Theoretically, the Punts Reintroduction

Joe 90

Skopzz wrote: »

If we reintroduced the IEP, it would seemingly rise in value - according to Bank of America. The IEP was worth US$1.66 whereas the Euro buys just US$1.30. By adopting the Euro, we lost purchasing power during a time when we need it most. We need a strong currency to buy raw materials we don't have any to keep our industry working. Having a weaker currency pushes up inflation, manufacturing costs and loss of competitiveness. The only question is what to peg it to - certainly not the British Pound. Perhaps pegging it to the CHF.

Why the fixation with pegging it?

Scofflaw

Joe 90 wrote: »

Why the fixation with pegging it?

Presumably to prevent it sliding into the toilet. Something people often don't realise about a currency peg, though, is that it costs money to maintain it. The chosen relationship between the IEP and the currency it's pegged to - which would be one of our major export markets, that being the whole point of a currency peg (Swiss Francs makes no sense whatsoever) - is maintained by the Central Bank buying and selling IEP on the markets to maintain the relationship.

Joe 90 wrote:

beeftotheheels wrote:

In this scenario we wouldn't have to worry about the ECB or the European Commission, because we'll have left the EU.

Ooops. You missed that bit in painting this dreamy scenario didn't you? So no, the US and UK money won't come flooding in because we no longer have access to our biggest export market (EU incl UK).

Leaving the Euro is not the same thing as leaving the EU.

You need to deal with the whole post rather than commenting on the conclusion. The reasons why it's an EU exit are stated.

cordially,
Scofflaw

Farmer Pudsey

You do not need to peg the currencuy in the short term you will not be able to anyway as the market will dictate. If it is done suddenly like next monday morning there is no need for capital controls you only need capital controls if you are forced into it over a long period.

Sure bondholder will cry foul but at the same time they will relise there is no point pursuing it in court for if they win and we end up with 200% debt to GNP we will not be able to pay anyway. Hedge funds and international finianciers hate the euro as it has cost them a lot as there are 20 currencies that they can no longer play around with to make money. If we were the first to leave the euro they do their best to make sure that we would suceed not out of kindest but rather a break up of the euro means more money for them

Tigerandahalf

A good thing to do is to read about the Argentinian default in the early 2000s.
Leaving the EU/Euro is a bit like throwing a man who can't swim into a 10m pool and saying if he can survive for the first 2 hours we'll be ok.

The economy would collapse. To give you an idea of how bad things could get, I read an article by a journo who was travelling in Argentina at the time. He was told a story by a priest....a cattle truck overturned on a motorway. The cattle were thrown out of the truck and lay on the road injured and unable to move. The locals with scare food butchered the animals on the road and fled with the meat. People were searching through rubbish bins looking for things they could eat or barter for something else. These people were professionals not beggars.

Skopzz

meglome wrote: »

Rise in value, are you kidding me? With the state our finances are in. We're in tooth fairy territory again.

As usual, you have nothing to contribute. I said pegging it to another currency such as the CHF which is holding well against the EUR presently.

Nody

Skopzz wrote: »

As usual, you have nothing to contribute. I said pegging it to another currency such as the CHF which is holding well against the EUR presently.

Pegging only leads to speculation against it; esp. when backed by a country with no real means to defend the pegging in the first place.

beeftotheheels

Scofflaw wrote: »

You need to deal with the whole post rather than commenting on the conclusion. The reasons why it's an EU exit are stated.

cordially,
Scofflaw

That one was my bad. First post was glib, second post set out the explanation behind the glib post.

ArmaniJeanss

Skopzz wrote: »

As usual, you have nothing to contribute. I said pegging it to another currency such as the CHF which is holding well against the EUR presently.

I don't understand the case for leaving the Euro and then pegging the punt to something else.

Theres an argument that the problems (both the boom and the bust) during the last 10 years was caused by us not being able to control our own interest rates or the amount in circulation by turning off or on the printing press.

Pegging ourselves to another currency would just be the same thing, the markets (and the Swiss themselves) aren't going to let us print as much as we want whilst retaining 1-1.
So we'd be beholden to the economic policies of a group of bankers on the shores of Lake Geneva instead of Brussels.

Hey, guess we'd still have someone else to blame anyway.

