Ireland leaves the Euro and devalues new punt

fred252

right now we have a weak economy and a strong currency. this is suffocating us at the moment.

what would the consequences be of leaving the euro?

it would be good from the point of view of all our debt being devalued/reduced.

if we were to leave wouldn't the entire population put their deposits in european banks and keep them in euro? and as soon as wages are paid people would also transfer them to euros or dollars, right? (as they do in some latin american countries) i guess this would lead to an exceptionally weak currency.

would joining sterling be a better fit for us? (despite the obvious..ahem...difficulties with such a move)

ei.sdraob

can i pay taxes in nua punt :P

fred252

yes put you get paid in nua punt :eek:

i suppose it could accelerate emmigration too...

Voodoo_rasher

fred252 wrote: »

right now we have a weak economy and a strong currency. this is suffocating us at the moment.

what would the consequences be of leaving the euro?

it would be good from the point of view of all our debt being devalued/reduced.

if we were to leave wouldn't the entire population put their deposits in european banks and keep them in euro? and as soon as wages are paid people would also transfer them to euros or dollars, right? (as they do in some latin american countries) i guess this would lead to an exceptionally weak currency.

would joining sterling be a better fit for us? (despite the obvious..ahem...difficulties with such a move)

yeah #sarcastic# join sterling, why stop there. An absentee Duke already creams off massive retail rent here. 'Independence' was a wasted exercise

ixtlan

fred252 wrote: »

it would be good from the point of view of all our debt being devalued/reduced.

The debt would not be devalued. It would remain in Euros, making the debt situation even worse.

fred252 wrote: »

if we were to leave wouldn't the entire population put their deposits in european banks and keep them in euro? and as soon as wages are paid people would also transfer them to euros or dollars, right? (as they do in some latin american countries) i guess this would lead to an exceptionally weak currency.

And an exceptionally weak economy. If people were transferring their earnings to foreign banks, there would be less spending here, therefore less economic activity and fewer jobs.

fred252 wrote: »

would joining sterling be a better fit for us? (despite the obvious..ahem...difficulties with such a move)

Too many problems with this, just as there are (at least to this point) too many problems with the idea of leaving the Euro. While the Euro got us into this mess (in some ways), it has also prevented an Argentina like collapse of the economy, and for those that think we have had such a collapse we have not.

ix.

Cool Mo D

fred252 wrote: »

what would the consequences be of leaving the euro?

Interest rates would be instantly jacked to 20%, and everyone with a mortgage would lose their homes. Iceland hit 18% interest rates after their devaluation.

Our debt situation would instantly get 100% worse, as our debt would be in euros and we would be paying them back with devalued punts nua. Debt would not be devalued or reduced.

Note that Iceland has not had an increase in exports with devaluation, while we have had a huge increase in exports with no devaluation.

Spacedog

we should bring back the punt, if only to re-use this classic joke:

Q: Why is the Irish currency called the Punt?

A: Because it rhymes with Bank Manager!

:pac:

Permabear

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ei.sdraob

Permabear wrote: »

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Do many people actually have money left in Irish banks? if they do they would have only themselves to blame
by this stage with the roller-coaster ride we had in 2010 nothing would surprise me,
and it would be a great way of getting at public service/welfare problems without breaking the CPA :P
can you imaging the face on Jack when he learns he would have to be paid in worthless paper bills? straight out of a socialist bannana republic playbook

yes put you get paid in nua pun

personally i am not worried about that... but i could see how others depending on state money or local economy would

professore

Cool Mo D wrote: »

Interest rates would be instantly jacked to 20%, and everyone with a mortgage would lose their homes. Iceland hit 18% interest rates after their devaluation.

Our debt situation would instantly get 100% worse, as our debt would be in euros and we would be paying them back with devalued punts nua. Debt would not be devalued or reduced.

Note that Iceland has not had an increase in exports with devaluation, while we have had a huge increase in exports with no devaluation.

