I don’t think we can leave the euro, no matter how much the little englanders might wish us to. It was a one way ticket. Currencies have collapsed before, but have they ever collapsed without rivers of blood flowing?
It doesn’t mean that is all that has to be done, but:
I agree with coc - leaving a strong currency for a weak one is a non-runner. This is not some exchange crisis where we can abandone a peg. This is a tiny economy leaving a huge currency with the avowed intention of devaluing to avoid real money cuts.
The government has to live within the income it can raise. Balancing the budget is an inevitability. It is only the how that is in question. The austerity plan allows the easiest ‘how’ for most people in the country.
The working poor will be hurt most by a new currency as their purchasing power disappears.
Labour has no traction, except in certain protected cases, to increase wages. A devaluation will mean significant income drops.
We are not in the worst position in Europe. Others will need a comprehensive solution. The way Europe works is that these things set a precedent. We are likely to gain more by waiting for that system to be in place.
We are the poster boy for austerity within the eurozone. We will not be permitted to fail, nor will unreasonably demands (e.g. corporation tax) be made of us. The hazard is on the troika, not on us.
While Mr. Noonan has many faults, terrier like harassment is serving us well in this case. We will be in a position to say, not “me fein”, but “agus mise”. It is a strategy that is serving the current government well, distanced as they are from the mistakes of the previous administration.
This is not to say that there aren’t things we can’t do. There are a rake of costs that are madly out of line in this country that could be reformed to reduce the cost to businesses, which would lead into increased competitiveness - insurance (based on payouts), the legal system (in general terms of the cost of legal action), local authority charges, existing water charges etc. While the removal of upward only rents and a system of “fair” rent review would damage NAMA, at this stage, I don’t really care. It is better to keep businesses going and employing than it is to have empty units with high headline rents. I still reckon that voucher systems for certain social welfare payments would work well, even without this, electronic payment to bank accounts would surely make fraud prevention easier.
Public sector spending needs to be cut to match taxation revenues. The IMF will ensure that the Government does this. We have to balance the books and quickly. Leaving the Euro would be economic suicide for Ireland and will not happen.
Or taxation increasing - it doesn’t have to be and probably shouldn’t be all cuts.
As an example, social welfare should pay for itself with an unemployment rate of about 9% If it does not do that, it is underfunded in the good times. As we now see with the social insurance fund empty…
Assuming no further extraneous events (no default) and assuming a pattern like the 80s recession, then taxation and debt will keep increasing until 2014/2015 along with emigration and cutbacks (i.e. a period of managed decline), we bounce along then at the bottom until maybe 2017/2018 and then things start to improve gradually and we have an echo boom that runs until the mid 2020s. In the late 2020s we start running into our own boomer retirement crisis. That would be one of my more optimistic scenarios.
The noises coming out of the various meetings this week are that Greece will be allowed to default without being out on its ear. So, yes, it’s a possibility. The bad news is that it’s reckoned it’ll cost between 1.7 and 3.0 trillion euro. Who the hell’s gonna come up with that sort of moolah?
I don’t understand the concept of being “forced to exit the Euro”. Any country can choose whatever currency it wants to be its legal tender. Zambia could decide tomorrow to make the Euro or the USD or Yen its legal tender, and there is absolutely nothing the ECB or anyone else could do about it.
We can however be forced out of the ECB inner circle - causing us to lose only two benefits:
Access to loans from the ECB,
The ability to print new Euro without being declared a rogue nation. We have this ability now because we are indirectly entitled to X% of any new money printed by the ECB.
If I was running the country I would
Keep borrowing as much money as I could get from the ECB and anyone else,
Balance the books so we are not reliant on outsiders,
Keep promising them that the repayment cheque is in the post.
The only advantage to having a Punt Nua is the ability to default in a politically acceptable manner. In other words - we could repay in Punt Nuas at an official (read: favourable) exchange rate, and therefore try to argue for years in International courts that we avoided a technical default. A far from ideal scenario, especially considering we we would be boycotted by most lenders for the years during and after.
Defaulting on our Euro commitments by expecting people to accept Punt Nuas instead would cause a world of pain with little benefit.
In any case there is no real benefit to rocking the boat now because the ECB is not asking for its money back. We should wait to team for the PIGs and others to make their decisions and then bargain together.