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Should the Euro be forced to de-value?


Ulster-Lad

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Oct 26, 2006
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There are several advantages and disadvantages to de-valuing a currency. Among the advantages are:

Exports become cheaper and more competitive to foreign buyers. This would provide a boost to domestic demand. The knock on effect to this would be JOBS.

The higher the level of exports should improve our account deficits.

The combination of the above leads naturally to economic growth.

There are some disadvantages but I do not see them as a factor in a recession. Inflation is the number 1 problem with devaluation. While the rest of Europe may see inflation in the future, I do not see Ireland experiencing inflation anytime soon although we will probably face interest rate rises when inflation does hit the continent.

Probably the only country in the world not to experience the recession or it’s effects has been China. China has been accused and is facing sanctions now for intentionally devaluing and maintaining it’s currency at low levels. They are not in recession and in full employment. Their export market is strong.

Question is should the EU be forced to devalue the Euro? Thoughts
 

danger here

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Mar 9, 2010
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2,586
There are several advantages and disadvantages to de-valuing a currency. Among the advantages are:

Exports become cheaper and more competitive to foreign buyers. This would provide a boost to domestic demand. The knock on effect to this would be JOBS.

The higher the level of exports should improve our account deficits.

The combination of the above leads naturally to economic growth.

There are some disadvantages but I do not see them as a factor in a recession. Inflation is the number 1 problem with devaluation. While the rest of Europe may see inflation in the future, I do not see Ireland experiencing inflation anytime soon although we will probably face interest rate rises when inflation does hit the continent.

Probably the only country in the world not to experience the recession or it’s effects has been China. China has been accused and is facing sanctions now for intentionally devaluing and maintaining it’s currency at low levels. They are not in recession and in full employment. Their export market is strong.

Question is should the EU be forced to devalue the Euro? Thoughts
Why would you want to do that?The Euro is somewhat bigger than Ireland's domestic problems,I don't see the logic of dragging down countries like France and Germany which are booming at the moment.Also google "Chinese Property Bubble" and have a read.
 

Ulster-Lad

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Why would you want to do that?The Euro is somewhat bigger than Ireland's domestic problems,I don't see the logic of dragging down countries like France and Germany which are booming at the moment.Also google "Chinese Property Bubble" and have a read.
I outlined the reasons in the Op to devalue. The main one there being jobs. Another way to look at your comment of dragging down countries like France and Germany is that in fact they (through the Euro) are preventing our growth.
 

HarshBuzz

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11,935
I outlined the reasons in the Op to devalue. The main one there being jobs. Another way to look at your comment of dragging down countries like France and Germany is that in fact they (through the Euro) are preventing our growth.
lol, they'd probably argue that we are having a more detrimental effect on them! (correctly)

the euro isn't the problem, look around you - it's here at home (the detritus of a massive, burst property bubble and a useless, corrupt government)
 
M

MrFunkyBoogaloo

I outlined the reasons in the Op to devalue. The main one there being jobs. Another way to look at your comment of dragging down countries like France and Germany is that in fact they (through the Euro) are preventing our growth.
BOOM.

The € massively fuelled our bubble and is preventing growth at the moment. It's the elephant in the room that no political party is willing to discuss, though it is only part of the problem.

While I think we should devalue, countries like France and Germany simply won't let it happen. Perhaps we need to get out for a few years and establish an independent currency.
 

riven

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Oct 4, 2007
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2,188
BOOM.

The € massively fuelled our bubble and is preventing growth at the moment. It's the elephant in the room that no political party is willing to discuss, though it is only part of the problem.

While I think we should devalue, countries like France and Germany simply won't let it happen. Perhaps we need to get out for a few years and establish an independent currency.
We fueled out own bubble. We could have used the interest rates wisely but instead built 100,000 houses a year. In a 'smart' economy where long term implication are considered, the Dutch are formally planning to build 500,000 until 2050.
 

