Friedman on Ireland and the Euro

David Beckworth recently linked to a speech given by Milton Friedman at the Bank of Canada. As David highlights, there is a follow-up question where Friedman promotes QE in Japan. However, there is also a particularly insightful comment on Ireland and the Euro. Here is the question and the response:

Michael Bordo: Do you think the recent introduction of the Euro will lead to the formation of other common-currency areas?

Milton Friedman: That’s an interesting question…

[...]

I think the Euro is in its honeymoon phase. I hope it succeeds, but I have low expectations for it. I think that differences are going to accumulate among the various countries and that non-synchronous shocks are going to affect them. Right now, Ireland is a very different state; it needs a very different monetary policy from that of Spain or Italy.

On purely theoretical grounds, its hard to believe that it’s going to be a stable system for a long time.

This is precisely the point that I have been making with respect to Ireland. The rapid growth in Ireland should be associated with a higher natural rate of interest. Meanwhile, the European Central Bank’s commitment to inflation is likely to have different consequences in Ireland than Germany. It is likely that ECB policy was too loose — at least in Ireland — for the better part of the decade before the recession began. That is what I was implicitly referencing in this post on Ireland’s money growth.

3 responses to “Friedman on Ireland and the Euro

  1. Pingback: Creating a era of savers might help protect your grandchildren against a future financial meltdown. Banks were willing to lend money and bank cards were simple to obtain, If the economy was growing rapidly. That light emitting diode people to think that t

  2. Pingback: Ireland: Friedman on Ireland and the Euro The Everyday Economist | Euro Economy

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s