How to leave the Euro

Brayruit

It seems to me that there are (at least) two fundamental options:

(1) Change all Euro deposits and loans with Irish banks (including branches of foreign banks based in Ireland) to New Irish Punts (NEPs) on a one to one basis. NEPs initially at 1:1 and then allowed to float.

(2) Leave all Euro deposits and loans in Euro. Change the currency of the country to NEPs. 1:1 exchange rate at commencement then let it float. All public service pay is in NEPs. All taxes are collected in NEPs. Option for depositors / loan holders to switch to NEPs (at floating rate) after a short period (i.e. after the NEP finds its level against the Euro).

Neither is a nice choice. Each has different winners and losers.

Which of these might happen?... or is there another alternative?

Nody

Option three, not leaving the euro?

Anyway; option 1 is equal to default so going that route you might as well do it properly and do a full default in the first place. Obviously long law suits will follow as you've pratically forced noticable losses on to people and companies by forcing them to accept loss.

Option two simply means companies / individuals will be defaulting (short of additional legislation walking into option 1 territory again) due to the greatly increased cost of serving loans (see Hungary or Iceland who both borrowed in euro with at the time a strong currency and now have a weak one). You can do some funky stuff like Iceland forcing the conversion cost on banks but since the state own the banks in the first place all you're doing is moving the cost to the taxpayers again (but on a wider basis) and you might as well do the default route.

Which is more likely? Option 3 followed by 1.

Brayruit

I agree that your option three is the most likely... I am just interested in what the options are if we were to leave the Euro.

There has been a lot of discussion / speculation / hysteria about the chaos that would follow the "collapse of the Euro". It is interesting to me that there is little or no discussion about precisely what would actually happen.

getz

Brayruit wrote: »

I agree that your option three is the most likely... I am just interested in what the options are if we were to leave the Euro.

option 4,rejoin the union and convert to stirling,

Brayruit

Pegging to sterling is an interesting option. How would that happen? Switch current Euro deposits / loans to sterling at the Euro exchange rate. Would be difficult to maintain that exchange rate though, no?

getz

Brayruit wrote: »

Pegging to sterling is an interesting option. How would that happen? Switch current Euro deposits / loans to sterling at the Euro exchange rate. Would be difficult to maintain that exchange rate though, no?

the problem would be political ,

liammur

Brayruit wrote: »

Pegging to sterling is an interesting option. How would that happen? Switch current Euro deposits / loans to sterling at the Euro exchange rate. Would be difficult to maintain that exchange rate though, no?

1 of the reasons to leave the € would be to devalue the currency, so pegging it to £ would defeat the purpose.

It seems like the € will survive now, whether we remain in it will probably depend on us.

Brayruit

getz wrote: »

the problem would be political ,

No, it wouldn't. I am not sure if you are addressing the question I am asking. Pegging to sterling now would not imply political union any more than it did before the punt broke from sterling. Do you think the UAE is in a political union with the US?

Brayruit

liammur wrote: »

1 of the reasons to leave the € would be to devalue the currency, so pegging it to £ would defeat the purpose.

That's true in relation to the need for devaluation, but pegging to Sterling would at least get us away from the uncertainty caused by the Euro. It would also make some sense to peg to the currency of our largest trading partner.

.... I am feeling a bit derailed in relation to my initial question, i.e. mechanism for breaking with the Euro should such a thing be contemplated.... Here is my fundamental question, that I don't think anyone has tried to answer yet:

Would existing deposits / loans be left in Euro or forcibly switched to a new currency?

getz

Brayruit wrote: »

No, it wouldn't. I am not sure if you are addressing the question I am asking. Pegging to sterling now would not imply political union any more than it did before the punt broke from sterling. Do you think the UAE is in a political union with the US?

i bow to your better judgement,its just that i cannot see any independent non union country being allowed to use stirling,because if they go into default,its back to euro problem

mari2222

..there must be fifty ways to leave the euro..
fifty ways to leave the euro

just slip out the back, Jack,
make a new plan, Stan...............

