Anyone read Mcwilliams new book and agree with his alternative to the current mess?

veryangryman

Got to tell ya, this sounds reasonable..

Leave the Euro (didnt hurt Sweden and the UK with European game), go back to the punt, and print money to stimulate spending.

Not without some pain, but much better than cutbacks and redundancies that are currently occurring. So why not do it, Mr Cowen? Best idea ive heard sofar to the crisis and an obvious alternative to the current blame game

jackthekipper

I think the main arguement against leaving the Euro is that the punt would be devalued alot, basically making everyone that bit poorer, and the Euro debt to be paid back works out more. Someone else will be able to explain it better.

dr.bollocko

Moved from AH.
All posters redirected please read the charter here before posting

topper75

Didn't the punt get a walloping from speculators back in the early 90s?
What do we do if that were to happen again? Our foreign reserves would be wasted and we would become Iceland II.

I'd love a stimulus package but it ain't going to happen. I respect McWilliams but don't agree with all his ideas.

nesf

His proposal makes about as much sense as California leaving the dollar for a while and then rejoining. Seriously, it's a one-way trip, if we leave they aren't going to leave us back in. It's proper la-la land stuff that he's proposing. Most of our debt not being in Punts would make things awkward, though I don't have the time to go into why this is a problem right now.

Scofflaw

nesf wrote: »

His proposal makes about as much sense as California leaving the dollar for a while and then rejoining. Seriously, it's a one-way trip, if we leave they aren't going to leave us back in. It's proper la-la land stuff that he's proposing. Most of our debt not being in Punts would make things awkward, though I don't have the time to go into why this is a problem right now.

Since the new punt would sink like a stone - and that's not counting the planned devaluation - there would be an immediate flight of euros from the country, plus a massive increase in our external debt. We would be imposing not insignificant costs on the multinational sector, while the galloping inflation that would probably result would cripple mortgage holders and small businesses alike.

cordially,
Scofflaw

ei.sdraob

veryangryman wrote: »

Leave the Euro (didnt hurt Sweden and the UK with European game), go back to the punt, and print money to stimulate spending.

this was discussed in detail before here in several threads

to summarize it would be a disaster for Ireland

jackthekipper wrote: »

I think the main arguement against leaving the Euro is that the punt would be devalued alot, basically making everyone that bit poorer, and the Euro debt to be paid back works out more. Someone else will be able to explain it better.

everyone in UK is 30% poorer now, and they have nothing to show for it, still in recession and printing more money while other euro major economies are ahead

Daragh101

veryangryman wrote: »

Got to tell ya, this sounds reasonable..

Leave the Euro (didnt hurt Sweden and the UK with European game), go back to the punt, and print money to stimulate spending.

Not without some pain, but much better than cutbacks and redundancies that are currently occurring. So why not do it, Mr Cowen? Best idea ive heard sofar to the crisis and an obvious alternative to the current blame game

hahaha..this is a very bad idea...One of the big problems is that we would have to pay back the millions and millions in grants we got from europe.
Also people dont seem to realise that europe are essentially funding NAMA...!.
David mc williams comes up with ideas purely for publicity ....he truely is an idiot!!

Rb

This "idea" sounds like something he heard from an elderly drunk at his local and felt he needed something to pad out the book a little.

I'd be interested to hear his reasoning on it though.

batperson

Cowen has bowed to the Unions so we won't have to wait very long for the above to happen, albeit different than planned.

We will get the boot from Europe and loose the euro and this could occur within a short time frame to avoid a run on banks (savings would be devalued). The alternative is the IMF taking over - the Germans won't let this happen as it would damage Europe too much.

P. Breathnach

batperson wrote: »

Cowen has bowed to the Unions so we won't have to wait very long for the above to happen, albeit different than planned.

We will get the boot from Europe and loose the euro and this could occur within a short time frame to avoid a run on banks (savings would be devalued). The alternative is the IMF taking over - the Germans won't let this happen as it would damage Europe too much.

I hope that you don't take that seriously. It's off the wall.

nesf

batperson wrote: »

Cowen has bowed to the Unions so we won't have to wait very long for the above to happen, albeit different than planned.

We will get the boot from Europe and loose the euro and this could occur within a short time frame to avoid a run on banks (savings would be devalued). The alternative is the IMF taking over - the Germans won't let this happen as it would damage Europe too much.

