Reuters: time for a sabbatical from the Euro?

feargach

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Interesting analysis by Mohamed El-Erian of Reuters:

What is evolving in Ireland today resembles what was done in Greece six months ago...

At its roots, the approach addresses liquidity but not solvency. It adds to the debt overhang rather than reducing it. And it uses the socially-painful method of income and growth compression as the principal way to promote international competitiveness over time.
He continues with some outside-the-box thinking:
At some stage, Europe will need to find a better way ... It needs alternative approaches ...

In a wider policy debate, debt restructuring would be considered as a possible pre-emptive option rather than a disorderly inevitability; thought would be given to the possibility of the weakest Euro-zone members taking a type of sabbatical from the club and rejoining on a stronger and more sustainable basis.
This kind of "sabbatical" would presumably take the form of us, Greece, Spain, Italy and Portugal taking on a new currency. This would then be devalued sharply against the Euro, by about 40%.

If it worked correctly, this would eliminate the need for debt restructuring.

When Argentina devalued in the early noughties, the resulting boom in Argentine exports was so huge and so profitable, that Buenos Aires was able to pay off all its debts to the IMF many years ahead of schedule.

(Although, to be honest, debt restructuring still makes a lot of sense. If the USA can openly renege on its solemn promise to pay an ounce of gold to everyone with US$42, it's hardly fair to say that nobody else can reorganize their obligations.)
 


Clanrickard

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Interesting analysis by Mohamed El-Erian of Reuters:



He continues with some outside-the-box thinking:


This kind of "sabbatical" would presumably take the form of us, Greece, Spain, Italy and Portugal taking on a new currency. This would then be devalued sharply against the Euro, by about 40%.

If it worked correctly, this would eliminate the need for debt restructuring.

When Argentina devalued in the early noughties, the resulting boom in Argentine exports was so huge and so profitable, that Buenos Aires was able to pay off all its debts to the IMF many years ahead of schedule.

(Although, to be honest, debt restructuring still makes a lot of sense. If the USA can openly renege on its solemn promise to pay an ounce of gold to everyone with US$42, it's hardly fair to say that nobody else can reorganize their obligations.)
That sort of thinking is heresy to the Eurotrons. They don't care about Ireland or new ideas. They slavishly cling to the EURO as a precursor to a United States of Europe.
 

wombat

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When Argentina devalued in the early noughties, the resulting boom in Argentine exports was so huge and so profitable, that Buenos Aires was able to pay off all its debts to the IMF many years ahead of schedule.
One difference - our exports are booming - our problems are internal - broken banks and broken govt. If we devalued, the govt. would still be spending 50 sea shells for every 30 sea shells collected.
 

feargach

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One difference - our exports are booming - our problems are internal - broken banks and broken govt. If we devalued, the govt. would still be spending 50 sea shells for every 30 sea shells collected.
Why, because you fervently believe it, or you are both psychic and clairvoyant?

With precisely the same amount of evidence, i.e: none, I could say that they'd be running a balanced budget. But I won't because I don't lie to people and say I know what the future holds.
 

rubensni

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That sort of thinking is heresy to the Eurotrons. They don't care about Ireland or new ideas. They slavishly cling to the EURO as a precursor to a United States of Europe.
Or they've read a book on European history between 1848 and 1945.
 

wombat

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Why, because you fervently believe it, or you are both psychic and clairvoyant?.
No, I just look at the arithmetic. Govt. spending exceeds income - nothing to do with currency, changing currency does not solve the problem.
 

feargach

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No, I just look at the arithmetic. Govt. spending exceeds income - nothing to do with currency, changing currency does not solve the problem.
That is waffle.

If our currency falls 40% in relation to foreign currency, demand for Irish exports will grow by 40%. Therefore the taxes taken in from those exports will grow by 40%.

That is how devaluation works.
 

wombat

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That is waffle.

If our currency falls 40% in relation to foreign currency, demand for Irish exports will grow by 40%. Therefore the taxes taken in from those exports will grow by 40%.

That is how devaluation works.
Without reform the govt. will p1ss away any extra taxes. There is no magic solution.
 

feargach

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I'll go further. The domestic value of our agricultural exports, for example, will also grow by 40% (actually, probably a bit more on average as global warming continues to send food prices higher).