Nody

Brayruit wrote: »

No, it wouldn't. I am not sure if you are addressing the question I am asking. Pegging to sterling now would not imply political union any more than it did before the punt broke from sterling. Do you think the UAE is in a political union with the US?

But why peg it in the first place? You're pegging it on an economy and central bank you have on control over and go through the whole pain of revaluation, for what exactly? Also having any type of pegged currency opens it up for currency speculations and Ireland is far to small of an economy to be able to withstand that.

meglome

Nody wrote: »

Option three, not leaving the euro?

Exactly.

Maybe the OP can tell us what the benefits of leaving the Euro would be? Because otherwise why bother to consider it.

getz

meglome wrote: »

Exactly.

Maybe the OP can tell us what the benefits of leaving the Euro would be? Because otherwise why bother to consider it.

has any considered that france and germany may [if things do not change] could kick out the likes of ireland,spain greece and italy ? all options must be looked at no matter how extreme they sound,

riffmongous

meglome wrote: »

Nody wrote: »

Option three, not leaving the euro?

Exactly.

Maybe the OP can tell us what the benefits of leaving the Euro would be? Because otherwise why bother to consider it.

I think he was just asking to find out about the mechanics behind leaving.

Brayruit

riffmongous wrote: »

I think he was just asking to find out about the mechanics behind leaving.

Yes, exactly. I am not at all advocating anything, I am purely interested in people's opinions on the mechanics and in particular whether there would be a forced conversion of deposits / loans or not.

Does anyone have any opinion on this specific question.

liammur

Brayruit wrote: »

That's true in relation to the need for devaluation, but pegging to Sterling would at least get us away from the uncertainty caused by the Euro. It would also make some sense to peg to the currency of our largest trading partner.

.... I am feeling a bit derailed in relation to my initial question, i.e. mechanism for breaking with the Euro should such a thing be contemplated.... Here is my fundamental question, that I don't think anyone has tried to answer yet:

Would existing deposits / loans be left in Euro or forcibly switched to a new currency?

Existing deposits would be converted to the new currency. Some loans would be problematic for a lot of people, as some of these would be for foreign properties etc, which may be with foreign banks.

leeroybrown

liammur wrote: »

Existing deposits would be converted to the new currency. Some loans would be problematic for a lot of people, as some of these would be for foreign properties etc, which may be with foreign banks.

All bank accounts and loans would be frozen by ministerial order and converted to the new currency at a government proscribed rate.

A sizeable proportion of residential mortgage debt has been securitised by the banks with foreign investors in order to get investment capital. The majority of the banks' external capital is sourced in Euro or US Dollar and will be repayable in that form. Realistically speaking you'd end up with a situation where the majority of income/savings were in a new devalued currency and the debt repayable in the new currency, but is either denominated in Euro or has it's interest rate set by the exchange rate versus Euro.

seamus

As a commentator on Matt Cooper pointed out last night, voluntarily leaving the euro would be a monumentally stupid thing to do. Like the guy who voluntarily leaves his house but continues to pay the mortgage on it.

If we had to leave, we'd be better off being kicked out, as that would require a lot of debt to be written down/written off by our creditors. There would be a period of pain, but a quick recovery and a massive reduction in national debt, like Iceland.

liammur

seamus wrote: »

As a commentator on Matt Cooper pointed out last night, voluntarily leaving the euro would be a monumentally stupid thing to do. Like the guy who voluntarily leaves his house but continues to pay the mortgage on it.

If we had to leave, we'd be better off being kicked out, as that would require a lot of debt to be written down/written off by our creditors. There would be a period of pain, but a quick recovery and a massive reduction in national debt, like Iceland.

Correct.
Irish people are very much against Europe now, everything is blamed on Europe. I happened to hear joe duffy's show 1 day and I couldn't believe how uneducated a lot of people are. A referendum has very little chance of being passed in this country imo.

anymore

Brayruit wrote: »

It seems to me that there are (at least) two fundamental options:

(1) Change all Euro deposits and loans with Irish banks (including branches of foreign banks based in Ireland) to New Irish Punts (NEPs) on a one to one basis. NEPs initially at 1:1 and then allowed to float.