Europe doesn't care which way we cut 4 billion this year so long as we cut 4 billion. That's all we agreed to do with them. We didn't agree any specific policies on how cuts will be introduced. In exchange we don't get fined for being outside the limits set on deficits that we and the other European countries agreed to when the Eurozone was set up.

foxyboxer

In the book, he makes the following argument

European membership is a political union and the concept of the euro is also financial union. But this is bogus. The USA is basically 50 mini-countries with their own economies making up a whole. When one state is in recession, a boom in another state makes up the difference in a way. So it evens out.
However in the EU there is no financial union, and we either sink or swim. A thriving Germany should essentially bail out a weaker Ireland but this doesn't happen. Based on this, the decision to leave the euro is a valid one as it is not really a financial union at all.

From a political perspective, the fall of the berlin wall and a re-united Germany scared the French bureacrats. Remember that the second world war was barley over 40 years. The idea of EMU was to basically rein in the Germans. Crude as that may seem. Ireland pretty much went with the flow.

He also argues that the political establishment iin Ireland doesn't really have the cojones to make such a decision. It would be tough for a year or two but it would give us back a semblance of control of our currency, establsihing interest rates etc.

This in essence would make Ireland a cheap place to do business. And the development of a knowledge economy and our educated workforce the country would thrive.

batperson

It's worst case scenario... it is a post about McWilliams after all

Sometimes its only by being aware of the worst case scenario that we can find the best case scenario!

The facts are the country is on a slippery slope and worse has yet to come. Goverment decisons over the next few months will determine what happens.

nesf

Rb wrote: »

This "idea" sounds like something he heard from an elderly drunk at his local and felt he needed something to pad out the book a little.

I'd be interested to hear his reasoning on it though.

The basic reasoning is as follows:

It's a lot easier for a Government to devalue the currency than it is to get people to take a wage cut. Both achieve the same goal, make us more competitive internationally. Now the big problem is that our external debt isn't denominated in Punts that we can devalue but in Dollars and Euro for the most part. So we've banks earning devalued Punts trying to pay off debts denominated in undevaluated Euros and Dollars. Which would create huge problems.

SkepticOne

nesf wrote: »

It's a lot easier for a Government to devalue the currency than it is to get people to take a wage cut. Both achieve the same goal, make us more competitive internationally. Now the big problem is that our external debt isn't denominated in Punts that we can devalue but in Dollars and Euro for the most part. So we've banks earning devalued Punts trying to pay off debts denominated in undevaluated Euros and Dollars. Which would create huge problems.

I don't think this is correct.

Let us say before devaluation we owe 100 billion euros. How much do we owe after devaluation? Answer: 100 billion euros. No change. Our situation with regard to external debt has not improved, but neither has it deteriorated. The fact that internally we use punts or whatever makes no difference.

What determines our ability to pay foreign debt is determined by competitiveness and, as you point out, this is most easily improved by devaluation.

I think the issue is somewhat confused by hisorical examples of devaluation where debt has been denominated in the country's own currency thus devaluing had the effect of decreasing foreign debt. No one is suggesting devaluating for that reason here.

Flamed Diving

Question, does he propose fixed or floating rates?

seclachi

SkepticOne wrote: »

I don't think this is correct.

Let us say before devaluation we owe 100 billion euros. How much do we owe after devaluation? Answer: 100 billion euros. No change. Our situation with regard to external debt has not improved, but neither has it deteriorated. The fact that internally we use punts or whatever makes no difference.

What determines our ability to pay foreign debt is determined by competitiveness and, as you point out, this is most easily improved by devaluation.

I think the issue is somewhat confused by hisorical examples of devaluation where debt has been denominated in the country's own currency thus devaluing had the effect of decreasing foreign debt. No one is suggesting devaluating for that reason here.

The euro would probably rocket up in value when we left too..:rolleyes:

K-9

SkepticOne wrote: »

I don't think this is correct.

Let us say before devaluation we owe 100 billion euros. How much do we owe after devaluation? Answer: 100 billion euros. No change. Our situation with regard to external debt has not improved, but neither has it deteriorated. The fact that internally we use punts or whatever makes no difference.

What determines our ability to pay foreign debt is determined by competitiveness and, as you point out, this is most easily improved by devaluation.

I think the issue is somewhat confused by hisorical examples of devaluation where debt has been denominated in the country's own currency thus devaluing had the effect of decreasing foreign debt. No one is suggesting devaluating for that reason here.

Yes, but would something like the devaluation of Sterling happen?

£1 Stg used to be about €1.45/1.50

Now it's worth €1.10/1.15.

The €100 Billion would need far more Punts to pay.

SkepticOne

K-9 wrote: »

Yes, but would something like the devaluation of Sterling happen?

£1 Stg used to be about €1.45/1.50

Now it's worth €1.10/1.15.

