Ireland exiting the euro ??

Ireland exiting the euro and the risk of setting the Irish economy on fire → finfacts.ie/irishfinancenews … 8459.shtml

Ireland exiting the euro will have zero impact on our situation. To have any effect it would also need to “re-denominate” its bonds into a new local currency; in other words defaulting on it’s promises to pay back its bonds in euros, and instead forcing the bondholders to accept the new local currency instead. To default like this would be horrendously bad policy - especially when we are gifting tens of billions of euro via Nama in order to ensure a good international reputation.

Having said that, I think exiting euro and re-denominating the debt is a possibility down the road once the great unwashed realises there’s no more money left. This would add yet another 10-20-30 years onto any recovery.

I think irelands only option at this stage is default and leave the euro. the amount of personal and public debt is just too great to repay. whats most likely to happen is the economy will limp along like Argentina in the late 90s with an overvalued exchange rate, an economy contracting, huge fiscal deficit and growing social unrest. the longer the default is put off the more catostrophic the final collapse will be. the pinto will undershoot its real value and at that stage its worth considering going back to the emerald isle

Talk of leaving the Euro like most things misses the point.

As mentioned above, our debts (public and private) are in Euros.

So what happens?
We redenominate everyone’s savings to Puntos but leave their debts in Euros?
No. That makes things worse and achieves nothing.
The Debts have to go Punto, that’s the key point.

So, we have to get the people who lent the money to accept Puntos
(i.e. accept less back than they lent. I.e. we need to default).

Well screw it, if we’re going to default why bother going through the charade of
a new currency.

I’m pretty sure that any lender would prefer to negotiate for a lesser amount of
Euros (at least it’s real money). Than negotiate for some worthless Puntos that could
be worth half as much tomorrow as they are today.

And what does one do with Puntos outside Ireland?

The only way we should leave the Euro is kicking and screaming and being manhandled
by big brawny Germans sick of our profligate ways.

As long as we’re in the Euro we have other countries with a vested interest in keeping
us afloat. Personally I don’t think we deserve to be afloat, but we are where we are.

Also, Whatever the rights and wrongs of it. It just ain’t gonne happen.
So don’t waste any grey cells on it.

The list of things that will happen before we leave the Euro is so frightening
that none of us will care what currency we’re using.

Buttons and Beans will have an exchage rate.

-Rd

Put that the other way around - if you are going to default, why not change currency? You get to cut public sector wages and social welfare entitlements without messing with the numbers (which is what people care about) - just the value of those numbers.

You know Ive never really got that arguement because everything we have to import as essential such as oil also goes up in cost as well as food stuffs and pharma and we are then back to the bog way of life with the biggest part of the economy the black economy.

People might not be best pleased when they discover a full week’s wages in the new currency won’t buy a cup of coffee up north.

For some reason people always seem more willing to accept a pay cut like this.

why does this madness continue to get air/print/electron time?

Within reason yes because they’re not sensitive to a 30% drop in purchasing power abroad even when it happens quickly (although in more modern times people might notice the difference more via ebay, amazon etc).

However a new Irish currency would be a lot more than even a 30% drop. You’re talking about a “we have to ration petrol” type drop.

Correct, we would be back to turf ricks in the Phoenix park.

The reason this sounds good is it plays well in certain quarters the ones that have some idea of the short term pain ]

The reason I think it is a possibility is that it plays well for the government. Cuts all round - without the strikes.

While the central tenant of (for want of a better word) “logic” behind the argument of the “leave the Euro” proponents is sound ("Leave the Euro and create our own currency. Actively or allow the markets to devalue it, thus making our exports less expensive, thus selling more, thus generating more income in the country, thus increasing the size of the economy … happy days 8DD "), I think it is somewhat naive and misses a few key points;

