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Leaving the €uro: Pros & Cons?
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Surely it's more in our interests to learn a bit of fiscal discipline?
I will address both of these together because I think the same underlying sentiment is behind them which is that fiscal discipline is an end in itself. Therefore the current hardship and the hardship to come are to be welcomed because they will teach the Irish through bankruptcy and unemployment the virtues of fiscal discipline.Well, did our last devaluation work?
Devaluing is a short term measure. Staying in the Euro and seriously addressing competitiveness is the way to go in that regard. We already have improved it in the last 2 years, more needs to be done.
However why not make the alleviation of hardship the goal? Then fiscal discipline becomes important not as an end in itself but as a means of achieving the goal. Seen in this light, it makes no sense to welcome the hardship to come due to our membership of a currency union since that same hardship is the thing we are trying to avoid.0 -
Surely there's an argument that says a country that has been run the way Ireland has been run, deserves to be punished? We the people elected FF and their inflamatory policies time and time again. Why should the electorate not be on the hook for their decision to vote FF?SkepticOne wrote: »If you want to see Ireland punished to a greater extent than would otherwise be the case then I would agree with you that the a currency union is the way to go, but we must be honest with ourselves as to whether that is what we want. I don't think the majority of people opposing leaving the Euro are doing so in order that the country be punished properly for fiscal indiscipline. I could be wrong but I don't get the impression that that is the case. It is possible that they are not consciously acknowledging it though.
Benchmarking, increasing social welfare, skyrocketing housing prices, inflation....none of these things were a secret to the electorate, but hardly a word was said...people (not everyone!) just kept electing the government behind it all.
There was no popular call for a restrained approach. So, again, why should Ireland and the Irish not be "punished" (ie, working for what they're really worth compared to their EU neighbours)?
Many people blame the second world war on the fact that Germany was never occupied when they lost the first world war. Germans were spun the lie that "jews and international money men etc." had somehow orchestrated the whole surrender of Germany and that Germany was not really defeated at all. This was popularly believed in the 1930s. We need to be "occupied" by the IMF to show the Irish people that there is no easy pickings. Property is not a way to get rich quick. Ot is just concrete, timber and steel. We all know that there are still a large number of people out there waiting for boom time prices to return. :rolleyes:
Once again, I know that not everybody fell for the hype. But enough did.0 -
How does the US manage the dollar for different states in comparison? IIRC California was going bust not so long ago and didn't New York have to get a bailout at one point?0
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SkepticOne wrote: »I will address both of these together because I think the same underlying sentiment is behind them which is that fiscal discipline is an end in itself. Therefore the current hardship and the hardship to come are to be welcomed because they will teach the Irish through bankruptcy and unemployment the virtues of fiscal discipline.
However why not make the alleviation of hardship the goal? Then fiscal discipline becomes important not as an end in itself but as a means of achieving the goal. Seen in this light, it makes no sense to welcome the hardship to come due to our membership of a currency union since that same hardship is the thing we are trying to avoid.
The hardship is being welcomed - insofar as it is being welcomed - because there seems no other way of imposing fiscal discipline on the state.
I'm sure that we would at least in theory welcome even more fiscal discipline without hardship.
cordially,
Scofflaw0 -
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I'm just going to address this single point because I think it is at the core of where we differ.Surely there's an argument that says a country that has been run the way Ireland has been run, deserves to be punished? We the people elected FF and their inflamatory policies time and time again. Why should the electorate not be on the hook for their decision to vote FF?
What this is about, it seems, is more than just whether or not to stay in or out of the Euro.
In short, no. Ireland does not deserve punishment. If we have run the country badly then sure we must accept the consequences. But those consequences must be those that remain after we have done everything in our power to minimise the pain. We must at all times be seeking to alleviate hardship on the population in a sustainable way.
These consequences after we have done our best to minimise their damaging effects are not the same as punishment. The country should never seek punishment in my view.
