Only solution is for Ireland to leave the euro

Flamed Diving

kaymin wrote: »

From todays Sunday Business Post:
http://www.sbpost.ie/news/ireland-named-in-group-posing-real-risk-to-euro-future-47418.html

This is interesting, but without the full report I am going to withhold judgement. Relying on the correct interpretation of an economic paper by a journalist would be foolish. Especially when I have seen so many deliberate misquotes and manipulations over the years.

Still, it never ceases to amaze me how people will simply quote such newspaper reports as fact, without ever having seen the source material...

Flamed Diving

SkepticOne wrote: »

You say that a floating currency is not an option for a small country.

Go to New Zealand. Tell them you are from Ireland and that they have it all wrong with regard to how they operate their currency.

See post #90.

Scofflaw

SkepticOne wrote: »

No, he said floating currency. What this means is that the market is the primary determinant of the value of the currency.

Note that unemployment in New Zealand is about 7.5% (admittedly higher than it was) whereas ours is 13%.

I don't think the New Zealanders will be pressing for a currency union with a larger country based on Ireland's great success in the Euro.

The market is the primary determinant of the value of the NZ dollar. Their government has tried to intervene in the market, but that doesn't mean it's not a floating currency:

Floating exchange rate: in which a currency's value is determined solely by the interplay of the market forces of demand and supply (which, in turn, is determined by the soundness of a country's basic economic position), instead of by government intervention. However, all central banks do try to defend these rates within a certain range by buying or selling their country's currency as the situation warrants.

Pick any real-world definition you like.

cordially,
Scofflaw

SkepticOne

Flamed Diving wrote: »

See post #90.

Sorry to have had to prove you wrong there. I know you are studying for a masters degree in economics.

SkepticOne

Scofflaw wrote: »

The market is the primary determinant of the value of the NZ dollar. Their government has tried to intervene in the market, but that doesn't mean it's not a floating currency:

Pick any real-world definition you like.

cordially,
Scofflaw

Not sure what point you are trying to make there. The assertion was that a floating currency is not an option for a small country. I provided an example of a small country (New Zealand) with one (which you seem to accept is a floating currency) thereby proving the assertion wrong.

Flamed Diving

SkepticOne wrote: »

Sorry to have had to prove you wrong there. I know you are studying for a masters degree in economics.

How childish of you. As I said, if you are willing to engage in a reasonable discussion, I'm all ears.

View

SkepticOne wrote: »

Note that unemployment in New Zealand is about 7.5% (admittedly higher than it was) whereas ours is 13%.

That doesn't prove anything much. Greece's unemployment rate is 9.7% (Oct 09). That doesn't mean they are star economic perfomers.

For the record, as of Dec 09, Austria, Cyprus, Luxembourg, Slovenia, Malta, Finland (, Greece) and Portugal all are smaller Euro member states and all have lower unemployment rates than Ireland (And that is ignoring "big" Euro states such as The Netherlands, Germany, Italy and France).

Maybe, they didn't follow our "If you build it, they will come" economic strategies?

SkepticOne

View wrote: »

That doesn't prove anything much. Greece's unemployment rate is 9.7% (Oct 09). That doesn't mean they are star economic perfomers.

For the record, as of Dec 09, Austria, Cyprus, Luxembourg, Slovenia, Malta, Finland (, Greece) and Portugal all are smaller Euro member states and all have lower unemployment rates than Ireland (And that is ignoring "big" Euro states such as The Netherlands, Germany, Italy and France).

Maybe, they didn't follow our "If you build it, they will come" economic strategies?

I think a common currency may well be good for some countries if their business cycle is reasonably in sync with their neighbours. What I'm not sure of is whether it suits every country. Not all countries respond to changes in interest rates the same way for example.

However the point with New Zealand is that it doesn't mean disaster. It is possible for a small country to exist with an independent currency. Of course they will still have their ups and downs.

To say that it is "not an option" is simply wrong.

Flamed Diving

Jesus, I'm actually embarrassed for you here.

As I said, the offer of reasonable discussion is on offer.

Nate--IRL--

SkepticOne wrote: »

To say that it is "not an option" is simply wrong.

To say that it is the solution to all our woes is simply wrong also.

It does have benefits, it also has drawbacks. For Ireland, right now in our position, politically and economically, it is not possible without massive economic and political upheaval.

Nate

View

Even if we all agreed that a new Irish floating currency was the way to go (and we don't), it still doesn't alter that we couldn't get one into general circulation in any sort of a reasonable time scale.

In the meantime - even if you are totally convinced the Euro is dreadful - it will remain our currency for the forseeable future.

We might as well discuss the introduction of the 3 metre high stone coins once used as the currency of Yap island as re-introducing the Punt...

SkepticOne

Nate--IRL-- wrote: »

To say that it is the solution to all our woes is simply wrong also.

