Where would we be without the ECB? That was the question on the lips of many Irish people last week when the ECB and nine of the world’s largest central banks got together to reduce interest rates. And while most of us were working out what the move meant to our monthly mortgage the true benefit to world markets lay in the signal it sent – that the world’s central banks are willing to act in concert for the sake of the global economy.

So what would the consequences have been if Ireland were not part of the ECB (European Central Bank). When the USA, China, the UK and others sat down at the table last week, do you think little old Ireland would have been invited?  Some chance.  We would have been pacing outside the room like a father outside the maternity ward wondering what was going on, and how the hell we were going to deal with it.  Or more likely, how quickly we could copy whatever the Bank of England did.

Instead, we’re on the inside.  We’re part of the world’s biggest economy.  We get a say in how its run.  That includes how we deal with things when financial faeces hit the fan.  While it’s too early to say whether the 0.5% interest rate cut is going to get the money moving again, at least we have the 0.5% interest rate cut.

As European Movement Ireland is an organization which explains the European Union in English, we have increasingly been getting calls to office about the financial crisis and what exactly the EU’s role is.  Some callers are upset with what the EU has thrust upon us over the years of financial involvement.  Others are annoyed with its lack of involvement.

After reading about banks tanking, companies being nationalised and keeping an eye out for what the EU and the European Central Bank (ECB) have been doing – not only in the last few weeks, but in the last few years – all I can say thank God we’re in the EU. Why? Well, from what I can see, there are four main reasons why I like the fact that Jean Claude Trichet and the Eurocrats are covering our financial back.

Low interest rates in Ireland

It wasn’t just the 12.5% corporation tax rate that fed our tiger cub.  Many during the Lisbon referendum campaign argued about whether the EU could or could not take away our corporate tax rate (it couldn’t without our say so[1]).  What is overlooked is that it was in fact the lead up to our entry in the European Monetary Union (EMU) at the beginning of 1999 that finally gave us the monetary stability to securely trade in international markets.

As there was a widespread underestimation of Ireland’s potential to grow rapidly, Ireland would almost certainly have ended up with much higher interest rates outside the EMU club, as Governments tried to dampen inflation, than those we experienced within.

The drive towards joining the euro meant interest rates were consistently cut from the mid 1990s onwards.  Ireland had far higher interest rates than mainland Europe.  We had to get them down quickly so that we could merge seamlessly with the European systems when the euro arrived.  That meant regularly cutting rates.  That meant people seeing their mortgage payments dropping.  Which meant more money in their pockets.  Which meant most spending.  Which meant more jobs and more profits.  Which meant more spending.  Which meant more jobs and more profits (see where this is going?)  Without those low interest rates, it is doubtfull we would have had the housing boom we experienced during the last two decades – whatever the rate of corporation tax.

The ECB and the euro give us protection

In the current financial and economic turmoil, small open currencies have been targeted by speculators.  Ireland, since joining the euro in 1999, is no longer tied to a light currency fluttering on the idlest breeze of international speculation. Rather, it is a heavyweight held firmly in place by the mass of the largest economy in the world and 320 million people.

Being buffeted by the turmoil of the last month would have resulted in – yes, you guessed it – interest rates skyrocketing. Another hypothetical? Take a look at our neighbours to the northwest in Iceland.  A 30% drop in currency value in a matter of days.  Ouch.  The cash that got you a full weekly shop of the most luxury goods in Superquinn on Monday would barely fill your trolley in Lidl on Friday.

Soon cod will be the caviar of the supermarket shelves up in Reykjavik.  Don’t think we want another run on potatoes here now do we?

ECB allows for stability and coordinated action

Having a single independent central bank means a single rule, a single source of changes and the removal of political interference in monetary policy – at least on a day to day basis.  That means no messing with our currencies because there’s an election around the corner or someone’s slipping in the opinion polls.

And when things get really bad on a global scale, as they did last week, the world’s biggest central banks have to get together to save their economies

ECB has responded better than other central banks, while also keeping their snout out.

All the way back in May, Jean Claude Trichet, president of the ECB, warned us again that the credit crisis was far from over, and that governments needed to do their part to fix the problems too.  In August, the ECB warned that “something major is happening that shouldn’t be underestimated in international financing”.  Pretty clear.  That was in the same week that the American President told us that “the fundamentals of [the US] economy are strong”.  Nice one, George – spot on.  That worked out well.

As well as having the wit to see what was coming, the ECB has a far better regulatory framework.  The so called “Greenspan” approach taken in the USA – let everyone do their own thing, and don’t interfere in the market – has been shown not to work.  Lack of regulation can be far more damaging than over-regulation.  But the ECB is a long way from over-regulating.

While we still have our own Financial Regulator in Ireland this is certainly a time when “EU red tape” has saved us from the worst possible outcomes.  It’s a nice bow, rather than a noose. Bet you Eurosceptics must be horrified at failure of the EU to push national governments around– simultaneously showing that the Commission is not some all-controlling bully and that countries are free to make decisions on their own.

And not only is there a bit of good regulation, but there’s also been some cold hard cash from the ECB. And it was delivered nice and early. The ECB has been propping up the tight cash-flow situation in which we find ourselves by rapidly injecting money into the market – around 100 billion euros has been made available to European banks by the ECB in the last month alone. And the ECB does not really shout about wanting acknowledgment for it. Just wants banking folk to be a bit more responsible. Which is good.

Yes, yes there have been criticisms that the criteria the ECB applies for this money is steep – but is raising standards a bad thing. Especially when folk have been caught out getting high on sub-prime mortgage bundles. A bit of detox is probably a good plan.

So we’re in hairy times – but it’s good to see the wood for the trees and think of the things that we do have on our side while you’re stuffing your money under your mattress. Personally, I’m glad we’re in the EU and in the eurozone.  I like having a currency that hasn’t collapsed in value faster than the polar ice sheets.  I like interest rates at less than 5%, not more than 15%. I like that it is Euro that I’ll be stuffing under my mattress so that I know the price of stuff just in case I might have to live abroad. I like the fact our European Central Bank gives us some Euro when we’re in a tight fix – but not too much money so that we will actually learn from all this. I like that we are on the inside rather than on the outside.

Andrea Pappin is the Executive Director of European Movement Ireland.