To exit the euro and peg against sterling?

Ado75

I do not have any deep knowledge of financial/money markets but maybe someone can answer this for me. The current austerity plan seems to be on the verge of sending us into on deflationary tail spin, maybe we are in one already. Even the current talk of "reforming" JLCs seems a nonsense. As while laudable in good times would reduce consumer spending even further.

As we do not have the option of devaluation anymore would it not make sense to regain this power, to exit the euro and peg our new euro-punt against sterling to get the required correction in our economy.

I am aware of some arguments against this such as destruction of (some) wealth but we have done this before and I do not see how it could be worse than where we are headed at the moment - default with our so-called friends in the EU not giving a damn.

Ado

Nody

Ado75 wrote: »

I do not have any deep knowledge of financial/money markets but maybe someone can answer this for me. The current austerity plan seems to be on the verge of sending us into on deflationary tail spin, maybe we are in one already. Even the current talk of "reforming" JLCs seems a nonsense. As while laudable in good times would reduce consumer spending even further.

As we do not have the option of devaluation anymore would it not make sense to regain this power, to exit the euro and peg our new euro-punt against sterling to get the required correction in our economy.

I am aware of some arguments against this such as destruction of (some) wealth but we have done this before and I do not see how it could be worse than where we are headed at the moment - default with our so-called friends in the EU not giving a damn.

Ado

So you want to peg it against a currency you have no control over (at least you have a say about the euro even if small) and you miss the biggest two points against any such idea:

1) Why would any country in the world buy the new currency?
2) All debt is still euro denominated and require payment in euro (and if you come up with some idea of converting it to your new currency you're defaulting and might as well make it a proper default)

Ado75

Nody wrote: »

So you want to peg it against a currency you have no control over (at least you have a say about the euro even if small) and you miss the biggest two points against any such idea:

1) Why would any country in the world buy the new currency?
2) All debt is still euro denominated and require payment in euro (and if you come up with some idea of converting it to your new currency you're defaulting and might as well make it a proper default)

We have no control over the euro as it is. It appears to be used as an anti-inflation tool for and by the core European economies with little regard for our needs - hence the bubble in the first place.

Regarding your first point I suppose I should have been more specific, have an initial price related to sterling and then as the currency is traded it will find it's own price - leaving us in a competitive position. The argument about "what country would but our currency" doesn't stack up. Currencies of varying quality are traded all the time.

Your right about the outstanding debt being priced in euro (your second point). However, the act of leaving euro the while presumably requiring the need to write off/restructure/default on some of that euro debt would still leave us in a position of being outside the euro giving us much needed economic independence.

Ireland is not Bulgaria i.e. a fundamentally backward economy). The "Markets" know this and I think we can trade our way out of this mess a lot quicker outside the euro.

n900guy

Ado75 wrote: »

As we do not have the option of devaluation anymore would it not make sense to regain this power, to exit the euro and peg our new euro-punt against sterling to get the required correction in our economy.


Ado

We can

1) reduce our costs and increase the value of our exports by improving quality and become an exporter of high quality products that people pay a premium for (Danish Bacon, German Cars, French Wine, Irish.....financial know how???). No need to leave any currency or devalue anything. Result is stable long term planning posssibilities as on the continent.

or

2) Run away from the trials of actually building a well run economy with relatively low costs and lots of high quality exports by wallpapering over the problems with devaluation. same ****ty products, same ****ty people in charge, only now a Mars Bar costs 45 New Punts - half a weeks salary. Result is ups and downs UK/US style planning where you manipulate the system rather than responding to what the system is telling you (ie., your products are crap. therefore, adjust the system, leave the product as it is).

Nijmegen

Ado75 wrote: »

Regarding your first point I suppose I should have been more specific, have an initial price related to sterling and then as the currency is traded it will find it's own price - leaving us in a competitive position. The argument about "what country would but our currency" doesn't stack up. Currencies of varying quality are traded all the time.

The currency would immediately devalue tremendously. It's not that we don't have people who can't be productive, it's that we're either saddled with debts we can't pay, or we're defaulters on debts.

Also, who would buy our new currency? How would we go about purchasing foreign goods...? How would we go about exporting to the EU, our FDI target, with our funny money?

Ado75

Nijmegen wrote: »

The currency would immediately devalue tremendously. It's not that we don't have people who can't be productive, it's that we're either saddled with debts we can't pay, or we're defaulters on debts.

Also, who would buy our new currency? How would we go about purchasing foreign goods...? How would we go about exporting to the EU, our FDI target, with our funny money?

I think the scaremongering is getting to people. The point would be to repudiate the "private/NAMA" bank debt, not the sovereign debt. Commercial banks in the States collapse regularly with no great consequence to the federal system. So what if the Irish banks collapse other banks will take their place, put your saving in NIB(Danske Bank) tomorrow. This is the first time market forces have not been allowed take effect like this. The ECB may threaten to cut off short term funding but will not as a complete collapse of the Irish banking system would cause a systemic failure. We were sold a pup with the ECB pressuring Lenihan into the bank Guarantee and then NAMA. Why should we trust the ECBs judgement that remaining in the euro and under austerity is the right plan for us.

Regarding the cost of imports: our exports are traded on the open market too and we are already in a balance of payments surplus. If we are getting the going rate for our products it will not take long for wealth to build up again. With regard to food, we are well able to supply a lot of our own food at local prices. We came out of WWII/economic war period with a far less developed economy. I think we need to believe in our own abilities. We will be years under this EU shambles of a programme with no gain. Better to reboot and rebuild.

jakdelad

ireland is like a naked waif standing with our hand out
we bow our head to the imf who basically own us
we are at the mercy of the europe
we are locked out of the markets
it will be years till we get our country back to any sort of normality
while the dole ques get longer
our brightest and best emigrate
our future is bleak . we are now turning on one another..
when other countries forge on
we sit like a child in a wet nappy and cry

Ado75

jakdelad wrote: »

ireland is like a naked waif standing with our hand out
we bow our head to the imf who basically own us
we are at the mercy of the europe
we are locked out of the markets
it will be years till we get our country back to any sort of normality
while the dole ques get longer
our brightest and best emigrate
our future is bleak . we are now turning on one another..
when other countries forge on
we sit like a child in a wet nappy and cry

Try and be positive , I firmly believe we are the masters of our own destiny and it could be great if the will is there.