We default on the debt. Simples.

3DataModem

Please please do this.

Revalue my Irish mortgage to punt nua... I am paid in GBP.... sweeeeeeeet.

Result:
I have house in Ireland I like: Value = 1 house
I have mortgage in Punt Nua: Value = less and less compared to income

Where do I vote yes to this?

user1842

This would mean in sovereign debt default. All our debt is in Euro. The new Punt who be valueless so how could we pay our debt.

We would be in a much worse situation.

No bailout from EU, no ECB funds, no way of getting money on the money markets = the total collapse of Ireland.

At the stage we would have to beg the UK to bring us into Sterling which they would not.

Not an option at all.

SkepticOne

fred252 wrote: »

right now we have a weak economy and a strong currency. this is suffocating us at the moment.

what would the consequences be of leaving the euro?

it would be good from the point of view of all our debt being devalued/reduced.

The debt would remain in Euros but we're a country where internally generated costs need to come down across the board in order to pay back those Euros so devaluation would help bring this about.

ei.sdraob

SkepticOne wrote: »

The debt would remain in Euros but we're a country where internally generated costs need to come down across the board in order to pay back those Euros so devaluation would help bring this about.

An overnight adjustment to reality

user1842

SkepticOne wrote: »

The debt would remain in Euros but we're a country where internally generated costs need to come down across the board in order to pay back those Euros so devaluation would help bring this about.

Please explain this?

How would devaluation help us to pay back our EUR debt?

It would make it a lot more difficult.

SkepticOne

dmclean1842 wrote: »

Please explain this?

How would devaluation help us to pay back our EUR debt?

It would make it a lot more difficult.

The money we use to pay our foreign debts ultimately comes from exports. The value of these exports in Euro terms has nothing to do with whatever currency we use in Ireland.

I'm not saying things would be easy. There would be a lot of practical difficulties in introducing the Euro and politically it would also be very difficult, but paying back debts even if they are in foreign currencies would not become harder in the longer term.

I think when people think it would be harder to pay back debts they have an image of a big pile of money that gets devalued if we leave the Euro. But of course we don't have a big pile of money. If we had we wouldn't have the debt problems in the first place.

user1842

SkepticOne wrote: »

The money we use to pay our foreign debts ultimately comes from exports. The value of these exports in Euro terms has nothing to do with whatever currency we use in Ireland.

I'm not saying things would be easy. There would be a lot of practical difficulties in introducing the Euro and politically it would also be very difficult, but paying back debts even if they are in foreign currencies would not become harder in the longer term.

I think when people think it would be harder to pay back debts they have an image of a big pile of money that gets devalued if we leave the Euro. But of course we don't have a big pile of money. If we had we wouldn't have the debt problems in the first place.

So your basically saying having two currencies. One for exports (debt repayment) and one for everything else.

The problem is when you want to convert one currency into the other.

ilovesleep

A plan for the future is a two tier euro - a new euro for the PIGS countries. Where the new currency will be devalued but debts remain in the stronger euro.

Scofflaw

ei.sdraob wrote: »

Do many people actually have money left in Irish banks? if they do they would have only themselves to blame

At the last count (end January), the private sector had €155.6bn on deposit with the Irish domestic banks - not much of a fall from the €169bn that was in the banks at the time of the guarantee. Of course, overseas and eurozone deposits (€104.4bn and €17.1bn respectively) would also flee.

Unlikely for the move not to collapse the banks, really, so one of the first things we'd need to do would be to default on the ECB debt. That wouldn't cover it, though (it's only €91bn), so we'd want some other defaults and to slam down capital controls. We'd still need a massive printing operation by the Central Bank, though - which would cause galloping inflation.

It would certainly be interesting. Rather from the Sinn Fein school of economics, though.

cordially,
Scofflaw

SkepticOne

dmclean1842 wrote: »

So your basically saying having two currencies. One for exports (debt repayment) and one for everything else.

