Should Ireland Re-Join The Sterling?

A very good and interesting topic here, and one which many have overlooked.

To begin with, lets have a look at the Irish Pound - Sterling exchange rate, all the way until the inception of the Euro in cash form in 2002.

Sterling was roughly 10% overvalued against the Euro initially, in 1999, because UK interest rates were higher. The Irish Pound traded as low as 78 pence sterling in 2000-2001.

If the Irish Pound still existed it is trading at 92 pence sterling now. It is on the basis of the old rate alone 20% overvalued. The cross rate between the two is around 1 Euro to 75 pence sterling.

The problems began after the Northern Rock crisis, when Sterling began to slip dramatically against the Euro in late 2007.

HOWEVER, thats not the whole story. Irish costs have dropped by 9% and British ones have risen by 6%. On that basis, the overvaluation vis a vis Sterling is a relatively mild 5%.

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Lets look at interest rates, and the context of having a peg to the Euro and Sterling simultaneously. There would be dramatic revaluations of the Irish Pound taking place on an annual basis between 2000-2006, from 78 pence to the Euro to the pre 1993 rate of 73 pence (Where the Euro was known as the ECU). Take a look at the performance of the Czech Koruna against the Euro for example. It has appreciated in value. Ireland would have been vulnerable to flows of "hot" money, as interest rates were raised to stop the housing boom. Rates would hit 9% at peak, and then to hold the currency value they would have hit 12% before local industries got incinerated by the lack of credit and high interest rates, just as they were in late 1992-1993. I think it would have ended with a sharp rise in value with the Euro towards a peak in 2007, and kept at 1-1 on Sterling until that point. The collapse of an Irish Pound would have begun in early 2008, and it would drop dramatically from that point onwards until the Lehmans collapse in September 2008. At that point, the Irish Pound would trade at 80 pence Sterling, and below parity with the Euro from then on.

At which point the IMF and ECB step in. It would have been an inflationary/deflationary roller coaster of chaos, as Irelands small open economy got battered by International markets.

The housing boom would be much milder. But the pain of the bust, fast quick and brutal. The recovery however, would be following UK lines only stronger due to the multinational sector. It would be anaemic, but sustainable.
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Alternatives:

A currency board system, using a basket of currencies, 30% Sterling, 30% Euro, 30% US Dollar, 10% IMF SDR's, is the best possible system for an economy like Ireland. However, if other comparable regimes, such as Singapore or Hong Kong are anything to go by, it condemns much of the population into debt/wage slavery in order to ensure an independent monetary policy. Its not a pleasant or fair society as a result. Its very unequal, and the social safety net we have in Ireland would be unable to exist in conjunction with it. We'd be competitive, but we'd be miserable, miserly, backstabbing, and always unsure of the future, and paranoid about our bank balances, credit ratings, health insurance, shares, stock options. Frankly....theres more to life.
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30 years of hard work has gone into ensuring that the Euro succeeds. Each time Fianna Fail has been in charge, they have engaged in clientelist populist policies for the cronies and constituents, from a bead mauling ould coffin dodger who states "Ah Jaysus, was'nt Charlie wonderful, sure did'nt he give us da free travel" to the county councillor at the racetrack. It was far from the Airport and the Ferryport they were when mothers cried as the brightest and best left.

With the right to use the Euro, a strong currency that can be used anywhere in Europe, without the Banks a 2.5% cut each time we wish to cross a border, comes the responsibility to manage domestic matters in line with 'best international practice'.

That means no politician running off with the cheat sheet to Sandyford, and run the printing press so they can win the next election. The busts in Ireland invariably followed 3 years after pump priming to win a General Election.

I think Irish people would do well to learn from this crisis. Its hell now, but it will get better. A bit more awareness of consequences of politicians who smile, promise the sun moon and stars is required. And a Central Bank that likes to say no might the best solution to the irresponsible cronies who have lead us to this impasse is required.

Irish society is too intertwined at the higher echelons. The Aherns, the Haugheys, the Sutherlands, The Flynns, the Lenihans, the DeValeras and others too numerous to mention have gone to the same schools, colleges, and worked for the same firms. They have proven themselves to be beholden to each other first, party second, nation third, and the citizenry last.

I conclude, sadly, that for 5 years, an outsider is required, just as it was in Iceland. Take the medicine, take the pain, and then a new beginning.

A crisis is an opportunity. This crisis represents and opportunity to remove these cancerous entities, and ensure a better, fairer, freer, more rational sane nation.

Even during the "celtic tiger" boom years we were getting billions of euros + pounds each year in grants from the 2 main EC contributers, Germany + UK.
We have proved we are not capable of governing ourselves. The proof is the lender of last resort, the IMF being here, because nobody else will lend to us anymore. Fact.

We've sucked 20% of the ECB dry and we are still in the sh*t's. Do you think the Sterling would have us?!?