Aka Ishur

Oh yay another 'lets start our own currency, what could possibly go wrong' thread. Google not working for you or is it pure laziness?

Ado75

Aka Ishur wrote: »

Oh yay another 'lets start our own currency, what could possibly go wrong' thread. Google not working for you or is it pure laziness?

Why the hostility, is there no room for civilized debate? It's not like nothing preexisted the Euro. The Deutsch Mark, Ruble, Punt etc. Currencies come and go. What matters is the fundamentals they are traded on.

There is absolutely nothing wrong with exiting the Euro. We should not payback the banking debt. This debt is the reason the markets won't lend to us. If we are going to repudiate this debt we may as well free ourselves oft he Euro too, all done in one fell swoop.

southsiderosie

Ado75 wrote: »

There is absolutely nothing wrong with exiting the Euro.

Except for the fact that

1) Irish debt, both private and public, is denominated in euros

2) The second this was announced, there would be a massive run on banks before the government tried to freeze deposits and/or flip them from euros into the new currency

3) Whatever currency Ireland adopted would drop in value immediately, thus wiping out the savings of working and middle-class people whose accounts were flipped

4) The macroeconomic instability would make Ireland increasingly unattractive for investors, which could prompt an exodus of FDI - especially if Northern Ireland moves ahead with its proposals to implement a 10% corporate tax rate. And I cannot imagine that workers for multinationals would accept being paid in this new, crappy currency.

5) Given that Ireland imports the vast majority of its consumer goods, inflation would skyrocket.

6) Ireland is not a major exporter of manufactured goods (like Germany), so there would be no major bounce for employment or trade from a currency depreciation.

That's all I can think of for now. Perhaps I will be back with some more doom and gloom later.

ei.sdraob

southsiderosie wrote: »

1) Irish debt, both private and public, is denominated in euros

You are assuming the debt will be repaid...

beeftotheheels

southsiderosie wrote: »

Except for the fact that

1) Irish debt, both private and public, is denominated in euros

2) The second this was announced, there would be a massive run on banks before the government tried to freeze deposits and/or flip them from euros into the new currency

3) Whatever currency Ireland adopted would drop in value immediately, thus wiping out the savings of working and middle-class people whose accounts were flipped

4) The macroeconomic instability would make Ireland increasingly unattractive for investors, which could prompt an exodus of FDI - especially if Northern Ireland moves ahead with its proposals to implement a 10% corporate tax rate. And I cannot imagine that workers for multinationals would accept being paid in this new, crappy currency.

5) Given that Ireland imports the vast majority of its consumer goods, inflation would skyrocket.

6) Ireland is not a major exporter of manufactured goods (like Germany), so there would be no major bounce for employment or trade from a currency depreciation.

That's all I can think of for now. Perhaps I will be back with some more doom and gloom later.

I think you got most of it covered but I would add two more

1) Potential suspension/ revocation of EU membership due to capital controls etc you outlined above, and

2) Potential litigation from foreign investors who were injured by such a decision

In fact, if the interested parties were quick enough off the mark in terms of litigation I think the Court of Justice has the power to prevent us actually leaving the Euro by ordering the suspension of the Act of Parliament which would breach EU law, and the Supreme Court would have to suspend the application of that Act/ not clear the Act as constitutional depending on whether the Art 267 reference was on the foot of a reference by the Council of State to the Supreme Court, or on the foot of action initiated by a private party.

southsiderosie

ei.sdraob wrote: »

You are assuming the debt will be repaid...

Well if it is not, that's just one more black mark against the country, although markets are relatively forgiving of that kind of thing over time. I think the bigger issues here are for consumers and future potential investment. And the end of the day, investors and high net worth individuals will be ok - it is middle and working-class people who generally bear the brunt of currency devaluations.

Icepick

Add massive emigration to the list.

Ado75

southsiderosie wrote: »

Except for the fact that

1) Irish debt, both private and public, is denominated in euros

2) The second this was announced, there would be a massive run on banks before the government tried to freeze deposits and/or flip them from euros into the new currency

3) Whatever currency Ireland adopted would drop in value immediately, thus wiping out the savings of working and middle-class people whose accounts were flipped

4) The macroeconomic instability would make Ireland increasingly unattractive for investors, which could prompt an exodus of FDI - especially if Northern Ireland moves ahead with its proposals to implement a 10% corporate tax rate. And I cannot imagine that workers for multinationals would accept being paid in this new, crappy currency.

5) Given that Ireland imports the vast majority of its consumer goods, inflation would skyrocket.

6) Ireland is not a major exporter of manufactured goods (like Germany), so there would be no major bounce for employment or trade from a currency depreciation.

That's all I can think of for now. Perhaps I will be back with some more doom and gloom later.

I agree with all you have said more or less. These are thing that will happen. The point is we are heading for a catastrophe regardless because of the incompetence of the ECB, and the unwillingness of the Franco/German establishment to be flexible on the bailout conditions.

The Greece correspondent with the Guardian was on with Eamon Dunphy this morning - she reported government workers in Greece are at the point where they can only afford meat once a week and the unemployed are beginning to scavenge rubbish dumps. The Greek Police and army are gearing up for serious civil unrest, It's on the verge of collapse. We are heading this way too.

This lemming adherence to the Euro will put us in a very dark place indeed. We need to be in the best position to look after ourselves when the Tsunami hits and I believe being outside the Euro is now in our national interest.

jakdelad

beeftotheheels wrote: »

I think you got most of it covered but I would add two more

1) Potential suspension/ revocation of EU membership due to capital controls etc you outlined above, and

2) Potential litigation from foreign investors who were injured by such a decision

In fact, if the interested parties were quick enough off the mark in terms of litigation I think the Court of Justice has the power to prevent us actually leaving the Euro by ordering the suspension of the Act of Parliament which would breach EU law, and the Supreme Court would have to suspend the application of that Act/ not clear the Act as constitutional depending on whether the Art 267 reference was on the foot of a reference by the Council of State to the Supreme Court, or on the foot of action initiated by a private party.

so we just stew in the financial sh1te untill things pick up???
the IMF have us by the balls, we have to do something radical
or our grand children will suffer
also what they are not telling you is the hundreds of thousands of mortgages are in default
the sh1t is only starting folks
and word is everyone s moving their savings to the north
according to eddie hobbs if they get away with robbing the pensions
next up will be deposit holders
they will come for your nest egg ,savings etc
it not going to get better for the foreseeable future

southsiderosie

jakdelad wrote: »

so we just stew in the financial sh1te untill things pick up???
the IMF have us by the balls, we have to do something radical
or our grand children will suffer
also what they are not telling you is the hundreds of thousands of mortgages are in default
the sh1t is only starting folks
and word is everyone s moving their savings to the north
according to eddie hobbs if they get away with robbing the pensions
next up will be deposit holders
they will come for your nest egg ,savings etc
it not going to get better for the foreseeable future

If you are concerned about people's nest eggs and savings then the worst possible option would be a currency devaluation (which is what dumping the euro would essentially entail). Most would see a huge percentage of their savings wiped out immediately.