There will be pain too, of course. Petroleum imports will be more costly. Individuals making journeys as the sole occupant of one vehicle will become less common. Wind farms will no longer need subsidy to be economically viable.

But your core assertion that currency is unimportant is sheer moonshine and utter falsehood. Devaluation boosts export demand like nothing else on earth, and you are a fool or a liar if you pretend otherwise.
 

feargach

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Without reform the govt. will p1ss away any extra taxes. There is no magic solution.
Kindly stop pretending that you know the details of the plans of future ministers for finance. If you were privy to that kind of info you would live in a golden castle and be waited on by 72 virgins.
 

nuj

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Mohamed El Erian isn't "of Reuters". He's CEO and CIO of Pimco, the world's largest (private) bond investors.

He might have been reported on Reuters, but there's a big difference. Please change the thread title.

Mohamed A. El-Erian - Wikipedia, the free encyclopedia
 

MPB

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Interesting analysis by Mohamed El-Erian of Reuters:



He continues with some outside-the-box thinking:


This kind of "sabbatical" would presumably take the form of us, Greece, Spain, Italy and Portugal taking on a new currency. This would then be devalued sharply against the Euro, by about 40%.

If it worked correctly, this would eliminate the need for debt restructuring.

When Argentina devalued in the early noughties, the resulting boom in Argentine exports was so huge and so profitable, that Buenos Aires was able to pay off all its debts to the IMF many years ahead of schedule.

(Although, to be honest, debt restructuring still makes a lot of sense. If the USA can openly renege on its solemn promise to pay an ounce of gold to everyone with US$42, it's hardly fair to say that nobody else can reorganize their obligations.)
We do not need to restructure our debt obligations, the Banks do.

We can manage our debts and our deficit.

We cannot afford to bailout German, French and British Banks.

If the IMF are worried about the International Banking System ( as the Rothschilds should be ) let them pay to save it.

We have managed fine without a Banking system for 2 years.

Our problem stems from trying to save it.
 

wombat

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Kindly stop pretending that you know the details of the plans of future ministers for finance. If you were privy to that kind of info you would live in a golden castle and be waited on by 72 virgins.
You need to either sober up or seek medical help, in either case, if you ever get a civil tongue back in your head, I may pay attention
 

wombat

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We have managed fine without a Banking system for 2 years.
Some have, unfortunately many businesses employing a few people have not, the banks and lack of credit have cost many their jobs.
 

Magror14

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There is a good argument that at the time we joined the Irish economy was too out of sync with the rest of Europe. We either should not have joined or we should have been much more proactive in adapting our economy. The fact that we didn't was our fault not Europes' The Euro is one Man's greatest achievements. The roll out of the Euro to every ATM across Europe on the 1st January 2002 was the biggest logistical exercise ever.

I am glad that we are in Europe and the Euro.
 

feargach

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I am glad that we are in Europe and the Euro.
That's what people said in the 80s when some fools were clinging to the notion that it was sustainable to keep the Irish punt high against sterling. At long last the sensible folk won the day and devalued and exports boomed immediately afterward as emigration fell.
 
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There is a good argument that at the time we joined the Irish economy was too out of sync with the rest of Europe. We either should not have joined or we should have been much more proactive in adapting our economy. The fact that we didn't was our fault not Europes' The Euro is one Man's greatest achievements. The roll out of the Euro to every ATM across Europe on the 1st January 2002 was the biggest logistical exercise ever.

I am glad that we are in Europe and the Euro.
The euro is one of mans greatest achievements?
lol
Yea its right up there with space travel and instant internet..

Without the ECB as lender of last resort and their low interest rates our economy could never have got nearly so out of control, we would not owe hundreds of billions to foreign bankers and we would not have hundreds of thousands of over-priced un-wanted houses.
The euro has, quite clearly, been an epic disaster for ireland.
 

wombat

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Without the ECB as lender of last resort and their low interest rates our economy could never have got nearly so out of control, we would not owe hundreds of billions to foreign bankers and we would not have hundreds of thousands of over-priced un-wanted houses.
.
The property bubble was the deliberate creation of Irish govt policy, we need to stop blaming others for our problems. We did not have the euro in 1977 when FF previously wrecked the economy.
 

nuj

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El Erian is still an investor/trader, and not independent . Doesn't make him wrong or right, but stop treating his views as those of a disinterested commentator.
 


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