(2) Leave all Euro deposits and loans in Euro. Change the currency of the country to NEPs. 1:1 exchange rate at commencement then let it float. All public service pay is in NEPs. All taxes are collected in NEPs. Option for depositors / loan holders to switch to NEPs (at floating rate) after a short period (i.e. after the NEP finds its level against the Euro).

Neither is a nice choice. Each has different winners and losers.

Which of these might happen?... or is there another alternative?

Frankly the most convincing reason for not having our currency again is that we would be toatlly at the mercy of currency speculators. The world could than safely ignore wahtever was happening to us - at least now we are part of a greater community which is too big to be ignored.
It would also mean there was less reason for FDI to ireland. Talking about sovereignty is all vety well if it ignores the realities.

liammur

anymore wrote: »

Frankly the most convincing reason for not having our currency again is that we would be toatlly at the mercy of currency speculators. The world could than safely ignore wahtever was happening to us - at least now we are part of a greater community which is too big to be ignored.
It would also mean there was less reason for FDI to ireland. Talking about sovereignty is all vety well if it ignores the realities.

You are only at the mercy of foreign speculators if you run a country on a housing pyramid or similar. I don't see too many speculators having a go at the Danish Krone for instance.

antoobrien

liammur wrote: »

You are only at the mercy of foreign speculators if you run a country on a housing pyramid or similar. I don't see too many speculators having a go at the Danish Krone for instance.

We were at the mercy of currency speculators all through the 90s, before the property prices started to rise. Does anybody remember the 10% devaluation of the punt so that we'd stay under parity with sterling?

liammur

antoobrien wrote: »

We were at the mercy of currency speculators all through the 90s, before the property prices started to rise. Does anybody remember the 10% devaluation of the punt so that we'd stay under parity with sterling?

Early 90's and 80's, but once the economy got into shape in the mid 90's you'd want to have been nuts to bet against it.

SachaJ

leeroybrown wrote: »

All bank accounts and loans would be frozen by ministerial order and converted to the new currency at a government proscribed rate.

A sizeable proportion of residential mortgage debt has been securitised by the banks with foreign investors in order to get investment capital. The majority of the banks' external capital is sourced in Euro or US Dollar and will be repayable in that form. Realistically speaking you'd end up with a situation where the majority of income/savings were in a new devalued currency and the debt repayable in the new currency, but is either denominated in Euro or has it's interest rate set by the exchange rate versus Euro.

If that happened I could see quite a few people looking to work in the North (earn Sterling) while paying off their negative equity in cheaper NEP's. Unless the NEP is pegged to Sterling I could see it becoming very weak : Sterling > Euro > NEP. Could even be on parity with the dollar (£0.64) which would be a killer for anyone Irish holidaying in the UK or Europe.

leeroybrown

SachaJ wrote: »

If that happened I could see quite a few people looking to work in the North (earn Sterling) while paying off their negative equity in cheaper NEP's. Unless the NEP is pegged to Sterling I could see it becoming very weak : Sterling > Euro > NEP. Could even be on parity with the dollar (£0.64) which would be a killer for anyone Irish holidaying in the UK or Europe.

Oh. Cross border working is quite likely. The UK/Ireland income tax agreements would likely change as a result too.

It won't be pegged. In order to peg a currency you need the financial muscle to buy and sell it on the open market otherwise the currency traders will just crash your economy for profit. We won't have anywhere close to that and despite the excellent trade balance between us the UK won't be willing to prop it up either. I'd suggest that the market purchasing power of the devalued currency would decrease 30-40% in short order of an exit/devaulation. By this I mean my €1k today would only get me €600-700 as a result of the exit. The subsequent years would likely also see high inflation until it stabilised.

SachaJ

SachaJ wrote: »

If that happened I could see quite a few people looking to work in the North (earn Sterling) while paying off their negative equity in cheaper NEP's. Unless the NEP is pegged to Sterling I could see it becoming very weak : Sterling > Euro > NEP. Could even be on parity with the dollar (£0.64) which would be a killer for anyone Irish holidaying in the UK or Europe.

