stay on track for the subsequent  two years....a sort of three year budget. That would have taken a lot of the secrecy out of budget preparation, and given everybody a greater sense of involvement with the choices that had to be made, and a sense of   how difficult they were.

By having the debates ahead of time, the possibility would be opened up of making amendments in a non dramatic way.  It would not be so much a question of dramatic “climb downs” and “U turns”, but rather of listening and learning from rational debate.
And the  1981 White Paper suggested a  change to Dail procedure to allow opposition parties to make detailed  proposals for amendments to spending plans, so long as they put forward equally detailed alternative ways of bridging the gap.
It also proposed an independent Public Expenditure Commissioner who would analyse the choices for the Dail.

It seems to me that it would be very helpful today if information was published, on a regular basis, by someone like a Public Expenditure Commissioner, comparing different types of public spending  and tax breaks here, with those applying in other  jurisdictions, like Northern Ireland, Germany or Spain.
For example, we could usefully know how things like

 medical consultant’s salaries,
 teacher’s salaries,
 public service pensions, and
 jobseekers allowances,
 here compared with the other places.

It would also be useful to be regularly informed what particular medical procedures cost in different hospitals in Ireland, and in hospitals in other countries.
One could also compare the unit costs of the courts and legal proceedings, and of prison services here with other countries.
Publishing this sort of information routinely, and setting out the budget over three years ahead, would make the Government’s political task easier. And  it would help people to see where their money was going and why.

Tuesday, 13 November 2012


I have attended a number of conferences in the past few weeks where the future of the European Union has been discussed. Where previously the EU’s continuance was complacently taken for granted, now there is much more uncertainty, but also much more interest.
The European Union has been a remarkably successful institution building project. It is the first ever voluntary coming together of sovereign states, pooling some of their sovereignty, so that they could do more together, than they could separately.
Almost every other political unification or state building in history has involved the use of force, including the creation of the UK and the maintenance of the USA. The EU came together peacefully and voluntarily.
Some might argue that the EU was necessary only in order to cement a post war reconciliation of Germany and France and that, now that that is achieved, it has done its job and needs no further development.
This is wrong for two reasons.

 Firstly, the fact that there is a queue of states still lining up to join the EU shows that the EU still provides a necessary political and economic umbrella under which reconciliation and mutual security between states can be  assured in the twenty first century.
This was why the Baltic states, Poland and other central European states joined, and it is the reason several Balkan states, and even Georgia and Ukraine might like to do so. It is also the reason why Greece, much to the surprise of many, has favoured Turkish membership. While the United States of America is remarkably successful in many ways, there is no queue of other American states lining up to join. Even Puerto Rico has not done so after more than 100 years of Washington rule