But you are entitled to your priorities and I can see that if your priorities are to have Ireland punished then staying in the Euro is one way ensuring this.0 -
I suspect you share that view too. But standing back from it do you not see it as a bit bizarre? A bit masochistic?The hardship is being welcomed - insofar as it is being welcomed - because there seems no other way of imposing fiscal discipline on the state.
I'm sure that we would at least in theory welcome even more fiscal discipline without hardship.
cordially,
Scofflaw0 -
SkepticOne wrote: »I suspect you share that view too. But standing back from it do you not see it as a bit bizarre? A bit masochistic?
In the short term, it may well seem so - but in the long term, not really. If fiscal discipline has to be imposed by hardship, then at least once the hardship is over, we can hope that the fiscal discipline remains - and that way, maybe when the economy recovers the state won't be so disposed to blow it all on short term gains and political opportunism.
The second alternative, that we undergo the hardship without learning anything, is certainly possible, if a little depressing to contemplate, and the third alternative, that we might somehow achieve fiscal discipline without needing hardship as a teacher, lacks any supporting evidence in Irish history.
cordially,
Scofflaw0 -
The hardship is being welcomed - insofar as it is being welcomed - because there seems no other way of imposing fiscal discipline on the state.
I'm sure that we would at least in theory welcome even more fiscal discipline without hardship.
cordially,
Scofflaw
the Irish psyche, is naturally conditioned for hardship. Our great great grandchildren will be singing ballads about their ancestral hero who withstood the torture of the IMF etc,.0 -
See my post above. If Germany had been occupied after WWI, her people may have been a lot less likely to support a war monger like Adolf Hitler, who told them they didn't really lose WWI at all!SkepticOne wrote: »I'm just going to address this single point because I think it is at the core of where we differ.
What this is about, it seems, is more than just whether or not to stay in or out of the Euro.
In short, no. Ireland does not deserve punishment. If we have run the country badly then sure we must accept the consequences. But those consequences must be those that remain after we have done everything in our power to minimise the pain. We must at all times be seeking to alleviate hardship on the population in a sustainable way.
These consequences after we have done our best to minimise their damaging effects are not the same as punishment. The country should never seek punishment in my view.
But you are entitled to your priorities and I can see that if your priorities are to have Ireland punished then staying in the Euro is one way ensuring this.
So, the hardship that was spared Germany after WWI, was reaped a thousand times over just 30 years later with the almost complete destruction of their country (and rightly so of course).
Sometimes, the hard lessons are indeed the best!0 -
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So in your view Cowen should not be seeking a way out of the present difficulties that minimises the pain the country needs to endure?In the short term, it may well seem so - but in the long term, not really. If fiscal discipline has to be imposed by hardship, then at least once the hardship is over, we can hope that the fiscal discipline remains - and that way, maybe when the economy recovers the state won't be so disposed to blow it all on short term gains and political opportunism.
The second alternative, that we undergo the hardship without learning anything, is certainly possible, if a little depressing to contemplate, and the third alternative, that we might somehow achieve fiscal discipline without needing hardship as a teacher, lacks any supporting evidence in Irish history.0 -
It's not simply a case of trying to teach the electorate a lesson (that clearly needs doing though). It is a case of trying to remain within a common currency, that when the rules are followed by all, brings many more benefits than disbenefits.SkepticOne wrote: »So in your view Cowen should not be seeking a way out of the present difficulties that minimises the pain the country will endure or should be seeking to add to the pain in some way the same being true of a future taoiseach in order to teach the electorate a lesson?
You want to abandon the Euro in the hope it is a less painful "way out". I believe the Euro is actually worth fighting for (though I am not an EU integrationist and I was a no voter wrt Lisbon). The Euro brings a heap of benefits to a country like Ireland wrt trade. A yo-yo mickey mouse Punt Nua would bring very few benefits that I can see.
Sometimes, the good things are worth fighting for. Look at it that way.0 -
SkepticOne wrote: »I'm just going to address this single point because I think it is at the core of where we differ.
What this is about, it seems, is more than just whether or not to stay in or out of the Euro.
