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David McWilliams: Ditch the Euro

eurosceptic

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Apr 29, 2008
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83
Prof. David McWilliams writes an excellent piece arguing for the relaunch of the punt. He amkes a number of superb points.
1- The "need" to stay in the euro is similar other failed totem poles like "property only goes up", "soft-landing" and "banks well capitalised".
2- We cannot deflate our way out of this mess.
3- Anyone who questions a totem pole is first ridiculed and then viciously attacked before it accepted they were right all along.
4- It would require brave decisions like reneging on the state gaurentee of interbank lending and big investors would get an almighty kick in the cojones.
5- There would be a rapid devaluation of the new punt but that would immediatly make us competitive again.
6- We could use quantitative easing to lift the liquidity trap. Inflation would have to be carefully managed.
7- Many countries have used devaluations successfully before.
8- Even Iceland has now restabilised.
9- The banks would fold, but why not let them and gaurentee personal deposits up to a certain level and start new banks.
10- The price of land would collapse but it would find its level again before too long.
11- Unemployment would fall dramatically as it did in scandanavia and asia.
12- Ther would be a flight of capital but it would return once the economy settled.
13- Middle aged savers would be hit very hard but young people with debts would win bigtime.
14- Before the 1993 devaluation there was all sorts of threats of economic disaster which never materialised.
15- On our current trajectory we are facing slow strangulation.

Well he is a professor of economics so knows what he is talking about. Point 15 is the most telling. By staying in the euro we have a large degree of certainty and stability but that just means a slower death. Its time for some radical solutions.

Ditching the euro could boost our failing economy - Analysis, Opinion - Independent.ie
 


McGyver

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Feb 3, 2009
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23
A number of problems with this one.

1. Are debt is denominanted in euro. We would thus massively increase our debt a la the Argentinian peso crisis a few years ago. The country would default and never get access to international capital markets again.

2. All our structural problems such as a corrupt political leadership and oveerly powerful "social partners" would be still in place.

Having said that, our only other options imo are default within the euro and a period of enforced wage and price deflation, or a very outside possibility we can actually institute far reaching cuts in time to avert bankruptcy
 

dmc444

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Feb 6, 2009
Messages
193
Prof. David McWilliams writes an excellent piece arguing for the relaunch of the punt. He amkes a number of superb points.
1- The "need" to stay in the euro is similar other failed totem poles like "property only goes up", "soft-landing" and "banks well capitalised".
2- We cannot deflate our way out of this mess.
3- Anyone who questions a totem pole is first ridiculed and then viciously attacked before it accepted they were right all along.
4- It would require brave decisions like reneging on the state gaurentee of interbank lending and big investors would get an almighty kick in the cojones.
5- There would be a rapid devaluation of the new punt but that would immediatly make us competitive again.
6- We could use quantitative easing to lift the liquidity trap. Inflation would have to be carefully managed.
7- Many countries have used devaluations successfully before.
8- Even Iceland has now restabilised.
9- The banks would fold, but why not let them and gaurentee personal deposits up to a certain level and start new banks.
10- The price of land would collapse but it would find its level again before too long.
11- Unemployment would fall dramatically as it did in scandanavia and asia.
12- Ther would be a flight of capital but it would return once the economy settled.
13- Middle aged savers would be hit very hard but young people with debts would win bigtime.
14- Before the 1993 devaluation there was all sorts of threats of economic disaster which never materialised.
15- On our current trajectory we are facing slow strangulation.

Well he is a professor of economics so knows what he is talking about. Point 15 is the most telling. By staying in the euro we have a large degree of certainty and stability but that just means a slower death. Its time for some radical solutions.

Ditching the euro could boost our failing economy - Analysis, Opinion - Independent.ie
I wouldnt say just because he studies economics he must be right. Remember the saying ask two economists a question and youll get three opinions.

McWilliams is basically saying let the economy fall even further and sure it might just get better.

Also if Iceland is doing so well can you tell me why they are applying to join the EU.

Mary Poppins economics- Harsh medicine will no sugar to help it go down.
 

Middleaged

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Jul 30, 2008
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219
What is the collective noun for fool's, herd,gaggle,heap,flock,school???
 

FutureTaoiseach

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Mar 20, 2005
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I find his argument persuasive but I do not fully agree with him. On the one hand, outside of the euro, we would probably react to this crisis by devaluing the Punt to boost exports, especially given that deflation makes it relatively safe to do so without the risk of rampant import-inflation. On the other hand, the longer-term picture would be one in instability for Irish and multinational exporters/importers to/from the State. What we do need though is a revisitation of the single-interest rate. For 10 years, we have had a monetary-policy determined by the interests of France and Germany rather than Ireland, and it cannot be credibly denied that this has been a catastrophe for our property-market, being a key factor in our recession being worse than most other EU states (though it was even worse in Spain - which voted yes to the EU Constitution/Lisbon - where unemployment is now 17% - 4 million people). However, this questioning attitude to European integration increases my hopes that he can yet be brought over to the no campaign in Lisbon II.
 
Joined
Jul 10, 2008
Messages
16
brilliant plan! don't know why this wasn't mentioned before!

I'll have to tell my cousins in Mississippi and Tennessee to do the same! Leave the dollar! Why be a repressed country in a giant monetary zone!

sheer genius, we can start a new funny-money called the 'whatever' and it will be.... literally... the magic pill that solves years of credit abuse and bubble formation overnight!

All this time I had been hoping for a magic panacea and there was none, thank god for this! If only we just left the euro things would be fixed in the morning.....

incidentally, i remember the first time i hit the crack pipe and then wrote something too.... ffs....
 

TradCat

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Jun 5, 2005
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If he is right and we can't deflate our way out of trouble then that is also true for the rest of the eurozone. So at some stage the ECB will have to follow Obama and start printing money so we can all inflate our way out together.