It does have benefits, it also has drawbacks. For Ireland, right now in our position, politically and economically, it is not possible without massive economic and political upheaval.

Nate

I don't think it is the solution to all our woes and the process of leaving will create further problems. However it is not clear whether we will have worse upheaval dragged out over a longer period by staying in a currency union we are not suited to, and I think it is fairly obvious at this stage that we are not suited to it.

Flamed Diving

View wrote: »

We might as well discuss the introduction of the 3 metre high stone coins once used as the currency of Yap island

That's a good story, I should remember it the next time Mahatma Coat arrives in the Economics forum for his bi-monthly "What is fiat currency worth?" threads.

Nate--IRL--

SkepticOne wrote: »

I don't think it is the solution to all our woes and the process of leaving will create further problems. However it is not clear whether we will have worse upheaval dragged out over a longer period by staying in a currency union we are not suited to, and I think it is fairly obvious at this stage that we are not suited to it.

That's a fairly concise summary of the argument I think.

Nate

Scofflaw

SkepticOne wrote: »

Not sure what point you are trying to make there. The assertion was that a floating currency is not an option for a small country. I provided an example of a small country (New Zealand) with one (which you seem to accept is a floating currency) thereby proving the assertion wrong.

Er, what? When FlamedDiving said "a floating currency is not an option for a small country", did you take that to mean that it was literally impossible? If the answer to that is "yes", then please only tell me that, and I'll back slowly away!

We obviously had a floating currency ourselves, a couple of decades back. The point I'm making is that for a small open economy a floating currency doesn't really offer any greater measure of control than being in the euro - and instead of relatively predictable changes (particularly predictable since Ireland is at the meetings) your currency can collapse overnight. It's clear from the attempts at intervention by the NZ government that their currency does things they don't want it to - other than that, comparing their economic situation with ours is almost completely pointless.

a bit puzzled,
Scofflaw

kaymin

Flamed Diving wrote: »

This is interesting, but without the full report I am going to withhold judgement. Relying on the correct interpretation of an economic paper by a journalist would be foolish. Especially when I have seen so many deliberate misquotes and manipulations over the years.

Still, it never ceases to amaze me how people will simply quote such newspaper reports as fact, without ever having seen the source material...

Why is that so amazing? What is amazing to me is that so many people have to see an opinion expressed by 'experts' before they will actually give it proper consideration.

Flamed Diving

kaymin wrote: »

Why is that so amazing? What is amazing to me is that so many people have to see an opinion expressed by 'experts' before they will actually give it proper consideration.

So do I, but as I said; I would like to see the report itself before I will pass judgement. I am interested though.

View

SkepticOne wrote: »

I think a common currency may well be good for some countries if their business cycle is reasonably in sync with their neighbours. What I'm not sure of is whether it suits every country. Not all countries respond to changes in interest rates the same way for example.

Hold on - we didn't just wake up one morning and find we were in the Euro. We knew this was coming for years in advance.

We knew that Germany (the largest economy in the EU) was obsessed with low inflation. We knew that by being in the Euro we would - in effect - be directly linked to them.

That means we needed to keep a very close eye on what they were doing. Instead, what happened?

German prices went up roughly 20% between 97 and 08. France's by roughly 25% (roughly the Eurozone average). The "crazy" Italian's by 30%. Ireland's by 50%. (Eurostat figures).

How in hell did we expect not to pay for this sooner or later? Sure, you don't have to match the Eurozone average on a day-to-day basis but we didn't make any effort to try. Instead, we pursued policies which massively inflated one part of the economy (construction) and ignored everything in the economy and everyone else in the Eurozone.

This was the economic equivalent of bungee jumping - great fun while it lasts but there is serious whip-lash there too.

kaymin

Scofflaw wrote: »

The point I'm making is that for a small open economy a floating currency doesn't really offer any greater measure of control than being in the euro - and instead of relatively predictable changes (particularly predictable since Ireland is at the meetings) your currency can collapse overnight.

I mentioned the following in an earlier post
We did manage to cope well enough for the 20 years before the euro was introduced. Realignments in the EMS were fairly frequent, averaging about one a year in the 1980s, and the Irish pound depreciated steadily against the Deutsche Mark. These depreciations reflected wider weaknesses in the Irish economy in those years and prevented a loss of competitiveness from compounding those weaknesses.

kaymin

Flamed Diving wrote: »

So do I, but as I said; I would like to see the report itself before I will pass judgement. I am interested though.

Great, I look forward to some 'independent' thought on the matter.

SkepticOne

Scofflaw wrote: »

Er, what? When FlamedDiving said "a floating currency is not an option for a small country", did you take that to mean that it was literally impossible? If the answer to that is "yes", then please only tell me that, and I'll back slowly away!