Secondly, the EU is the most advanced effort in the world providing a measure of democratic supervision into globalisation. Unlike other efforts to supervise globalisation, like the United Nations and the World Trade Organisation, the EU has a directly elected Parliament which co legislates for the EU alongside the 27 Governments, who often decide issues by majority. Other international organisations operate on a purely intergovernmental basis, which means that there has to be unanimity to get a decision, and democratic involvement only arises when a deal already negotiated in private, has to be ratified in national parliament  without possibility of further negotiation or amendment.
As a result, other organisations, like and the WTO and the UN, can do much less, and have to  do much more of what they do behind closed doors, than is the case with the EU.
My view is that the EU provides a unique model for democratic rule making, at supra national level, something which will become more, not less, necessary as we proceed into the 21st century.
  Indeed the failure of the world to deal with climate change is a good example of the weaknesses of present intergovernmental models of global governance. If the different regions of the world had Unions, like the EU, which could negotiate seriously, and with genuine political legitimacy, as the EU can, the failures of Copenhagen and other climate change summits would not have happened.
If the EU were to break up, either because of the collapse of the euro or because a major country like the UK feels it has to exercise its right to leave the EU, and either event were to set off a breakdown of the trust that keeps the EU itself together, we would have lost a unique instrument for security building in Europe, and for problem solving in the wider world.
I would now like to analyse those two potentially existential threats to the EU, the euro crisis, and the UKs possible desire to leave.
Of these, a  break up  the euro is undoubtedly  by far the  more serious existential threat to the EU, because the scale of the economic losses is potentially much greater, and the  means of controlling  those losses, are much less.
The euro crisis has become slightly less acute in recent weeks. The announcement of a new bond buying policy by the European Central Bank has calmed the markets. But there is no doubt that the markets will test the ECB’s will power at some stage.
Meanwhile the link between the solvency of European banks and the solvency of European states has not been removed.
 A default by any EU state would wreck the banks of that state, because each state’s banks tend to be big  purchasers of the bonds of that state.
Similarly a potential collapse of a bank in a state would force that state to inject capital into banks, if it did not want a run on banks generally to take place, and contagion to other countries. The  confidence loss caused by a major bank getting into difficulty could lead to a dramatic collapse in state revenues, leaving it with a much increased budget deficit, at the very time it was also having to find the money to recapitalize the bank.
If these problems are to be resolved, four things will have to happen, more or less at the same time.
1. Greek Government debt will have to be forgiven.
2. The ESM will have to be seen to be big enough to stand behind Spain and other countries that might get into difficulty, on a contingency basis,
3. The new mechanisms to supervise, and if necessary rationalize, Europe’s banks will have to be put in place.
4. The already agreed reforms to reduce deficits, and to promote growth by opening up the job and service markets to competition will have to be demonstrated to be being fully implemented, in letter and spirit, to show creditors that, if one forgives debt or creates enlarged the ESM, one is not throwing good money after bad.
At the moment, the Greek debt issue is not being tackled, and seems to have been postponed until after the German election in September. The delay may not be the worst thing in the world, if it allows time for Greek reforms to begin to establish credibility. It also allows time to educate public opinion in creditor countries like Germany, and in countries sitting complacently on the sidelines, of the true consequences for themselves of a euro break up. Greece also need immediate help to finance itself to the end of 2013, and that bridging finance cannot await elections in Germany or anywhere else.
The EU has already enacted a raft of legislation, including the Fiscal Compact Treaty, to ensure that countries reduce their deficits, and liberalise their labour and service markets. . One of the reasons growth potential has been low in Greece, Italy, and Spain is lack of competition or flexibility in key sectors