(This is assuming that the government would make a snap announcement and impose capital controls in order to prevent bank runs.)

n900guy

Ado75 wrote: »

This lemming adherence to the Euro will put us in a very dark place indeed. We need to be in the best position to look after ourselves when the Tsunami hits and I believe being outside the Euro is now in our national interest.

If we are in the same club as DE/NL/FR I'd rather be there and using euros than bartering with chickens to buy some bread!

View

beeftotheheels wrote: »

In fact, if the interested parties were quick enough off the mark in terms of litigation I think the Court of Justice has the power to prevent us actually leaving the Euro by ordering the suspension of the Act of Parliament which would breach EU law, and the Supreme Court would have to suspend the application of that Act/ not clear the Act as constitutional depending on whether the Art 267 reference was on the foot of a reference by the Council of State to the Supreme Court, or on the foot of action initiated by a private party.

If anything I think you are probably understating the legal situation.

Current EU (and Irish) law specifies that the Euro is the currency of Ireland. Article 29.4.6 specifies:

6. No provision of this Constitution....

.... prevents laws enacted, acts done or measures adopted by—
i. the said European Union or the European Atomic Energy Community, or by institutions thereof,
ii. the European Communities or European Union existing immediately before the entry into force of the Treaty of Lisbon, or by institutions thereof, or
iii. bodies competent under the treaties referred to in this section,
from having the force of law in the State.

In other words, even if there were a parliamentary majority in favour of it, the Constitution - as approved by the electorate - states that none of the provisions of the Constitution prevent the relevant EU laws (in this case on the Euro) from having the force of law in Ireland. In other words, a simple Oireachtas vote can't override the constitution to scrap an EU law.

You are looking at major constitutional/legal changes (at either EU and/or domestic level) to implement the "let's leave the Euro" idea.

I can't see the electorate going for any such proposed ideas unless the proponents of such a move can outline something better than "If we change currency, all our troubles will disappear" since any tough questions about that plan would find that is about as far as most of its proponents have thought on the topic.

beeftotheheels

southsiderosie wrote: »

(This is assuming that the government could make a snap announcement and impose capital controls in order to prevent bank runs.)

Sorry SSR, had to correct your post since I doubt that the Government could make a snap announcement under EU law. I struggle to see it as being possible without leaving the EU, and while there are no hard and fast provisions for that, an Irish referendum to reverse the '72 referendum would be our best bet.

IMHO our best bet at surviving an exit of the eurozone, if the intention was to default/ restructure our debt, would necessarily require ensuring that the CJEC could not hear any creditor cases. That would require, at least, the suspension of our EU membership.

But what do I know, I only teach this stuff (at a postgraduate level) so I could be wrong. I would say that I'm pretty sure I'd stake my reputation on this against David McWilliam's or Constantin Gurgdiev's knowledge of EU law, any day.

P. S. Before anyone quotes Shaw at me, I teach because I enjoy teaching, I don't earn a living from teaching, I earn that from ensuring that my clients are aware of their rights under EU law.

southsiderosie

beeftotheheels wrote: »

Sorry SSR, had to correct your post since I doubt that the Government could make a snap announcement under EU law. I struggle to see it as being possible without leaving the EU, and while there are no hard and fast provisions for that, an Irish referendum to reverse the '72 referendum would be our best bet.

IMHO our best bet at surviving an exit of the eurozone, if the intention was to default/ restructure our debt, would necessarily require ensuring that the CJEC could not hear any creditor cases. That would require, at least, the suspension of our EU membership.

But what do I know, I only teach this stuff (at a postgraduate level) so I could be wrong. I would say that I'm pretty sure I'd stake my reputation on this against David McWilliam's or Constantin Gurgdiev's knowledge of EU law, any day.

I'm not basing it on the law, I'm basing it on some of the past events of snap currency depreciation in a crisis, namely Argentina. I would not disagree that there would be institutional constraints on Ireland that did not exist in the Argentine case, but I have also noticed an unfortunate tendency on the part of Irish politicians of making midnight decisions with serious economic repercussions and/or denying that changes were afoot when they obviously were. If a break with the euro were ever to theoretically happen, I highly doubt there would be public debate around it; it would be announced on a Friday or Saturday evening, and all hell would break loose come 9am Monday.

The Germans and the French broke the toothless constraints on budget deficits several years ago. The Germans essentially orchestrated a back-door bailout, despite the constraints written into their own constitution. At this point, given the opacity of EU institutions and the interests of national politicians, nothing would surprise me, constitutional law or otherwise be damned.

beeftotheheels

southsiderosie wrote: »

I'm not basing it on the law, I'm basing it on some of the past events of snap currency depreciation in a crisis, namely Argentina. I would not disagree that there would be institutional constraints on Ireland that did not exist in the Argentine case, but I have also noticed an unfortunate tendency on the part of Irish politicians of making midnight decisions with serious economic repercussions and/or denying that changes were afoot when they obviously were. If a break with the euro were ever to theoretically happen, I highly doubt there would be public debate around it; it would be announced on a Friday or Saturday evening, and all hell would break loose come 9am Monday.

The Germans and the French broke the toothless constraints on budget deficits several years ago. The Germans essentially orchestrated a back-door bailout, despite the constraints written into their own constitution. At this point, given the opacity of EU institutions and the interests of national politicians, nothing would surprise me, constitutional law or otherwise be damned.

