Would we recover quicker if we had kept the £IRE?

stainluss wrote: »

Would we be able to recover more quickly from the recession if we had never changed to euro?
What if we still had the Irish £ and it had become weaker, our exports would be cheaper to buy abroad and there would be more cash inflow?(as in the case of the UK and Sterling)

Just a theory..

Chances are we may not have dug quite as big a hole as we did, but with Fianna Fail in charge over that period who knows they might have stuffed up regardless. It is'nt that surprising that we had a property bubble after the real boom of the 1990s. It may have happened whether in the euro or not. We would have had the mechanisms to control our economy better, but im not sure any of the political parties would be interested in that. People were way too easily sucked into the bubble. There is no doubt that the low eurozone interest rates in the period 03-07 played there part in our rise and fall, buts it debatable how big the effect was.

I dont think your question is easy to answer as a lot may have or have not happened if we stayed punt. On the other hand there is no doubt that it would make any fiscal adjustment easier to make, if a similar situation had occured. However, it would not have been one way traffic, as devaluing has the effect of making imports more expensive meaning any effect would be dependant on our economic structure. In our current structure the effect of devaluation would be limited and possibly counter productive as the export area of our economy is rather weak now in comparison to the heady days of the 90s.

The problem is no so much knowing what might happen if we were to leave the Euro it is knowing what is going to happen if we stay.

I think a lot of people think that once we sort out the public sector finances that is pretty much it; however, that is merely the start of it.

Staying in the Euro doesn't really get us out of any difficulty. Whereas we are protected from currency risk (though not totally) we are exposed to credit risk e.g. the risk that interest rates will be raised while we are trying to get out of our own recession.

The euro also protects us from a currency slide (as nesf points out) but exposes us more to a deflationary spiral and this will also cause problems for businesses dependant on domestic demand trying to pay their debts.

For each disadvantage of one course of action there seems to be a corresponding disadvantage to the other.

The fundamental difference between the two, however, is that staying in the Euro involves much more of the control of the economy being handed to vote seeking politicians.

This fiscal control might involve the sort of thing we're seeing with the budget with politicians trying to convince unions to accept pay cuts but at the height of the boom rather than now when the country is on it knees, and look at the difficulty of that right now!

Or it might involve raising taxes at the height of the boom while already running a budget surplus. Try getting that past the public.

This is why the task of monetary control is normally handled by an independent central bank with a remit to control inflation. The central bank is not looking to be re-elected and so can make difficult decisions.

It is not going to be easy either way, but I think it is important to see both sides of the issue.

SLUSK wrote: »

Can you tell me any country where devaluation was successful in the long run?

Ireland in the early 90s as it happens.

SLUSK wrote: »

Oh you mean the Celtic Tiger... wasn't that because of lowered taxes + a ****load of money from the EU...?

By normal logic I can't see how a reduction in people's purchasing power will be good for the economy...

Well it worked. Our export led boom was because of many reasons. No doubt the devaluation helped when things were looking shaky.

i think it would be hard if we did go back to the punts,england being a bigger country could afford to devalue,since we dont make stuff in ireland anymore i dont think we would be able to survive on the punt nowadays,the low tax was another reason brought the big companys here,but the cost of living was cheap aswell so moving to ireland back then had it as "made in europe" status

Dannyboy83 wrote: »

Oh yea, don't worry I understand all that.
(sorry, some poor wording by myself in the original Q).

What I meant was where did RBS & friends, source all their cheap credit?
I'm referring to the start of the pyramid here, not the bailouts.

The international bond markets. The interventions by the ECB and BOE were emergency measures only. The idea behind the bailouts etc is to get the banks back to a healthy position so that they can borrow from international investors. The bond markets comprise the likes of pension funds etc. We may in effect be building a new pyramid. Hopefully it might be a better built one this time :P.

Dannyboy83 wrote: »

So would you agree that DMCWs is wrong in his assertions that the pyramid could not have been inflated to the stage it was without entry into the EMU?

Probably yes. The whole cheap credit thing has as much to do with goings on worldwide than it has with the EMU. The only reason the EMU had such an effect here was due to the fact that interest rates at one point in the eurozone were totally out of kilter with what we required here.

Dannyboy83 wrote: »

I wonder what the difference in interest rates would have been between the UK & Irish banks on the bonds.
I'm assuming that the UK would pay a higher rate on their bonds, given that they did not have ECB protection.

Also, what was the position with Ulster Bank, which is a subsidiary of RBS, with regard to the bonds, considering they were operating within the Irish market? Would they have a lower risk premium or is this determined on the parent company?
Assuming Ulster Bank collapsed, would RBS be obliged to step in, or are they able to allow it to collapse like a ltd. company?

I would'nt be the biggest expert on these things. Think nesf might be your man . My take on it though is that there would'nt have been much difference as the world was booming. Poeple wanted to invest money everywhere and anywhere eventually leading to too much money supply and people making dodgy investments, like investing in Anglo.

Daragh101 wrote: »

no because we couldnt do that without leaving the eu!

Why?

Dannyboy83 wrote: »

So would you agree that DMCWs is wrong in his assertions that the pyramid could not have been inflated to the stage it was without entry into the EMU?

hes wrong all he has to do is remember his trip to Iceland

not being in the EU/euro didnt stop them creating a big mess