Icepick

Having a fixed exchange rate would make having our own currency somewhat pointless as it would limit our monetary policy.

FreudianSlippers

Where would we get the money to print the notes and mint the coins?

ArmaniJeanss

FreudianSlippers wrote: »

Where would we get the money to print the notes and mint the coins?

We could declare the leaf to be the national currency and we'd all be rich overnight. Though it might lead to inflation which could be solved by burning most of the forests down (copyright Douglas Adams).

******
Is printing and minting actually that expensive that it would be a factor, even the most banana of republics seem to have no problem sourcing the paper, prints, dyes, metal etc?

FreudianSlippers

ArmaniJeanss wrote: »

We could declare the leaf to be the national currency and we'd all be rich overnight. Though it might lead to inflation which could be solved by burning most of the forests down (copyright Douglas Adams).

******
Is printing and minting actually that expensive that it would be a factor, even the most banana of republics seem to have no problem sourcing the paper, prints, dyes, metal etc?

If we left the EU/EZ and wanted to print our own money we could look at the US statistics for each coin:

Cent -- 1.8 cents
Nickel -- 9.2 cents
Dime -- 5.7 cents
Quarter -- 12.8 cents
$1 and $2 notes -- 5.2 cents per note
$5 and $10 notes -- 8.5 cents per note
$20 and $50 notes -- 9.2 cents per note
$100 note -- 7.7 cents per note

(source)


That all adds up pretty quickly. Considering we are in a financial mess and relying on Troika funding to keep the basic services in operation, where do we source the startup funding to source the materials and create the money?

meglome

Skopzz wrote: »

As usual, you have nothing to contribute. I said pegging it to another currency such as the CHF which is holding well against the EUR presently.

Sorry you are right, I'm so busy being incredulous at the ridiculous and highly dangerous suggestions that I'm not giving my best.

later12

I am coming at this from an economics bent and not a legal one, so please disregard any wild affronts to European and domestic law I may commit.

I would suggest here is, in theory, a way of unilaterally (or indeed multilaterally) exiting the Euro and not having to implement capital controls, and that is by tying the new currency (which nurse-extreme rather brilliantly named "The Fiat Punto") to the Euro.

In such a scheme, it is arguable that Gresham's Law would come into force. Gresham's Law is often summed up by the adage that "bad money drives good money out of circulation". In other words, if we fix the lesser valued Fiat Punto to the Euro, the foreign will be hoarded, and the domestic will be circulated as currency as everybody has low expectations about the Punt as a long term store of wealth.

There are some criticisms of Gresham's Law, I'll even supply the most robust arguments against it, which are in this paper:
https://minneapolisfed.org/research/sr/sr88.pdf

In any event, capital controls will never work in ridding Ireland of its euros through force. People would just refuse to surrender their Euros, and wait until capital controls were eased before taking their Euros or their credit and debit cards out of the country (even if on the latter, the incur a loss).

Gresham's Law is not quite an argument for leaving the Euro. However, it might potentially be an argument supporting ongoing membership of the EU, should Ireland make such a near-lethal decision as a Euro exit.

There is of course another way of leaving the Euro and remaining in the EU, and that is if there is a universal exit. That would be an interesting event from a monetary perspective, and far less damaging in theory, but that is not what the OP has proposed.

FreudianSlippers wrote: »

If we left the EU/EZ and wanted to print our own money we could look at the US statistics for each coin:

Cent -- 1.8 cents
Nickel -- 9.2 cents
Dime -- 5.7 cents
Quarter -- 12.8 cents
$1 and $2 notes -- 5.2 cents per note
$5 and $10 notes -- 8.5 cents per note
$20 and $50 notes -- 9.2 cents per note
$100 note -- 7.7 cents per note

(source)


That all adds up pretty quickly. Considering we are in a financial mess and relying on Troika funding to keep the basic services in operation, where do we source the startup funding to source the materials and create the money?

All Euro coins and notes are denominated in different forms depending on the country of origin. Ireland's Euro notes' serials begin with a "T" for example.

In the event of a total collapse of the euro, these Euro notes could be stamped with Irish insignia for ease of recognition in the short term, until a new currency would be printed. Later on, I don't think the cost would be as much of a concern as you are suggesting. We could always just issue enormous denominations.