With respect, I don't think New Zealand is persuing some weird experiment with a floating currency. You are aware that floating currencies are fairly common in the world? You seem to be making out that I have chosen an extreme example here.

We obviously had a floating currency ourselves, a couple of decades back. The point I'm making is that for a small open economy a floating currency doesn't really offer any greater measure of control than being in the euro - and instead of relatively predictable changes (particularly predictable since Ireland is at the meetings) your currency can collapse overnight. It's clear from the attempts at intervention by the NZ government that their currency does things they don't want it to - other than that, comparing their economic situation with ours is almost completely pointless.

Again as I suggested, I don't think many from Ireland would be willing to go to New Zealand and tell them they are making a mistake with having a floating currency and that they should look to Ireland. We have trained ourselves to pretend that interest rates have little or no influence over an economy despite the evidence to the contrary but I don't think they would have that view there.

kaymin

Flamed Diving wrote: »

That's nice, would those be the same experts who said that Argentina's Peso was overvalued throughout the nineties? "All" the experts got it right! Or do you simply pay attention to the experts that verify your already chosen conclusions? But if that was the case then "all" wouldn't be "all" now, would it? The point about Argentina was that they simply had no choice in devaluing because they let the currency float. A floating currency is something only larger nations can afford to do, it is not an option for Small Open Economies. Also, Argentina only enjoyed a return to growth because of major debt restructuring. You are simply assuming that Ireland will be gifted the same package. In fact, you are assuming a lot of things. Ireland and Argentina are not comparable cases..

I'm just quoting from the paper that I linked to in my original post when I said the experts got it wrong. I'm comfortable I'm not bias with the views I consider. Can you explain why you are so adamant Ireland and Argentina are not comparable (in the context of the issues they face) especially when the writer of the paper sees fit to compare the Latvian situation to the Argentinian situation? I'm aware there are distinct differences between the countries but surely you can admit there is at least one valid reason to compare each countries situation! (cue open your mind).

Flamed Diving wrote: »

Having an open mind is all well and good, but knowing that square pegs don't fit round holes is important.

Insightful

SkepticOne

kaymin wrote: »

I'm just quoting from the paper that I linked to in my original post when I said the experts got it wrong. I'm comfortable I'm not bias with the views I consider. Can you explain why you are so adamant Ireland and Argentina are not comparable (in the context of the issues they face) especially when the writer of the paper sees fit to compare the Latvian situation to the Argentinian situation? I'm aware there are distinct differences between the countries but surely you can admit there is at least one valid reason to compare each countries situation! (cue open your mind).

Apparently Thailand and Ireland are comparable to the extent that you can substitute Ireland for Thailand in a paragraph by Krugman. See post #33.

The Corinthian

Nate--IRL-- wrote: »

But were are not just talking about de-valuation. What is proposed is...

-Creating a new currency.
-Doing so in compete secrecy.
-Locking down the financial system to partially prevent Capital flight.
-Devaluing An Punt Nua with respect to the Euro
-Defaulting on current debts (Public and Private)

This is what is known as a soft currency. This is naturally going to cause us problems as no one (internationally) will really be interested in reserves in a currency that is propped up artificially or could be devalued at a moment's notice.

Domestically, I'd imagine many would not be too interested in a soft currency either, and I'd expect capital flight regardless in the run-up to any changeover, not to mention hyper-inflation, unless this too is dealt with with price fixing measures - which in turn would further weaken the reputation of the Punt Nua as a soft currency.

Truth is, you don't introduce a new currency just as you are about to default on debts, directly or through currency devaluation, as the value of a currency is essentially based upon people's confidence in the issuer.

I just wonder how many here are arguing in favour of a so-called Punt Nua for nostalgic or nationalistic rather than economic reasons.

ei.sdraob

@SkepticOne

explain this

1: graph devaluation of sterling oct08 to now

source


2: graph of uk balance of trade in same timeframe

source

3a: graph of uk exports of goods in same timeframe

source

3b: table of total uk trade balance




and since your so fond of unemployment figures in this thread (which has little to do with devaluation)

4: uk unemployment in similar timeframe

source


how do you explain the above?

or this UK exports in biggest fall since 1947

what exactly did devaluation in UK accomplish??





lets remember that UK had its own currency to begin so their devaluation didnt involve slashing and burning whole economy, like it would involve here

if anything it seems devaluation in UK has had a negative impact it seems....

and there has been no improvement in their exports

what exactly was the point of making everyone in UK poorer? what did it accomplish?? the whole exercise is a failure, especially now that euro is loosing its value wiping out any "theoretical" gains the UK had

for second time in this thread ive yet to see a good argument backed by figures or models which will show that devaluation/default by leaving the euro would be "good for ireland", just alot of opinion & theory and little in the way of facts or comparisons to support the arguments for devaluation/default

/

View

kaymin wrote: »

I mentioned the following in an earlier post
We did manage to cope well enough for the 20 years before the euro was introduced. Realignments in the EMS were fairly frequent, averaging about one a year in the 1980s, and the Irish pound depreciated steadily against the Deutsche Mark. These depreciations reflected wider weaknesses in the Irish economy in those years and prevented a loss of competitiveness from compounding those weaknesses.