If not then his idea might become necessary.
 

dmc444

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Feb 6, 2009
Messages
193
The problem with quantative easing is it is very easy to start printing money but extremely hard to stop and then you get a spike in Inflation followed by rising interest rates.
 

Rebel CNC

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Apr 2, 2007
Messages
286
Give FF control over currency and interest rates and you can be sure they'd use it for short term gain and to buy the next election. The printing presses would be working overtime to print the big wage increases for the public sector workers that Biffo and Lenihan want to be best friends forever with.

They certainly wouldn't take the real steps necessary to make us competitive again.
 

Clanrickard

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Apr 25, 2008
Messages
32,802
If he is right and we can't deflate our way out of trouble then that is also true for the rest of the eurozone. So at some stage the ECB will have to follow Obama and start printing money so we can all inflate our way out together.

If not then his idea might become necessary.
His is right on the money. We need to get out of the straight jacket that is the Euro. The ECB must think of inflation first thanks to German obsession with the Wiemar Republic. Inflating things would help personal debt big time but that argument meets with haughty disdain from the useless Trichet. We have a currency we have no control over. Remember 4 countries, France Germany, Spain and Italy have 4 permanent seats on aboard of 6. Dictatorship by the big boys for the big boys. It is beyond a joke listening to people twittering about Euro membership as if it is some club of equals rather than a political project run by the gruesome twosome of France and Germany.
 

seabhcan

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Sep 3, 2007
Messages
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4- It would require brave decisions like reneging on the state gaurentee of interbank lending and big investors would get an almighty kick in the cojones.
5- There would be a rapid devaluation of the new punt but that would immediatly make us competitive again.
6- We could use quantitative easing to lift the liquidity trap. Inflation would have to be carefully managed.
7- Many countries have used devaluations successfully before.
9- The banks would fold, but why not let them and gaurentee personal deposits up to a certain level and start new banks.
10- The price of land would collapse but it would find its level again before too long.
12- Ther would be a flight of capital but it would return once the economy settled.
13- Middle aged savers would be hit very hard but young people with debts would win bigtime.
We could achieve the same result just by shooting people and taking their wealth. Sure it worked for the Nazis and the Soviets, didn't it? And their economies did, eventually, recover.

I am a young saver, with zero debts and no mortgage. I am already paying for the stupidity of others through higher tax and low interest rates. It will be a cold day in hell before I let the government take my savings and hand me monopoly money in exchange. I would actually fight, investing some of my savings in a gun. They'd have to send the Irish Army door to door to confiscate our euros - and we'd make Falluja seem tame.

big investors would get an almighty kick in the cojones.
Yes, the solution to our problems is to wipe out the last people who have money left - primarily our pension funds.

Eurosceptic - I don't care how big your mortgage is - your not getting your hands on my savings. You bankrupted yourself. Live with it.
 

Flango

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Joined
Feb 3, 2009
Messages
7
I can think of lots of problems with this:

Everyones mortgages would be in euros, but earnings in punts, which would be almost worthless because there would be a crippling devaluation. The Government could nationalise the banks and redenominate mortgages in punts, but we would still be stuck with the banks enourmous debts, in euros.

Devaluation means a massive, massive pay cut for everyone in the state - it would be harder in the short term but less painful in the long term to just cut euro wages. Since we depend heavily on imports, our cost of living would depend on the euro and sterling, and the new punt is guaranteed to plummet against them, raising the cost of living. Interest rates would have to be jacked to the sky to protect the currency, think 15-20% on your mortgage vs under 2% in the euro zone.

Anyone with any savings would instantly transfer their euros out of the country to avoid having them exchanged with worthless punts, meaning our banking sector would be permanently crippled.

If we want to leave the euro, we have to do it when the economy is strong, not weak.

Devaluation is a terrible idea - it robs money out of the pockets of those who have been sensible and prudent and saved money, to reward those who gambled and took on lots of debt. Leaving the euro would be economic shock therapy on a grand scale, we would be in exactly the same place as Iceland are now.

What devaluation is is a universal wage cut by any other name - except it means that we would have to leave the comfort of the eurozone at a time when we do not have the resources to prevent a run on the punt.
 

Rebel CNC

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Apr 2, 2007
Messages
286
.... It is beyond a joke listening to people twittering about Euro membership as if it is some club of equals rather than a political project run by the gruesome twosome of France and Germany.
I'll take my chances with the Germans and French rather than crowd of gombeens and corrupt Dublin skangers that populate FF.
 

dmc444

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Feb 6, 2009
Messages
193
If we left the Euro and set up our own currency. We would have to link it to Sterling other wise it wouldnt be worth the paper its printed on, we would end up like Zimbabwe.
 

Libero

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May 22, 2004
Messages
2,994
He's raised this before; it wasn't so long ago.

And when he did, he drew a lot of criticism. Now, much of this criticism was reflexive and reflected how some people do hold euro membership as a shibboleth.

But others raised informed and credible points against the idea, especially the aspect of how it would be very difficult - short of installing a dictatorship - to implement the actual change-over and prevent ruinous capital flight and the fleecing of those savers without advance warning.

McWilliams must be aware of these objections, unless he doesn't bother reading his own press. Yet he doesn't address them. I find that disappointing.

I think all commentators on this subject (yes, even the OP) would gain credibility if they accept that there's no absolutely compelling argument for or against continuing euro membership; each has significant dangers and downsides.
 

Clanrickard

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Apr 25, 2008
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marmurr1916

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Dec 19, 2006
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Ah yes, the Mugabe solution.

That'll solve all of Ireland's problems in a stroke.

What a genius!

The man should be President (for life naturally).
 


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