Although all that said, the tourism industry would have a field day with the Irish holidaying at home and the Americans coming in force.....

SachaJ

leeroybrown wrote: »

Oh. Cross border working is quite likely. The UK/Ireland income tax agreements would likely change as a result too.

It won't be pegged. In order to peg a currency you need the financial muscle to buy and sell it on the open market otherwise the currency traders will just crash your economy for profit. We won't have anywhere close to that and despite the excellent trade balance between us the UK won't be willing to prop it up either. I'd suggest that the market purchasing power of the devalued currency would decrease 30-40% in short order of an exit/devaulation. The subsequent years would likely also see high inflation until it stabilised.

I agree. I could see the NEP being worth 60% of the Euro in short time. Possible solution would be a new currancy, Euro2, as used by Ireland, Greece, Portugal etc which is fixed at a certain % of the Euro proper. Although not sure how all that would work out.

If we go back to NEP's a lot of industries are in serious ****. Motor trade - good luck to the chance of selling new cars, electronics etc. We would see a huge swing in buying Irish as locally manufactured goods should be cheaper.

I could see myself getting out of the country for a few years and clearing debts at home (mortgage etc).

irishh_bob

liammur wrote: »

Correct.
Irish people are very much against Europe now, everything is blamed on Europe. I happened to hear joe duffy's show 1 day and I couldn't believe how uneducated a lot of people are. A referendum has very little chance of being passed in this country imo.

i forsee an emphatic YES vote in any referendum presented to us next year

leave the euro = 40% cut in public sector wages
leave the euro = 40% cut in social wellfare
leave the euro = a trebbling of mortgage interest rates under the punt

comfort trumps nationalism everytime in the 21st century

creeper1

The worrying thing is that the Euro isn't fit for purpose. So something IS going to happen. We don't know when. But it could well happen.

Half of economists now expect at least one member will leave. Greece seems to be the candidate everyone is looking at.

When that happens, "stuff" will go down in Ireland. Bank runs. Chaos.

This may seem selfish but I have my Euro notes pulled out of the bank and stored in a secure place. I'll be exchanging mine for Deutchmarks or dollars.

Let those with money locked in the bank accept the funny money "new Irish Punts" that could be issued.

The look on Jack O'Connor's face when he learns that his members will have to accept this funny money as payment will be priceless!:D

amacca

creeper1 wrote: »

This may seem selfish but I have my Euro notes pulled out of the bank and stored in a secure place. I'll be exchanging mine for Deutchmarks or dollars.

Let those with money locked in the bank accept the funny money "new Irish Punts" that could be issued.

I'm all right Jack?

K-9

These threads do kind of remind me of the bank run threads 2 or 3 years ago. Somebody knew somebody who knew it was going to happen.

I always feel for people who don't really understand these things and put huge swathe in what some Eurosceptic or some young, educated person tells them. The little ould stereotypical granny who gets scared out of her wits.

creeper1

It isn't some Granny getting scared this time. It is half the economists.

Look up the survey quoted recently in the press.

It is getting accepted that things can't go on as they are.

K-9

creeper1 wrote: »

It isn't some Granny getting scared this time. It is half the economists.

Look up the survey quoted recently in the press.

It is getting accepted that things can't go on as they are.

Indeed, economists agreeing is a worry, hence the old cliche.

cgarrad

Some option run thru...


http://www.zerohedge.com/news/ubs-advice-what-buy-case-eurozone-breakup-precious-metals-tinned-goods-and-small-calibre-weapon

johngalway

creeper1 wrote: »

This may seem selfish but I have my Euro notes pulled out of the bank and stored in a secure place. I'll be exchanging mine for Deutchmarks or dollars.

Is that not the same as having them in a bank though? If our currency were to change it'd happen fast, no? Would you not be better off converting those Euros now to something with an actual value, for example (only), gold or silver? Then that item will hold it's worth unlike paper money, AFAIK.

cgarrad

Holding the paper currency under you bed is probably the worst option :rolleyes:

seamus

cgarrad wrote: »

Holding the paper currency under you bed is probably the worst option :rolleyes:

Indeed. By the time you can react to any crisis, the cash will have already devalued.

