EMU — Reaching a Narrow Verdict

The authors argue that the most important gain to Ireland from adopting the single currency in Europe will derive from interest rates being lower than they might be otherwise. This benefit derives essentially from gaining credibility for government policy in the financial markets. A disadvantage of joining the single currency is that government will have to sacrifice the policy flexibility it now enjoys in responding to shocks. The authors calculate the above benefits and costs, and they find that there is a marginal advantage in adopting the single currency.