Ditching the euro could boost our failing economy

ionix5891

http://www.independent.ie/opinion/columnists/david-mcwilliams/ditching-the-euro-could-boost-our-failing-economy-1729557.html


whoa is this guy for real? :eek: we don't need any more nails in our coffin right now

Permabear

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ionix5891

donegalfella wrote: »

This post has been deleted.

and where will the gold to back our new "Phunt" come out of?


leaving the euro would send Ireland back to the 3rd world country we where not too long ago

hallelujajordan

ionix5891 wrote: »

and where will the gold to back our new "Phunt" come out of?


leaving the euro would send Ireland back to the 3rd world country we where not too long ago

why so ? I'm not pretending I understand the economies of all of this but our biggest trading partner remains the UK and they seem to be able to survive as an integral member of the European Union without being Euro-zone . .

Wouldn't a currency devaluation help to shift the competitive gap that is allowing so much of our hard earned Euros get spent North of the Border. . ?

Why would leaving the Euro send us back to the 3rd world ?

Sand

It would leave us open to attacks by speculators, it would as Donegalfella has already noted give Fianna Fail a money printing machine leading to double digit inflation because Fianna Fail are morons, and it would remove one more reason the Eurozone members, most critically Germany, has in ensuring we survive as a functioning economic entity.

It would also make it much, much harder to raise money on the markets. Irish government bonds would be denominated in punts, a currency that would be devalued time and time again whenever Fianna Fail couldnt balance their sums and didnt want to fix the real issue. Hence, massive interest would be demanded by bond holders to compensate for the reality of taking assets in Irish punts that would depreciate almost continously.

Generally, giving Fianna Fail power or influence over a box of teabags is a bad idea - giving them control of monetary policy would be a disaster.

ionix5891

hallelujajordan wrote: »

Why would leaving the Euro send us back to the 3rd world ?

very simple money is about confidence

if you have €100,000 in savings now lets say (amount itself doesn't matter here, just illustration purposes) and you know Ireland will be switching to the Zimbabwe Dollar i mean the new Phunt

which bank account would you put your money? a currency that you know will devalue and is backed by one very very corrupt and weak government or a currency backed by the likes of Germany and other large Euro states. as for gold backed currency i heard all the economic arguments for it from our resident Libertarians here and i am not convinced, the moment we start buying gold in bulk the price will go up and up and up as theres only a limited pool of gold out there and other countries like china are massively building up their reserves, not to mention you are putting your currency in the hands of countries like Russia who probably have enough gold to mine to flood the market if they wish, we dont need to be mr Putin's bitches. no thanks (now a currency based on a mixed basket of precious metals and things like oil or energy could be quite interesting, gold on its own i dunno)

Mr. David MacWilliams seems to have missed as to what happened in Iceland where their local currency got decimated by them markets

Loosing the euro would also leave us in a situation compared to what alot of eastern EU countries are in now, where people have mortgages in euro etc while their local currency devalued leaving alot of people in a tough position



Hmmm... after some thinking bring it on I say once me and everyone else moves their money out of this economy it would be interesting to see how low this country would fall (NOT) :rolleyes:

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hallelujajordan

As mentioned I don't understand enough about economics to make meaningful input into this debate however it strikes me that the argument against currency devaluation hinges around the dangers of doing this with a weak government ... but thats not an argument against the principle ... I appreciate the short term concerns about money being moved out of the economy and about the exposures this wold bring about with such a weak government, however doesn't not having control of our own currency leave us more exposed to external elements and less able to control our own recovery ?

We survived OK in the pre-Euro era, why could we not survive in the post-Euro era . . . If we shift currency and devalue, won't that make our exports cheaper and Ireland more competitive for foreign investment . . . won't that bring cash and liquidity back into Ireland ?

Sand

Monetary policy can be a useful band aid for a government that uses the power sparingly and effectively. A government with fiscal discipline, an economic policy worth talking about and a government with integrity and courage to take the long view as opposed to the quick fix.