The problem is when you want to convert one currency into the other.

No I'm not saying having two currencies, just the one. We might trade in multiple currencies (as we do now) but that doesn't imply having multiple national currencies.

Some of our exports go to the US and have a value in dollars but that doesn't mean we have to adopt the dollar as our currency.

fred252

the main argument against this, being suggested here, is that our debt would remain in euros. is it proposterous to suggest we change our laws before that debt gets converted to punt nua and they can come and challenge in our high court?

fred252

Scofflaw wrote: »

At the last count (end January), the private sector had €155.6bn on deposit with the Irish domestic banks - not much of a fall from the €169bn that was in the banks at the time of the guarantee. Of course, overseas and eurozone deposits (€104.4bn and €17.1bn respectively) would also flee.

Unlikely for the move not to collapse the banks, really, so one of the first things we'd need to do would be to default on the ECB debt. That wouldn't cover it, though (it's only €91bn), so we'd want some other defaults and to slam down capital controls. We'd still need a massive printing operation by the Central Bank, though - which would cause galloping inflation.
It would certainly be interesting. Rather from the Sinn Fein school of economics, though.

cordially,
Scofflaw

don't we need our economy to inflate now?

SkepticOne

fred252 wrote: »

the main argument against this is that our debt would remain in euros. is it proposterous to suggest we change our laws before that debt gets converted to punt nua and they can come and challenge in our high court?

Most likely such a move would involve a redenomination of debts in the new currency, a move which would be regarded as partial default by creditors. Whether it succeeds would depend on how tightly written the legislation is.

But our ability to pay Euro-denominated debts is ultimately dependent on our ability to export, not on the national currency as has been argued on this thread.

Scofflaw

fred252 wrote: »

don't we need our economy to inflate now?

No, we need our economy to expand. Inflation is just a measure of the devaluation of the currency against goods and services - so at 10% inflation you pay £1.00 for a Coke today, and £1.10 in a year's time.

I was in Turkey in the early Nineties, when their annual inflation rate was running at about 70%. That was the internal rate of devaluation - and would mean that the price of things in Turkish lira went up by about 5% per month - but the loss of value against stable foreign currencies meant it was better not to bother changing your money until you really needed it, because you'd get a better exchange rate in the afternoon than the morning.

Inflation in the general eurozone we could do with, because it would devalue our debts.

cordially,
Scofflaw

View

SkepticOne wrote: »

The money we use to pay our foreign debts ultimately comes from exports. The value of these exports in Euro terms has nothing to do with whatever currency we use in Ireland.

I'm not saying things would be easy. There would be a lot of practical difficulties in introducing the Euro and politically it would also be very difficult, but paying back debts even if they are in foreign currencies would not become harder in the longer term.

You mean practical difficulties like the fact that Ireland is committed in the EU Treaties and laws to using the Euro? How much do you think the ECJ would fine us were we to violate our commitments? Or the reaction to the Supreme Court to such an action (the relevant provision of BnahE basically says that BnahE can't be used to ignore/override EU law)?

Not to mention that the other states might reasonably adopt the attitude that since we feel free to ignore the provisions of the EU Treaties wrt to the Euro, then they - in turn - can ignore the provisions on allowing our exports access to their markets on a free trade basis? True, such an action would be illegal, but the ECJ would be too busy trying to figure out what to fine us (wrt the Euro) that they'd probably take a while to get round to dealing with any complaint we made about that.

Mister men

In time we will leave the Euro the only question is do we bring back the punt or move over to sterling.

whatstherush

Mister men wrote: »

In time we will leave the Euro the only question is do we bring back the punt or move over to sterling.

PM me on that day and I'll give ya 50 nua punts of the monopoly money;)

On a serious note I don't see how we can leave due to capital flight & debts denominated in euro's. If the whole thing went tits up and the Germans left first then we could get out.

