Ditching the euro could boost our failing economy

andrewdeerpark

What was said previously against leaving the euro was bang on.

Here is an example of what would happen:

• Government announces we are leaving on date X with a month to rollout the new currency. There is an immediate run on all banks as everyone withdraws all their deposits for cash or transfers their money to non resident (still legal) accounts in other EU countries. Getting cheap ryanair flights to euro members and UK setting up accounts with bags of notes come on mind.
• Panic ensues and all banks are shut
• Nation protest and seizure ensues (like Argentina in 90's) with rioting robbery, rape and pillage; social order breaks down
• Government reverses decision after ECB & IMF bailout Irish banks and the army are deployed on the street with a dusk to dawn curfew.

Cannot happen, you bet your bottom dollar it would.... the nation as a whole is pissed off right now and this move would trigger social anarchy. People would know that as stated previously this was an attempt to reduce their hard earned savings by 30% (example) on top of failing asset values, pensions crashing and the income levy.

David McWilliams has not thought out practically how to leave the euro in a controlled fashion, his article today is more of his desperate self-publicising, sensationalist economic theories more interested in pushing brand "davidmcwilliams.com" that any sound logic, shame on you David, treason against the state in our hour of need.

SkepticOne

andrewdeerpark wrote: »

Nation protest and seizure ensues (like Argentina in 90's) with rioting robbery, rape and pillage; social order breaks down

. Probably not a good example if you are trying to argue against a floating currency since at the time their currency was pegged to the dollar when this happened. Their economy really only started to improve after devaluation.

ardmacha

The above is spot on. There is no feasible way of leaving the Euro without this sequence of events. About the only variation possible is that the banks are shut first before the announcement.

Argentina were pegged to the dollar but weren't in the dollar, there is a difference.

cooperguy

SkepticOne wrote: »

We are contracting faster than other Eurozone countries though.

Ya so prices arnt dropping as fast as we are,but do you really need to make it 30% worse by devaluing the currency on top of that!!

SkepticOne

ionix5891 wrote: »

we grew faster as well

small open economy remember

The really fast growth was before we joined the Euro. What happened after the Euro was the economy became more and more dependent on cheap credit which caused the unsustainable housing bubble and construction boom which, in turn, has led to the current crisis.

One of the things people seem to be worried about with the idea of devaluation is that it will be reduced correspondingly. What these people need to realise is that the wealth we thought we had was largely illusory.

We are not Switzerland, where such an argument would have some merit. Our problem is too much debt and lack of competitiveness.

andrewdeerpark

SkepticOne wrote: »

. Probably not a good example if you are trying to argue against a floating currency since at the time their currency was pegged to the dollar when this happened. Their economy really only started to improve after devaluation.

Agree, however the point being made was more visual (people buring banks, riot police, water cannon etc) than long term economic.

Right now we do not need to sink any lower at least that's my point.

McWilliams did not practically outline step by step how to undertake such a difficult economic task just done his usual philosophy and hair brain economic thinking out loud..

ionix5891

SkepticOne wrote: »

. Probably not a good example if you are trying to argue against a floating currency since at the time their currency was pegged to the dollar when this happened. Their economy really only started to improve after devaluation.

:cool: Your history is wrong

the economy grew after being pegged to the dollar (its all here http://en.wikipedia.org/wiki/Economy_of_Argentina) in 1991 not the other way around

When President Carlos Menem took office on July 8, 1989, the economy of the country was in a critical state ....

To combat the crisis, the President embarked on a path of trade liberalisation, deregulation, and privatisation. ....

In April 1991, Cavallo implemented radical monetary reforms which pegged the new Argentine peso to the U.S. dollar and limited the growth in the monetary base by law to the growth in reserves....

Inflation (1300% in 1990) fell to 84% in 1991 and to single digits by 1993; GDP rebounded, growing by 5.5% on average between 1990 and 1998. A boom in the early 1990s was followed by more erratic growth after 1994

and you forgot to mention they didnt have much to grow from the country was bankrupt in the 80s after the Falklands war

.