Ah, but here in lies the problem.

1) EU Membership precludes any comparison with Argentina, that State was not subject to any form of supranational law, and

2) While the Germans and the French may have breached the rules, it was not in such a way as any individual (or corporation) could prove immediate harm.

While I am picking the example off the top of my head, and I have no idea of how much cash in hand they hold, Tesco strikes me as an EU headed group which could suffer significant harm from us attempting to leave the euro. If that caused them harm then I have no doubt that their advisors would suggest that they sue (if we gave them no other recourse). And I have serious doubts that we could win, so the markets would have to factor the risk of us losing into the price of our bonds. But if Tesco headed up a GLO (as logic and knowledge of the UK legal system suggests they ought to) then they could be the tip of the Iceberg.

But our celebrity economists/ politicians don't seem to want to acknowledge this. They are too happy with the mantra that "the markets have no memory", so all will be forgiven and forgotten regardless of its impact on our national debt.

If we lose in court we fail to reduce our national debt, we may in fact have expedited payment of it.

southsiderosie

beeftotheheels wrote: »

Ah, but here in lies the problem.

1) EU Membership precludes any comparison with Argentina, that State was not subject to any form of supranational law, and

2) While the Germans and the French may have breached the rules, it was not in such a way as any individual (or corporation) could prove immediate harm.

While I am picking the example off the top of my head, and I have no idea of how much cash in hand they hold, Tesco strikes me as an EU headed group which could suffer significant harm from us attempting to leave the euro. If that caused them harm then I have no doubt that their advisors would suggest that they sue (if we gave them no other recourse). And I have serious doubts that we could win, so the markets would have to factor the risk of us losing into the price of our bonds. But if Tesco headed up a GLO (as logic and knowledge of the UK legal system suggests they ought to) then they could be the tip of the Iceberg.

But our celebrity economists/ politicians don't seem to want to acknowledge this. They are too happy with the mantra that "the markets have no memory", so all will be forgiven and forgotten regardless of its impact on our national debt.

If we lose in court we fail to reduce our national debt, we may in fact have expedited payment of it.

I know. All I am saying is that Argentina is the model for thinking about the ramifications of a rapid devaluation - and I think many of the proponents of ditching the euro are not taking the social and economic effects of that fully into account, much less the institutional and legal ramifications. The fact that people constantly tout the idea that decoupling from the euro is needed to preserve peoples savings suggests that something is not right in the milk here.

beeftotheheels

southsiderosie wrote: »

I know. All I am saying is that Argentina is the model for thinking about the ramifications of a rapid devaluation - and I think many of the proponents of ditching the euro are not taking the social and economic effects of that fully into account, much less the institutional and legal ramifications. The fact that people constantly tout the idea that decoupling from the euro is needed to preserve peoples savings suggests that something is not right in the milk here.

Oh indeed. In a pro-decoupling thread a few days ago an article containing the following was thanked by pro-defaulters

“Default was part of a wider process,” says Marcelo Leiras, chief investigator at Buenos Aires think tank Cippec. “Most modern defaults can be seen not as choices but rather as checkmates when the government has no other options. Default is a very costly decision for any politician but sometimes there is no way out. Well of course there is always a way out: you can let 20 per cent of your population die.”

What scares me is that some Irish people seem to have become wedded to the idea that default is a solution rather than a problem.

jakdelad

i think its time to consider switching to sterling
not a big drive to newry
if the sh1t hits the fan
always remember

A B C always be covered
as eddie hobbs said if they start robbing the private pensions
they will come back like a fox for hens after our nest eggs and savings
nobody tells the truth anymore especially politicians

Ado75

beeftotheheels wrote: »

Oh indeed. In a pro-decoupling thread a few days ago an article containing the following was thanked by pro-defaulters



What scares me is that some Irish people seem to have become wedded to the idea that default is a solution rather than a problem.

What scares me is the belief by those advocating adherence to the Euro is that EU law/treaties have some meaning. As pointed out already the growth and stability pact was breached by France and Germany when it suited their national interest. The fact that this "European" debt is not being federalized is also a power play by the Franco/German alliance to limit their bank exposure. Based on that track record what reason do we have to believe that the current situation will anyway solve our problem. I say default, in effect federalising the euro debt by causing the collapse of the euro. Countries like Spain, Belgium, Italy even France (probably all euro nations) will have to restructure, ergo level playing field.

Yahew

southsiderosie wrote: »

Except for the fact that

1) Irish debt, both private and public, is denominated in euros

Thats a problem unless we re-demoninate them in punts, and then let go.

2) The second this was announced, there would be a massive run on banks before the government tried to freeze deposits and/or flip them from euros into the new currency

There has been a run on the banks already.

3) Whatever currency Ireland adopted would drop in value immediately, thus wiping out the savings of working and middle-class people whose accounts were flipped

Relative to other currencies yes. Not to goods and services sourced within Ireland. Devaluation has happened before. It was common pre-Euro. I remember pre-Euro, it was a decade ago. Also, a lot of people have moved their savings - which is why the effects would not be that large. An Irish banking system denominated in punts which offered higher interest wold see that money flow back in.

4) The macroeconomic instability would make Ireland increasingly unattractive for investors, which could prompt an exodus of FDI - especially if Northern Ireland moves ahead with its proposals to implement a 10% corporate tax rate. And I cannot imagine that workers for multinationals would accept being paid in this new, crappy currency.

FDI would probably pour in, as wages and costs - denominated in euros - = would collapse.

5) Given that Ireland imports the vast majority of its consumer goods, inflation would skyrocket.

Same claim as 3)

6) Ireland is not a major exporter of manufactured goods (like Germany), so there would be no major bounce for employment or trade from a currency depreciation.

Ireland is a major exporter relative to it's population. Why do you think that "manufactured goods" are more important than business services. We export both, and food, and much else.

That's all I can think of for now. Perhaps I will be back with some more doom and gloom later.

well do so, armed, with a bit more knowledge.

Yahew

The only thorny issue I see is whether we can re-denominate the debts in punts. If so, we are away. Obviously when Sterling devalues, as it has recently done, they get to pay back in the same currency they started out with, we may not have that option. Who knows.