But Germany is not yet satisfied. It wants to have an EU Commissioner with the power to veto state budgets, and enforceable contracts on reforms between states and the EU.  But not enough attention is being paid to the fact that Germany, France and other core countries could also be doing a lot more themselves, to open up their own digital, financial, energy, retail and professional service markets. While Germany has set a good example in labour market and pension reform,  there are other reforms it could initiate, that would help other EU countries to sell more goods and services into the German market, and thereby trade their way out of their problems.
There is understandable political resistance in Germany to any further debt forgiveness for Greece. But debt forgiveness within the euro is one thing. Greek exit from the euro is an entirely different matter. It would be far more dangerous, and that needs to be explained to German public opinion.
Even a disorderly default by a country within the euro, no matter how severe its consequences for its own people and for its creditors, would have far less severe consequences for the euro, and for the EU itself, than an exit of a country from the euro would have.
I have heard a view from some Northern Europeans that an orderly exit of Greece from the euro could be contemplated, if it was accompanied by building up a huge fund, much bigger than the existing ESM, to stand behind all the other euro area states, so as to prevent a Greek exit leading to a loss of confidence in the financial position of the rest of the euro zone.
I believe this view, that Greek exit from the euro can be managed, is profoundly mistaken.
The whole edifice of the EU rests on law. The EU has no police force to enforce its will. It relies on member states freely respecting the interpretation of EU law by the European Court of Justice, and implementing the Court’s decision, however unpleasant that may be. The exit of a country from the euro is, quite simply, a breach of their Treaty obligations, and treaty obligations have the force of law.
The euro was established on the basis that it was irreversible. A Greek exit, particularly if it was condoned or encouraged by other members, would say loudly that the euro is not irreversible.
That would lead to constant speculation in the markets as to who would be next. And as speculation increased, so too would the size of the funds or guarantees needed to check it, increase. That in turn would then lead heightened risk that some of creditor countries, who would have to provide these funds and guarantees, might decide that they themselves should exit the euro, and re-establish their own currencies. That would be the end of the euro.
Breakups of currency unions have happened before, in Austro Hungary after the First World War, and in Eastern Europe in the 1990s when the rouble zone broke up. As described in a recent article by Anders Aslund of the Peterson Institute of International Economics, the consequences of this were disastrous.
New currencies would have to be established. The relative value of these currencies would be unknown and unknowable. Some would lose value very quickly and others would shoot up in value.
Exports would become dramatically uncompetitive in some cases, and in others they would become  so cheap that there would be  accusations of dumping, currency manipulation, and calls for  immediate reintroduction of  import duties to level the playing field. Such duties, if imposed, would  end the Single Market.  And that would be tantamount to the break up of the European Union itself. Open markets, the assumption on which Ireland built it entire economy over the last 50 years, would be gone.
In some countries the banking system would break down, and people would have no access to credit for even the most basic transactions.
In others, people would cease to trust the value of their own money, and money, after all, is based on a promise and if people can no longer trust the states standing behind the promise that underlies their money, the basis for money itself is gone.
This is not fiction. It is what happened when the rouble zone broke up in the 1990s and explains why incomes fell by 50% in the former rouble zone countries. And the exporter nations within the rouble zone, like the Russian Federation, suffered just as much hardship as the importer nations, like Latvia and Estonia.
The political stresses that this scenario for the 500 million people of the EU, and their Governments, would be such that trust between European nations would easily break down completely.
We see signs of that happening already, but it is being held in check by the hope that problems can still be resolved on a collective basis. A break up of the euro would show that that was impossible to resolve matters on a collective basis, and it would then be a case of every nation for itself, with particularly severe consequences for smaller countries, like Ireland.

