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Will Ireland have to leave the Euro to save itself?


kerrynorth

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Joined
Oct 5, 2005
Messages
1,525
The elephant in the room regarding Ireland's future prospects as an economy is our membership of the Euro. Our membership of the Euro was always a matter of politics rather than sound economics - no one really disputes this. Since our membership we have seen nothing other than a much more erratic boom and bust than at anytime in our economic history. This is principally because our prospects as a trading nation is still defined by our relationship with the US and UK rather than Continental Europe. We get our monetary policy from Frankfurt but our economic policy from London and Washington. What our membership of the Euro has shown is that we cannot cope with these conflicting forces.

Ireland has been consistently out of sink with the Euro economy. This is largely the fault of the Irish government rather than Frankfurt. If you have to live with an inappropriate monetary policy then the correct response of government is counter with fiscal policy. That means when interest rates are too low and the currency too weak that fiscal policy acts to dampen economic activity by not cutting taxes, giving out subsidies in the form of tax breaks, and by keeping public spending in check. Of course our FF/PD government did the exact opposite - Frankfurt cannot be blamed for this.

Now that the worm has turned the other way we do not have monetary policy to react and fiscal policy has been hopelessly compromised by the actions of government over the last decade. Previously we could have reacted to these circumstances through devaluation of the currency, thereby cutting the price of our exports but increasing the cost of imports. And devaluation has always worked for us in the past. Without monetary policy we will have to pay for our Euro membership through a severe drop in living standards - this is now unavoidable, anywhere between 10-20%. This will come in the form of real wage cuts and sharp increases in umemployment.

The currency situation now makes all previous predictions on the economy, including the ESRI, all redundant. I am now reckoning on GNP declining over 7% next year with unemployment hitting 15%, and 20% into 2010. I also reckon that the government will not be able to finance the deficit into 2010 - basically no one will lend to them. I have been accused of making outlandish forecasts in the past, however, not only have they come to pass, I have been proven to be somewhat conservative compared to the outturn.

Consequently, the only way I see Ireland avoiding economic armagedon over the next 2 years (barring a worldwide economic upturn that is just not a realistic prospect) is to ditch the Euro. Radical? Yes. Necessary? Absolutely in my view.

So I throw it open to the forum. Anyone with any better analysis or solutions?
 

Bobert

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Joined
Mar 28, 2008
Messages
1,072
I don't think we should, though considering you're our very own Kerrynorthradamus I feel, neigh I fear, you're right.
 

Ramon21

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Joined
Aug 1, 2008
Messages
129
Ireland leaving the euro would mean total collapse for ireland.
probably suffer for around 2 years before trying to get back into the euro-zone.
but will probably be to late to be allowed to get back in.
like it is with the uk, support is growing to join the euro.
but the question is will the uk be allowed to join?
 

Seos

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Joined
Nov 19, 2005
Messages
153
Our membership of the Euro was always a matter of politics rather than sound economics - no one really disputes this.
I really dispute that!
 

Dreaded_Estate

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Sep 5, 2007
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3,719
I think your predictions on the likely unemployment and GNP decline and pretty much spot on KN.

But I'm not convinced that leaving the € would be the best solution to the problem.
If we delinked from the € and floated as an independent IR£v2 we would regain control of our monetary policy from Frankfurt but hand it straight over to the markets.

We simply do not have the financial clout or resources to control our interest rate or currency. The currency risk would be too great for most companies to bear. The vast majority of the multi-national companies here and here to sell their goods into Europe from a low tax base. Adding currency risk to a risk adverse business world would be too much.

I think it would be the final push to a large number of companies who are already considering the move to relocate elsewhere.


A few months ago I was able to see a way out of this mess for Ireland. I'm not sure I see it anymore. All the other possibilities are equally painful and just as unimaginable.
It is going to take us a decade to get out of this!
 

stewiegriffin

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Joined
Feb 20, 2007
Messages
842
"Will Ireland have to leave the Euro to save itself?"
For a start . Then we could begin the extermination of the bourgeoisie and redistribution of wealth and bobs yer uncle , problem solved.
 

H.R. Haldeman

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Oct 1, 2008
Messages
4,444
I think we've ballsed this up ourselves. Not one single measure to curb the credit binge/housing boom, and a whole bunch of measures to spend public money. Totally, totally arse-about-tit. We really shouldn't be in half the mess we are, but because of the negligence and venality of Bertie and Cowan, here we are.

