Only solution is for Ireland to leave the euro

ei.sdraob

money printing never ends well...

UK finances deteriorate further



i like the picture of the empty box

Nate--IRL--

SkepticOne wrote: »

Sorry I subsequently edited my post to explain the reasoning.

This is the bit I added.

If you are a landlord and your rents are too high then lowering them will make your outstanding loan increase when measured in terms of your asking rent. So you have an outstanding loan of x times your monthly rent.

But raising your rent does not improve your ability to pay back that rent. Lowering the rent maybe the thing to even though that means that your outstanding loan in terms of your asking rent goes up.

OK it's a bit of a simplistic analogy but I get your point.

Now consider that, by leaving the euro, the market decides what your rent should be and that you have little or no control over it. (Floating Currency)

Also the interest on the Mortgage you have is governed by the bond market, who take into account your ability to collect the rent (an Punt Nua), the market price of your rent (FX market) and your overall ability to pay back your original debt (Re-Denominated Euro pegged at some initial value), when deciding your mortgage interest rate (Bond-yields).

So we go from a Quantifiable amount of debt (that is still currently manageable) to a massive leap into the unknown, at the mercy of the Bond and Currency markets.

Meanwhile the Private debt is still in Euro?

Have I got the gist?

Nate

SkepticOne

Nate--IRL-- wrote: »

Have I got the gist?

The main gist (which I think you have got) is that your ability to pay back a loan is not solved by keeping prices high. Adjustments will come even if we stay in the Euro and these among other things will still involve wages coming down relative to mortgage payments (other things being equal) but in addition these adjustments will come at a high cost which will also involve a lot of uncertainty.

I think it is fairly clear also that these adjustments won't come smoothly. They will also come in the form of redundancies as well as wage reductions. A lot of these will be skilled workers who perhaps might have been better off taking a significant drop in pay rather than redundancy, but human nature being what it is, would not have accepted that option. Some of those people will take up jobs but these are likely to be lower skilled jobs. If you have 20 years experience in a particular industry and that disappears you are pretty much at the bottom of the heap when it comes to other industries. As well as the individual tragedy, the economy now has to do without a resource that may have been expensively attained.

So we don't really dispense with uncertainty by staying in the Euro. I think I mentioned Krugman and his prediction of five years of deflation. The bit of apparent certainty that the Euro gives won't be worth that.

Nate--IRL--

SkepticOne wrote: »

The main gist (which I think you have got) is that your ability to pay back a loan is not solved by keeping prices high.

As pointed out above the ability to pay back and size of that debt will be governed by external currency and bond market forces once outside the Euro.

SkepticOne wrote: »

Adjustments will come even if we stay in the Euro and these among other things will still involve wages coming down relative to mortgage payments (other things being equal) but in addition these adjustments will come at a high cost which will also involve a lot of uncertainty.

Wait, what? I thought we were talking exclusively about government debt? Now you are talking about private debt, you now want this at the mercy of the whims of the Currency markets too? In addition to any deflation?

SkepticOne wrote: »

I think it is fairly clear also that these adjustments won't come smoothly.

I agree, but this is going to happen inside or out of the euro.

SkepticOne wrote: »

They will also come in the form of redundancies as well as wage reductions. A lot of these will be skilled workers who perhaps might have been better off taking a significant drop in pay rather than redundancy, but human nature being what it is, would not have accepted that option. Some of those people will take up jobs but these are likely to be lower skilled jobs. If you have 20 years experience in a particular industry and that disappears you are pretty much at the bottom of the heap when it comes to other industries. As well as the individual tragedy, the economy now has to do without a resource that may have been expensively attained.

Tell me about it, I used to work for one of the largest Developers in the state. Leaving the Euro will not get me job in architecture in Ireland any time soon.

SkepticOne wrote: »

So we don't really dispense with uncertainty by staying in the Euro. I think I mentioned Krugman and his prediction of five years of deflation. The bit of apparent certainty that the Euro gives won't be worth that.

I would agree with Krugman, in fact in Ireland's case I'd say he's being optimistic. I would also argue that things would be very much more uncertain if Ireland's debts (private and/or public) were exposed to the trade winds of the currency markets.

Nate

ei.sdraob

The problems in Ireland have little to do with the currency (euro) being used, but are due to the terrible miss-management from the government and huge miss-alocation of money that went into property bubble instead of productive companies

neither SkepticOne nor the OP has shown a shred of evidence that would attribute the euro as responsible for our troubles

i have shown time and time again that UK despite having its own currency and deliberately devaluating has not achieved anything

their problems like ours run much deeper and have little to do with the currencies being used

whether we use (and have used) the euro, pound, dollar, gold, sea shells we still would have ended up in this position (or much worse shape if we had the punt still) since the root cause of our problems (Fianna Fail) are still in power


check this out

RBC Strategist Russell Jones said: 'We have lost two major sources of government revenue (in Britain): the housing market and financial services. That renders our underlying position grim.'

http://www.thisismoney.co.uk/news/article.html?in_article_id=499795&in_page_id=2

SkepticOne

Nate--IRL-- wrote: »

wait, what? I thought we were talking exclusively about government debt? Now you are talking about private debt, you now want this at the mercy of the whims of the Currency markets too? In addition to any deflation?

The point is mainly about government debt but to a certain extent it applies to private debt denominated in foreign currency.

I agree, but this is going to happen inside or out of the euro.

