Coordinated exit from the euro

patslatt

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There was a coordinated,well planned entry process for countries joining the euro. By the same token, there should be contingency planning for a coordinated exit now that the euro is failing despite immense goodwill of EU nation states to preserve it. The cracks in euro solidarity can be overcome with Greece and Ireland because they are small enough to save but soon defending the euro will require rescuing those sovereign states too big to save: The French won't abandon adolescent pseudo revolution and welfarism;Italy won't reform its unreformable state (is Italy a country? as President DeGaulle used to ask rhetorically) and stop borrowing;Spain won't be prepared to suffer for a couple of decades from its colossal property crash. As Doctor Doom Roubini observed,the banks were rescued by the sovereign states,which in turn will be rescued by the IMF but will aliens from Mars rescue the IMF?

To prevent a run on Irish banks,maybe the introduction of the punt could be done temporarily and swiftly to achieve a one-off electronic devaluation applied to all bank balances and savings accounts, as well as mortgages, business loans,commercial paper and bonds issued by domestic issuers.In a devaluation of 25%,all the foregoing assets and liabilities would be replaced by 1 new punt per euro. All wages would be paid in punts and prices including domestic only contract prices would be required to convert to punts at the prevailing prices on the close of business the previous day.

The Central Bank or a new Central Bank of Punts would supply enough punts to ensure that the punt quickly traded at a roughly 25% discount to the euro.It could do so by increasing money supply through buying government bonds through transactions in which the seller gets a Central Bank cheque or a bank seller gets an electronic credit to its reserves at the Central Bank.

There would be a high risk that the punt could devalue too much,even crash, and cause major disruptions to import and export markets.In that event,the Central Bank could sell its own money market instruments and bonds to increase interest rates and support the currency. The government could also commit to returning to the euro at the 0.75 punt exchange rate to the euro in a year or whatever time it would take for the public to start accepting their losses from the devaluation.Of course,the European Central Bank would have to agree to this temporary devaluation. Possibly,it might see such once-off devaluations as the solution for the PIIGS but no country should be allowed to devalue a second time.

THis devaluation could be done without creating punt currency notes or coinage by allowing euro notes and coins to continue circulating. Shops would price in punts but adjust the final punt bill to euros for cash customers. Say your grocery bill is 25 punts and the exchange rate is 0.75 punts to the euro. If you pay by cheque,it is written for 25 punts but if you pay in euro notes and coins you pay €18.75.Clerks and customers would have to learn to use decimal multiplication on calculators,a new experience for many.The public would be constantly informed about daily fluctuations in exchange rates by frequent announcements on RTE and other media.

There could be a shortage of euro notes as notes wear out,which would create a business opportunity for importing notes from the UK to sell at a small markup in punts.

Coin operated machines could be allowed to continue pricing in euro and presumably competition would force those prices down to equivalent devalued punt levels.

Creditors from abroad would have to be paid in euro and that could bankrupt many importers and businesses owing large foreign loans and of course the banks. That would require bank nationalisation.
 
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TODevastated

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There was a coordinated,well planned entry process for countries joining the euro. By the same token, there should be contingency planning for a coordinated exit now that the euro is failing despite immense goodwill of EU nation states to preserve it. The cracks in euro solidarity can be overcome with Greece and Ireland because they are small enough to save but soon defending the euro will require rescuing those sovereign stated too big to save: The French won't abandon adolescent pseudo revolution and welfarism;Italy won't reform its unreformable state (is Italy a country? as President DeGaulle used to ask rhetorically) and stop borrowing;Spain won't be prepared to suffer for a couple of decades from its colossal property crash. As Doctor Doom Roubini observed,the banks were rescued by the sovereign states,which in turn will be rescued by the IMF but will aliens from Mars rescue the IMF?
or as someone teeted to the VB show during the week

"who will bail out the IMF after FF have finished with it"
 

TODevastated

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Patslatt, Irish people have 100 billion on deposit in Euro. What happens to that if Ireland leaves the euro? Who gets it?
the same as what happened to it when we went into the euro

a strike rate was set for each of the currencies at the time, our rate was

IR£1 equated to €1.269738

so a rate would be struck and our € would be redenominated back into punts or whatever unit of currency that we would choose to use

customers I presume prior to a change over might choose to say open € or STG or $ accounts at the time
 

seabhcan

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the same as what happened to it when we went into the euro

a strike rate was set for each of the currencies at the time, our rate was

IR£1 equated to €1.269738

so a rate would be struck and our € would be redenominated back into punts or whatever unit of currency that we would choose to use

customers I presume prior to a change over might choose to say open € or STG or $ accounts at the time
The difference was when we joined the euro, the punt was scrapped. If we go back to Punt, the Euro continues to exist and have value.

