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Interest rates would have been higher (to reflect currency risk), inflation higher (as importers increased prices as the currency fell, but failed to reduce them as it rose), and corporate budgeting would have been much more difficult against the back drop of a fluctuating currency gamed by hedge funds without much regard for economic fundamentals. Banks would have made a lot of money on currency transactions and funding the national debt would have been more expensive as foreign lenders insisted on a currency risk premium.

As against that, a government with some economic foresight (a rare occurrence) would have been able to raise domestic interest rates to dampen the Celtic tiger bubble 2001-9 resulting in less of a crash when that bubble burst. (At the time the ECB was maintaining a policy of interest rates much too low for a booming Irish economy but geared to the needs of a German economy reeling from the costs of German re-unification). It is a moot point as to whether Irish governments of the time would have had the foresight to do so: my guess not so much. Charlie McCreevy, Finance Minister at the time, reflated the economy with tax cuts at a time when it was already booming.  A bit like Trump now.

So the probably answer to your question is that it is doubtful whether Ireland would be any better off now with its own currency, and most probably not. (The UK, on the other hand, has probably just avoided a mild post referendum recession because it has its own floating currency) which has enabled it to adjust to the Brexit vote shock.

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by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Jan 30th, 2018 at 05:12:35 PM EST
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