Tell me about it, I used to work for one of the largest Developers in the state. Leaving the Euro will not get me job in architecture in Ireland any time soon.

No unfortunately something like devaluation is unlikely to help architecture or anything relating to building except very indirectly. It is more likely to help indigenous exporters and Irish companies wanting to become exporters. But that is really the only way out of this ultimately.

I would agree with Krugman, in fact in Ireland's case I'd say he's being optimistic. I would also argue that things would be very much more uncertain if Ireland's debts (private and/or public) were exposed to the trade winds of the currency markets.

But among his reasons were that Ireland was constrained by its membership of the Euro.

SkepticOne

Scofflaw wrote: »

I don't really see the uncertainty in staying in the union. At the moment our uncertainty boils down pretty much to wondering whether we can borrow the necessary money, make the necessary cuts without general strikes, and how much of a haircut we get on NAMA. There's speculation about the "breakup of the eurozone", but nothing more than that.

The uncertainty is over the general outlook for the economy staying in the Euro. If I believed that the issues concerning the NAMA haircuts and the necessary cuts in government expenditure were pretty much the end of it then I would not advocate leaving the Euro.

View

SkepticOne wrote: »

Please note that I'm not condemning anything. I think it is unlikely that member states would tear up the free trade aspect of the EU in order to punish Ireland. They would be entitled to do that but I don't think it would be in their interests.

My comment about condemning refers to the situation that would exist after Ireland (or some other member state) decided to unilaterally opt out of part of the EU Treaties. If the other member states accept that action, then when the second member state unilaterally decides to opt out of part of the EU Treaties then you (generic as opposed to you, yourself) cannot condemn such an action. And the same follows for every other member state with respect to the Treaties, thus resulting in them not being worth the paper they are printed on.

For instance - if Ireland unilaterally opts-out of the Euro today, then Ireland could hardly complain if France decided to unilaterallly opt-out of the free movement of lamb into France from Ireland, could it? In the run up to an election in France, I'd imagine the slogan of "French lamb for French people" would probably go down well with the French farmers' association.

SkepticOne wrote: »

A more realistic scenario would be that Ireland would first seek an opt-out from the Eurozone. You might say that there is no provision for this, but there doesn't need to be a provision or mechanism. All that is needed is that the other member states agree to allow Ireland to remove itself from the Eurozone. I'm aware it hasn't been done before.

During this time Ireland the official stance of Ireland would not be opposed to the euro or closer union or anything like that. The official line would be that leaving the euro is a deeply regrettable but necessary move.

You are completely underestimating the legal changes that would be needed to undertake such a scenario. A "Gentleman's agreement" amongst the member states wouldn't stand a chance before the courts. No judge is going to rule that a "Gentleman's agreement" takes legal precedence over the text of the actual Treaties where it says that a member state will use the Euro. And you can be absolutely certain that any such "Gentleman's agreement" would be challenged all the way.

To opt out of the Euro, you'd need actual changes to the texts of the EU Treaties. You'd also need approval for these changes from all the parliaments of the member states. In the case of some states, including I suspect Ireland - you would probably need changes in their actual constitutions as well. Lastly you need changes in the domestic laws of the member state concerned. All this would take a l - o - n - g time during which time the financial markets would have a field day. It'd be akin to announcing the results of the next World Cup would be (after inventing time travel) and then telling people they could place bets on who the winner of the World Cup would be.

hiorta

Opting out of the éuro places Ireland in the position of being willing to grab the éuropean money that benefitted them in internal improvements with both hands - squandering it by being unable to control their greed - then welshing on their part of the bargain they entered into initially.

A proud people, or snivelling materialists?

Who would ever trust such again?

ShowMeTheCash

Liam Byrne wrote: »

No one could afford to.

Typical (non-luxury) outlay per month :

Mortgage/loans : €900
Phone, broadband, TV : €100
Transport : €100
Heating : €50
Food : €300

That's €1,500 net before there's even a hint of a luxury! Average in car tax, house insurance, health insurance, car insurance, bin charges and whatever else and you need a minimum of €1,800 a month to survive in this country.

Ironically, most of the most expensive items and services are things that the Government should have had control over, but privatised / licensed / forgot to regulate effectively.

I remember this argument on the radio a while back.
What we consider standard other countries consider luxury.

We are in a bit of a strange situation, like a guy in a suit with a diploma on the wall, standing in a queue for his dole cheque when the country has no cash left - At what point are be going to wake up and realise we are in trouble??

Slight exaggeration I hope!

Sack the euro and money - I will trade you two chickens for a BMW.

Voodoo_rasher

I see. but in anticipation of this happening would there not be a run on banking deposits as us Irish hurry to rescue what is our life savings in 'hard currency' before its converted into somethng inferior - 'funny money' with eff-all purchasing power outside Ireland. I know i would! our banks would collapse?

Sand

As pointed out already, leaving the euro is not something that can be organised over a weekend like the old devaluations of the punt were when the markets were closed.

There would be absolute chaos for a period of months, perhaps even years that it would take to organise a transfer to a new currency (which would place additional costs on business as theyd need to modify everything from vending machines to software to handle the new currency).

Talk of leaving the euro is at best theorycrafting, and at worst (when supposed commentators like David McWilliams rabbit on about it internationally...) exceptionally dangerous in that if the markets ever took the threat seriously, the risk of lending to Ireland would spike massively with increasing costs to the taxpayer. Why David McWilliams hates us so much is a question we might never answer.