And you can guarentee that the value of punt would fall after redenomination (otherwise, whats the point?) therefore people who hold on to their euro have a massive advantage.

How can the government force people to hand their euro's over to the state? And if they don't, who would use the Punt?
 

TODevastated

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The difference was when we joined the euro, the punt was scrapped. If we go back to Punt, the Euro continues to exist and have value.

And you can guarentee that the value of punt would fall after redenomination (otherwise, whats the point?) therefore people who hold on to their euro have a massive advantage.

How can the government force people to hand their euro's over to the state? And if they don't, who would use the Punt?
Yes, the Euro continues to exist and have value.

Yes, you can guarantee that the value of punt will fall (thats why I alluded to the fact that people will keep their money in Euro or move it to $ or STG)

As with the original redenomination and renominalisation of Punts into € we did not all go to the central bank with all our money on the strike date the money was redenominated into the new currency

I would think that a law would be passed here designating say punts as the new legal tender of the state and businesses would be obliged to use it (just like now if I go into a pub here the barman won't take sterling off me)

the initial big problem would be, as you say, people would choose to keep their € (thinking that they would loose value in a new punt) and if the Irish banks were obliged to redenominate as they did with the € changeover there would most likely be a run on the banks as we all took our money out and lodged it in say Rabo!!
 

seabhcan

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I would think that a law would be passed here designating say punts as the new legal tender of the state and businesses would be obliged to use it (just like now if I go into a pub here the barman won't take sterling off me)
There is no law preventing the barman from accepting Sterling - he simply can't be bothered. There is a law - largely unenforceable - requiring him to accept euro in payment of debts, but no law requiring him to make the sale in the first place. Post-changeback, business could easily accept payment only in euro by refusing sale if punt was on offer.

In Russia in 1998 the currency collapsed and was replaced with the "new rouble", knocking 4 zeros off. People there still don't keep their savings in roubles. They save in dollars or euro. There is a law forbidding sale of goods for foreign currency. People and businesses get around this by pricing expensive goods in a fictional currency called y.e. (stands for equivalent unit. Meaning dollars) and offering a foreign exchange on site. This system continues 12 years after the crash with no sign of any change. I'd expect the Irish economy to continue on euro decades after a government announcement of a change back to punt, just as it continued on Sterling decades after independence.

the initial big problem would be, as you say, people would choose to keep their € (thinking that they would loose value in a new punt) and if the Irish banks were obliged to redenominate as they did with the € changeover there would most likely be a run on the banks as we all took our money out and lodged it in say Rabo!!
This problem is insurmountable. Any announcement of a changeback, or even a suggestion of it, would collapse the banks within hours. You cannot save the banks by collapsing them.

Even if you could somehow instantly change back with no bank run, the banks would still collapse. The reason is that the banks owe money to bondholders in euro. They owe money to German pension funds in euro. This cannot be re denominated. If you changed deposits to punt, then the value of deposits would fall and the banks would no-longer have the required balance of deposits to debts. They would have to borrow euro from the ECB - but the ECB would no-longer be willing to lend because we are now outside the euro. The banks would thus collapse. This would happen in the space of a few hours after changeback.
 
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DCon

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Patslatt, Irish people have 100 billion on deposit in Euro. What happens to that if Ireland leaves the euro? Who gets it?
The banks have gambled all that cash and lost..
 

TODevastated

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There is no law preventing the barman from accepting Sterling - he simply can't be bothered. There is a law - largely unenforceable - requiring him to accept euro in payment of debts, but no law requiring him to make the sale in the first place. Post-changeback, business could easily accept payment only in euro by refusing sale if punt was on offer.