a) Ireland is a tiny economy. Leaving the relative safety of the large and (to all intents and purposes) German run Eurozone at a time of economic crisis would, IMHO, be akin to a man who can not swim, jumping off a perfectly sound ship mid-Atlantic in the middle of a storm and deciding to swim back to shore.
b) A staggeringly high percentage of Irish exports are accounted for by “foreign owned” organisations. According to a recent FinFacts article, using 2004 Forfás figures, it’s 90% (Irish Economy: Home Truths on Irish Exports as Ireland faces a changed global economy in the decade ahead). Exporters have generally been pro-Euro membership and foreign multinationals here have been at the vanguard of that movement. Creating a free floating (potentially free falling) local currency would introduce new foreign exchange risks to these organisations and could undermine their medium term view of Ireland as base of operations.
c) A devalued currency would increase the external debt repayment burden. Not only is the State indebted to foreign institutions and bond holders, but the loans and mortgages held by Mick and Biddly Public are funded by borrowings by (the now State bailed out) Banks from other international banks. As a result, with a weak soverign currency the country would have to earn more to repay the debts.
d) Ireland’s largest export “market” and second largest import supplier is the Eurozone (source: CSO External Trade figures). Remaining within the block and reducing our costs would, in business parlance, give us a significant completive advantage by making our exports less expensive without the foreign exchange risks and potential for higher import costs.

IMHO, leaving the Euro, at best, would allow for a band-aid solution to hiding the symptoms of the fall out from mishandling of matters both economic and fiscal. In order to address the root cause of the problem, we need to deal with the greed, ineptitude and sense of entitlement that pervaded the bubble years. Their legacy is a lack of fiscal perspective, where people know the price of everything and the value of nothing (including both risk and money), where paying more was seen a badge of achievement and status, where cash was thrown around by politicians, banks and private individuals, and where both personal principals and responsibility were cast aside for a quick buck, social climbing and personal gain. As a result, an inflationary spiral was created that fed prices that fed salaries that fed prices that fed salaries (repeat until bubble bursts). The legacy of high costs and salaries (relative to our trading partners and proportionate to our diminutive ‘status’) needs to be addressed, as does the mind set that lead to them. A period of internal price and salary, not currency, deflation is required.

Ireland going it alone and leaving the Euro, makes about as much sense as the Arann Islands breaking away and creating their own sovereign currency.

Blue Horseshoe

The reason it plays well is that it makes people think we’ll just forget that whole debt problem and pretend it never existed. It makes them think all their obligations will be wiped out and we’ll just proceed as normal but without debt.

People imagine they’ll suddenly own their house outright along with the car and everything else.

I can’t understand how people think this is a remotely good idea.

Maybe they have already opened up a euro bank account in Newry?

And this is precisely why it would be done (if it were to be done).
Can you tell me something done by the Irish state recently that shows they ever look for any other solution other than band-aids?

(Note: just because I think it is a possibility that Ireland would do this, does not mean that I think it is anything other than a bad idea. But NAMA was a bad idea too - and look where we are now).

This is the first big financial crisis since the Euro was created.
Even if a small country like Ireland left at the first sign of trouble it would do a lot of
harm to the reputation of the Euro.

Whether Ireland wants to leave or not it won’t be allowed. Too many people outside Ireland have too
much invested in the Euro project to let it happen.

There is no mechanism for a member of the Eurozone to leave or to be expelled.

That said, if there were, and Ireland were to leave it would be a “mixed blessing” for the currency.

On one had the Euro Sceptics would point to the departure of “the Celtic Tiger” as weakness and dig up the “failure of the one size fits all approach” (the fact that a one size imposed on all is exactly how all economies work and isn’t 100% in the US, the UK or any other large economy where there are significant differences in regional/local economic performance, but you just get on with it, tends to be lost on those pushing the arguement). On the other had, the loss of the “dead weight”, all be it relatively small in the overall zone, that Ireland brings to the currency would be a benefit.

Still, we’re in for better and for worse, in sickness and in health … etc …

Blue Horseshoe

Just read McWilliams book where he advocates leaving the Euro.
He compares the ECB strategy with the dominio theory that justified USA’s invasion of Vietnam.
He’s right that the ECB assume the markets will assume if ireland default, next up Greece/Spain, etc.
Hence the ECB will support us come what may.
He also spouts some nonsense about how savers won we joined the euro, so tough luck to them when we leave.

My guess is that we’ll just be back to the 80s with govt debt/GDP ratio of 120+% within a couple of years.
If costs are cut quickly enough, we might stabilize around that or Italian levels.
It all depends on the ECB not raising rates for a couple of years, though. Otherwise all bets are off.