SkepticOne

View wrote: »

You mean practical difficulties like the fact that Ireland is committed in the EU Treaties and laws to using the Euro? How much do you think the ECJ would fine us were we to violate our commitments? Or the reaction to the Supreme Court to such an action (the relevant provision of BnahE basically says that BnahE can't be used to ignore/override EU law)?

Not to mention that the other states might reasonably adopt the attitude that since we feel free to ignore the provisions of the EU Treaties wrt to the Euro, then they - in turn - can ignore the provisions on allowing our exports access to their markets on a free trade basis? True, such an action would be illegal, but the ECJ would be too busy trying to figure out what to fine us (wrt the Euro) that they'd probably take a while to get round to dealing with any complaint we made about that.

Why would, say, Germany particularly care whether Ireland is in or outside the Euro? After all, they have Denmark on their doorstep which is happily outside the Euro. If anything they might be happy not to have Ireland as a member of the fragile Euro currency system.

In reality most countries would take a pragmatic view. Yes, it is good to have a currency block, they might argue, but if it does not suit a country to be a member then it is best to opt out. Therefore Ireland is likely to be successful negotiating its way out of the Euro.

Permabear

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waffleman

What will the punt nua notes look like?

Some suggestions I have:

5 punt nua will include a picture of an apartment in Mullingar
10 punt nua will include a picture of a kidney
20 punt nua will include a picture of an eye
50 punt nua will include a picture of a liver
100 punt nua will include a picture of a heart

These will double up as IOUs if we can't pay our debts

SkepticOne

Permabear wrote: »

This post had been deleted.

Note that that paper was written in 2007 and includes the phrase "fiscally responsible Ireland". In other words he did not foresee the crisis that has unfolded in the Euro area.

Cool Mo D

SkepticOne wrote: »

Why would, say, Germany particularly care whether Ireland is in or outside the Euro? After all, they have Denmark on their doorstep which is happily outside the Euro. If anything they might be happy not to have Ireland as a member of the fragile Euro currency system.

In reality most countries would take a pragmatic view. Yes, it is good to have a currency block, they might argue, but if it does not suit a country to be a member then it is best to opt out. Therefore Ireland is likely to be successful negotiating its way out of the Euro.

No negotiation is necessary. Ireland could unilaterally leave, just as it could leave the EU, or repudiate our national debt. No-one can stop us doing it if that's what we are set on, but the consequences are likely to be so extreme it's a waste of time.

Permabear

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Permabear

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Tayla

Didn't some central bank advisor suggest a few months ago that we should leave europe behind and join the U.S?

fred252

Tayla wrote: »

Didn't some central bank advisor suggest a few months ago that we should leave europe behind and join the U.S?

so we could be part of: team america f-yeah, its the greatest country in the motherf-in world yeah!

fred252

it seems there's an inherent failing in the EURO in that it works fine if everyone's economy is stong or conversely weak but when there are some members whose economies are contracting while others are expanding it just doesn't work.

Highly Salami

Ireland should drop out of the EU and join with China.China great power in world of future!

Scofflaw

fred252 wrote: »

it seems there's an inherent failing in the EURO in that it works fine if everyone's economy is stong or conversely weak but when there are some members whose economies are contracting while others are expanding it just doesn't work.

More that there was an inherent failing in the sense of there not being a plan B for when things went pear-shaped.

cordially,
Scofflaw

Taidgh19

it would suck short term but long term we could control our own currencies and as for 'offending' the Europeans and the Americans; since when do they give a damn about a little island with a handful of people on it. the answer is never.

whiteonion

The Euro is very weak if you compare it to gold, silver, oil and the Swedish Krona. I would not call the Euro a strong currency at all.

View

SkepticOne wrote: »

Why would, say, Germany particularly care whether Ireland is in or outside the Euro?