In Russia in 1998 the currency collapsed and was replaced with the "new rouble", knocking 4 zeros off. People there still don't keep their savings in roubles. They save in dollars or euro. There is a law forbidding sale of goods for foreign currency. People and businesses get around this by pricing expensive goods in a fictional currency called y.e. (stands for equivalent unit. Meaning dollars) and offering a foreign exchange on site. This system continues 12 years after the crash with no sign of any change. I'd expect the Irish economy to continue on euro decades after a government announcement of a change back to punt, just as it continued on Sterling decades after independence.



This problem is insurmountable. Any announcement of a changeback, or even a suggestion of it, would collapse the banks within hours. You cannot save the banks by collapsing them.

Even if you could somehow instantly change back with no bank run, the banks would still collapse. The reason is that the banks owe money to bondholders in euro. They owe money to German pension funds in euro. This cannot be re denominated. If you changed deposits to punt, then the value of deposits would fall and the banks would no-longer have the required balance of deposits to debts. They would have to borrow euro from the ECB - but the ECB would no-longer be willing to lend because we are now outside the euro. The banks would thus collapse. This would happen in the space of a few hours after changeback.
if we were to leave, having received a parting "gift" to sweeten the blow, might this work if the "gift" was large enough?

i am trying to put together a scenario which might see us leave but it is hard to do so whilst finding a workable way of doing it

so has the time come to move our funds out of the country then?? or is that just panicing?
 

myhonorisloyalty666

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if we were to leave, having received a parting "gift" to sweeten the blow, might this work if the "gift" was large enough?

i am trying to put together a scenario which might see us leave but it is hard to do so whilst finding a workable way of doing it

so has the time come to move our funds out of the country then?? or is that just panicing?
What kind of gift?:confused:

We are broke and they want their money back. They own us.

Are you on planet Earth?
 

seabhcan

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if we were to leave, having received a parting "gift" to sweeten the blow, might this work if the "gift" was large enough?

i am trying to put together a scenario which might see us leave but it is hard to do so whilst finding a workable way of doing it

so has the time come to move our funds out of the country then?? or is that just panicing?
Your money is safe where it is because we are not going to leave the euro. Its not possible, regardless of how bad things get. It can never happen.
 

patslatt

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We could use a currency based on a basket of currencies

the same as what happened to it when we went into the euro

a strike rate was set for each of the currencies at the time, our rate was

IR£1 equated to €1.269738

so a rate would be struck and our € would be redenominated back into punts or whatever unit of currency that we would choose to use

customers I presume prior to a change over might choose to say open € or STG or $ accounts at the time
The basket could be trade weighted to our exports on a formula and possibly including a small gold backing when and if gold reaches certain moving average prices,say a four year moving average.
 

seabhcan

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The basket could be trade weighted to our exports on a formula and possibly including a small gold backing when and if gold reaches certain moving average prices,say a four year moving average.
Patslatt, how many more threads will you start on this issue? Ireland will never leave the euro because it is impossible.
 

jams odonnell

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Don't you mean

Leave the Euro?

or

build a rocketship to travel to a new planet and start again?

Good luck with all that...
 

wombat

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Patslatt, how many more threads will you start on this issue? Ireland will never leave the euro because it is impossible.
I was thinking that its something we could debate in the future but on second thoughts I don't see any point. We cannot leave at present or our banks will really collapse - no cash in the ATM machine. Once the situation stabilises we will be completely tied to the Euro.
 

kerdasi amaq

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So what if the banks collapse, we can always create new ones.

That's what Declan Ganley should do: set up a new bank. Now , is the perfect time to do it.
 

clytaemnestra

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The biggest single difficulty in leaving the Euro is that by flagging it in advance we could bankrupt the country in minutes. We would have to pass legislation (in special secret session over a weekend if we were to avoid an instant run on the banks) to prevent money leaving the country before we could even begin the painful process of redenomination. Such legislation would no doubt breach a fundamental principle of EU law providing for free movement of capital and would amount, in effect, to a secession from the EU.

I say: do it. Hehe.
 


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