I believe both of them to be in breach of laws about ethics in public office, specifically the gaining of advantage to themselves (namely, political power) to the detriment of the greater good (namely, the wise management of a credit boom) with full understanding of what they were doing/not doing. A crime in other words.
 

Demotruk

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Joined
Jan 23, 2008
Messages
412
The experimentalist in me doesn't think we should drop the euro either way. It'd be very interesting to see how the euro holds up for us in these circumstances.

And the nationally interested side of me doesn't think we should give it up either. I think this whole currency fluctuation has alot more to do with problems in Britain and the US than in Ireland or Europe. Yes, we're going to be losing alot of pound and dollar income, we'll have to learn to export more broadly, but I'm getting the feeling that dollar and pounds are going to be worthless for some time anyway.
 

ballot stuffer

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May 21, 2007
Messages
1,503
No no no no!

There would be an almost garunteed run on our new currency. Defending it would mean jacking interest rates to the sky. This would cause widespread defaults and possibly the collapse of our already fragile banking system.

Not defending it would mean rapid inflation.

There are simply no good ways for leaving the euro at this time to pan out.
 

McDave

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Jul 10, 2008
Messages
13,557
Anyone for jumpers instead of central heating?

No no no no!
There would be an almost garunteed run on our new currency. Defending it would mean jacking interest rates to the sky. This would cause widespread defaults and possibly the collapse of our already fragile banking system.
Not defending it would mean rapid inflation.
There are simply no good ways for leaving the euro at this time to pan out.
I agree.

And just to take your line a step further, the last thing we need is an immediate return to above-Eurozone-trend inflation - the symptom of what was going wrong with our economy all along! All this would do is prop up property prices, put upward pressure on wages and shut down the import side of our open economy (except for oil - the price of which would go through the roof - back to turf fires and bainins).

With all due respect to advocates of economic independence, talk of leaving the Euro is economic illiteracy. We need some form of discipline within which to reorganise ourselves. The Eurozone provides this discipline. What does Eurozone membership tell us? In essence, devalue your overvalued economy and start competing on price again. If we don't have this externally-induced discipline, FF will simply carry on kowtowing to vested interests until we're back teetering on the edge of the third world.
 

SPN

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Feb 2, 2004
Messages
16,890
I'm missing something here.

Sterling and the Dollar are falling like a stone. Both economies are f*cked for the next 5 years at least.

Ireland is part of the Euro and has no exposure to exchange rate risk across the Euro zone.



What possible reason might there be for abandoning the link to Germany & France, and transforming ourselves into Iceland Mark II?

Total utter and complete stupidity!

What do you propose we use to back our currency? Where do you propose we get the foreign currency reserves to pay off our current borrowings? Who in their right mind is going to lend new money to a little rock in the Atlantic with massive debts, bigger contingent liabilities, no natural resources, and a floating currency?

Can we have a little bit of reality here please?


..
.
 

Rebel CNC

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Apr 2, 2007
Messages
286
Leave the Euro??

What do you think our gombeen government would do if they had their own currency to play around with?
The Brits with the sixth biggest manufacturing economy and their North Sea oil can't stop sterling sliding to record lows. Cowen and Co would have us in a Zimbabwe situation within six months.

The money printing presses would be smoking at this stage as FF would be lashing out money to banks, saving developers and paying up on National wage agreements, etc
 
Joined
Oct 1, 2008
Messages
19
I know that turkeys usually lose their heads at christmas time.
I did'nt know it happened to people too.

Leave the Eurozone????

FFS.......
 

FrankSpeaks

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Joined
Apr 18, 2008
Messages
4,625
I'm missing something here.

Sterling and the Dollar are falling like a stone. Both economies are f*cked for the next 5 years at least.

Ireland is part of the Euro and has no exposure to exchange rate risk across the Euro zone.



What possible reason might there be for abandoning the link to Germany & France, and transforming ourselves into Iceland Mark II?

Total utter and complete stupidity!

What do you propose we use to back our currency? Where do you propose we get the foreign currency reserves to pay off our current borrowings? Who in their right mind is going to lend new money to a little rock in the Atlantic with massive debts, bigger contingent liabilities, no natural resources, and a floating currency?

Can we have a little bit of reality here please?


..
.

I am with you on this one, leaving the Euro would be totally and utterly idiotic. Our mortgages and most of our borrowings are in Euro and reinstating the IR£ would not change that fact and this is thing that would cripple us the most.
 