The €100 Billion would need far more Punts to pay.

But our ability to pay that debt depends on the competitiveness of our economy not the tokens of exchange we use internally. The punt could be valued at 100 to the Euro but what would matter would be whether we can produce exports of goods and services at competitive rates.

To see this more clearly imagine that for whatever reason the Euro doubles in value next to the dollar due to a boom in Germany. Does this help Ireland's economy and consequent ability to pay debts? I think a moments reflection shows us that it does not. The immediate effect would be collapse of businesses and redundancy. Eventually there would be an adjustment of wages and some businesses would start up again, but by then it would be too late.

There's no big pile of euros owned by Ireland that we pay our debts out of that would be threatened by devaluation. We pay our debts out of money we make by selling goods and services abroad currently.

Flamed Diving

SkepticOne wrote: »

But our ability to pay that debt depends on the competitiveness of our economy not the tokens of exchange we use internally. The punt could be valued at 100 to the Euro but what would matter would be whether we can produce exports of goods and services at competitive rates.

To see this more clearly imagine that for whatever reason the Euro doubles in value next to the dollar due to a boom in Germany. Does this help Ireland's economy and consequent ability to pay debts? I think a moments reflection shows us that it does not. The immediate effect would be collapse of businesses and redundancy. Eventually there would be an adjustment of wages and some businesses would start up again, but by then it would be too late.

There's no big pile of euros owned by Ireland that we pay our debts out of that would be threatened by devaluation. We pay our debts out of money we make by selling goods and services abroad currently.

What goods and services are the government currently exporting?

SkepticOne

Flamed Diving wrote: »

What goods and services are the government currently exporting?

I think your use of the word "government" in your question illustrates a flaw in thinking that a lot of people have at the moment. The problem with government finances, though it is getting most of the attention, of course, is merely a symptom of a much larger problem of competitiveness. It is the country that exports (or is supposed to) goods and services, not the government.

K-9

SkepticOne wrote: »

But our ability to pay that debt depends on the competitiveness of our economy not the tokens of exchange we use internally. The punt could be valued at 100 to the Euro but what would matter would be whether we can produce exports of goods and services at competitive rates.

To see this more clearly imagine that for whatever reason the Euro doubles in value next to the dollar due to a boom in Germany. Does this help Ireland's economy and consequent ability to pay debts? I think a moments reflection shows us that it does not. The immediate effect would be collapse of businesses and redundancy. Eventually there would be an adjustment of wages and some businesses would start up again, but by then it would be too late.

There's no big pile of euros owned by Ireland that we pay our debts out of that would be threatened by devaluation. We pay our debts out of money we make by selling goods and services abroad currently.

The cost of our imports would rise, we'd have no control over that.

We're part of a massive market, I don't see how leaving it and making it more uncertain to trade in will make things better.

Also, with currency speculators, I don't think it would last long before it would take a massive hit like Iceland.

SkepticOne

K-9 wrote: »

The cost of our imports would rise, we'd have no control over that.

No, they would stay the same. A million dollars worth of oil would continue to cost a million dollars. However our internally generated costs would go down relative to imports and this would make our exports more competitive.

We're part of a massive market, I don't see how leaving it and making it more uncertain to trade in will make things better.

I think this is a valid concern. There would be currency risk but look at the amount of uncertainty that has been generated by being unable to adjust to a currency that is too strong for our current needs.

Also, with currency speculators, I don't think it would last long before it would take a massive hit like Iceland.

But Iceland's problems come from their banks going mad (much more so than ours). Their devaluation is in reaction to that and probably necessary.

Flamed Diving

SkepticOne wrote: »

I think your use of the word "government" in your question illustrates a flaw in thinking that a lot of people have at the moment. The problem with government finances, though it is getting most of the attention, of course, is merely a symptom of a much larger problem of competitiveness. It is the country that exports (or is supposed to) goods and services, not the government.

Erm, do you realise how little you have actually said here? My use of the word government is entirely justified and correct, considering that I am asking questions of the governments ability to pay foreign creditors. You must discuss this matter in nominal money terms. By leaving the Euro and signalling to the market that we are devaluing the Punt will lead to capital flight, which will further devalue the Punt, which will lead to capital flight, etc, etc. To combat this, the Central Bank will attempt to raise interest rates in an effort to keep capital in the country, while hurting local businesses. Tax takings fall even further while the Government have to service their Euro debt in their now devalued Punt. In an effort to stabilise their currency, the Government will borrow foreign reserves, further compounding the debt problem. This eventually leads to default and the collapse of the currency. It has happened many, many times before when debt-ridden countries that have overreached for years attempt to fiddle with their currency. Maybe when things calm down a bit, it could be a viable idea, but right now it is suicide.