Sariel

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May 21, 2010
Messages
318
There are several advantages and disadvantages to de-valuing a currency. Among the advantages are:

Exports become cheaper and more competitive to foreign buyers. This would provide a boost to domestic demand. The knock on effect to this would be JOBS.

The higher the level of exports should improve our account deficits.

The combination of the above leads naturally to economic growth.

There are some disadvantages but I do not see them as a factor in a recession. Inflation is the number 1 problem with devaluation. While the rest of Europe may see inflation in the future, I do not see Ireland experiencing inflation anytime soon although we will probably face interest rate rises when inflation does hit the continent.

Probably the only country in the world not to experience the recession or it’s effects has been China. China has been accused and is facing sanctions now for intentionally devaluing and maintaining it’s currency at low levels. They are not in recession and in full employment. Their export market is strong.

Question is should the EU be forced to devalue the Euro? Thoughts
The ECB can buy foreign currencies indefinitely such as the USD/GBP/CHF/JPY like the Japanese are doing now. This won't have any effect on euro members because the eurozone only runs a slight current account surplus as a whole with the rest of the world. The imbalances therefore are within the eurozone itself and since member countries all use the same currency no one is going to be able to export their way out of this mess.

So, it won't improve our trade deficit or anyone elses for that matter. And since the eurozone countries have no control over their currency, exports will be capped when the euro rises against these countries. So, there can never be a large current account surplus for the eurozone, the euro and the Maastricht Treaty institutionalizes deflation across the eurozone.

And it is not so easy to devalue your currency with the free flow of capital across borders, look at Japan just this morning lowering its interest rate to between 0% and 0.1% and have one of the strongest currencies in the world.
 

locke

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May 2, 2007
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There's a difference between the Euro and the Renminbi in that the Euro is freely floated and the Renminbi isn't.

That makes it a whole lot harder to just devalue the Euro.

All you can really do is print money, but that causes its own problems as prices rise leading to demand for higher wages, which undermines any competitiveness gains. In fact, I'd go as far as to say that devaluations just hide underlying structural problems, which always return in the long run.

Britain used the money printing approach to devaluing its currency and is just starting to see the knock on effect.

In a way, China's situation is really that it won't let its currency rise. That doesn't present quite the same problem. Still, they should never have been allowed into the WTO without floating their currency. It is essentially a form of government subsidy.
 
M

MrFunkyBoogaloo

We fueled out own bubble. We could have used the interest rates wisely but instead built 100,000 houses a year. In a 'smart' economy where long term implication are considered, the Dutch are formally planning to build 500,000 until 2050.
Agreed. It needs to be pointed out though that cheap money from the ECB fuelled the speculation.

The € is now a stranglehold on the Irish economy. How many countries, outside the eurozone, are devaluing their currency? We can't.
 

making waves

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Mar 2, 2010
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19,180
McWilliams is right when he states that no country in an economic mess of the scale of Irelands has got out of the mess without a devaluation.

The initial prompt for the Celtic Tiger was not MacSharry's hatchet job on public spending but the 8% devaluation of the punt in 1986. Indeed MacSharry's cuts almost derailed the recovery prompted by the devaluation (a lesson for the hatchetmen this time around).
 

hiker

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May 9, 2005
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1,961
According to the experts, the euro will be at parity with the US Doller by christmas.
I dont know when it'll happen but at this stage it would be akin to a collapse because there is only 3 months to christmas.

Any countries who depend on exports will be happy, ie Ireland, Germany.

But will it happen? All the idicator say 1.13 euro to the doller by December 2010.
 

Jakey

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Aug 6, 2010
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Far more sensible for Ireland to just swallow its pride and adopt the £.
 

Ulster-Lad

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So most people agree then. The answer is to devalue the Euro or withdraw from it. As stated by posters here, the EU won't allow the Euro to devalue which is only going to hurt Ireland and our recovery. Jobs will continue to be stagnant with unemployment rising constantly. What will happen when inflation starts to hit the Eurozone? We all know the answer to that. The ECB will raise the interest rates putting further pressure on us. Death by a thousand cuts.

