Mr. Colm McCarthy:

I would like to begin by reflecting on what it means for a country to join a currency union and to abolish its own currency. It means the country has no exchange rate policy any more. That is for sure. Professor Barry has explained that. He is quite right when he says that the weakening of the euro over the past while has been particularly beneficial for Ireland. We are much more likely than the continental European countries to trade in sterling and dollars. They tend to trade more with one another. If a country scraps its own currency, it has deeper consequences beyond exchange rate policy. It means that for all practical purposes, it is using a foreign currency, the creation and destruction of which it has no control over. If its banks get into trouble, it cannot provide them with liquidity other than with the permission of what is for all purposes a foreign central bank.

Down through the years, some countries around the world have chosen not to have a currency. Montenegro is an example. When Montenegro was established as an independent state, the Montenegrin authorities decided not to bother having a currency. The deutsche mark, which became the euro, had been the popular currency in the Balkans. As a result, Montenegro does not have a currency; it just uses the euro. A few other European states, including the Vatican and Kosovo, use the euro without being members of the eurozone or the EU. It would be fun if the Vatican got slung out. I thought the Vatican banks had problems a while ago, but the ECB did not seem too bothered about it.

I would like to answer the important question that has been asked by Deputy Tóibín. A country in the position that Greece is in now might not benefit hugely if it had an independent exchange rate. As Professor Barry has pointed out, Greece does not have a broadly based export sector like we have. It is a quasi-closed economy. However, if Greece had an independent currency, it would certainly be able to provide liquidity to its banking system. In such circumstances, it would not have had to take the sucker punch that has been the closure of its financial system in recent weeks.

I was also asked about the practicalities that would arise if countries had to deal with some kind of chaotic break-up of the common currency area. It could be incredibly messy. It has happened in the past. Two currency unions in Europe - the rouble zone and the Yugoslav dinar zone - broke up in the 1990s. In the case of the rouble zone, each of the 15 constituent states in the Soviet Union retained a local central bank. The central bank of the Soviet Union was the Bank of Russia in Moscow, but there was a central bank quasi-branch office in Kiev, in Almaty in Kazakhstan, in Belarus and in all the other places. When Russia resigned from the Soviet Union, the local central banks in places like Kiev decided to start dishing out liquidity to all the new banks that were created there by politicians' chums. There was a massive creation of reserve money by these new central banks in places like Ukraine.