As if Europe did not have enough problems, one important EU country, the United Kingdom of Great Britain and Northern Ireland, is preparing to renegotiate the terms of its own membership of the EU, and hold a referendum on the outcome, which would potentially decide whether the UK would stay in the EU or leave.
The first thing to say is that the UK is entirely free to do this. Unlike other Unions, like the United States or the United Kingdom itself, the European Union is a Union which states are free to leave, so long as they fulfil their normal obligations under international law, which arise when any country withdraws from any international treaty.
The UK has been an uneasy member of the EU from the outset. While Churchill envisaged a United States of Europe, he did not envisage the UK, which still had a global Empire at the time, being part of it. The UK did not attend the 1955 conference in Messina which led to the Treaty of Rome. When it eventually joined the Common Market, a decision endorsed by a referendum, the idea was sold to the electorate as an economic arrangement, whereas even the most cursory reading of the Treaty of Rome would have shown it to be much more than that.
The United Kingdom is now threatening to veto the entire EU budget,  something it is legally entitled to do, unless there is an absolute freeze on the size of the budget. The difficulty with this stance is not legal, it is political.
 The EU Single market, which guarantees free movement of people, goods and services, was created as a political deal.
 Weaker economies opened up their markets to stronger ones, and removed protection from local businesses, on the basis of a promise that they would qualify for structural funds to modernise their economies. These funds are what the EU budget provides. (Some of the EU budget also goes on agriculture, but that has fallen from almost 80% of the total originally, to only 30% today.)
The political difficulty with the UK stance is that of fairness.
In the past, when countries like Ireland, Spain, Greece, Portugal, and even the UK itself, joined the EU, we all qualified for very substantial EU structural funds, in the form of aid for agricultural modernisation, general infrastructure, training, communications etc.
Now, when the EU has taken in 12 central European countries who are almost all relatively far poorer by comparison with the rest of the EU,  than we were when we  joined, these 12 are to be told, if the freeze the UK  wants is to go into effect, that they are not to get even a fraction of the help Ireland, Spain, regions of the UK and others qualified for as of right after we joined. This is causing resentment.
I heard an Estonian Minister complain recently that, under the existing EU budget which is already an unfair compromise, his farmers have to compete in the same EU market with west European farmers who are getting three times the subsidies. Unless there are to be drastic cuts, this sort of anomaly can only be put right by an increase in the EU budget.
The problem is that the UK Government has made the size of the budget a red line issue without getting into any informed debate about what the money is actually spent on, or about what sort of EU budget is necessary to ensure that the  EU Single Market, to which the UK itself is very much attached, works fairly and is preserved.
The UK wants access to the single market, but is not prepared to pay any entry fee.
The same problem arises in the renegotiation of the terms of UK membership for which the current  UK Government wants. In preparation for this renegotiation, the UK Government is now doing a comprehensive audit of all EU laws, to identify areas of activity that could be taken back from the EU to be administered exclusively under UK law instead. There may be some good ideas emerging from this, on which all other members could agree, but there may also be a lot of problems.
The difficulty is that the UK wants to take back, yet to be specified, powers, but also to retain full and unfettered access for all its goods and service exports to the EU Single market. 50% of UK exports go to the euro zone, whereas only 15% if euro zone exports go to the UK, so this is important to the UK.
The difficulty is that the EU Single Market, like any market, is a product of common rules, regulations and conventions. A market is a political construct. Without common rules or understandings nobody could rely on what they were buying.
That is why, for example, there have to be common EU quality standards to construct a common EU market. Otherwise one country could impose peculiar quality standards, designed to exclude competitors from its market and to enable its own producers to make monopoly profits at the expense of its consumers. Any rulemaking power that could be abused in this way, cannot be handed back to national level without endangering the Single Market. That is the problem that the proposed UK renegotiation of  its EU membership terms will encounter.
And the competition in any market also has to be fair, and someone has to regulate that. If competitors have different environmental, or product liability standards, or if some firms are operating monopolies or cartels, the competition will not be fair. These matters cannot be handed back to be decided by national authorities without also endangering the Single Market.
 If the UK were to draw up a list of EU rules it would like to make in Westminster rather than Brussels, the other 26 could also do the same, but they might come up with a very different list. The process could become bogged down in serial  reopening of compromises, made years ago, on issues that have little relevance to the urgent existential threat  the EU faces today.
One gets the impression that many in the UK do not really care about that.
 The EU is still regarded by many in the UK as a foreign country, not a Union of which the UK itself has been an integral part for the past 40 years. Membership of the EU is seen as a convenience rather than as a commitment. If the price of satisfying UK voters is to cause more problems for the “foreigners”, in “Europe”, that is not seen by some UK political leaders as such a bad thing.
The difficulty is that the “foreigners” in Europe may not see it like that.