Thats why its not suitable for Ireland.

We survived OK in the pre-Euro era, why could we not survive in the post-Euro era . . . If we shift currency and devalue, won't that make our exports cheaper and Ireland more competitive for foreign investment . . . won't that bring cash and liquidity back into Ireland ?

Well, the 80s were indeed survival level economics.

Devaluing the currency say 30% is basically reducing everyones wealth by 30%. Its a quick fix for a government because they can slap on basically a huge, regressive tax on the entire economy and most people wont realise what the **** is going on. Theyve just been made 30% poorer and they didnt even realise it. This is what successive Irish government did time and time again prior to the Euro and the monetary policy discipline required to join it.

It makes all the goods Ireland imports 30% more expensive - energy costs more, cars cost more, industrial supplies cost more, because the punts we would use to pay for them are worth 30% less so we need more punts. Monetary policy allows you to play some tricks, but the basic realities underlying money ( which is just a means of translating goods and services into something portable and easily transferable) cant be altered.

This is probably the first economic crises where the government cant simply devalue 40% and ignore the hard realities of trying to rein in out of control spending, tackle bloated unions and attempt to engineer competiveness on the real leve - Irish workers producing more, for at least the same wage and preferably for less.

Thats why its so terrifying. Fianna Fail actually have to try govern for the first time in modern Irish history. I cant bear to watch.

SkepticOne

Being in a currency union involves a very strong government which we have not had. A government in a currency union has to prevent the economy from overheating through fiscal means since monetary policy has been handed over to an external entity.

The problems we are having now are a combination of currency union and weak government. Were we not in the Eurozone our interest rates would have been much higher as they were when there was the Punt. They suddenly dropped when we joined the euro and then dropped again after 911. The central bank would have had no problem keeping interest rates high since they are not looking for votes. Their brief would be to control inflation. It is unlikely that our housing bubble would have reached the unbelievable heights it did if interest rates weren't 2% during a time of boom in Ireland.

Comparisons with Iceland or Eastern Europe depend on individuals taking out foreign denominated mortgages, something that did not happen before currency union, so I'm not sure they are valid.

ionix5891

hallelujajordan wrote: »

As mentioned I don't understand enough about economics to make meaningful input into this debate however it strikes me that the argument against currency devaluation hinges around the dangers of doing this with a weak government ... but thats not an argument against the principle ... I appreciate the short term concerns about money being moved out of the economy and about the exposures this wold bring about with such a weak government, however doesn't not having control of our own currency leave us more exposed to external elements and less able to control our own recovery ?

We survived OK in the pre-Euro era, why could we not survive in the post-Euro era . . . If we shift currency and devalue, won't that make our exports cheaper and Ireland more competitive for foreign investment . . . won't that bring cash and liquidity back into Ireland ?

the main argument is that it makes everyone poorer, its like placing a huge stealth tax on everyone

you dont notice you are poorer until you have to buy things from outside your economy (oil, food, equipment, fuels, going traveling etc)

what will bring cash to this country is certainty and confidence, getting out of euro would make this country a lot less attractive as there will be more uncertainty

and yes we devalued with punt before and yes it did hurt, except we didnt have a huge welfare state with a public sector monstrosity then and people weren't expecting high standards of living

silverharp

hallelujajordan wrote: »

We survived OK in the pre-Euro era, why could we not survive in the post-Euro era . . . If we shift currency and devalue, won't that make our exports cheaper and Ireland more competitive for foreign investment . . . won't that bring cash and liquidity back into Ireland ?

there is a concept called pushing on a string and the potential benefits of any devaluation may not be seen as international trade is collapsing. I just dont think its feasible, everyone would move their savings abroad and there would be a bank run.



