Irish Economy

How Ireland's Economy Changed when the Euro was Introduced

There is no question that the Irish Economy changed when the euro was introduced. But whether converting to the euro was what caused those changes is a matter of speculation. Because Ireland is an island, and because it is located rather far away from other EU countries, some economists thought that the introduction of the euro would cause an increase in exports. The reasoning was that countries on the continent were used to trading with one another before the advent of the euro, and that Ireland would gain attention by being the new trading partner on the block.

This isn't to say that the continent didn't trade with Ireland before the euro, just that it became significantly easier with a common currency.

However, that's not how it went down.

Ireland's property price bubble began shortly before the introduction of the euro. After 2003, capital inflows rose more than 50% of the GDP - a phenomenal rate. Much of this capital was absorbed by locally controlled Irish banks.

The collapse in construction and real estate and the fall of property prices, along with the troubles of the banking system worldwide harmed employment and weakened the economy as the world headed into recession in 2008. But studies of other small economies in the periphery of Europe have found that the euro was neither necessary nor sufficient for the economic trouble in Ireland. In other words, the euro was along for the ride, but it wasn't the euro's fault that the economy rose rapidly then fell.

What the euro did was trigger Irish Economy. The other economies in Europe and its surrounding regions that also suffered major economic setbacks, specifically Iceland and Latvia, were not members of the EU. So the introduction of the euro is not likely to be to blame for the economic downturn./p pAnother example, the fortunes of Portugal, another small country on the periphery of Europe and an EU member, show that a massive price bubble was not inevitable with the adoption of the euro./p p.There is no denying that after the a target="_new" rel="nofollow" href=""">introduction of the euro in 2002 there was a wave of optimism in EU countries based on the new currency system. But though the euro can be blamed as a cause of low interest rates that fueled the property boom, the currency itself does not appear to have changed the Irish Economy any more than it would have changed had it not adopted the euro.

Peter Carville is a freelance article writer who writes for Financial Facts about the current financial news and the credit crunch.

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