The currency may not fall that much - currencies should tend towards a value which balances trade between countries ( reserve currencies excepted) - and Ireland has a positive balance of trade. Theoretically the punt should rise.

Ado75

Yahew wrote: »

The only thorny issue I see is whether we can re-denominate the debts in punts. If so, we are away. Obviously when Sterling devalues, as it has recently done, they get to pay back in the same currency they started out with, we may not have that option. Who knows.

The currency may not fall that much - currencies should tend towards a value which balances trade between countries ( reserve currencies excepted) - and Ireland has a positive balance of trade. Theoretically the punt should rise.

Your right. We need to see our way of this mess. Default will be seriously painful but we should be able to trade our way back to a normal economy. The bond markets know the current route is not sustainable, they know a dead horse being flogged when they see it, hence the bond yields going over 11%. They need either a massive overhaul of the punitive bailout or to see some sort of default before they believe anything coming out of the euro-zone.

johnnyskeleton

Ado75 wrote: »

I do not have any deep knowledge of financial/money markets but maybe someone can answer this for me. The current austerity plan seems to be on the verge of sending us into on deflationary tail spin, maybe we are in one already. Even the current talk of "reforming" JLCs seems a nonsense. As while laudable in good times would reduce consumer spending even further.

As we do not have the option of devaluation anymore would it not make sense to regain this power, to exit the euro and peg our new euro-punt against sterling to get the required correction in our economy.

I am aware of some arguments against this such as destruction of (some) wealth but we have done this before and I do not see how it could be worse than where we are headed at the moment - default with our so-called friends in the EU not giving a damn.

Ado

Please explain to me what is the difference, other than political expediency in the following two scenarios:

1) government reduces all payments by 20% thus reducing prices across the board by 15%

2) government creates a new currency worth 20% less thus reducing prices across the board by 15%.

Or these two:

1) Joe owes €200,000 but only makes €20,000 so offers his bank that he will only repay €100,000. They can either accept this offer or refuse and sue him for the full amount.

2) Joe owes €200,000 but only makes €20,000. He is offered a job in Australia that pays $40,000 but an AU$ is onlyl worth half a €. He offers to pay his bank 200,000 in AU$ instead of Euro. They can either accept this offer or refuse and sue him for the amount in Euro.

Now look at another scenario:

1) Joe owes €200,000 and has no savings and can only pay €100,000 to the bank.

2) Mary has €100,000 in savings and doesn't owe the bank a penny.

3) The government steps in and overnight says that Mary's savings is worthless, the 100k that joe can pay is worth the 200k and that is just how it is going to be.

Devaluing the currency is just a more politically acceptable way of reducing the prices paid by the government. It does nothing to assist in repaying external debt. But what is worse is that devaluation reduces the value of some people's savings, to the supposed benefit of those who are heavily in debt.

johnnyskeleton

Ado75 wrote: »

with little regard for our needs

Our needs? What we need is a strong currency to give a stable base to our economy. What we need is confidence that the euro in your pocket today will be of a simillar value to that euro in a year's time. What we need is to readjust our economy back into normal operating parameters.

What we don't need but many want is a blank slate, where we are all poor again together but owe no debts. But that is not a realistic proposition.

Yahew

johnnyskeleton wrote: »

Please explain to me what is the difference, other than political expediency in the following two scenarios:

1) government reduces all payments by 20% thus reducing prices across the board by 15%

2) government creates a new currency worth 20% less thus reducing prices across the board by 15%.

Obviously the first case affects people who use government services or in government employ, while the pain in 2) is spread amongst private sector, public sector, and owners of capital. Devaluation, as a mechanism to increase competitiveness is much easier politically, for people with their own currencies, than reducing wages.


You then move onto this.

1) Joe owes €200,000 and has no savings and can only pay €100,000 to the bank.

2) Mary has €100,000 in savings and doesn't owe the bank a penny.

3) The government steps in and overnight says that Mary's savings is worthless, the 100k that joe can pay is worth the 200k and that is just how it is going to be.

Devaluing the currency is just a more politically ac

Which assumed that one owner of capital would see their savings reduced by 100%, and the debtor sees his debts reduced by 50%. I know it is 100K in both cases, but what possible scenario could lead to that in the real world?

Anyway, the argument should be a default, or a restructuring, and then abandon the euro. Then devalue.

johnnyskeleton

Yahew wrote: »

Obviously the first case affects people who use government services or in government employ, while the pain in 2) is spread amongst private sector, public sector, and owners of capital. Devaluation, as a mechanism to increase competitiveness is much easier politically, for people with their own currencies, than reducing wages.

Re-read my post. The devaluation in the prices that the government pays has a knock on effect on all other sectors of the economy. Think about it, it is no mere co-incidence that Ireland has high social welfare and high prices for basic goods. The high social welfare means more money chasing the same amount of goods i.e. price inflation.

But yes, it is politically easier to devalue than to reduce wages. That does not mean that it is economically better. In fact, it is worse from an economic point of view because it carries the risk that if you devalue too quickly or too publically you will create a crisis of confidence and the currency will collapse.

Yahew wrote: »

You then move onto this.



Which assumed that one owner of capital would see their savings reduced by 100%, and the debtor sees his debts reduced by 50%. I know it is 100K in both cases, but what possible scenario could lead to that in the real world?

OK, well tell me this then. What % of transfer of wealth from net savers to net debtors is acceptable to you? The saved money represents stored wealth i.e. I have worked hard all my life putting a bit away each year and now when I can't work I want to rely on the bit I've put aside. Devaluation is a way of shifting the stored wealth from the prudent person to the feckless person who squandered all their wealth immediately and are now going hungry. But that is not a sustainable prospect, as we have seen in many examples of forced collectivisation of farms in USSR, Zimbabwe etc.

Yahew wrote: »

Anyway, the argument should be a default, or a restructuring, and then abandon the euro. Then devalue.

Well obviously it is not going to happen overnight. But equally obviously that slow process runs a serious risk of capital and population flight as it raises uncertainty over the new currency. It is one thing to go from a small currency into a much larger, stronger currency as we did when joining the euro - in that scenario it is relatively easy to get people to accept the new currency. But the reverse is not true and such a plan is more or less relying on hope that the new currency won't crash and burn.

southsiderosie

Yahew wrote: »

Thats a problem unless we re-demoninate them in punts, and then let go.