SkepticOne

Flamed Diving wrote: »

Erm, do you realise how little you have actually said here? My use of the word government is entirely justified and correct, considering that I am asking questions of the governments ability to pay foreign creditors. You must discuss this matter in nominal money terms. By leaving the Euro and signalling to the market that we are devaluing the Punt will lead to capital flight, which will further devalue the Punt, which will lead to capital flight, etc, etc.

Yet trying to stay in the Euro also leads to capital flight as we have seen about a year ago as people were running around trying to find a safe place for their money and a large part of the cause of this has been inappropriately low euro interest rates during a massive housing bubble.

To combat this, the Central Bank will attempt to raise interest rates in an effort to keep capital in the country, while hurting local businesses. Tax takings fall even further while the Government have to service their Euro debt in their now devalued Punt. In an effort to stabilise their currency, the Government will borrow foreign reserves, further compounding the debt problem.

I would expect interest rates to rise as a response to a falling punt, yes, but in real terms our interest rates are quite high at present so the difference might not be as great as imagined. And again, look at what we're doing with the likes of NAMA to try and keep things going within the Euro.

This eventually leads to default and the collapse of the currency. It has happened many, many times before when debt-ridden countries that have overreached for years attempt to fiddle with their currency. Maybe when things calm down a bit, it could be a viable idea, but right now it is suicide.

However staying in a currency union suited for much stronger economies could also be considered fiddling, interfering with the normal market processes.

johnnyskeleton

Leaving the Euro is simply not possible, other than as a form of government default.

Think of all the preparation work involved in joining the EU. Not just the 6 month build up when banks were issued with the new notes and coins, shops had dual pricing and all the rest of it, but all the years previously EMU to fixing the rates etc. None of which can be done overnight.

But also, it was easy to go from the pound, which effectively became worthless other than as memorabilia or because they could be traded in at the central bank for their euro equivalent. However, if Ireland left the Euro, all debts and savings would still be in Euro and there would be loads of euro notes floating around. The government can't simply force these into the new currency because unlike the old Irish pound, the euro will still exist as a viable currency without us.

So if the government did leave the euro, it would essentially be the government defaulting on its commitments, and the euro would still be the fiat currency and actual monetary unit of the state, ala zimbabwae last year using SAR and USD instead of worthless Zimbabwean Dollars.

Flamed Diving

SkepticOne wrote: »

Yet trying to stay in the Euro also leads to capital flight as we have seen about a year ago as people were running around trying to find a safe place for their money

Yes, but this will be nowhere near as bad as what happens when countries with high public debt attempt a devaluation. We are a small open economy. The results would be sadly predictable.

SkepticOne wrote: »

and a large part of the cause of this has been inappropriately low euro interest rates during a massive housing bubble.

This has no bearing on the topic whatsoever. This thread is about Ireland leaving the Euro, in the short-run. Leaving in the long-run is a different debate entirely, for reasons that should be obvious.

SkepticOne wrote: »

I would expect interest rates to rise as a response to a falling punt, yes, but in real terms our interest rates are quite high at present so the difference might not be as great as imagined.

You are basing this on guesswork, I am basing this on economic theory and past empirical results. It would be like Latin America and Asia (80s/90s) all over again. The rise in interest rates would be to attract capital back, so this rise would be in addition to whatever loan rates are currently offered. It seems very wishful thinking, on your part.

SkepticOne wrote: »

And again, look at what we're doing with the likes of NAMA to try and keep things going within the Euro.However staying in a currency union suited for much stronger economies could also be considered fiddling, interfering with the normal market processes.

What part of the NAMA legislation dealt with keeping Ireland in the Euro? Being part of a currency union suits small nations also. You seem to forget that Ireland had the Punt pegged to the Sterling for almost every year of its existence, for a small example of what happens when your currency board decides to deviate, I suggest reading up on Ireland's economic crisis in 1955-56.

Flamed Diving

johnnyskeleton wrote: »

Leaving the Euro is simply not possible, other than as a form of government default.

Think of all the preparation work involved in joining the EU. Not just the 6 month build up when banks were issued with the new notes and coins, shops had dual pricing and all the rest of it, but all the years previously EMU to fixing the rates etc. None of which can be done overnight.

