Mr. Colm McCarthy:

I think the Deputy is right that nobody should be attributing all of this country's problems or those of other countries solely to the euro. On the other hand, most people understand now that it was not designed as a proper monetary union. It is only a common currency area and common currency areas are less stable than monetary unions. The United States is a proper monetary union. Nobody expects the Governor of Texas to sort out the banks in Texas. The "Feds" do it in Washington. Europe was not set up as a thoroughgoing monetary union. Perhaps we will construct that in the next few years with more centralised bank supervision and bank resolution, and a centralised macroeconomic policy, but right now we do not have those things and in that sense I believe the experiment was premature.

It is certainly not the case that if we had stayed out of the euro everything would have been fine. If we had stayed out of the euro we would have had a bubble, and we would have got into trouble. The bubble might not have been as big but countries outside the euro had bubbles also. Denmark, for example, is outside the euro and they had a bit of a banking bubble, and a housing bubble, although not as bad as here. That is a complicated issue.

The more immediate threat to cohesion in Europe is not the possibility that the British might vote themselves out, although they might, but that some country might fall off the edge of the eurozone. It nearly happened in Cyprus where there were capital controls and the currency was rendered inconvertible inside Cyprus, never mind externally, for a while. That is no longer the case but an accident can happen.

It could happen that Greece exits the eurozone during the current poker game. This is a dangerous game because it could result in a lack of confidence in the ability of Portugal and other countries to survive in the eurozone. In regard to Britain, the committee is correct to be discussing the issue. Chances are it will not happen, however. If one was betting, one would bet that Britain will still be a member of the European Union in ten years' time but it is important to be alert to the dangers. Given that a referendum is likely if the Tories win the election, it is important to get involved in the discussions prior to any such referendum because those discussions will determine the shape of the divorce settlement. We have a legitimate reason for getting involved, namely, because it matters more to us than to any other country in Europe. If our neighbour and biggest trading partner quits the European Union, we will be in the situation of being in the EU without it for the first time ever. We would not have joined the EU if it had not. We should remind ourselves of the practical reasons for that. This is a vital national interest and we need to get involved at the earliest opportunity if a referendum appears likely.