Ruairi Quinn - Trust, honesty and shared information vital for the future of the Euro

The present controversies about the Euro have been exaggerated by Euro sceptics anxious to attack the very concept of a Single Currency for the European Union.

Many European governments have made the Euro sceptics case easy by mismanaging their economies as happened here in Ireland. This behaviour has been punished by the financial markets. Not all those financial players are evil speculators. Reckless borrowing on top of fraudulent national statistics, as happened in Greece, forces prudent lenders to charge a high risk premium even if the currency is the same Euro that the prudent Germans are using.

Many commentators have forgotten the origins for the need for a Single Currency and the debate that preceded the 1992 Maastricht Treaty. The period of economic turbulence, following the two major oil shocks of 1974 and 1979 caused chaos in European currency markets. Devaluations, interest rate hikes and different rates of high inflation in European countries were the order of the day. Companies found it hard to borrow and frequently saw trading profits disappear between the sale and the payment of an exported product because of a shift in currency values. West Germany, with its strong Deutschmark (DM) became, in effect, Europe's reserve currency. The strict German Central Bank, (Bundesbank) had regard for what was good for their own economy.

The 1980s saw the arrival of Gorbachev in the USSR and ultimately the fall of the Berlin Wall. The financial burden of reunification put new pressures on Europe's biggest currency. A new wave of speculation ensued. Small country currencies like the Finish Markka, the Portuguese Escudo and the Irish Punt were tossed about like rowing boats in a storm. These were among the many realities which the current financial debate now ignores.

The Single Currency was, from the beginning, a political project. Economic and Monetary Union (EMU) was first suggested in the Werner Report of 1970. The reunification of Germany was ultimately agreed by Helmut Kohl and François Mitterrand. Instead of a German Europe, which some like Margaret Thatcher had feared, a European Germany saw the West German DM become the basis for Europe's new currency. Its structure and solidity was the concern of Europe's Finance Ministers, particularly Germany's Theo Waigel.

The hardcore currencies of the EU; Germany, France, Austria, Denmark and the Benelux countries, demanded the hard rules that made up the Growth and Stability Pact. Tight budgets, balanced over the economic cycle, were to be the norm. A 3% budget deficit was to be the maximum amount allowed. Inflation was to be the closest to the lowest EU average and national debt, as a percentage of GDP, could be no more than 60%.

Throughout the nineties, Finance Ministers managed their economies tightly so as to meet the terms of the 'Pact' which was agreed during Ireland's Presidency in December 1996.

However, the problems arose once the Euro was launched and countries like Greek, Spain and Portugal were finally members. The benefits of tight discipline and good economic management were soon casually ignored by Finance Ministers, like Charlie McCreevy. Expansive, pro-cyclical economic policies, combined with very low interest rates, now prevailed.

Instead of the Mediterranean countries, and Ireland, learning how to behave like Germans, we continued to act like Italians.

When Lehman Brothers collapsed, and many countries borrowed very heavily to save private banks with public cash, all the rules of the Pact went out the window. So now we have to reinstate those Stability Pact rules and bring in new ones involving peer review of national budgets by fellow Finance Ministers and tight EU Commission enforcement upon those States who are slow to learn.

Back in 1996, as Minister for Finance, I compared the future Euro Zone to a joint bank account between business or life partners. That is based upon trust, honesty and shared information. Most such accounts, as we all know, work well. So can a new regulated Euro Zone, with a stronger European Commission.

A return to competing currencies, high interest rates and competitive devaluations in the global economy's largest Single Market is not a recipe for success. Tight rules well observed are a pre-requisite. When that happens the financial markets will relax as they have done for the first ten years of the existence of the Single Currency.