SkepticOne

ardmacha wrote: »

Argentina were pegged to the dollar but weren't in the dollar, there is a difference.

Same problem. You have a currency that is too strong for the economy leading to crisis, which resolves itself when the currency devalues.

SkepticOne

ionix5891 wrote: »

you forgot to mention they didnt have much to grow from the country was bankrupt in the 80s after the Falklands war

and the economy grew after being pegged to the dollar (its all here http://en.wikipedia.org/wiki/Economy_of_Argentina) in 1991

But the crisis you talk about was in 1998.

ionix5891

SkepticOne wrote: »

But the crisis you talk about was in 1998.

that makes for interesting reading too, lets see from the same wiki wisdom article (my god im quoting wikipedia :pac:)

In 1999, following the 1998 international crisis, GDP fell by 3% and Argentina entered into a recession.

The issue of Argentina's massive public debt and chronic budget deficits increased market uncertainty, despite a loan guarantee arranged between the Argentine government and the IMF in January 2001

After a few days, Argentina officially defaulted on $93 billion of its debt

In January 2002, the convertibility plan that pegged the Argentine peso to the U.S. dollar on a one-to-one basis was scrapped, after nearly 11 years. The peso was floated and suffered a swift and sharp devaluation (losing about 70% of its value in four months), which in turn triggered a 40% surge in consumer prices.

In 2002, Argentina's GDP sunk by 11%; GDP fell to its 1993 level and on a per capita basis, to that of 1968. Income poverty in Argentina grew from an already high 35.4% in October 2001 to a peak of 54.3% in October 2002;[54] the poverty rate in 2007 returned to levels prevailing in the 1990s and has declined (albeit more slowly) to around 18%, since then. Unemployment, having exceeded 20% in 2002, has also lessened; it has averaged around 8% since 2007

Though nothing new to Argentina, inflation has also proven difficult to contain. Price stability returned quickly after the 2002 crisis. The robust recovery that followed has been accompanied by growth in median incomes averaging 17% (including a 25% jump in the year to April 2008, alone); but it has also seen a 26% average expansion in the monetary base

The banking system largely lent US dollars and took deposits in Argentine pesos and when the Peso lost most of its value in early 2002

Credit in Argentina is still relatively tight.

that makes for some very disturbing reading

.

SkepticOne

andrewdeerpark wrote: »

Agree, however the point being made was more visual (people buring banks, riot police, water cannon etc) than long term economic.

Right now we do not need to sink any lower at least that's my point.

McWilliams did not practically outline step by step how to undertake such a difficult economic task just done his usual philosophy and hair brain economic thinking out loud..

I think there's a lot of denial about how serious the problems we are facing actually are.

The difficult economic problem is how do you manage an economy that is collapsing but at the same time in a currency union with a monetary policy for a much stronger economy.

How is that going to be done? Any examples? We cant use fiscal stimulus because there's no money.

There is going to be a flight of capital anyway regardless. It is not safe to have your money here.

The nearest crisis to what we are experiencing now happened in Scandenavia and part of the solution there was devaluing.

Again remember we're not Switzerland, a nation of savers.

ionix5891

SkepticOne wrote: »

I think there's a lot of denial about how serious the problems we are facing actually are.

The difficult economic problem is how do you manage an economy that is collapsing but at the same time in a currency union with a monetary policy for a much stronger economy.

How is that going to be done? Any examples? We cant use fiscal stimulus because there's no money.

There is going to be a flight of capital anyway regardless. It is not safe to have your money here.

The nearest crisis to what we are experiencing now happened in Scandenavia and part of the solution there was devaluing.

Again remember we're not Switzerland, a nation of savers.

and we are not Argentina a nation the size of europe and with many many natural resources

yes we are in deep trouble but devaluation is not the answer

one does not make an athlete out of a fat man by sucking out the fat, one becomes and athlete by sweating it out one the race track

(wow :rolleyes: pats myself on back)

andrewdeerpark

Done some searching on Argentina, and again as stated above not really a country on the road to prosperity with 60% of population below the poverty line and inflation at 9% to add to stats above.