ArmaniJeanss

later12 wrote: »

All Euro coins and notes are denominated in different forms depending on the country of origin. Ireland's Euro notes' serials begin with a "T" for example.

This true? I've a bundle of sequential €50s in my wallet all beginning with X.
Would seem strange that a sequence of another countries notes would end up in an ATM in a Blanchardsown Spar.

beeftotheheels

later12 wrote: »

In such a scheme, it is arguable that Gresham's Law would come into force. Gresham's Law is often summed up by the adage that "bad money drives good money out of circulation". In other words, if we fix the lesser valued Fiat Punto to the Euro, the foreign will be hoarded, and the domestic will be circulated as currency as everybody has low expectations about the Punt as a long term store of wealth.

I'm still not getting how we can do this without capital controls.

How are we going to maintain the peg? If the peg isn't credible then the capital flight will continue putting the peg under pressure?

WalterMitty

Alternatively, stronger nations introduce a euro mark II in their countries while the old euro remains currency in weaker countries. Countries could then move to euro mark II as their situations improved or move down as they dissimproved.

Brussels Sprout

ArmaniJeanss wrote: »

This true? I've a bundle of sequential €50s in my wallet all beginning with X.
Would seem strange that a sequence of another countries notes would end up in an ATM in a Blanchardsown Spar.

Yes it's true. You'll only find T-reg 5's 10's and 20's though. All of the 50's that come from Irish banks tend to have been printed in Germany (X) (fitting really isn't it!).

On a side note, I've noticed that there's a huge circulation of Portugeuse (M) fivers around as well at the moment so I think the central bank must have gotten in a load of them as well.

later12

beeftotheheels wrote: »

I'm still not getting how we can do this without capital controls.

How are we going to maintain the peg? If the peg isn't credible then the capital flight will continue putting the peg under pressure?

It depends what we mean by capital controls, but I am assuming we mean the more dramatic type like sealing borders and closing off electronic transfers, which are always going to be pointless anyway.

So yes the capital flight would indeed be difficult to deal with if it persisted over time.

In theory, it could be mitigated institutionally, by the Irish Central Bank and with European counterparts or the ECB intervening on the currency markets, at least in the short term. If the Euro trades 1:1 to the Punt, then there would not necessarily be any need to physically send Euros abroad, pending domestic stability. The Euro would play a role similar to the USD in Latin America.

I must stress the in theory part, I realise the political difficulty of this proposition, but I am assuming Ireland would be leaving the Eurozone after some agreement on the matter with its European colleagues (if not, leaving the EA would be an act of sheer economic hooliganism).

ArmaniJeanss wrote: »

This true? I've a bundle of sequential €50s in my wallet all beginning with X.
Would seem strange that a sequence of another countries notes would end up in an ATM in a Blanchardsown Spar.

Yes, as another poster confirmed your €50s are Germans.

There's something almost poetic about the thing, isn't there:pac:

golfwallah

Skopzz wrote: »

As usual, you have nothing to contribute. I said pegging it to another currency such as the CHF which is holding well against the EUR presently.

Leaving the Euro and pegging or fixing our exchange rate for the Punt to another currency will not cure the fundamental problem that Ireland is living beyond its means and using EU/IMF bridging finance to avoid default.

Everyone, including the markets, can clearly measure these fundamental problems from published economic indicators such as our Government Debt to GDP Ratio and the extent that Government Expenditure exceeds Income (principally taxes).

These and other published indicators indicate our creditworthiness (i.e. the likelihood that we will repay our loans), interest rates we have to pay on loans, etc., and, if we go back to the punt, the exchange rate.

At the moment our Government Debt is €122 Billion (http://nationaldebtclocks.com/ireland.htm). GDP for 2011 (2009 prices) was €161 Billion (http://www.cso.ie/en/media/csoie/releasespublications/documents/latestheadlinefigures/qna_q42011.pdf).

It is currently estimated that the general government debt will reach 120 per cent of GDP in 2013. Reducing this ratio requires a combination of spending cuts, higher taxes and growth in GPD.

Government Expenditure for 2012 at €51 Billion is set to run at €13 Billion more than Income at €38 Billion (http://budget.gov.ie/Budgets/2012/Documents/Estimates%20of%20Receipts%20and%20Expenditure%20for%20the%20Year%20ending%2031%20December%202012.pdf).