In short, no. Ireland does not deserve punishment. If we have run the country badly then sure we must accept the consequences. But those consequences must be those that remain after we have done everything in our power to minimise the pain. We must at all times be seeking to alleviate hardship on the population in a sustainable way.
These consequences after we have done our best to minimise their damaging effects are not the same as punishment. The country should never seek punishment in my view.
But you are entitled to your priorities and I can see that if your priorities are to have Ireland punished then staying in the Euro is one way ensuring this.
Ireland is going to be punished financially whether it stays in the eurozone or leaves. The markets are either going to attack the interest rates or the new currency (and probably both in the case of leaving the euro). We clearly differ on which is worse, so there is no point in repeating the argument.
There is no inherent reason why Ireland cannot have a small, open successful economy within the eurozone - the only limitation is domestic politics.
The only way I could see Ireland surviving on its own would be for it to adopt a Hong Kong or Singapore style of fiscal and government policy: zero regulation, no minimum wages, glorious place to set up shop and do business. However, this would probably require a level of government heavy-handedness that most voters would likely be uncomfortable with.
Either Ireland can be at the frontier of Wild West brass-knuckles capitalism (and I'm not sure it could even do that for cultural reasons), and possible carve out a niche for itself within overly-regulated high-tax Europe, or it can play by the rules. Unfortunately I think that voters would be uncomfortable with the former, and government is seemingly incapable of the latter.0 -
I don't want to get into a big discussion about history but it is known that the negotiated surrender and the reparations (punishment) that Germany underwent was one of the motivating factors for Hitler. Pershing argued against a negotiated armistice in favour of unconditional surrender but was overruled. But the point here is that the punishment was the reparations. The unconditional surrender wanted by Pershing was not punishment but rather a demonstration of decisive victory over Germany.See my post above. If Germany had been occupied after WWI, her people may have been a lot less likely to support a war monger like Adolf Hitler, who told them they didn't really lose WWI at all!
They did occupy Germany after the second world war but note that rather than punish Germany economically, they assisted with the reconstruction of the German economy through the Marshall plan. The US learned that punishment is not the way to go in these matters.So, the hardship that was spared Germany after WWI, was reaped a thousand times over just 30 years later with the almost complete destruction of their country (and rightly so of course).
Sometimes, the hard lessons are indeed the best!
To bring this forward to the present day. I think some people are taking the same approach of wanting punishment over and above the normal consequences for Ireland. This is strange in my opinion coming from an Irish person. If we had wronged another country, then I could see why they might have it in for us (though I would still regard it as unwise), but that is not the case here. It is interesting.0 -
SkepticOne wrote: »So in your view Cowen should not be seeking a way out of the present difficulties that minimises the pain the country needs to endure?
As long as it involves the government learning some fiscal discipline, I'd be perfectly happy if he managed to avoid it entirely - the problem is that I don't think those two outcomes together are possible.
cordially,
Scofflaw0 -
There's two points of view being argued by Euro supporters. What I was taking issue with in the post you are responding to was the question of values and priorities that was being raised. The Euro was being held up as a good thing not because it was going to make things easier for Ireland in the immediate future but because it was going to make things harder and I agree that that is the case although I don't advocate it and disagree with the values that underly that point of view. It is good to see people with this view out in the open though.southsiderosie wrote: »Ireland is going to be punished financially whether it stays in the eurozone or leaves. The markets are either going to attack the interest rates or the new currency (and probably both in the case of leaving the euro). We clearly differ on which is worse, so there is no point in repeating the argument.
However on the practical issue of what is best for the people in Ireland over the next few years, I think there's a few points that haven't been addressed.
No I think the opposite is true. Lack of flexibility in the exchange rate forces extreme flexibility in the workforce. And in fact Hong Kong, the example you gave with its peg to the dollar bears this out. You are probably weren't aware that its exchange rate is controlled by committee and only changes occasionally and by small amounts or you would not have used it as an example, but when their property bubble collapsed, since their currency was not going to devalue, it was only their extreme flexibility in their workforce that prevented mass unemployment. I think Morgan Kelly has an article where he makes this point.There is no inherent reason why Ireland cannot have a small, open successful economy within the eurozone - the only limitation is domestic politics.
