LEave Euro temporarily?

WalterMitty

Could it be possible for Ireland to leave Euro for say 5 -10 years with the ECB help Euro denominated debt could be managed by ECB with minimum repayments from us. This would allow our economy with new currency to trade our way out of trouble and rejoin Euro in future and start paying back Euro debt which could be written down by then.

ei.sdraob

1. our mountains of debt will still be in euro

2. the private sector can double or triple in size and it still wont cover the holes we have

Justin Collery

I have heard a couple of people suggest this. 'round here it's been dubbed the sceuro. You would have a dual currency setup, euros and sceuros. They would start at parity, but the sceuro would float. The government would pay all its bills in sceuros, and you would expect in the end for it to be worth less than the euro.

It's not the worst idea in the world, its a round about devaluation. Can't imagine Jean Claud and his buddies in the ECB being too happy with it though.

fontanalis

Why would anyone high up in a position relating to EU monetary affairs with any credibility listen to a representative of the Irish government?
What would leaving the Euro achieve, and why would Ireland be let back in again?

Scofflaw

What do we imagine that New Punt would be worth after about 20 minutes trading? "Devaluation" wouldn't really be the word.

And, yes, our debts would still be in euro, and we almost certainly wouldn't be able to borrow in euros to pay our euro-denominated borrowings, just as Iceland can now only borrow in krone.

cordially,
Scofflaw

thebman

jcollery wrote: »

I have heard a couple of people suggest this. 'round here it's been dubbed the sceuro. You would have a dual currency setup, euros and sceuros. They would start at parity, but the sceuro would float. The government would pay all its bills in sceuros, and you would expect in the end for it to be worth less than the euro.

It's not the worst idea in the world, its a round about devaluation. Can't imagine Jean Claud and his buddies in the ECB being too happy with it though.

The problem is everyone knows its a devaluation method so who would be willing to accept sceuro's knowing they would be worthless shortly or massively devalued?

I'd insist on being paid in Euro's.

It sounds nice in theory but IMO can't possibly work.

gurramok

And those with savings/lots of money will move it out of the country.

ei.sdraob

jcollery wrote: »

I have heard a couple of people suggest this. 'round here it's been dubbed the sceuro. You would have a dual currency setup, euros and sceuros. They would start at parity, but the sceuro would float. The government would pay all its bills in sceuros, and you would expect in the end for it to be worth less than the euro.

It's not the worst idea in the world, its a round about devaluation. Can't imagine Jean Claud and his buddies in the ECB being too happy with it though.

Could very well happen
plenty of countries went dual currency before, especially the favourite of all the lefties here on boards.ie called Cuba
needless to say it could mean welfare and public obligations paid in Irish Pesos

thebman wrote: »

The problem is everyone knows its a devaluation method so who would be willing to accept sceuro's knowing they would be worthless shortly or massively devalued?

I'd insist on being paid in Euro's.

It sounds nice in theory but IMO can't possibly work.

No one would want them but the government could say tough luck to public sector and welfare and force them accept Irish Rubble
Making it legal tender would mean shops could not refuse it either

As I said its been done before, I hope we dont go down this road but we keep getting deeper and deeper into **** so a dual currency setup is not beyond the realm of possibility. working with 2 currencies is not particularly hard for businesses i have to trade in dollars, euro and pounds for example

gurramok wrote: »

And those with savings/lots of money will move it out of the country.

already happening apparently the rumors going around say

SkepticOne

ei.sdraob wrote: »

1. our mountains of debt will still be in euro

I think people here are making the mistake of thinking that because the Euro is a relatively strong currency that that somehow makes it easier to pay our debts.

We pay our debts through exporting goods and services abroad. That's it. Nothing to do with currency.

3DataModem

But your mortgage would be in EUR... you'd have to earn enough PaddyPesos to pay your mortgage. Same would apply to petrol and all imports.

You think shops couldn't refuse to take PaddyPesos? Many would. If I'm selling bananas that I pay USD to import, you can bet I won't be risking accepting PaddyPesos without a crazy markup to cover inflation risk.

Hotblack Desiato

And of course, as soon as people get wind of this they'll be queueing around the block to withdraw their Euro from the banks, before their deposits are converted into New Irish Peso. More to the point, ALL foreign investment that can be pulled out in time will be, and along with it, jobs.