If we remain in the Euro we have to cut the deficit through austerity as indicated in the memorandum of understanding (and Fiscal Compact that we will be voting on in May).

If we re-launch the punt and float, the market will force a devaluation to the extent that we are living beyond our means (through inflated Public Service Pay and Social Services that our narrow tax base doesn’t pay for).

Printing Punts to bridge the gap won’t solve the problem either as this leads to inflation, reduced spending power and currency devaluation.

Pegging the Punt to The Swiss Franc (CHF) might make sense if the Swiss were our main trading partners and we had lots of reserves to defend a fixed rate against speculators (neither apply). Moreover, the Swiss Franc is already pegged to the Euro (http://www.guardian.co.uk/business/2011/sep/06/switzerland-pegs-swiss-franc-euro), so we may as well stay where we are.

Whatever way we go, it’s austerity until we balance our budget. Growing GDP, while all this is happening, is a very difficult thing to do (unless we discover lots more oil, gas and gold) – tough times ahead!

beeftotheheels

later12 wrote: »

It depends what we mean by capital controls, but I am assuming we mean the more dramatic type like sealing borders and closing off electronic transfers, which are always going to be pointless anyway.

Well pretty much anything that prevents the transfer of capital, or even makes less favorable the transfer of capital, to anywhere in the world, would be caught.

I take the point about market intervention, possibly requiring the ECB. But here's where the target 2 imbalances come into play.

later12 wrote: »

I must stress the in theory part, I realise the political difficulty of this proposition, but I am assuming Ireland would be leaving the Eurozone after some agreement on the matter with its European colleagues (if not, leaving the EA would be an act of sheer economic hooliganism).

If it were to be all joined up and settled at a European level then of course many more things would be possible. If Italy were to lead the PIIGS out for example you could allow the suspension of EU Membership for a period of 1 week at the request of the MS. Each PIIG could request the week, declare bank holidays, lock down, devalue, and be back open for business the following Monday morning with their own currency. If the plan was credible the initial devaluation should be seen as sufficient that the PIIGS currencies shouldn't be under further pressure (Greece aside).

We have the slight issue that re-denominating constitutes a default for every one but Italy, but a lot of our bonds are in domestic hands, the EU/ IMF part being a different matter.

But here's the thing, in this scenario what do we do about the target 2 imbalances (which actually come into play in this scenario)? They dwarf the official creditor support.

Farmer Pudsey

It looks like this is less and less likly to be a theory as the old farmer said ''brace youself Betty'' as it looks like the attacks on the euro start again we are in for another can kicking session. The attacks on the euro will start again forcing Spain or Italy to a bailout which Europe cannot afford unless they start printing money and the Germans will have none of that.

later12

beeftotheheels wrote: »

I take the point about market intervention, possibly requiring the ECB. But here's where the target 2 imbalances come into play.

Yes, in my point earlier I only sought to respond to the issue of capital controls in the context of Ireland's ongoing membership of the EU post Eurozone exit. Although Target2 is obviously relevant to capital flight in its own right, I was looking at the requirement or otherwise of domestic capital controls hypothetically on the issue of a monetary changeover alone.

The Target2 issue, and the magnitude of say, Bundesbank Target2 claims, is a different issue and not so much a reason why Ireland would be compelled to leave the EU as much as it is (primarily) a reason why Germany could be compelled to push ahead with fiscal, political and economic integration of the Euro Area. To get to the part where Ireland needs to leave the EU arising from the core central banks realizing their losses, we first need to get to the point where core NCBs wish to realize their losses.

As an aside, exceptional Target2 net liabilities could, paradoxically, be the light at the end of the periphery's dark tunnel. A cause upon which to build Eurozone political integration. Not that the free flowing, almost unlimited nature of Target2 liquidity should in itself be the basis of a fiscal union as it is for the Eurosystem (and must be).

View

Joe 90 wrote: »

Leaving the Euro is not the same thing as leaving the EU.

There is no mechanism in the EU Treaties for a member state to "un-adopt" the Euro just as there is no mechanism for a member state to "un-adopt" being part of the "old EEC" free trade area.

Hence to legally "un-adopt" the Euro you either need to: a) re-write the Treaties - a process ANY member state can veto (indeed we'd probably vote No in the associated referendum) or b) leave the EU (the only fast realistic method).