one for DF, being a big fan of Greenspan you'll enjoy this

"In the absence of a gold standard,
there is no way to protect savings from confiscation through inflation.
Deficit spending is simply a scheme for the hidden confiscation of wealth.
Gold stands in the way of this insidious process. It stands as a protector of property rights.
If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard" Alan Greenspan 1968

ionix5891

SkepticOne wrote: »

Comparisons with Iceland or Eastern Europe depend on individuals taking out foreign denominated mortgages, something that did not happen before currency union, so I'm not sure they are valid.

ok all them mortgages now in euro do you honestly think the banks would switch them to punt if theres a currency switch? not at all they already knee deep in **** they dont need even more uncertainty


basically do you want to become alot poorer tommorow just so your country will regain competitiveness? now way in hell just look at what trade unions are causing they rather people loose jobs than accept a paycut or even pay freeze

an example could be given of China who are keeping their currency fixed artificially low and hence the populace are practically slave labor for the US in order to keep high amounts exports flowing, where would you rather live and work US or China?

our neighbours in UK are after being stealth taxed thru their noses via currency devaluation and money printing and what do they have to show for it? they still have unemployment increasing and are in recession too and once all that printed money floods into the system watch high inflation (alot people say its already high just hidden thru clever stats) bite in the behind


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SkepticOne

ionix5891 wrote: »

ok all them mortgages now in euro do you honestly think the banks would switch them to punt if theres a currency switch? not at all they already knee deep in **** they dont need even more uncertainty

Yes they would all be switched to Punt or whatever just like they were switched from Punt to Euro back in 2000. This would piss off foreign lenders, of course. This is one of the downsides. There are downsides, of course, of staying in the Euro too.

basically do you want to become alot poorer tommorow just so your country will regain competitiveness? now way in hell just look at what trade unions are causing they rather people loose jobs than accept a paycut or even payfreeze

Those that have savings would have less when it comes to imported goods or foreign holidays, but a lot of our spending concerns domestic services which would fall with the currency as would taxes.

Also remember that if you lose your job, you become poorer and not just for imported goods.

As a country we would become poorer through devaluing but this is going to happen anyway but through a much more difficult process of deflation.

ionix5891

SkepticOne wrote: »

Yes they would all be switched to Punt or whatever just like they were switched from Punt to Euro back in 2000. This would piss off foreign lenders, of course. This is one of the downsides. There are downsides, of course, of staying in the Euro too.
Those that have savings would have less when it comes to imported goods or foreign holidays, but a lot of our spending concerns domestic services which would fall with the currency as would taxes.

Also remember that if you lose your job, you become poorer and not just for imported goods.

As a country we would become poorer through devaluing but this is going to happen anyway but through a much more difficult process of deflation.

I dont know about lenders switching to the punt, im sure they would dig up some obscure clause in order to maximize their profits


i was doing a bit more thinking

if there is a currency switch to the Punt

that could endup quite an evil political move (i hope FF dont get ideas here)

let me explain:

the private sector would mostly continue dealing in £UK, €URO and $US (my own company mainly deals in $ for majority transactions)

but this could be a great way to reduce our public sector costs by paying them now in our new zimdollars and they would have no choice but to accept em

:eek:



yes deflation will eat into our standards of living over next while, but a sudden shock to the system could be much worse (who here things our economy can take anymore sudden shocks to the heart?) and open up a can of worms that would not happen if we slowly deflate


yes being in euro has its disadvantages but right now its alot more advantageous to us being tagged to germany and co, otherwise we would get "raped" on the world markets like iceland did (except bigger and badder )

my 2 eurocents :cool:

SkepticOne

ionix5891 wrote: »

basically do you want to become alot poorer tommorow just so your country will regain competitiveness? now way in hell just look at what trade unions are causing they rather people loose jobs than accept a paycut or even pay freeze

We have no choice but to regain competitiveness. If we don't we all become poor anyway. It is how you go about regaining competitiveness that is the key.

an example could be given of China who are keeping their currency fixed artificially low and hence the populace are practically slave labor for the US in order to keep high amounts exports flowing, where would you rather live and work US or China?