If youre properly concerned about it, you need to buy out of the euro before it falls.

FreudianSlippers

Thread seems to ignore the elephant in the room, namely that there is no provision for countries to leave the Eurozone without leaving the EU. (http://www.ecb.int/pub/pdf/scplps/ecblwp10.pdf)

Firstly, leaving the EU would be madness for Ireland. The EU has significantly benefited Ireland and will continue to do so regardless of the Eurozone IMO.
Secondly, according to Article 50 of the TEU:

1. Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.
2. A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. That agreement shall be negotiated in accordance with Article 218(3) of the Treaty on the Functioning of the European Union. It shall be concluded on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.
3. The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.
4. For the purposes of paragraphs 2 and 3, the member of the European Council or of the Council representing the withdrawing Member State shall not participate in the discussions of the European Council or Council or in decisions concerning it.
A qualified majority shall be defined in accordance with Article 238(3)(b) of the Treaty on the Functioning of the European Union.
5. If a State which has withdrawn from the Union asks to rejoin, its request shall be subject to the procedure referred to in Article 49.

We would need a referendum to pass... I just don't think there would be a majority in support of leaving the EU/Eurozone.

screamer

And I'm sure that no one on board the titanic dreamed of jumping ship either, until it was almost too late, and we all know where it ended up. Don't be fooled by bright lights and fake smiles, Germany and France would let everything go under, except themselves. I think we will be booted before we get to jump TBH, and I don't think it would be such a bad thing.

firemansam4

Hmm If the unthinkable happens and the euro collapses it will be worse for all the people of Ireland than any bad budget might be, expect your money to be worth a lot less and nothing at all any of us will be able to do about it.

Why would anyone want this to happen? i sure hope it does not!

3DataModem

SachaJ wrote: »

If that happened I could see quite a few people looking to work in the North (earn Sterling) while paying off their negative equity in cheaper NEP's. Unless the NEP is pegged to Sterling I could see it becoming very weak : Sterling > Euro > NEP. Could even be on parity with the dollar (£0.64) which would be a killer for anyone Irish holidaying in the UK or Europe.

That's what I'm hoping for. I earn in Sterling and my Irish mortgage debt is in Euro. A move to NEP followed by massive devaluation would be like a lottery win for me.

FreudianSlippers

screamer wrote: »

And I'm sure that no one on board the titanic dreamed of jumping ship either, until it was almost too late, and we all know where it ended up. Don't be fooled by bright lights and fake smiles, Germany and France would let everything go under, except themselves. I think we will be booted before we get to jump TBH, and I don't think it would be such a bad thing.

Great analogy actually (albeit probably inadvertently).

Jumping off the Titanic before it started sinking would have resulted in said passenger freezing to death, not knowing for certain whether the ship would sink or make it safely to its destination.

It's slightly premature to start thinking about jumping ship now; not to mention that we cannot do it without leaving the EU, which is not a good idea IMO.

dobsdave

irishh_bob wrote: »

leave the euro = a trebbling of mortgage interest rates under the punt

Interesting what would happen to tracker mortgages.

leeroybrown

dobsdave wrote: »

Interesting what would happen to tracker mortgages.

The contract would remain as is at ECB+X%, except that the mortgage debt would effectively still be in Euro and the monthly payments would be in the equivalent in NEP. Even that tracker mortgage will look awful when your net spending power (in Euro) is down ~40% compared to prior to exit.

As others have pointed out above both the legal and practical issues with leaving the Euro are huge. If it does happen it won't be by choice and it'll leave a lot of the population an awful lot worse off than beforehand.

hmmm

There's an assumption that we would leave (if we ever leave which I don't believe will happen) in a chaotic uncontrolled way.

Most likely, if we were asked to leave, the other Eurozone nations would offer us some financial support to manage the transition to a new currency. The last thing they want is chaos in any EU country.

I think Greece might be encourage to leave.