With so many genuinely urgent things to do, such as safeguarding the very existence of the EU itself, the other 26 member states may just not be inclined to devote time to a painstaking case by case analysis of a series of requests for new UK opt outs from some bits of some rulemaking authority, with UK opt ins to others, and to a judicious analysis of whether each one of these decisions might affect the integrity of the Single Market, either now or at some time in the future.
 And the European Court of Justice would certainly have difficulty interpreting the consistency of a special EU menu for one country with the basic freedoms for all on which the EU is based.
 There is also the old question of whether UK Ministers and MEPs should continue to have voting rights on things they are opting out of. As it is, one has to say that it is distinctly odd that the present Chairman of the Committee of the European Parliament that deals with euro currency matters, represents a constituency in the UK, which has no intention of joining the euro.
If,  as is likely at the end of its proposed renegotiation, the UK is dissatisfied with the result, because not enough powers are being handed back to Westminster, it will have little option but to recommend that the UK withdraws from the EU. 
 It is setting itself up now, to find itself in exactly that position, in 2016.
 This will require careful handling because 50% of UK exports go to the EU, and London is Europe’s main financial centre, for the time being anyway.
 How is the UK to protect these interests if it is outside the EU?
One possibility is to join Norway, Iceland and Liechtenstein in the European Economic Area, which would guarantee full access for UK goods and services to the EU market. But the price for that would be having to implement all EU legislation that was relevant to the Single Market, and contribute to the EU budget, but without having any say in EU decisions.
That would be worse from a Euro sceptic point of view than the UK’s present position, even though it would guarantee continued access for the UK to the EU market for both goods and services.
The other possibility is to follow Switzerland and negotiate a series of bilateral trade deals with the EU. The UK would not be entering such negotiations from a position of strength, because it relies more on the EU market, than the EU relies on the UK market.
Switzerland has negotiated full access to the EU market for goods, but not for services. Services are the UK’s key export sector, so a Swiss style deal would not be attractive.
If Britain negotiated a Customs Union with the EU, like that of Turkey, it would find its trade policies with the rest of the world were still being determined in Brussels, but with less input from London than at present. Again it would also only have a guarantee of access for goods exports but not for services.
Finally, the UK might simply leave the EU, without negotiating any special deal. That would leave it paying tariffs on its exports to EU member states, including Ireland, and would necessitate the reintroduction of customs posts on the border in Ireland. It would undermine years of peacemaking by successive   Irish and UK Governments, and would cost thousands of jobs in export firms in both the UK and Ireland.
My sense is that the pressures that cause fracture in the EU derive from a lack of understanding among the general public of the extent to which their livelihoods  depend on economic developments in other  countries and of how unrealistic, in modern conditions, is an “ourselves alone” policy.
 Political leaders make little  effort to explain this, because to do so would undermine the  nationalist myths which brought most states into being in the first place, and also because it is often convenient to blame the EU for  the effects of decisions that were necessary but are unpalatable. For these reasons, little effort is made to forge any form of patriotic pride in the EU or its achievements.
No venue has been created in which an EU wide public opinion might be formed.
This must be done, if sufficient mutual understanding and support is to be created to allow the EU to create the degree of burden sharing and mutual supervision that is necessary to guarantee the long term  robustness of the euro, and thus of the EU itself.  In a word, the EU needs more democratic cement to hold itself together.
European Parliament elections are not truly European. They are 27 different elections, in 27 different countries, in which national issues predominate.
The European Parliament itself has refused to contemplate the election of some of its members from EU wide party lists, which would begin the process of creating an EU wide debate because it would necessitate an EU wide political campaign on behalf of the rival EU wide lists of candidates.
The President of the European Commission, and the President of the European Council, are selected in private meetings of heads of government. They do not have to win the votes of EU citizens, and consequently EU citizens do not have the feeling that they can vote the government of the EU out of office, in the same way that they can vote their national government out of office.
Thus the EU does not enjoy democratic legitimacy in quite the same way that national governments do.
As a member of the Convention that drafted what eventually became the Lisbon Treaty, I urged unsuccessfully that the EU should have a Presidential election on these lines.  I suggested that the President of the European Commission should be selected in a multi candidate election in which every EU citizen would vote, rather than be selected, as at present, by 27 heads of Government, meeting in private, to be approved in a single candidate vote in the European Parliament.
This proposal received almost no support at the time, although it has since been adopted as policy by the German CDU. If that had happened when it was proposed, the EU would now be in a much stronger democratic position to devise a more coherent response to the euro crisis, and to find a solution to the UK’s difficulties. The UK press would not be able to argue that EU leaders were “unelected”. The Commission, headed by a President with a full EU wide democratic mandate, would have more authority to propose solutions. The council of 27 heads of government would still play a vital role,  but the EU would be less constrained by the electoral timetables of individual countries, as is the case with the German election of 2013.