Thus wiping out the savings of domestic consumers.

Yahew wrote: »

There has been a run on the banks already.

On commercial deposits.

Yahew wrote: »

Relative to other currencies yes. Not to goods and services sourced within Ireland. Devaluation has happened before. It was common pre-Euro. I remember pre-Euro, it was a decade ago. Also, a lot of people have moved their savings - which is why the effects would not be that large. An Irish banking system denominated in punts which offered higher interest wold see that money flow back in.

Consumer goods are mostly imported, as is fuel. The inflationary effects of dropping the euro would be extremely sharp as the value of the punt would immediately plummet vis-a-vis the pound, euro and dollar.

Also, your point does not address the fact that consumer savings would be destroyed by flipping accounts to punts.

Yahew wrote: »

FDI would probably pour in, as wages and costs - denominated in euros - = would collapse.

FDI is not solely based on cost - it is also related to the perceived stability of the country in question. Not only would dropping the euro significantly increase the transaction costs of multinational companies, but it would create a climate of macroeconomic instability that may make Ireland an increasingly unattractive country for investment - especially if Northern Ireland lowers their corporate tax rate.

Yahew wrote: »

Same claim as 3)

#3 does not address the fact that while business services may be exported, consumer goods are imported. Clothes, cars, and fuel are largely produced outside of Ireland. A currency depreciation would make these consumer items 20-30% more expensive. A reduction in consumption would in turn have negative effects on the domestic service sector.

Yahew wrote: »

Ireland is a major exporter relative to it's population. Why do you think that "manufactured goods" are more important than business services. We export both, and food, and much else.

Because it is highly unlikely that a currency depreciation and the subsequent macroeconomic instability would create a bounce in employment that would offset the costs. Manufacturing requires a level of physical investment and rates of employment that most services do not. And agriculture is a very small percentage of overall employment.

Yahew wrote: »

well do so, armed, with a bit more knowledge.

It's hilarious that you end with this snarky comment, and then go on to post the following:

Yahew wrote: »

The only thorny issue I see is whether we can re-denominate the debts in punts. If so, we are away. Obviously when Sterling devalues, as it has recently done, they get to pay back in the same currency they started out with, we may not have that option. Who knows.

The currency may not fall that much - currencies should tend towards a value which balances trade between countries ( reserve currencies excepted) - and Ireland has a positive balance of trade. Theoretically the punt should rise.

LOLOLOLOLOLOLOLOL

Leaving aside the fact that creditors would be mad to accept flipping their debt to what would be an immediately useless currency, Ireland is broke and it is shut out of international markets. The government would have to start printing money like mad just to keep the lights on; you may as well name the new currency the peso.

Yahew

southsiderosie wrote: »

LOLOLOLOLOLOLOLOL

Leaving aside the fact that creditors would be mad to accept flipping their debt to what would be an immediately useless currency, Ireland is broke and it is shut out of international markets. The government would have to start printing money like mad just to keep the lights on; you may as well name the new currency the peso.

No, what I said was correct. Your argument is based on sentiment. You are assuming the sentiment of the markets, if Ireland restructures, and abandons the Euro. I merely point out that the economic literature suggests that currencies should tend towards parity i.e. if they are in trade surplus by trending higher, and fall if they are in trade deficit. This is econ 101. Ergo the punt should not fall, but rise. It will have higher interest rates too ( thats the real problem). I think it will fall significantly but rise over time, since markets do have sentiment.

Most of the rest of your arguments are re-hasing of the arguments I quoted. I wont do a big quote so to restate:

I have no idea whether Google care about Ireland's macro-economic stability - but they haven't left yet. They probably care about riots on the street, we haven't rioted yet. If wages get lower, and they are cash rich, it is hard to see why they would leave. You are wrong about only commercial deposits leaving Irish banks, most people with any savings have left for the UK. The supposed ( unproven) collapse in the value of the country's savings is the same as saying that inflation will increase, the latter is the cause of the former. The reason why people's savings in punts will decrease is because the punt is lower than the Euro, thats also the reason for imported inflation. Your argument about manufacturing and services are spurious - both would benefit from lower prices and wages. Keep the same price in punts and you export more. Same with food, services, or manufactured goods.

All good. In fact devaluations are generally good for countries ( see UK 1992), which is why they often set off a beggar my neighbour trend of devaluations. The bad is an increase in interest rates which would have to be passed onto consumers, and businesses. Inflation is also a bad, but a temporary one, as interest rates would help tame it over time, and higher interest rates will bring money back into the country.

The apocalyptic scenarios are overdone.

Yahew

Devaluation is a way of shifting the stored wealth from the prudent person to the feckless person who squandered all their wealth immediately and are now going hungry. But that is not a sustainable prospect, as we have seen in many examples of forced collectivisation of farms in USSR, Zimbabwe etc.

It is, and it is also a - and this is another way of putting it - a shifting of the burden from debtors onto owners of capital. Full disclosure here, I am a saver, and have no debt. However higher debt would probably be worse for my siblings than a loss of my savings for me. I think I could work out what to do - gold, silver etc. - anyway.

Yahew

The other thing, on inflation, is this. We dont need to eat bananas, or oranges, If they go up in price relative to the Irish spud, then we will have spuds and be glad of it. Devaluations of 20% never lead to inflation of 20% because of automatic import substitution, consumer by consumer. So we're good on food, if little else.

southsiderosie

Yahew wrote: »

No, what I said was correct. Your argument is based on sentiment. You are assuming the sentiment of the markets, if Ireland restructures, and abandons the Euro. I merely point out that the economic literature suggests that currencies should tend towards parity i.e. if they are in trade surplus by trending higher, and fall if they are in trade deficit. This is econ 101. Ergo the punt should not fall, but rise. It will have higher interest rates too ( thats the real problem). I think it will fall significantly but rise over time, since markets do have sentiment.

Most of the rest of your arguments are re-hasing of the arguments I quoted. I wont do a big quote so to restate:

I have no idea whether Google care about Ireland's macro-economic stability - but they haven't left yet. They probably care about riots on the street, we haven't rioted yet. If wages get lower, and they are cash rich, it is hard to see why they would leave. You are wrong about only commercial deposits leaving Irish banks, most people with any savings have left for the UK. The supposed ( unproven) collapse in the value of the country's savings is the same as saying that inflation will increase, the latter is the cause of the former. The reason why people's savings in punts will decrease is because the punt is lower than the Euro, thats also the reason for imported inflation. Your argument about manufacturing and services are spurious - both would benefit from lower prices and wages. Keep the same price in punts and you export more. Same with food, services, or manufactured goods.