The only way I could see Ireland surviving on its own would be for it to adopt a Hong Kong or Singapore style of fiscal and government policy: zero regulation, no minimum wages, glorious place to set up shop and do business. However, this would probably require a level of government heavy-handedness that most voters would likely be uncomfortable with.
Either Ireland can be at the frontier of Wild West brass-knuckles capitalism (and I'm not sure it could even do that for cultural reasons), and possible carve out a niche for itself within overly-regulated high-tax Europe, or it can play by the rules. Unfortunately I think that voters would be uncomfortable with the former, and government is seemingly incapable of the latter.
Again, some people are in favour of the Euro because it forces this sort of flexibility to happen in Ireland. Those that want to see the unions confronted for example. But I don't think this is where you are coming from.0 -
SkepticOne wrote: »However on the practical issue of what is best for the people in Ireland over the next few years, I think there's a few points that haven't been addressed.No I think the opposite is true. Lack of flexibility in the exchange rate forces extreme flexibility in the workforce. And in fact Hong Kong, the example you gave with its peg to the dollar bears this out. You are probably weren't aware that its exchange rate is controlled by committee and only changes occasionally and by small amounts or you would not have used it as an example, but when their property bubble collapsed, since their currency was not going to devalue, it was only their extreme flexibility in their workforce that prevented mass unemployment. I think Morgan Kelly has an article where he makes this point.
Again, some people are in favour of the Euro because it forces this sort of flexibility to happen in Ireland. Those that want to see the unions confronted for example. But I don't think this is where you are coming from.
My parents live in Hong Kong, so I am very aware of how their economy works, hence my point about no labor regulations combined with government heavy-handedness.
At this point, there are two realistic options and one not-so-realistic one.
1. Staying with the euro: The EU model
What it is - some social protection within strict budget confines (but not the current system); will probably have to raise taxes and converge more with Continental European states, but can salvage some social programs; some additional loss of autonomy to the EU.
Result - slower growth in the short to medium term, but stability over the long term.
Likelihood - Odds are good, but weakening
2. Dumping the euro, version 1: The Hong Kong/Wild West model
What it is - scrap social programs and labor regulations, gut unions, make starting/winding down a business simple; with complete economic autonomy, can maintain a low tax/flat tax system, completely open to trade; the tradeoff is careful government management of fiscal/monetary policy - i.e. total autonomy but with big-time responsibility.
Result: inflow of investment, macroeconomic stability but more labor market uncertainty and limited social safety nets
Likelihood: not very, since the government is not disciplined enough and, frankly, neither is the workforce. Would definitely require restructuring of political institutions (starting with an end to STV). Plus there seems to be a low appetite for risk in Ireland outside of property speculation.
3. Dumping the euro, version 2: The Banana Republic model
What it is - Essentially flout the Unholy Trinity of economics until the bottom falls out: steer public funds to political goodies, when crisis hits blame the IMF, imposition of harsh austerity prompts riots and/or emigration, things settle, lather, wash, rinse, repeat.
Result - wild macroeconomic fluctuations; poor investment climate
Likelihood - it's already happened, and it can certainly happen again. If Ireland dumps the euro, this is pretty much a guarantee.0 -
SkepticOne wrote: »There's two points of view being argued by Euro supporters. What I was taking issue with in the post you are responding to was the question of values and priorities that was being raised. The Euro was being held up as a good thing not because it was going to make things easier for Ireland in the immediate future but because it was going to make things harder and I agree that that is the case although I don't advocate it and disagree with the values that underly that point of view. It is good to see people with this view out in the open though.