Most of those realignments occured when the Irish Pound:UK Pound rate went outside a narrow band. Basically, all the City Traders looked at the rate and went "Ireland can't survive being that far out of line with the UK", bet billions against us and drove the rate down, thus forcing a realignment. In other words, we had a self-fulfilling prophecy on the part of the City Traders.

Over the years though, the UK's share of our exports vis-a-vis those of the rest of the EU has steadily declined, so it doesn't make sense to go back to a situation where we tie ourselves back to the UK.

And that, of course, is to ignore that we would need to leave the EU to "unadopt" the Euro which would mean we'd face tariffs on all our exports to the EU (including the UK).

Flamed Diving

kaymin wrote: »

Great, I look forward to some 'independent' thought on the matter.

And yet you trust the journalist who wrote that article. Hmm...

Scofflaw

SkepticOne wrote: »

With respect, I don't think New Zealand is persuing some weird experiment with a floating currency. You are aware that floating currencies are fairly common in the world? You seem to be making out that I have chosen an extreme example here.Again as I suggested, I don't think many from Ireland would be willing to go to New Zealand and tell them they are making a mistake with having a floating currency and that they should look to Ireland. We have trained ourselves to pretend that interest rates have little or no influence over an economy despite the evidence to the contrary but I don't think they would have that view there.

I'm sure they wouldn't, and I'm sure nobody here does either. None of what you're saying is really relevant to the point I've made - small countries with floating currencies don't have a great deal of government control over their currency value. That's pretty much a tautology, since the definition of a floating currency is that its value is determined primarily by the market.

Since the issue is the lack of control over our currency that being in the euro implies, I just find it a bit bizarre that you think the solution is to have a different lack of control, that's all.

Nobody needs to go and ask the New Zealanders anything about it, and nobody has suggested that except you - the New Zealanders aren't weighing up the costs and benefits of a floating currency versus monetary union, and don't have sufficiently close economic integration with any other country to make such a thing meaningful - with the possible exception of Australia, with whom they are extremely unlikely to enter such a union, for good and chauvinistic reasons.

cordially,
Scofflaw

Flamed Diving

I don't know how many times I have to say the term "Small Open Economy" before it begins to sink into peoples minds. I am aware that certain minds are simply impenetrable, but I do hold onto the belief that some may take it in:

A small open economy, abbreviated to SOE, is an economy that participates in international trade, but is small enough compared to its trading partners that its policies do not alter world prices, interest rates, or incomes. Thus, the countries with small open economies are price takers. This is unlike a large open economy, the actions of which do affect world prices and income.

For example; if the U.S. economy is in recession then the world economy is likely to suffer. On the other hand, a recession in a small open economy like Norway will likely not impact the world economy to a great extent.

The assumption of a small open economy is used in the study of macroeconomics to model a price-taking economy, allowing exogenous assumptions of the conditions in the rest of the world.

http://en.wikipedia.org/wiki/Small_open_economy


The bit I highlighted is the most important and has a subtle corollary: since the SOE cannot affect international interest rates, any deviation from such rates are likely to lead to capital flight and/or currency fluctuations. Whether we choose to float or fix, the end result is the same, because our currency will be dominated by our biggest neighbours and trading partners. Fixed or float, we are not free, tough luck.

I am surprised that the authors of the above paper would compare Argentina's case to Latvia's. If I attempted such a move with a supervisor I would have the notion flung out on the above grounds. That said, it isn't peer-reviewed and published in an academic journal. What do you expect?

Cue ignorant, childish comments about academia.

SkepticOne

Scofflaw wrote: »

I'm sure they wouldn't, and I'm sure nobody here does either. None of what you're saying is really relevant to the point I've made - small countries with floating currencies don't have a great deal of government control over their currency value. That's pretty much a tautology, since the definition of a floating currency is that its value is determined primarily by the market.

Since the issue is the lack of control over our currency that being in the euro implies, I just find it a bit bizarre that you think the solution is to have a different lack of control, that's all.

Nobody needs to go and ask the New Zealanders anything about it, and nobody has suggested that except you - the New Zealanders aren't weighing up the costs and benefits of a floating currency versus monetary union, and don't have sufficiently close economic integration with any other country to make such a thing meaningful - with the possible exception of Australia, with whom they are extremely unlikely to enter such a union, for good and chauvinistic reasons.

You seem to be tying yourself up in knots here. The point that is being refuted is whether or not a floating currency (you seem to understand what that is) is an option for a small open economy. The answer is: yes it is.

You seem to be arguing against positions that have not been made.