It is very simple. The member states of the EU have signed up to a set of common objectives for themselves. One of these is the "free-trade area" (i.e. the old "EEC stuff"), another of which is introducing and using the Euro.

Rewriting EU Treaties is a painful process at the best of times even when the member states are working towards their agreed objectives. Why should the other member states go to the trouble of re-writing them because we suddenly have a hissy fit and decide we want to head in a direction contrary to the objectives of the EU that we agreed to?

If we have a problem, we are free to leave and the other member states can put their energy into working towards their common objectives. That would be much less hassle for them - after all, who could say that were they to agree to our demands to a re-write on the Euro this year, that we (or someone else) wouldn't be back asking for a re-write on the EEC stuff next year?

SkepticOne

View wrote: »

It is very simple. The member states of the EU have signed up to a set of common objectives for themselves. One of these is the "free-trade area" (i.e. the old "EEC stuff"), another of which is introducing and using the Euro.

How come Germany is not too bothered about Denmark on their doorstep not being in the Euro? If they are not bothered about Denmark they are not going to be bothered about Ireland. If anything, Ireland's leaving might be welcomed by a countries that would rather have a strong Euro.

Scofflaw

SkepticOne wrote: »

How come Germany is not too bothered about Denmark on their doorstep not being in the Euro? If they are not bothered about Denmark they are not going to be bothered about Ireland. If anything, Ireland's leaving might be welcomed by a countries that would rather have a strong Euro.

A set of countries took 'derogations' from the euro - that is, they have technically "delayed" their entry. That's obviously a bit of a reach, but it's compatible with the Treaties. Leaving the euro, on the other hand, would be very much in breach of the Treaty commitments.

cordially,
Scofflaw

View

SkepticOne wrote: »

How come Germany is not too bothered about Denmark on their doorstep not being in the Euro? If they are not bothered about Denmark they are not going to be bothered about Ireland. If anything, Ireland's leaving might be welcomed by a countries that would rather have a strong Euro.

Denmark has never adopted the Euro. The are not legally obliged to do so but retain the right to adopt it anytime they want. In other words, they can "opt-in" and join the other member states that have already met the stated objective of the EU Treaties of adopting the Euro. The EU Treaties already cover how they can do this should they decide to opt-in (as indeed they cover all such existing "opt-outs").

On the other hand, Ireland has already adopted the Euro. There is no mechanism in the EU Treaties to un-adopt it short of leaving the EU. There is a very simple reason for this - it is directly contrary to a common objective of the EU.

The other member states have zero reason to re-write the EU Treaties to allow member states to act directly contrary to the common objectives of the EU.

What do you think our reaction would be if a large member state approached us and said "We would like to change the EU Treaties so that from now on, we can have protectionist measures against imports from Ireland, such as pharmaceuticals, computer processors and software as they are causing us some domestic difficulties"?

SkepticOne

View wrote: »

Denmark has never adopted the Euro. The are not legally obliged to do so but retain the right to adopt it anytime they want. In other words, they can "opt-in" and join the other member states that have already met the stated objective of the EU Treaties of adopting the Euro. The EU Treaties already cover how they can do this should they decide to opt-in (as indeed they cover all such existing "opt-outs").

On the other hand, Ireland has already adopted the Euro. There is no mechanism in the EU Treaties to un-adopt it short of leaving the EU. There is a very simple reason for this - it is directly contrary to a common objective of the EU.

I'm fully aware that Denmark never joined the Euro, the point is that Denmark's continued existence outside the Euro doesn't appear to be a cause for concern for Germany. I don't recall any German head of state complaining about it.

Now it is true that Ireland has signed up to the Euro whereas Denmark never has, however the point I want to establish here is that having one's own currency within the EU doesn't in itself appear to be a problem for the governments of the other EU countries.

What this means is that if Ireland chose to leave the Euro, our being outside per se would not be a problem for most EU countries. We would simply be adopting the position of Denmark which other countries don't appear to bothered about. Therefore negotiating an end to our Eurozone membership should not be a huge deal.