All good. In fact devaluations are generally good for countries ( see UK 1992), which is why they often set off a beggar my neighbour trend of devaluations. The bad is an increase in interest rates which would have to be passed onto consumers, and businesses. Inflation is also a bad, but a temporary one, as interest rates would help tame it over time, and higher interest rates will bring money back into the country.

The apocalyptic scenarios are overdone.

You cannot compare Ireland to the UK - sterling is a global currency, and London is an international hub for financial services. Ireland has far more in common with emerging markets; Argentina is a better model for thinking about a devaluation than Britain. Unfortunately, Ireland cannot benefit from high commodities prices and friendly neighbors willing to but its toxic debt. If what you are calling for comes to pass, perhaps Enda Kenny would be better off kissing Hugo Chavez's arse, rather than pleading with investors in the US or UK to buy Ireland's bad debt and worthless currency.

It is also inaccurate to say that devaluations are good for countries, which are not unitary actors. Devaluations affect different groups in different ways. They may be great for exporters, but they are terrible for middle-class savers. How they affect consumers depends on the mix of goods consumption - a point you keep dancing around. Given the level of consumer imports in Ireland - which does not make clothes or cars, and which is not energy independent - a devaluation would hit people's pocketbooks hard.

In addition, this would not simply be a currency devaluation. In all likelihood, it would also involve a sovereign debt default, and a great deal of policy uncertainty. Again, this is not a great environment for investors.

Finally, I think expecting inflation to "sort itself out" is living in cloud cuckoo land. Given that Ireland would be inable to borrow from abroad due to high interest rates and the government would end up printing more and more money, on what basis would the currency stabilize?

Can you give at least some kind of rationale for why Ireland would not go the way of Argentina - a decimation of middle-class savings, a sharp, albeit temporary spike in poverty, and constant double-digit inflation? Even huge demand for exports and massive subsidies from Venezuela have not been enough to overcome these problems - and that leaves aside all of the technical and legal issues with leaving the euro.

lasnoufle

Yahew wrote: »

No, what I said was correct. Your argument is based on sentiment. You are assuming the sentiment of the markets, if Ireland restructures, and abandons the Euro. I merely point out that the economic literature suggests that currencies should tend towards parity i.e. if they are in trade surplus by trending higher, and fall if they are in trade deficit. This is econ 101. Ergo the punt should not fall, but rise. It will have higher interest rates too ( thats the real problem). I think it will fall significantly but rise over time, since markets do have sentiment.

Hi,
Reading this, I'd say you're missing a point: I suppose companies will have to pay their employees in punts; I doubt employees will be happy with this (I wouldn't for sure), since even you agree that the currency will fall for a start. So if this happens, I have no doubt that almost all the foreign high-skilled workers will leave straight away, and the Irish skilled workers will probably leave too if they can be paid with "real" money elsewhere.

In short, you're (conveniently) talking about the current trade surplus when it seems to me that services exports (in IT for example) will most probably go down (and a lot) just after the currency switch.

beeftotheheels

Yahew wrote: »

I have no idea whether Google care about Ireland's macro-economic stability - but they haven't left yet. They probably care about riots on the street, we haven't rioted yet. If wages get lower, and they are cash rich, it is hard to see why they would leave.

At its most basic, when it came to the location of Google's ops outside the US we were in a beauty parade with Switzerland and we won, by a nose. Right now Switzerland seem to be doing just fine, and we seem to be struggling. If we tip the world on its head not only might Google reconsider and head to Switzerland, but MS & co might follow suit, and those who have yet to decide whether to base their non US HQ in Ireland or Switzerland will tilt significantly towards the latter

View

Ado75 wrote: »

What scares me is the belief by those advocating adherence to the Euro is that EU law/treaties have some meaning.

They most certainly do have meaning. Try asking our exporters how much they pay in import tariffs when they sell their goods into other EU member states if you doubt this.

You may not believe that EU law/treaties have meaning but both the Supreme Court and the ECJ most certainly do believe so and it is their opinions that count when it comes to legal matters.

Ado75 wrote: »

As pointed out already the growth and stability pact was breached by France and Germany when it suited their national interest.

You might want to read the Treaties on this. The relevant article on the matter in the TFEU states:

Article 126
(ex Article 104 TEC)

1. Member States shall avoid excessive government deficits.

The important phrase there is avoid. It is not never have.

Given that the rest of Article 126 (Points 126.2 - 126.14 inclusive) cover the Excessive Deficit Procedure which is initiated when member states (such as Ireland and most other EU states at the moment) fail to avoid such deficits, it is clear that the member states expected that member states would from time to time have excessive government deficits. Their concern was that those deficits be rectified when they occured in a reasonable time-frame.

Hence, any claim that a member state breached the Treaties in this case would require some sort of evidence that the member state concerned actively pursued a policy of having an excessive government deficit when it was within its powers to avoid one.

If that is what you are claiming then feel free to show those member states which were fined for breeching the terms of their Excessive Deficit Procedure.

Ado75 wrote: »

The fact that this "European" debt is not being federalized is also a power play by the Franco/German alliance to limit their bank exposure.

The EU isn't a Federation hence the reason why the debt isn't being Federalised. Now if you want to turn it into a Federation by all means say so but I'd suspect you probably wouldn't support such a suggestion were it actually made.

View

Yahew wrote: »

The only thorny issue I see is whether we can re-denominate the debts in punts.

Short of major legal surgery, we can't as you hit two major problems:
i) The Euro is the currency of Ireland and both Irish and EU law specify it is so. This are significant legal obstacles to changing this in both BnahE and the EU Treaties, neither of whom would be easy to change. The fastest way of doing so would - in my opinion - be to leave the EU and then change BnahE. Of course, being outside the EU would mean tariffs for all our exports to there pending - at some future date - negotiation of a free trade agreement with the EU.
ii) Unilaterally re-denominating your debt from one currency to another means you breech the terms of your loan agreement - i.e. you default on your loan. If you want to see how this would work try going into your bank and explaining you are unilaterally re-denominating your mortgage from Euro into Somali Shillings. While you are at it, ask them for an additional loan (in Euro) to cover your day-to-day living costs. Then wait and see the response once they recover from their initial surprise at your requests...