Interest rates will approach 50% (so much for lending to encourage indigenous enterprise...) and of course the currency will crash, making imports of vital raw materials unaffordable. Meanwhile our debt burden will remain in Euro in accordance with the contracts we freely and willingly entered into. The government may be able to get away with a default in that scenario, but will householders?

We end up with an agrarian barter society, kinda like some of the anti-Lisbon people who said we could all live on fish.

Scofflaw

SkepticOne wrote: »

I think people here are making the mistake of thinking that because the Euro is a relatively strong currency that that somehow makes it easier to pay our debts.

We pay our debts through exporting goods and services abroad. That's it. Nothing to do with currency.

Even just looking at it like that, you have to take into account the spread between the conversion rate you'd get on imports and that on exports. That will be quite high if the currency is seen as unstable, because people are hedging against the risk - and a country that's stepped out of the euro in order to devalue isn't going to be seen as low risk (and never mind what that would do to our bond rates).

cordially,
Scofflaw

SkepticOne

Scofflaw wrote: »

Even just looking at it like that, you have to take into account the spread between the conversion rate you'd get on imports and that on exports. That will be quite high if the currency is seen as unstable, because people are hedging against the risk - and a country that's stepped out of the euro in order to devalue isn't going to be seen as low risk (and never mind what that would do to our bond rates).

I think this is a good point and I could see this being an issue while the devaluation is taking place however once it is done, Ireland would have a floating currency like many others who seem to survive reasonably well.

As far as I can see the problem for Ireland right now is similar to those experienced by countries with weak economies that peg their currencies to strong ones. What we need to do is bring down prices both in the public sector and in the private sector, yet we seem to be unable to do so without business failures. Our minimum wage is still one of the highest in the world despite our economy. Business rents in cities still remain high despite vacencies. Professional fees are still high. Rates charged by councils are still high and so on. And we are almost four years since the property bubble burst and over two years since the start of the Irish banking crisis.

Of course if we could bring our costs down in an orderly fashion then this would not be a problem and currency would not matter but that was never a realistic possibility unfortunately. It is simply not the way things work.

SkepticOne

3DataModem wrote: »

But your mortgage would be in EUR... you'd have to earn enough PaddyPesos to pay your mortgage. Same would apply to petrol and all imports.

But like I said, you pay for imports as well as any loan not with any particular currency but with what you produce for export.

Justin Collery

http://en.wikipedia.org/wiki/Gresham%27s_law

Bad money drives out the good. Two shops, one accepts sceuros, the other only euros. Everybody will shop where sceuros are accepted, forcing the second euro only shop to change.

All debts and savings remain in euro's...however:

Companies will pay for locally produced goods and services in sceuros. The value of the sceuro will fall, effectively making these goods and services cheaper. This makes our exports more attractive and so we sell more abroad.
*** So long as the increase in exports is more than than the devaluation of the sceuro, everyone is better off and the strategy has worked. *** E.g. If the value of the sceuro is 50% of the euro, but out exports have tripled then we are better off.

This is all about optics. This has to happen any way. It's harder to say to someone, I paid you €1,000 last week, but this week you are only getting €800. It's much easier for a person to accept they are getting the same physical amount, even if the purchasing power of that money has been reduced.

View

SkepticOne wrote: »

But like I said, you pay for imports as well as any loan not with any particular currency but with what you produce for export.

Really? How many businesses actually barter for the products they import?

Scofflaw

SkepticOne wrote: »

I think this is a good point and I could see this being an issue while the devaluation is taking place however once it is done, Ireland would have a floating currency like many others who seem to survive reasonably well.

Countries with floating currencies do alright if they're perceived as stable, but otherwise tend to suffer a fair bit, which is why quite a lot of unstable countries peg their currencies to a strong currency.

SkepticOne wrote: »

As far as I can see the problem for Ireland right now is similar to those experienced by countries with weak economies that peg their currencies to strong ones. What we need to do is bring down prices both in the public sector and in the private sector, yet we seem to be unable to do so without business failures. Our minimum wage is still one of the highest in the world despite our economy. Business rents in cities still remain high despite vacencies. Professional fees are still high. Rates charged by councils are still high and so on. And we are almost four years since the property bubble burst and over two years since the start of the Irish banking crisis.

Of course if we could bring our costs down in an orderly fashion then this would not be a problem and currency would not matter but that was never a realistic possibility unfortunately. It is simply not the way things work.

Unfortunately so. It's clear from reading these forums and elsewhere that we can't even collectively decide that we all need to share the pain.

cordially,
Scofflaw