However on the practical issue of what is best for the people in Ireland over the next few years, I think there's a few points that haven't been addressed.No I think the opposite is true. Lack of flexibility in the exchange rate forces extreme flexibility in the workforce. And in fact Hong Kong, the example you gave with its peg to the dollar bears this out. You are probably weren't aware that its exchange rate is controlled by committee and only changes occasionally and by small amounts or you would not have used it as an example, but when their property bubble collapsed, since their currency was not going to devalue, it was only their extreme flexibility in their workforce that prevented mass unemployment. I think Morgan Kelly has an article where he makes this point.
Again, some people are in favour of the Euro because it forces this sort of flexibility to happen in Ireland. Those that want to see the unions confronted for example. But I don't think this is where you are coming from.
I wouldn't consider that an accurate summary of other people's position at all. We're in favour of the euro because it reduces the hardship but comes with the sort of oversight/peer group review/reality check that the eurozone mechanisms provide.
A free-floating punt nua, on the other hand, provides plenty of hardship, probably a good deal more than the euro, while providing no such advantages - instead, it leaves our government to flail about on their own, almost certainly making a very bad situation amazingly worse.
We're in big enough seas to make the enormous euro liner wobble alarmingly, and your solution seems to be to abandon ship and set sail in a small and leaky lifeboat with Captain Cowen at the helm. Oddly enough, I've actually been physically in a very closely analogous position, and I'm in favour of staying aboard and trying to put out the fire this time too.
cordially,
Scofflaw0 -
whatever medicine Dr. €uro prescribes we will have to take. With us having the Euro as our currency will mean that our money will be worth something. We cannot ever go back to the Punt, as a small nation with incompetent politicians and a corrupt financial system we would be finished.0
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I know Hong Kong has a very unregulated economy but why are you using it as an example of a free floating currency when it has a peg with the dollar as I have pointed out? The rest of your assertions in your post are invalid, imo, until you address this point.southsiderosie wrote: »My parents live in Hong Kong, so I am very aware of how their economy works, hence my point about no labor regulations combined with government heavy-handedness.0 -
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SkepticOne wrote: »I will address both of these together because I think the same underlying sentiment is behind them which is that fiscal discipline is an end in itself. Therefore the current hardship and the hardship to come are to be welcomed because they will teach the Irish through bankruptcy and unemployment the virtues of fiscal discipline.
However why not make the alleviation of hardship the goal? Then fiscal discipline becomes important not as an end in itself but as a means of achieving the goal. Seen in this light, it makes no sense to welcome the hardship to come due to our membership of a currency union since that same hardship is the thing we are trying to avoid.
Well German wages have dropped about 15% in the last decade so it can de done and it isn't necessarily a bad thing. We have to aim to be fiscally responsible countries like them, not quick fix after quick fix that never work.Mad Men's Don Draper : What you call love was invented by guys like me, to sell nylons.
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SkepticOne wrote: »I know Hong Kong has a very unregulated economy but why are you using it as an example of a free floating currency when it has a peg with the dollar as I have pointed out? The rest of your assertions in your post are invalid, imo, until you address this point.