Yahew

I suppose companies will have to pay their employees in punts; I doubt employees will be happy with this (I wouldn't for sure), since even you agree that the currency will fall for a start. So if this happens, I have no doubt that almost all the foreign high-skilled workers will leave straight away, and the Irish skilled workers will probably leave too if they can be paid with "real" money elsewhere.

In general I am arguing the pro-devaluation idea rather than the pro-leave the Euro, as I dont know if the latter is possible. It would be better to have never gone in, thats clear by now.

But the hysteria over devaluation is massively over-wrought. The UK has effectively devalued it's currency in the last few years. Sterling used to 1.6 to the Euro, and now hovers around 1.2, or 1.1. It reached parity for a while. Nobody has left. Not more than usual.

Google can always pay people more in punts to compensate for some of the fall - making things cheaper for them, and better for their workers within Ireland. Imported goods may rise, but local costs - rent etc. - would be in punts. Rent and food. Major costs. This happened all the time pre-Euro. Not a huge deal.

Yahew

View wrote: »

Short of major legal surgery, we can't as you hit two major problems:
i) The Euro is the currency of Ireland and both Irish and EU law specify it is so. This are significant legal obstacles to changing this in both BnahE and the EU Treaties, neither of whom would be easy to change. The fastest way of doing so would - in my opinion - be to leave the EU and then change BnahE. Of course, being outside the EU would mean tariffs for all our exports to there pending - at some future date - negotiation of a free trade agreement with the EU.
ii) Unilaterally re-denominating your debt from one currency to another means you breech the terms of your loan agreement - i.e. you default on your loan. If you want to see how this would work try going into your bank and explaining you are unilaterally re-denominating your mortgage from Euro into Somali Shillings. While you are at it, ask them for an additional loan (in Euro) to cover your day-to-day living costs. Then wait and see the response once they recover from their initial surprise at your requests...

The comparison between sovereigns and real people in banks is not valid, I am not going to live for ever so I cant roll over my loans without ever fully paying them back, while always generating deficits, except for 1 or 2 years of my "life".

And as for point ii) this has surely been done before, has it not. Germans. Russians. Many more have created new currencies out of nowhere. Or replaced East German Mark with Deutschmarks The Euro itself. There we were with debts in punts, and we paid back in Euro at some stage.

Now I know what the answer is going to be: of course nobody minded us going to a nice "stable" currency like the Euro. However that is not what you said - you said that just cant be done, not ever. Clearly, it can.

beeftotheheels

Yahew wrote: »

And as for point ii) this has surely been done before, has it not. Germans. Russians. Many more have created new currencies out of nowhere. Or replaced East German Mark with Deutschmarks The Euro itself. There we were with debts in punts, and we paid back in Euro at some stage.

Now I know what the answer is going to be: of course nobody minded us going to a nice "stable" currency like the Euro. However that is not what you said - you said that just cant be done, not ever. Clearly, it can.

View's point is that we don't have any reason to believe that it can be done. The crucial distinction between Ireland/ Greece/ Portugal now and every previous financial crisis is the existence of the EU.

The EU is supranational, EU Law trumps our law in a way "traditional" international" law did not. So within the framework of the EU is is not clear that we can leave the euro since such action necessitates passing laws which breach EU law (and thus also breach our own constitution).

No matter how many historical examples you point to, none of them evidence what is possible for Ireland today as an EU Member State.

Yahew

beeftotheheels wrote: »

View's point is that we don't have any reason to believe that it can be done. The crucial distinction between Ireland/ Greece/ Portugal now and every previous financial crisis is the existence of the EU.

That was his first point. I cant say I have looked into the legality ( I will) but that wasn't the point I was taking on. His second point was to play the trick of comparing sovereigns to normal people, so the fact that I couldn't go into a bank and change the denomination of my loans doesn't mean that sovereign nations can't and haven't. Sovereign nations can and have. Look at the euro itself.

So this sturdy claim, made emphatically though it was

Unilaterally re-denominating your debt from one currency to another means you breech the terms of your loan agreement - i.e. you default on your loan

is incorrect.

I cant say I trust point 1) either given that point 2) was wrong, or misleading. But I dont know yet.

srsly78

If it was even rumoured that Ireland was going to leave the Euro there would be a massive flight of capital. Everyone knows this. Thus before leaving the government would have to put in capital controls (restrictions on money leaving). However this would breach EU law on free movement of capital?

So god knows what would happen.

beeftotheheels

Yahew wrote: »

That was his first point. I cant say I have looked into the legality ( I will) but that wasn't the point I was taking on. His second point was to play the trick of comparing sovereigns to normal people, so the fact that I couldn't go into a bank and change the denomination of my loans doesn't mean that sovereign nations can't and haven't. Sovereign nations can and have. Look at the euro itself.

So this sturdy claim, made emphatically though it was

Unilaterally re-denominating your debt from one currency to another means you breech the terms of your loan agreement - i.e. you default on your loan

is incorrect.

I cant say I trust point 1) either given that point 2) was wrong, or misleading. But I dont know yet.

How is it incorrect? The loan agreement is a contract. The contract has terms. One of which is that it is in euro. If we try to unilaterally change the currency then we breach the contract which is a default.

How do you see it working otherwise... that we pass an illegal Act of the Oireachtas (breaching the Bunreacht and Treaties) redenominating our debts and our creditors say "Ah shucks, Ireland redenominated my debt into monopoly money, that's a shame"?

Going into the euro did not demonstrably hurt anyone. Leaving right now under these circumstances will. That is the difference including in the legality of the two.

Yahew

beeftotheheels wrote: »

How is it incorrect? The loan agreement is a contract. The contract has terms. One of which is that it is in euro. If we try to unilaterally change the currency then we breach the contract which is a default.

So we breached contract when we moved to the Euro?

Yahew

beeftotheheels wrote: »

Going into the euro did not demonstrably hurt anyone.

Except wiping out the Irish economy, you mean? Except that?