We may not have Switzerland's savings however do not underestimate the amount of savings in the country in particular by the older generation who saw hard times and believed in the "rainy day".

No one wants a loss of real wealth and they will not take it (a currency devaluation) lying down.

The only other winners in such an event would be our irresponsible debt-ridden zombie developers.

SkepticOne

ionix5891 wrote: »

that makes for some very disturbing reading

.

You left out the next paragraph

A measure of financial stability returned after April 2002, and the first sector to recover was manufacturing, where most industries, save food processing (the largest), were operating at below half of capacity. One of the early contributors to this was the recovered factory movement, whereby laid-off workers took over numerous shuttered manufacturers, notably Zanon Ceramics in Neuquén and Brukman Textiles in Buenos Aires, as well as well-known names outside industry, such as Buenos Aires' Hotel Bauen. These arrangements employed around 15,000 workers by 2004, a small but inspiring contribution to the nation's economy.

Also

The Argentine economy has been growing again with surprising strength: 9% annual growth, sustained for five consecutive years (2003 through 2007). This stability was initially due to a surge in trade surpluses (over all previous historical records) and the sustained growth has been led by an over three-fold jump in business investment since the 2002 low.[2] This reflects the return of local and international confidence, as well as record public works investment and a vigorous incomes policy on the part of former Economy Minister Roberto Lavagna and as general policy in the two Kirchner Administrations.[60] Private sector employers have, since then, created over 3 million jobs and recovered median pay to over US$800 a month (about US$1,600, in purchasing power parity terms), a level closer to Argentina's historical average.[6][61] This has boosted local consumption by two-thirds in real terms, though foreign investment has increased only modestly.

I think people need to come up with better examples to argue their case.

professore

andrewdeerpark wrote: »

People would know that as stated previously this was an attempt to reduce their hard earned savings by 30% (example) on top of failing asset values, pensions crashing and the income levy.

Most people are up to their eyeballs in debt - so their savings disappearing is irrelevant. Those people would be delighted - 30% wiped off their debts overnight. As for the 13% unemployed, a lot of them would get jobs again as Ireland would become competitive again. The Government could cut public sector pay with no protests because the unions are too stupid to understand a currency devaluation as a pay cut.

Managed well it might work; however the current government would indeed begin printing money.

is_that_so

I am not sure an Iceland scenario is desirable. Yes we could print off our own money but who the hell would want it? Much as I accept McWilliam's attempts to find answers the scales doesn't balance up at all and it's really just another one of his "brilliant" intellectual exercises.

The fact that it is so "obvious" begs the question what's wrong with it. Even for the non-economists it is fairly obvious that there are no quick fixes, easy fixes or any other brilliant ways of fixing where we are.

andrewdeerpark

SkepticOne wrote: »

You left out the next paragraphAlsoI think people need to come up with better examples to argue their case.

Since we are all googling....

Inflation also increased, however, during the administration of President Nestor KIRCHNER, which responded with price restraints on businesses, as well as export taxes and restraints, and beginning in early 2007, with understating inflation data. Cristina FERNANDEZ DE KIRCHNER succeeded her husband as President in late 2007, but was stymied in her efforts to hike export taxes still further by protesting farmers. Her government nationalized private pension funds in late 2008, which bolstered government coffers, but failed to assuage investors' concerns about the direction of economic policy.

Source: https://www.cia.gov/library/publications/the-world-factbook/geos/ar.html

And

http://www.economist.com/countries/Argentina/profile.cfm?FOLDER=Profile-FactSheet

Argentina is on the economic slide, just like everywhere else, even though they have gone the protection route.

SkepticOne

ionix5891 wrote: »

and we are not Argentina a nation the size of europe and with many many natural resources

It was used by someone on this thread to point out the disadvantages of a floating currency. In fact, we now see that the opposite was the case. Just pointing this out.

ionix5891

SkepticOne wrote: »

You left out the next paragraph

i fail to see how a "9% growth" from a setback of several decades

or wages growing to "a level closer to Argentina's historical average"

is a good thing

SkepticOne wrote: »

I think people need to come up with better examples to argue their case.