Respvblica

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Oct 13, 2006
Messages
212
Politically its bad because we would come under the thumb of Britain again. As a small nation our surivival as an independent state relies on a balancing act between larger groups. If England had a population of 10million, or we had a population of 30 million, we could have a balance in this part of the wprld, similar to what they have in Scandanavia were all the nations are relatively the same size. But England is the neighboring giant that can easily gobble us up. Ironically ceeding sovereignty to Brussels has allowed us more real independence, because it has freed us from the dictates of London. At least we have some say in Frankfurt.

Economically, it would be good to be harmonised with Britain, so there is a good argument to leave from the point of view of the exporters. However Ireland is more than the exports to England. In fact we now export a lot to Europe and if the Euro started to slide relative to the pound at some stage in the future we would be in exactly the same boat as we are now! So that argument fails the test. In any case we should continue to diversify our exports and not keep too many eggs in the one basket as a matter of national policy.

Theres a lot of problems with the EU and sometimes it acts scandoulously but leaving the euro would achieve nothing but moving us to again become part of the UK, if not de jure in the de facto sense. For me that is completely unacceptable.
 

goosebump

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May 23, 2008
Messages
4,953
The elephant in the room regarding Ireland's future prospects as an economy is our membership of the Euro.
Is this elephant that you seeing pink by any chance?
 

Oppenheimer

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Joined
Apr 3, 2008
Messages
1,461
(1) Our membership of the Euro was always a matter of politics rather than sound economics - no one really disputes this.
Incorrect, the stability pact was called that for a reason - to institute stability and access the scale of the Union by harmonising the currency used. If it was political well it would be one of the only examples in the history of politics in democratic countries where the politicians did not seek popularity! So just about anybody with a brain should dispute this and if you can back up your claim about no one really disputing it that would at least start increasing the credibility of your statement - one condition though, the back up should be from a sound economic thinker, i.e., not Myarse or some other opinionated but not expert commentator.

(2) Ireland has been consistently out of sink with the Euro economy. This is largely the fault of the Irish government rather than Frankfurt.
That Ireland has been out of "sync" is not a one-dimensional issue. Our economy was a basket case in the 80s prior to the devaluation and things being so bad that finally every stakeholder group got in a room and supported a collective plan. The stability (that word again) offered by EU membership and alignment gave specific targets for our economy to get on the road of convergence with the engine economy of Europe, Germany. This was always going to be a significant increase in growth in Ireland and a consequential asynchronous growth rate. That that growth was idiotically managed by the popularity-seeking politicians (back in form again obviously) I completely agree with you. By not storing in times of plenty they essentially excacerbated the problems we now have. McCreepy's policy of "spend when we have and we don't when we haven't" have probably the most immediate and damaging effects evident at this point. How any one thinks this idiot performed as a finance minister is beyond me.

(2) Now that the worm has turned the other way we do not have monetary policy to react and fiscal policy has been hopelessly compromised by the actions of government over the last decade.
True we do not have monetary policy - is that helping the Fed or the BoE at the moment? It seems that monetary policy is not the only tool that can help us in these unprecedented times. The Fed is at 0-0.25% - not much more by way of monetary policy they can do bar devalue - which they are doing by stealth with other policies and bail-outs.

(3) The currency situation now makes all previous predictions on the economy, including the ESRI, all redundant. I am now reckoning on GNP declining over 7% next year with unemployment hitting 15%, and 20% into 2010.
GNP maybe - I'd say 6% and unemployment to top at 15%. 20% is overshooting IMO.

(4) Consequently, the only way I see Ireland avoiding economic armagedon over the next 2 years (barring a worldwide economic upturn that is just not a realistic prospect) is to ditch the Euro. Radical? Yes. Necessary? Absolutely in my view.
So to take on the costly programme of pulling out of the Euro, reissuing a new currency, revaluing all goods and services in the economy to that new currency, reducing our buyer power (economy of scale leveraged from Europe), our supplier goodwill, our ability to enter new markets and sustain the ones we trade into (nobody will trade a new currency until it proves its worth - maybe ten years worth of history?), etc., at a time when we have no money to spend but have to spend other's money - how do you think we pull out of the Euro - by borrowing Euros?
 

Respvblica

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Oct 13, 2006
Messages
212
When people say that Ireland is out of kilter with the rest of Europe, I think its a gross generalisation, or it implies Germany. Spain seems to be in the same cycle as ourselves and no one there is talking of leaving.
 
G

Gimpanzee

Leaving the Euro would be a disaster. That doesn't mean that being in the Eurozone is pain free. What we need is for government to use policy to smooth out the bumps - and not go on a spending spree simply because there are low interest rates without regard to other factors - like was done by McCreevy and Cowen.
 
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