Not sure that is a valid comparision. In the case of Ireland we would be allowing the currency to fall to the natural level had we had a floating currency, not some artificially low level.

our neighbours in UK are after being stealth taxed thru their noses via currency devaluation and money printing and what do they have to show for it? they still have unemployment increasing and are in recession too and once all that printed money floods into the system watch high inflation (alot people say its already high just hidden thru clever stats) bite in the behind

Yes it could be considered a sort of tax, buy as a country you only deserve to be wealthy if you can export sucessfully.

SkepticOne

ionix5891 wrote: »

but this could be a great way to reduce our public sector costs by paying them now in our new zimdollars and they would have no choice but to accept em

But this is the point of floating the currency, to reduce public (and private) sector costs relative to other countries thereby regaining competitiveness.

If you are very wealthy, I can see why you might not like the idea of currency devaluation but if you work for a living and want to continue doing so, this is probably going to help.

ionix5891

SkepticOne wrote: »

But this is the point of floating the currency, to reduce public (and private) sector costs relative to other countries thereby regaining competitiveness.

If you are very wealthy, I can see why you might not like the idea of currency devaluation but if you work for a living and want to continue doing so, this is probably going to help.

this is like introducing a huge linear tax rate on everyone (including the poor)

the rich/savers will just try to convert their assets to the higher valued currency (example of current rush of China who are net savers to diversify from their US$ holdings) and the money will pour out of this country in a flood initially

you will make the poorest endup working very hard to pay for things like fuel/energy which is right now 99% dependent on external markets since we dont have our own sources

you propose we regain our competitiveness by being thrown to the wolves and hope that we don't get eaten in the process, very very risky

can you see all the threads on boards once their bills start going thru the roof and everything not made in ireland (spuds and fish yay!) becomes out of reach?

i dunno i see your point but i dont think that devaluing the currency to increase competitiveness is a great idea, there are other ways to achieve same aims

.

cooperguy

SkepticOne wrote: »

Yes they would all be switched to Punt or whatever just like they were switched from Punt to Euro back in 2000. This would piss off foreign lenders, of course. This is one of the downsides. There are downsides, of course, of staying in the Euro too.
Those that have savings would have less when it comes to imported goods or foreign holidays, but a lot of our spending concerns domestic services which would fall with the currency as would taxes.

Also remember that if you lose your job, you become poorer and not just for imported goods.

As a country we would become poorer through devaluing but this is going to happen anyway but through a much more difficult process of deflation.

We are a small Island nation. Huge amounts of goods need to be brought in to sustain the country the biggest of which is probably food and energy.

How will local services be able to reduce costs when the electricity and oil etc. needed to run the business suddenly becomes 30 - 40% more expensive?

Tech3

Obviously noone heard about Kenmare creating their own currency.

Its called the YOURO and is the same rate as the current euro.

I think its a joke tbh

http://transitiontownkenmare.wordpress.com/2009/04/20/32/

ionix5891

tech2 wrote: »

Obviously noone heard about Kenmare creating their own currency.

Its called the YOURO and is the same rate as the current euro.

I think its a joke tbh

http://transitiontownkenmare.wordpress.com/2009/04/20/32/

since its pegged to the euro its nothing more than a fancy gift voucher scheme


edit (just popped into my head): one of the reasons of the success of this country has been the ability to play "cutely" on the EU and the world stage in the past (yes i know that we made some terrible mistakes recently) and being a very open economy, leaving euro would be seen as protectionist, inward step and would deter investment

..

SkepticOne

cooperguy wrote: »

We are a small Island nation. Huge amounts of goods need to be brought in to sustain the country the biggest of which is probably food and energy.

How will local services be able to reduce costs when the electricity and oil etc. needed to run the business suddenly becomes 30 - 40% more expensive?

Yes, everything that we import becomes more expensive relative to the average persons income. But this is going to happen anyway as the economy contracts, isn't it? A lot of our wealth was illusory. It never really existed and we are only realising now.