But also, it was easy to go from the pound, which effectively became worthless other than as memorabilia or because they could be traded in at the central bank for their euro equivalent. However, if Ireland left the Euro, all debts and savings would still be in Euro and there would be loads of euro notes floating around. The government can't simply force these into the new currency because unlike the old Irish pound, the euro will still exist as a viable currency without us.

So if the government did leave the euro, it would essentially be the government defaulting on its commitments, and the euro would still be the fiat currency and actual monetary unit of the state, ala zimbabwae last year using SAR and USD instead of worthless Zimbabwean Dollars.

Good points, especially about the Euro remaining within the system. They would have great difficulty getting rid of it.

murphaph

Leaving the Euro would let FF off the hook. Instant devaluation and the hidden paycut within would be lovely for Cowen. No tough decisions and REAL paycuts to the overpaid public sector would be required-just print more money and pay them. Would also stop people shopping in NI as the exchange rate would make everything so expensive there.

The Euro basically forces Ireland to behave like a grown up country as it's policies are driven by the ultra conservative Bundesbank. Ireland actually needs to go through this pain so people learn the lesson that you cannot build a real economy out of buying and selling property to one another.

K-9

SkepticOne wrote: »

No, they would stay the same. A million dollars worth of oil would continue to cost a million dollars.

Would it though? If the punt devalues against the Dollar, oil will cost more?

Skepticone wrote:

However our internally generated costs would go down relative to imports and this would make our exports more competitive.

True, but consumers net pay will be eroded as mortgages and debt will be in Euro, I think. No expert on this. We need to cut costs, but we can do that now ourselves, without leaving the Euro.

SkepticOne wrote:

I think this is a valid concern. There would be currency risk but look at the amount of uncertainty that has been generated by being unable to adjust to a currency that is too strong for our current needs.But Iceland's problems come from their banks going mad (much more so than ours). Their devaluation is in reaction to that and probably necessary.

Foreign currency trading was actually suspended at one stage and inflation rocketed.

I just don't think this is the ideal time to be abandoning the Euro.

nesf

SkepticOne wrote: »

I don't think this is correct.

Let us say before devaluation we owe 100 billion euros. How much do we owe after devaluation? Answer: 100 billion euros. No change. Our situation with regard to external debt has not improved, but neither has it deteriorated. The fact that internally we use punts or whatever makes no difference.

What determines our ability to pay foreign debt is determined by competitiveness and, as you point out, this is most easily improved by devaluation.

I think the issue is somewhat confused by hisorical examples of devaluation where debt has been denominated in the country's own currency thus devaluing had the effect of decreasing foreign debt. No one is suggesting devaluating for that reason here.

Yes we still owe 100 billion euros but instead of getting in 32 billion in euro in tax we get in 32 billion in punts now worth less than euros so the relative cost of our present borrowings increase as a % of our tax take. Even without adding any new Government borrowing our present borrowing will increase in cost to us when we devalue our currency. Any advantage we gain from devaluation for competition is counteracted by the need to repay debts denominated in Euro/Dollars. Ignoring this effect grossly overvalues the benefit of leaving the Euro.

johnnyskeleton

Flamed Diving wrote: »

Good points, especially about the Euro remaining within the system. They would have great difficulty getting rid of it.

Unless they scrap the constitution, it would be impossible I would think.

If they try to take the money I have under my mattress and convert it into new punts they are violating my right to hold private property (just as if they today took my USD and forced me to take Euro instead).

If they convert the Euro I hold in a non-Irish registered bank into new punts, I sue that bank - not in Ireland, but in their home country - for the Euro that they owe me, not the new punt equivalent.

The money I hold in Irish banks could potentially be at risk, but if they did that I'd happily spend more than that amount in constitutional challenges to the new legislation before I get the hell out of the country.

But fundamentally, a law cannot be passed in Ireland without approval from the dail and the signature of the president. Even in the best case scenario it would take a few days to pass by which stage the Euros would have fled so there would be nothing for them to convert to the new currency. A sudden change ala Argentinas depegging of the peso from the USD was capable of such an overnight change. Leaving the Euro is not.

There's just no practical way for us to leave the Euro, and that's before getting into the pros and cons (mostly cons) of such a move.

veryangryman

murphaph wrote: »

Leaving the Euro would let FF off the hook. Instant devaluation and the hidden paycut within would be lovely for Cowen. No tough decisions and REAL paycuts to the overpaid public sector would be required-just print more money and pay them. Would also stop people shopping in NI as the exchange rate would make everything so expensive there.

The Euro basically forces Ireland to behave like a grown up country as it's policies are driven by the ultra conservative Bundesbank. Ireland actually needs to go through this pain so people learn the lesson that you cannot build a real economy out of buying and selling property to one another.