I'm using it as an example of decoupling from the euro, not as a free-floating currency. The difference is that Ireland would be able to preserve some autonomy (which seems to be an issue for some people) but the government would have to be disciplined (which I think is impossible, hence why I said it is an unlikely option). I think the only opportunities for growth outside of the eurozone are for it to basically throw the country as wide open as possible to investment and entrepreneurship, but that will not take away the need for the government to discipline itself and the population - it would only heighten it. But at least it could do so on its own terms.0 -
But the peg with the dollar imposes the same sort of problems that a country in a currency union would have. If Ireland were to leave the Euro and peg to the dollar then yes we would need to have a flexible economy like Hong Kong, but for exactly the same reasons we need to have a flexible economy while in the Euro. With a floating currency (and I'm not saying everything is rosy in such a situation) some of that flexibility is carried by the currency itself. A collapse of a bubble will lead to a lowering of the value of the currency. But this introduces some competitiveness and allows recovery. If you have a currency peg like Hong Kong or are in a currency union like Ireland then extra (not less as I think you are arguing) flexibility is required.southsiderosie wrote: »I'm using it as an example of decoupling from the euro, not as a free-floating currency. The difference is that Ireland would be able to preserve some autonomy (which seems to be an issue for some people) but the government would have to be disciplined (which I think is impossible, hence why I said it is an unlikely option). I think the only opportunities for growth outside of the eurozone are for it to basically throw the country as wide open as possible to investment and entrepreneurship, but that will not take away the need for the government to discipline itself and the population - it would only heighten it. But at least it could do so on its own terms.0 -
But that is a comparitively slow adjustment and remember that being a large core economy, the ECB are going to be adjusting interest rates much more to suit them than they would be for Ireland.Well German wages have dropped about 15% in the last decade so it can de done and it isn't necessarily a bad thing. We have to aim to be fiscally responsible countries like them, not quick fix after quick fix that never work.0 -
SkepticOne wrote: »But the peg with the dollar imposes the same sort of problems that a country in a currency union would have. If Ireland were to leave the Euro and peg to the dollar then yes we would need to have a flexible economy like Hong Kong, but for exactly the same reasons we need to have a flexible economy while in the Euro. With a floating currency (and I'm not saying everything is rosy in such a situation) some of that flexibility is carried by the currency itself. A collapse of a bubble will lead to a lowering of the value of the currency. But this introduces some competitiveness and allows recovery. If you have a currency peg like Hong Kong or are in a currency union like Ireland then extra (not less as I think you are arguing) flexibility is required.
What I am saying is that if Ireland goes off of the euro, its options are to create a Hong Kong-style system which has a highly disciplined government and pretty much no regulation, or the default Irish system, which is economic chaos.
Despite the fact that there is a currency peg, the Hong Kong system is not the same as the euro system because the tax labor and wage regulatory framework is more stringent within the EU than it would be outside of it. But in either scenario, the Irish government has to be more fiscally responsible.
Again, we need to keep the Unholy Trinity in mind: Ireland has an open economy and that is presumably not going to change. Therefore, they can have a fixed currency or they can control monetary policy. They cannot do both. As many others on this thread have pointed out, Ireland has a terrible history of self-managing its economy, and I would guess that and short-term gains from improved competitiveness would be lost in the long run due to an increase in macroeconomic instability. At the end of the day, even going off of the euro, Ireland is not going to be as competitive on cost and wages as Eastern Europe, so why introduce so much instability into the system?0 -
southsiderosie wrote: »I'm using it as an example of decoupling from the euro, not as a free-floating currency. The difference is that Ireland would be able to preserve some autonomy (which seems to be an issue for some people) but the government would have to be disciplined (which I think is impossible, hence why I said it is an unlikely option). I think the only opportunities for growth outside of the eurozone are for it to basically throw the country as wide open as possible to investment and entrepreneurship, but that will not take away the need for the government to discipline itself and the population - it would only heighten it. But at least it could do so on its own terms.
At least to the extent that those terms aren't dictated by the need to put the interests of business above all else.
cordially,
Scofflaw0 -
But you are assuming that Ireland is immediately going to enter into a peg with some other currency. The whole point of leaving the Euro would be to get away from that.southsiderosie wrote: »What I am saying is that if Ireland goes off of the euro, its options are to create a Hong Kong-style system which has a highly disciplined government and pretty much no regulation, or the default Irish system, which is economic chaos.
But these rules are there to try and mitigate the problems inherent in having multiple countries with different economies but one currency. What is proposed is to move away from that.Despite the fact that there is a currency peg, the Hong Kong system is not the same as the euro system because the tax labor and wage regulatory framework is more stringent within the EU than it would be outside of it. But in either scenario, the Irish government has to be more fiscally responsible.
Where did I say they should try to do both? I'm suggesting that they leave the fixed currency either in the form of a currency union or a peg to another currency.Again, we need to keep the Unholy Trinity in mind: Ireland has an open economy and that is presumably not going to change. Therefore, they can have a fixed currency or they can control monetary policy.
They cannot do both.