Imagine if, say, Portugal decided the Euro was not for it. I would not have a huge problem with that. Would would you? Would you want them out of the EU? Would you want Ireland to impose trade sanctions illegally (as you suggested other countries would do if Ireland left the Euro)? What would that achieve?

The other member states have zero reason to re-write the EU Treaties to allow member states to act directly contrary to the common objectives of the EU.

What do you think our reaction would be if a large member state approached us and said "We would like to change the EU Treaties so that from now on, we can have protectionist measures against imports from Ireland, such as pharmaceuticals, computer processors and software as they are causing us some domestic difficulties"?

To be honest, if it is in our interest to leave the Euro it is probably in their interest to have us leave also.

I don't think they are going to throw away the rest of the EU just because Ireland wishes to leave a one part of it. Ultimately I think they realise that institutions like the Euro only make sense if the countries are participating voluntarily.

SkepticOne

Scofflaw wrote: »

A set of countries took 'derogations' from the euro - that is, they have technically "delayed" their entry. That's obviously a bit of a reach, but it's compatible with the Treaties. Leaving the euro, on the other hand, would be very much in breach of the Treaty commitments.

Most likely if Ireland or another country were to leave the Euro it would probably be dressed up as a temporary thing. You can imagine statements such as "Ireland remains committed to the Euro project and fully intends to rejoin in due course once its difficulties have been resolved". We would then "delay" our reentry indefinitely like Denmark.

Scofflaw

SkepticOne wrote: »

Most likely if Ireland or another country were to leave the Euro it would probably be dressed up as a temporary thing. You can imagine statements such as "Ireland remains committed to the Euro project and fully intends to rejoin in due course once its difficulties have been resolved". We would then "delay" our reentry indefinitely like Denmark.

That wouldn't change the fact that we'd acted contrary to our treaty obligations. As View says, you can delay your entry in the first place, but there's no mechanism for leaving after you've joined. As it's written in the Treaties at present, it's a one-way street.

cordially,
Scofflaw

SkepticOne

Scofflaw wrote: »

That wouldn't change the fact that we'd acted contrary to our treaty obligations. As View says, you can delay your entry in the first place, but there's no mechanism for leaving after you've joined. As it's written in the Treaties at present, it's a one-way street.

What do you mean by "mechanism" in this case? Do you mean that we'd have to negotiate? I addressed the issue of negotiation in an earlier post.

If the EU member states were adamant that Ireland should remain at all costs in the Euro then there would be a problem and Ireland might have to leave the EU altogether. However I don't see Ireland being outside the Euro as being a huge issue for most of the member states. Like I said, if it is in our interest to leave the Euro it is probably in the interest of Euro members to have us leave anyway. It would be a simple amendment to the treaties to achieve this.

Scofflaw

SkepticOne wrote: »

What do you mean by "mechanism" in this case? Do you mean that we'd have to negotiate? I addressed the issue of negotiation in an earlier post.

No, I mean it's not a negotiable option, because it's in breach of treaty commitments. It would not be legal for anyone to agree to it, unless there's a change in the Treaties.

SkepticOne wrote: »

If the EU member states were adamant that Ireland should remain at all costs in the Euro then there would be a problem and Ireland might have to leave the EU altogether. However I don't see Ireland being outside the Euro as being a huge issue for most of the member states. Like I said, if it is in our interest to leave the Euro it is probably in the interest of Euro members to have us leave anyway. It would be a simple amendment to the treaties to achieve this.

A simple amendment which would almost certainly need to be passed by referendum here...

amused,
Scofflaw

SkepticOne

Scofflaw wrote: »

No, I mean it's not a negotiable option, because it's in breach of treaty commitments. It would not be legal for anyone to agree to it, unless there's a change in the Treaties.

OK, you've decided that in order to win the argument you have to misrepresent my views.