Do you think that lending from the ECB to an unlimited extent is a viable alternative?

And lending from Germany non-stop, while great for them if/when they get their interest payments from YOU and I, is ruining our lifestyles, not just now, but for the rest of ours and most likely our childrens lives.

People are turning against each other (public vs private), families are seperating, and worse still, Fine Gael are looking like returning to power due to the hopeless policies that are being followed.

Changing currency would increase inflation but... would skip the bull that is currently occurring with pay cuts (as the wages would be worth less), trips to the north. People would buy more property as "It will be worth more tomorrow" and a new boom of sorts would begin. With one difference - people would realise their limits now. Once bitten, twice shy. The country could start again.

Lads, one way or the other, the next few years are going to be tough for everyone who is not a retired banker or FAS chairman. I see us far more likely to be IMF material if we stay with the currency.

baalthor

jackthekipper wrote: »

I think the main arguement against leaving the Euro is that the punt would be devalued alot, basically making everyone that bit poorer, and the Euro debt to be paid back works out more. Someone else will be able to explain it better.

Not everyone
Someone with a suitcase full of €500 notes under their bed would be in a pretty good position.

Scenario
Let's say today Jane and Joan have €10k each in the bank.
Jane withdraws the money and puts it in a safe at home, Joan keeps it in the bank. Then euro-gone (EG) day happens.

Jane still has €10k but Joan now has NIKL* 10k which is worth how much now in euro? €8k, €5k, ,€2k ...? Sucks to be Joan...

So to avoid being lynched and to devalue all "Irish" euros, the government would need to do the following:

1. Implement EG day abruptly over-night while the banks are closed (no leaks, no warnings, no tipping off the wife or the neighbours or the lads at the golf club)

2. Activate Soviet style exchange and money controls. Euro notes (above a small amount) held by Irish residents are no longer legal tender and must be exchanged for NIKLs immediately. Possession of euro notes after the specified exchange period to be a jailable offence.

3. Seal the border, ports and airports. All passengers searched to prevent them taking euros out of the country.

Once the "transition period" is over the euro posession and monetary restrictions would be lifted.

Of course the government wouldn't have to take steps 2 and 3 but as I've argued above leaving the euro would massively devalue the savings of a large percentage of the population.
On the other hand, anyone holding cash euros is unaffected, their euros are just as good as the ones in circulation in Germany and France.
Now people with large amounts in cash in their posession often didn't acquire it through orthodox means or didn't want to declare their earnings to the authorities. So abandoning the euro would put dishonest and corrupt individuals at an advantage over the honest and law-abiding. This is pretty much what happened during the break-up of the Soviet Union.
It's hard to see how this wouldn't cause a huge social upheaval; at the very least Joe Duffy would have his busiest week ever:D
And what would happen to citizens of other euro countries who had just transferred euros to Ireland before the change over?

Step 1 would also be pretty much impossible in most countries, but in Ireland? Any hint or leak about leaving the euro would have thousands of people storming the banks demanding the withdrawal of their money.

The key point here is that we would be doing something unique in financial history; abandoning a functioning currency for a weaker new one while the old currency continues in circulation.
When other countries devalued, they devalued their currency; the notes in their pockets and under the bed were also devalued because they looked different from everyone else's. You couldn't bring kronors or australs to Germany, claim they were d-marks and exchange them on a 1:1 basis. When new currencies were created in the former Soviet countries and Yugoslavia, the core currency (e.g. ruble) had already collapsed and those societies were much less monetized anyway; barter was often used for everyday transactions.

So leaving the euro looks like a crazy idea so why is McWilliams suggesting it?
He is possibly thinking that Ireland leaving the euro would cause the euro to collapse, resolving many of the problems described above.
I get the feeling McWilliams thinks Europe would be better off with each country having its own currency and Ireland pulling out would achieve this but he doesn't want to say this explicitly.

NIKL = New Irish Kabbidj Leaf:D

Flamed Diving

veryangryman wrote: »

Do you think that lending from the ECB to an unlimited extent is a viable alternative?

And lending from Germany non-stop, while great for them if/when they get their interest payments from YOU and I, is ruining our lifestyles, not just now, but for the rest of ours and most likely our childrens lives.

People are turning against each other (public vs private), families are seperating, and worse still, Fine Gael are looking like returning to power due to the hopeless policies that are being followed.

Changing currency would increase inflation but... would skip the bull that is currently occurring with pay cuts (as the wages would be worth less), trips to the north. People would buy more property as "It will be worth more tomorrow" and a new boom of sorts would begin. With one difference - people would realise their limits now. Once bitten, twice shy. The country could start again.

