In our recent podcast on the euro, we discussed the possibility that the preservation of the European single currency might depend on weaker nations, such as Greece, leaving it.

That possibility is now being taken seriously by the markets.

It is, however, curious that they expressed their concern by devaluing the euro against the dollar. Logic dictates that the euro should be worth more if it does not have to underwrite the budget deficit of the spendthrift Greek government.

It might be the best thing that could happen to the euro if Greece left it for a while, followed by Portugal and perhaps even Spain. Those are the countries which ran up the worst government deficits – despite the euro’s supposedly strict rules – and which are still reluctant to tackle them. Ireland also ran up a horrendous deficit, but seems prepared to take firm measures.

Needless to say, there are vociferous official denials. Equally needless to say, those denials are not being believed.

The authors of this blog are not currency speculators, nor are we qualified to advise others on currency speculation, but, if we were, we might be tempted by the prospect of putting surplus cash into euros.

Something has to be done. Something is going to be done. If the Greek government and the other basket cases do not do it, someone else will. The Germans are getting impatient. When they act, the euro will be strengthened – and they will act soon if no one else does.

Anyone who might have thought that the very expression “Irish cricket” was a joke, or at least a classic example of an oxymoron, has been disabused dramatically by Ireland’s victory over England in the Cricket World Cup.

England is, of course, the home of cricket, and the sport is one of the few things that still define who the English are. Although the English national side has had its ups and downs, it has recently been on a high, since its brilliant victory in Australia.

Ireland does not – or at least had not – seen itself as a cricketing nation in the way that England, Australia, India, Pakistan and the West Indies see themselves.

Indeed, by contrast, Ireland, or at least the Republic, is inclined away from all things English. Although the English inventions of rugby and soccer are played there, Irish identity is linked, quite deliberately, with the sports of the Gaelic Athletic Association. So the Irish cricket victory is the equivalent of an English hurling team winning the Liam McCarthy Cup.

Such a victory over the ancient foe on its cultural home ground is therefore a ray of sunshine in a dark time for Ireland, which is practically bankrupt.

Aside from bringing some much welcome joy to the Irish, small and entrepreneurial businesses everywhere can take heart. We are seen as the underdogs, yet when we get our game right we can out manoeuvre our bigger, better resourced and seemingly better qualified competitors – especially when their apparent superiority makes them arrogant or complacent.

We might also let yesterday’s match remind us of these important lessons:

1   There is always hope. Victory against the odds is possible – and, indeed, occurs more frequently than the odds might suggest.

2   A bad start is often a good start. The Irish actually lost their captain on the very first ball of their innings. It seems to have only made them more determined.

3   Take nothing for granted. The English did. The Irish did not.

Eire, the Republic of Ireland, is a classic example of how low business taxes can generate prosperity even in the most unpromising of places. Although Irish people around the world are very entrepreneurial, the Republic itself was an economic backwater for most of its history. That changed when tax cuts attracted massive inward investment and turned Ireland into the “Celtic Tiger”.

The fact that Ireland is now in financial trouble does not alter that fact that it proves the effectiveness of a low tax regime. The current crisis arose in spite of Ireland’s success as a venue for inward investment, not because of it.

The low business taxes remain Ireland’s greatest competitive advantage – so it is sad that the Republic is almost certainly going to have to give them up.

The Republic’s mistake was not its low taxes but its failure to exploit their success in attracting inward investment. Instead of using the opportunity to develop its own indigenous enterprise culture, the Republic enlarged its already bloated public sector. Instead of investing in the capacity to generate even greater prosperity, Ireland’s politicians became addicted to higher spending.

So the global banking crisis only exposed that the Tiger was more of a kitten than it appeared. Bailing out Ireland’s banks increased state spending even more, and the government made the problem worse by adopting a strategy of hoping it would go away if they ignored it.

The European Union has now stepped in to bail out the Republic itself – but at a price. It is hardly surprising that the national governments who are providing the actual cash – Ireland’s competitors in Europe as well as “partners” – demand that taxes go up in return. They have long been jealous of the competitive advantage Ireland has enjoyed as a result of low taxes, and so they can hardly be expected to underwrite it.

That is why the Irish have been reluctant to accept the bail out. Without those low taxes, the economic future of Ireland looks grim. A virtuous circle may be replaced by a vicious circle – higher tax rates reduce the tax base and so increase demand for even higher tax rates. Ironically, this may mean that the very people who are insisting that the Republic raise taxes may end up paying even more than they intended to underpin the Irish economy.    

Just in case our last couple of posts are misinterpreted as another case of impecunious Brits taking jealous pleasure at the impoverishment of our once-wealthy American cousins, let us make it clear that we have a much bigger problem on our own doorstep.

The American problem is that recovery is too slow, but there is still recovery and the worst of the crisis is probably past, at least for the time being. The European Union, on the other hand, has not really addressed its deeper structural problem, and is therefore a crisis waiting to happen.

In fairness, the euro, the common currency of most EU states, is a symptom, rather than the cause, of this problem. There was always a hole in the deal: the euro is only as strong as its weakest economy. In particular, lax fiscal discipline on the part of a single Eurozone government undermines the whole currency. The mechanisms for imposing discipline were weak from the beginning, but everyone ignored them when times were good.

That is no longer an option. The party is over and the bill has just been presented. The EU, however, has even less leadership than the USA. The European response to the inability of overindulged states like Greece, Spain, and Ireland to pay what they owe has been described, elegantly but all too accurately, as “agreeing a funding mechanism but not funding it”.

Nationalised banks in Ireland are bust. This in turn puts pressure on the sovereign debt of the Irish government. Much of that debt forms a key part of the balance sheets of foreign banks – not least in Britain, which may therefore suffer despite the UK not being a Eurozone member.

This could impact on the whole economy. The equity market, still a little too bullish under the circumstances, may be in denial, but the rising price of gold suggests a lot of the smart money is playing it safe in anticipation of another crash.

Meanwhile, across the Atlantic, the Americans have some right to feel smug. The first phase of the infamous Troubled Asset Relief Programme – that is to say the initial bail out of the banks, as opposed to the later unnecessary “stimulus packages” – has been a qualified success. Buying up toxic assets, as opposed to nationalising banks, means the government has been able to get away with a quick “in and out”, with no longer term commitments on either side. Most of the American banks repaid the government very quickly in order to get it out of their hair, and stability was restored to the US banking system within months. Those who still carp about it can see the alternative in Ireland.