But there's no evidence that currency unions in themselves lead to macroeconomic stability in themselves. It was always recognised that there were inherent stability issues with currency union and this is why the stability and growth pact was created which we now see was neither sufficient nor enforced properly.As many others on this thread have pointed out, Ireland has a terrible history of self-managing its economy, and I would guess that and short-term gains from improved competitiveness would be lost in the long run due to an increase in macroeconomic instability. At the end of the day, even going off of the euro, Ireland is not going to be as competitive on cost and wages as Eastern Europe, so why introduce so much instability into the system?0 -
SkepticOne wrote: »But you are assuming that Ireland is immediately going to enter into a peg with some other currency. The whole point of leaving the Euro would be to get away from that.But these rules are there to try and mitigate the problems inherent in having multiple countries with different economies but one currency. What is proposed is to move away from that.Where did I say they should try to do both? I'm suggesting that they leave the fixed currency either in the form of a currency union or a peg to another currency. But there's no evidence that currency unions in themselves lead to macroeconomic stability in themselves. It was always recognised that there were inherent stability issues with currency union and this is why the stability and growth pact was created which we now see was neither sufficient nor enforced properly.
A currency peg is not the same thing as a currency union. Most pegs are banded, and are occasionally re-calibrated; as long as this is not done willy-nilly it is generally not a problem. Currency unions are rare, but currency pegs are common, and when governments don't spend money like water, they are generally useful because they generate policy stability. If Ireland were to have its own floating currency, given the history of its government, I do not see where there would be a modicum of stability.0 -
I mentioned an article that talked about Hong Kong as analogous in some respects to Ireland in the eurozone. It was actually by Alan Ahearne not Morgan Kelly but here's an extract neverthess:
Note that this was written in 2005 before the full extent of the bubble was realised by most economists. You can see that his point here is that extra flexibility is required from the workforce in a currency union such as the one Ireland is in or a currency board such as the one operated by Hong Kong.In the event that Irish house prices do fall, economic flexibility will be crucial in containing any fallout.
In this regard, some lessons can be drawn from Hong Kong's experience in the late 1990s.Hong Kong's currency board arrangement means that the authorities there have essentially no control over domestic interest rates or the exchange rate. When property prices collapsed in 1997 and 1998, it was sustained declines in nominal wages that eventually restored the economy's competitiveness. But declines in nominal wages are rarely seen in industrial countries, and are usually vigorously opposed by trade unions. Whether the wage-formation process in Ireland is up to the task of rebalancing the Irish economy in the aftermath of a property crash is very much an open question. URL="http://www.daft.ie/discussions.daft?dcn[discussion_id]=114319&dcn[forum_id]=4"]source[/URL0 -
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SkepticOne wrote: »I mentioned an article that talked about Hong Kong as analogous in some respects to Ireland in the eurozone. It was actually by Alan Ahearne not Morgan Kelly but here's an extract neverthess:
Note that this was written in 2005 before the full extent of the bubble was realised by most economists. You can see that his point here is that extra flexibility is required from the workforce in a currency union such as the one Ireland is in or a currency board such as the one operated by Hong Kong.
I have never said it wasn't - in fact I've said they would need to be even more open than before. Why do you keep repeating this point?
You seem to think that the shift to a floating currency will somehow curb the pain of wage deflation and unemployment because the currency will bear the brunt of the government's bad policies. But workers - and especially low wage workers - bear the brunt as well. If countries want to run ridiculous fiscal and monetary policies, but maintain employment levels, they they are going to have to be satisfied with high levels of inflation. Again, Argentina is a case in point: inflation has been running at over 20% there for almost a decade, no matter how much the government tries to fudge the figures. This would be DISASTROUS for Ireland, which imports over 75% of its food supply, and most of its consumer goods. It would be especially bad for the poor, who spend a higher percentage of their income on food and basics.
You also seem to think that this shift would not have any repercussions from the EU. I would presume that Ireland would lose many of its EU membership benefits if it dropped out of the eurozone, and if these extended to preferential trade access, Ireland could kiss its MNCs goodbye.0
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