Lads, one way or the other, the next few years are going to be tough for everyone who is not a retired banker or FAS chairman. I see us far more likely to be IMF material if we stay with the currency.

Devaluing causes inflation because the cost of importing goods rises. There are many fixed costs in the short-run.

The housing market is flat because there is no demand for thousands of houses in Longford, for example. It is a separate issue. If anything it will make the problem worse because Irish banks will need to borrow in foreign currency and lend in Punts.

Flamed Diving

There are two books people should read to convince themselves why this is a terrible idea, and both are written by Nobel Prize winning economists, not a former economist turned media hoor.

SkepticOne

nesf wrote: »

Yes we still owe 100 billion euros but instead of getting in 32 billion in euro in tax we get in 32 billion in punts now worth less than euros so the relative cost of our present borrowings increase as a % of our tax take. Even without adding any new Government borrowing our present borrowing will increase in cost to us when we devalue our currency. Any advantage we gain from devaluation for competition is counteracted by the need to repay debts denominated in Euro/Dollars. Ignoring this effect grossly overvalues the benefit of leaving the Euro.

But this tax take is coming down anyway through competitiveness which I would maintain is the core of the problem anyway. The only advantage of staying in the Euro is that we get to drag this out over several years rather than taking the hit up front. I can see why the current government would favour this option but the social cost and damage to the economic infrastructure is much greater.

SkepticOne

Flamed Diving wrote: »

There are two books people should read to convince themselves why this is a terrible idea, and both are written by Nobel Prize winning economists, not a former economist turned media hoor.

Interestingly Krugman supports the idea of lowering interest rates to get out of recession, something that is unavailable to Ireland within the Euro.

baalthor

johnnyskeleton wrote: »

Unless they scrap the constitution, it would be impossible I would think.

If they try to take the money I have under my mattress and convert it into new punts they are violating my right to hold private property (just as if they today took my USD and forced me to take Euro instead).

If they convert the Euro I hold in a non-Irish registered bank into new punts, I sue that bank - not in Ireland, but in their home country - for the Euro that they owe me, not the new punt equivalent.

The money I hold in Irish banks could potentially be at risk, but if they did that I'd happily spend more than that amount in constitutional challenges to the new legislation before I get the hell out of the country.

But fundamentally, a law cannot be passed in Ireland without approval from the dail and the signature of the president. Even in the best case scenario it would take a few days to pass by which stage the Euros would have fled so there would be nothing for them to convert to the new currency. A sudden change ala Argentinas depegging of the peso from the USD was capable of such an overnight change. Leaving the Euro is not.

There's just no practical way for us to leave the Euro, and that's before getting into the pros and cons (mostly cons) of such a move.

Yea, it would probably require a coup in the middle of the night. People would wake up to find the banks closed and the army patrolling the streets ...

Flamed Diving

SkepticOne wrote: »

Interestingly Krugman supports the idea of lowering interest rates to get out of recession, something that is unavailable to Ireland within the Euro.

Interestingly, Krugman offers chapter after chapter of examples of high-debt countries making a mess of currency management and making a recession worse, with many cases leading to IMF intervention. Perhaps reading the book may, interestingly, teach you something.

baalthor

SkepticOne wrote: »

But this tax take is coming down anyway through competitiveness which I would maintain is the core of the problem anyway. The only advantage of staying in the Euro is that we get to drag this out over several years rather than taking the hit up front. I can see why the current government would favour this option but the social cost and damage to the economic infrastructure is much greater.

Practically/technically, how would you suggest the country abandon the euro?

How would you manage the internal and external social and political fallout?

amacachi

SkepticOne wrote: »

Interestingly Krugman supports the idea of lowering interest rates to get out of recession, something that is unavailable to Ireland within the Euro.

What are our interest rates like at the moment? Hasn't made a huge amount of difference.

Flamed Diving

An excerpt from Krugman's book, use your imagination and apply it to Ireland after leaving the Euro...

The loss of confidence was to a certain extent a self-reinforcing process. As long as real estate prices and stock markets were booming, even questionable investments tended to look good. As the air began to go out of the bubble, losses began to mount, further reducing confidence and causing the supply of fresh loans to shrink even more.

With fewer yen and dollars coming in, the demand for baht on the foreign exchange market declined; meanwhile, the need to change baht into foreign currencies to pay for imports continued unabated.

In order to keep the value of the baht from declining, the Bank of Thailand had to do the opposite of what it had done when capital starting coming in: it went into the market to exchange dollars and yen for baht, supporting its own currency.