I have seen other threads about withdrawing from the Euro and it seems people on split on whether or not that is a smart move. Where do we go from here? It seems we just wait the IMF or whoever is going to come to our rescue with more loans and demands of austerity.
 

Cassandra Syndrome

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The Euro is Ireland's 21st Century Corn Laws.
 

kerdasi amaq

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What we need is a root and branch reform of our financial system.

Starting with the re-introduction of the Punt as debt free currency. What's that? I hear you say. I'm not telling, but, find out why the US dollar(FRN's) is wrongly referred to as a "greenback".

We also need taxation reform.
 
Last edited:

hiker

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So most people agree then. The answer is to devalue the Euro or withdraw from it. As stated by posters here, the EU won't allow the Euro to devalue which is only going to hurt Ireland and our recovery.
Thats not quite what people are saying.
De-value the Euro, OK, but in relation to what?
The US Dollar.

But what if the US Dollar tanks and the at same time?
Then the Euro cannot devalue against it.

Now the talk is about the world economy "de-coupling" from the US Dollar. This has never happened before.

So what is the new world benchmark currency in this situation?
Against what currency do we wish to see the euro devalue against?
The US Dollar or the Chinese Yuan or the Japanese Yen or the Swiss Franc?

Its a new (currency) world out there and there is no clear path.
 

Ulster-Lad

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Joined
Oct 26, 2006
Messages
10,092
Thats not quite what people are saying.
De-value the Euro, OK, but in relation to what?
The US Dollar.

But what if the US Dollar tanks and the at same time?
Then the Euro cannot devalue against it.

Now the talk is about the world economy "de-coupling" from the US Dollar. This has never happened before.

So what is the new world benchmark currency in this situation?
Against what currency do we wish to see the euro devalue against?
The US Dollar or the Chinese Yuan or the Japanese Yen or the Swiss Franc?

Its a new (currency) world out there and there is no clear path.
I do not know the answer but it is clear the Euro can not exist in Ireland. Most currencies are valued against the dollar. But it seems clear that with the Euro we will not recover and only keep adding to our debt as the Euro appreciates without us.
 

hiding behind a poster

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Mar 8, 2005
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48,276
BOOM.

The € massively fuelled our bubble and is preventing growth at the moment. It's the elephant in the room that no political party is willing to discuss, though it is only part of the problem.

While I think we should devalue, countries like France and Germany simply won't let it happen. Perhaps we need to get out for a few years and establish an independent currency.
That is the one surefire way of bankrupting ourselves. Our debts are in Euro, we took them out in Euro, therefore we owe them in Euro. That's the national debt, government bonds and the interest on them, but also mortgages, credit card debt, car loans, etc. The banks borrowed that money in Euro to lend to us, therefore they have to pay it back in Euro. And our independent currency would lose value from day one, because its painfully obvious that we don't have the cash reserves to set its value. Therefore the cost in our new currency of servicing our Euro debts would skyrocket, making things here far worse.
 

hiding behind a poster

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Agreed. It needs to be pointed out though that cheap money from the ECB fuelled the speculation.
But even if we hadn't been in the Euro at the start, we'd have had to reduce our rates close to ECB levels anyway - as a much higher rate would have sent the IR£ soaring in value, thus killing the export sector of what was, at the time, still an export-driven economic boom. The cheap money was coming anyway, what was needed was a counter-cyclical fiscal policy, to mitigate the effects of that cheap money. If we had run big surpluses, and used the money to pay down debt, we would now be in a perfect position to adopt expansionary stimulii in order to get things moving again.

(Another point - people here keep claiming that if we'd had control of monetary policy, our FF government would have used that control in the national interest. BUT - with control of fiscal policy, they put buying the next election way ahead of the national interest. Why would monetary policy have been used any differently?)
The € is now a stranglehold on the Irish economy. How many countries, outside the eurozone, are devaluing their currency? We can't.[/QUOTE]
 
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