Right now, given the current legal situation, the course of action recommended by the OP would involve us breaching: a) EU law, b) the EU Treaties, c) Irish law and d) Bunreacht na h-Eireann.

FreudianSlippers

View wrote: »

There is no mechanism in the EU Treaties for a member state to "un-adopt" the Euro just as there is no mechanism for a member state to "un-adopt" being part of the "old EEC" free trade area.

Hence to legally "un-adopt" the Euro you either need to: a) re-write the Treaties - a process ANY member state can veto (indeed we'd probably vote No in the associated referendum) or b) leave the EU (the only fast realistic method).

Right now, given the current legal situation, the course of action recommended by the OP would involve us breaching: a) EU law, b) the EU Treaties, c) Irish law and d) Bunreacht na h-Eireann.

Leaving the EU is the only realistic way to do it. Could you imagine the mess of attempting to hold a referendum to alter our constitution and/or treaties in order to pull out of the Eurozone? It would inevitably end up as a major quagmire where we're part in and part out of the EZ with no actual currency and no clear path forward.

beeftotheheels

FreudianSlippers wrote: »

Leaving the EU is the only realistic way to do it. Could you imagine the mess of attempting to hold a referendum to alter our constitution and/or treaties in order to pull out of the Eurozone? It would inevitably end up as a major quagmire where we're part in and part out of the EZ with no actual currency and no clear path forward.

Problem is, we'd have to have a referendum to leave the EU - which gives us weeks of uncertainty and capital flight which is one of the reasons we have to stay in unless and until there's an orderly dissolution, or better yet, until every one else leaves and we're left along with the euro as our currency (assuming no-one else needs a referendum) which avoids us having foreign currency debts.

FreudianSlippers

beeftotheheels wrote: »

Problem is, we'd have to have a referendum to leave the EU - which gives us weeks of uncertainty and capital flight which is one of the reasons we have to stay in unless and until there's an orderly dissolution, or better yet, until every one else leaves and we're left along with the euro as our currency (assuming no-one else needs a referendum) which avoids us having foreign currency debts.

Agreed, but it is more of a solid method than attempting to leave the Eurozone. Just off the top of my head, we'd need a treaty change to allow a country to leave the EZ, then another referendum to implement that treaty into our constitution and a referendum to leave the EZ once that mechanism is in place.

View

beeftotheheels wrote: »

Problem is, we'd have to have a referendum to leave the EU - which gives us weeks of uncertainty and capital flight which is one of the reasons we have to stay in unless and until there's an orderly dissolution, or better yet, until every one else leaves and we're left along with the euro as our currency (assuming no-one else needs a referendum) which avoids us having foreign currency debts.

I am open to correction but I don't believe we do need to have a referendum to leave the EU. The government as I understand it can notify the EU it intends to leave the EU under the terms of the EU Treaties which would in due course terminate our EU membership and associated obligations. After that BnahE's terms related to our obligations arising from being a member of the EU would be redundant and would presumable be removed subsequently.

The period between the notification and the departure would be "interesting" though as you point out....

beeftotheheels

View wrote: »

I am open to correction but I don't believe we do need to have a referendum to leave the EU. The government as I understand it can notify the EU it intends to leave the EU under the terms of the EU Treaties which would in due course terminate our EU membership and associated obligations. After that BnahE's terms related to our obligations arising from being a member of the EU would be redundant and would presumable be removed subsequently.

The period between the notification and the departure would be "interesting" though as you point out....

You are of course correct. I failed in the logic that as we'd cease to be members there would be no rush in removing the provision which only causes us obligations by virtue of membership.

So negotiate in private, agree, announce and we're out the door the same day. We can clean up the Bunreacht at our leisure.

Sorted

beeftotheheels

later12 wrote: »

Yes, in my point earlier I only sought to respond to the issue of capital controls in the context of Ireland's ongoing membership of the EU post Eurozone exit. Although Target2 is obviously relevant to capital flight in its own right, I was looking at the requirement or otherwise of domestic capital controls hypothetically on the issue of a monetary changeover alone.

But the target2 imbalance is a reason why the ECB and EU institutions would likely not be supportive of a unilateral exit and absent that support we need capital controls.