But there is an important difference between trying to keep your currency down and trying to keep it up: the Bank of Thailand can increase the supply of baht as much as it likes, because it can simply print them; but it cannot print dollars. So there was a limit on its ability to keep the baht up. Sooner or later it would run out of reserves.

The only way to sustain the value of the currency would have been to reduce the number of baht in circulation, driving up interest rates and thus making it attractive once again to borrow dollars to reinvest in baht. But this posed problems of a different sort. As the investment boom sputtered out, the Thai economy had slowed—there was less construction activity, which meant fewer jobs, which meant lower income, which meant layoffs in the rest of the economy. Although it wasn't quite a full-fledged recession, the economy was no longer living in the style to which it had become accustomed. To raise interest rates would be to discourage investment further, and perhaps push the economy into an unambiguous slump.

All of this was according to the standard script: it was the classic lead-in to a currency crisis, of the kind that economists love to model—and speculators love to provoke.

As long as the baht-dollar exchange rate seemed likely to remain stable, the fact that interest rates in Thailand were several points higher than in the United States provided an incentive to borrow in dollars and lend in baht. But once it became a high probability that the baht would soon be devalued, the incentive was to go the other way—to borrow in baht, expecting that the dollar value of these debts would soon be reduced, and acquire dollars, expecting that the baht value of these assets would soon increase. Local businessmen borrowed in baht and paid off their dollar loans; wealthy Thais sold their holdings of government debt and bought U.S. Treasury bills; and last but not least, some large international hedge funds began borrowing baht and converting the proceeds into dollars.

All of these actions involved selling baht and buying other currencies, which meant that they required the central bank to buy even more baht to keep the currency from falling, which depleted its reserves of foreign exchange even faster—which further reinforced the conviction that the baht was going to be devalued sooner rather than later. A classic currency crisis was in full swing.

Like many governments before and no doubt many to come, Thailand's waited as its reserves ran down. On July 2, the Thais let the baht go...most people thought that the devaluation of the baht would pretty much end the story...And so there would not be a devastating recession. They were wrong.

This represents about 1/10th of a chapter (much less, I think), so I don't think any copyright laws are being broken? Anyway, I know people may whinge that this isn't a perfect mirror image of Ireland, but there are plenty more examples like it in history. Take your pick.

SkepticOne

amacachi wrote: »

What are our interest rates like at the moment? Hasn't made a huge amount of difference.

Our nominal interest rates are low but our real interest rates are high due to deflation. It is the real interest rates that count here.

nesf

SkepticOne wrote: »

But this tax take is coming down anyway through competitiveness which I would maintain is the core of the problem anyway. The only advantage of staying in the Euro is that we get to drag this out over several years rather than taking the hit up front. I can see why the current government would favour this option but the social cost and damage to the economic infrastructure is much greater.

Yes but for every % we devalue we add that % to our effective borrowings. If we devalue by 20% we effectively increase the amount we have borrowed by that much when you work out how much tax the Government needs to collect to service the debt. Now any competitive boost will take ages to kick in and a sudden increase in relative price of all imported goods won't do much for consumer sentiment further depressing tax take!

This is before any attempt to get Euros out of the system and other such problems. Really the idea is not as attractive as some make it out to be!

K-9

Thought this finfacts article was quite good on his book:
http://www.finfacts.ie/irishfinancenews/article_1018459.shtml

Its sad that despite the bubble and money available to invest, our indigenous exporters are still tied to the UK.

Maybe we'd be leaving the very thing that could get us out of the mess?

amacachi

SkepticOne wrote: »

Our nominal interest rates are low but our real interest rates are high due to deflation. It is the real interest rates that count here.

So you'd support negative interest rates?

K-9

nesf wrote: »

Yes but for every % we devalue we add that % to our effective borrowings. If we devalue by 20% we effectively increase the amount we have borrowed by that much when you work out how much tax the Government needs to collect to service the debt. Now any competitive boost will take ages to kick in and a sudden increase in relative price of all imported goods won't do much for consumer sentiment further depressing tax take!

This is before any attempt to get Euros out of the system and other such problems. Really the idea is not as attractive as some make it out to be!

This in a time that our interest repayments are near €2 Billion a year and rising. They've nearly doubled in a year.

SkepticOne

amacachi wrote: »

So you'd support negative interest rates?

How do you suppose that? I don't think it follows from what I've been saying.

amacachi

SkepticOne wrote: »

How do you suppose that? I don't think it follows from what I've been saying.

Then how low would you like the interest rates to be?