Why Ireland should leave the euro

Economist argues that the seeds of Ireland's next crash are being sown in Frankfurt

Why Ireland should leave the euro

Michael Probst / AP

While headline growth and inflation figures suggest that the euro zone's recovery is starting to stick, less obvious money movements could hint at more fundamental problems embedded in the currency.

"The Greek thing is getting the headlines - the money flows show the problem is deeper than that," economist Cormac Lucey told Newstalk's Breakfast Business.

He added that the threat of countries breaking away from the union is leading to major shifts in deposits in European banks.

Depositors do not want to end up with a situation where they deposit savings in euro and are repaid in a devalued domestic currency if that state leaves the euro.

Mr Lucey said that these flows suggest increased apprehension among depositors in countries like Greece, Spain, and Italy who are moving money abroad.

This means that more and more German money is being pumped into the euro zone to support the currency. The rate that this money to being injected is edging back to "crisis levels" seen in 2011 and 2012.

Boom Boom Bust

He argues that euro membership has a fundamentally destabilising effect on Ireland's economy:

"The problem with the euro from an Irish perspective is the interest rate that is right for the euro is seldom likely to be right for Ireland. By remaining members of the euro, we are condemning ourselves to an interest rate which is likely to be permanently destabilising ... Effectively, we're going to get currency stability - but at the cost of destabilising our domestic economy."

This imbalance means that interest rates are too lenient when the Irish economy is growing and do not provide sufficient stimulation during downturns.

According to the economist, these forces could create another Celtic Tiger-style boom and crash: "The danger is that the ingredients are still in place for that all to reoccur should we remain in a system that is going to give us inappropriate interest rates."

"If there is a general reforming of the euro system we should be trying to get out with other countries as they get out," he concludes, adding that an ideal situation would be to turn back the clock to the 1990s when Ireland received all of the benefits of EU memberships without the economic problems associated with the monetary union.