Purple Gorilla

I may not be understanding it right, but everyone seems to be talking about how our mortgages and necessities would go up in cost...but surely your wage would increase also?

So if the currency's value is 30% less than the Euro if we adopt it, then that means everyone's salary which was in €, is now in £IRL and therefore is worth 30% more?

So all the increases in living would be negated by the wage increase?

ionix5891

SkepticOne wrote: »

Yes, everything that we import becomes more expensive relative to the average persons income. But this is going to happen anyway as the economy contracts, isn't it? A lot of our wealth was illusory. It never really existed and we are only realising now.

since 25% of out GDP in 2006 was construction you are right we were 25-30% over our real GDP and this economy will probably contract by as much (we already passed 10% fall some say)


but at least now we are slowly waking up to the fact and we need all the time we can "borrow" in order to get productivity up and think up of solutions, a sudden devaluation wont help us (well it will help them companies who export to UK slightly and we be back square one being economically tied to the UK, yay) get from A to be any faster, it just be more painful


could you imagine what would happen if tommorows headlines said "30% increase in all taxes across the board for EVERYONE" (UK devalued by 28% in 2008) that would make the last budget look good

cooperguy

SkepticOne wrote: »

Yes, everything that we import becomes more expensive relative to the average persons income. But this is going to happen anyway as the economy contracts, isn't it? A lot of our wealth was illusory. It never really existed and we are only realising now.

No because every other economy is contracting too. Thats why petrol prices for example have dropped since last summer.

Purple Gorilla

I may not be understanding it right, but everyone seems to be talking about how our mortgages and necessities would go up in cost...but surely your wage would increase also?

So if the currency's value is 30% less than the Euro if we adopt it, then that means everyone's salary which was in €, is now in £IRL and therefore is worth 30% more?

So all the increases in living would be negated by the wage increase?

SkepticOne

ionix5891 wrote: »

could you imagine what would happen if tommorows headlines said "30% increase in all taxes across the board for EVERYONE" (UK devalued by 28% in 2008) that would make the last budget look good

Except those headlines did not happen in the UK where they have devalued their currency.

ionix5891

Purple Gorilla wrote: »

I may not be understanding it right, but everyone seems to be talking about how our mortgages and necessities would go up in cost...but surely your wage would increase also?

So if the currency's value is 30% less than the Euro if we adopt it, then that means everyone's salary which was in €, is now in £IRL and therefore is worth 30% more?

So all the increases in living would be negated by the wage increase?

you missing one major point

the old punt was frozen to the euro at certain echange rate few years before the changeover

doing that again in reverse wont work, if we switch to new punt in the near future the exchange rate would be alot less (lets say 1euro:2new punts) and it will fluctuate

if everyone gets their wages converted to the new rate (so €30k wage becomes £60k wage) then you are back to square one in economic terms and are after undertaking a big gamble for nothing

getting rid of the euro now would sever only one purpose making everyone a lot poorer and increasing our risk on the open markets (so even tho the excange rate might be 1:2 you still would have same wage in new punts)


hope my example is clear and yes it sucks for EVERYONE

IIMII

Just as Iceland moves to join, we want to leave?

ionix5891

SkepticOne wrote: »

Except those headlines did not happen in the UK where they have devalued their currency.

YES its absolutely incredible! Labour in a space of a year made everyone in UK a THIRD poorer in real terms and there was barely blip in the media :eek:

its the ultimate stealth tax and just shows how the sheeple can be manipulated

FF doing the same here after the last few years would... i dont know. i dont have words to express what an insult it would be :mad:

SkepticOne

cooperguy wrote: »

No because every other economy is contracting too. Thats why petrol prices for example have dropped since last summer.

We are contracting faster than other Eurozone countries though.

ionix5891

SkepticOne wrote: »

We are contracting faster than other Eurozone countries though.

we grew faster as well

small open economy remember