SkepticOne wrote: »

It was used by someone on this thread to point out the disadvantages of a floating currency. In fact, we now see that the opposite was the case. Just pointing this out.

you are right as i said Ireland is no Argentina and Libertarians among us would note that all of their troubles are due to government intervention, after all colonization, few commodity bubbles, war, currency pegging and devaluation dont make for a strong economy in the end


i dont understand how devaluation (or currency printing for that matter) would help anyone but the most careless of us who got into so much debt while the rest endure hardship

SkepticOne

andrewdeerpark wrote: »

Since we are all googling....

Inflation also increased, however, during the administration of President Nestor KIRCHNER, which responded with price restraints on businesses, as well as export taxes and restraints, and beginning in early 2007, with understating inflation data. Cristina FERNANDEZ DE KIRCHNER succeeded her husband as President in late 2007, but was stymied in her efforts to hike export taxes still further by protesting farmers. Her government nationalized private pension funds in late 2008, which bolstered government coffers, but failed to assuage investors' concerns about the direction of economic policy.

Source: https://www.cia.gov/library/publications/the-world-factbook/geos/ar.html

And

http://www.economist.com/countries/Argentina/profile.cfm?FOLDER=Profile-FactSheet

Argentina is on the economic slide, just like everywhere else, even though they have gone the protection route.

But Argentina was brought up (not by me) in relation to the crisis of the late 90's and its aftermath. Sure everywhere is in a slide now and I would disagree with their protectionist policies.

ionix5891

SkepticOne wrote: »

But Argentina was brought up (not by me) in relation to the crisis of the late 90's and its aftermath. Sure everywhere is in a slide now and I would disagree with their protectionist policies.

It was brought up as an example of the social issues of devaluation but we ended up discussing historical/economic ones :pac:

andrewdeerpark

professore wrote: »

Most people are up to their eyeballs in debt - so their savings disappearing is irrelevant. Those people would be delighted - 30% wiped off their debts overnight.

Most people are not up to their eyes in debt, FACT. Only sections of the, we have had it easy young generation, a few rouge developers / bankers and idiots who bought multiple properties as investment vehicles. The 1st time buyers buying at the top of the market the only exception as these people were conned and do deserve help.

Take a poll in the morning and I guarantee the savers (stay in Euro with no 30% devaluation of wealth) will outnumber spenders (swap my euro debt for 30% devalued Irish currency) 2/1.

The prudent people are voiceless up to now in this economic mess, however they are the ones being asked to pay. Fair?

SkepticOne

ionix5891 wrote: »

It was brought up as an example of the social issues of devaluation but we ended up discussing historical/economic ones :pac:

The poster who brought up Agentina thought that the rioting and pillaging happened after currency devaluation whereas, as I have pointed out, they happened before, while the currency was being held artificially high. I was merely pointing that out.

andrewdeerpark

ionix5891 wrote: »

It was brought up as an example of the social issues of devaluation but we ended up discussing historical/economic ones :pac:

Correct since I raised it.

SkepticOne

andrewdeerpark wrote: »

Most people are not up to their eyes in debt, FACT. Only sections of the, we have had it easy young generation, a few rouge developers / bankers and idiots who bought multiple properties as investment vehicles. The 1st time buyers buying at the top of the market the only exception as these people were conned and do deserve help.

I think we have one of the highest levels of private debt in the world. This is what is making the recession in Ireland so severe.

However we have the monetary policy of Germany, a nation of savers.

ionix5891

SkepticOne wrote: »

The poster who brought up Agentina thought that the rioting and pillaging happened after currency devaluation whereas, as I have pointed out, they happened before, while the currency was being held artificially high. I was merely pointing that out.

hmm true

tho if people realized they are being "had" (they may not cop on initially as the media is practically owned by the government with RTE propaganda machine, just look at our neighbours in UK who got robbed in daylight :eek:) after recent deep disillusionment with the current government there could very well be riots


or when the welfare state has to be cut as the only loans to this country would have to be paid back in "hard" currency, and we cant borrow anymore as we are now in order to pay the dole, then things will get really fun around here

SkepticOne wrote: »

I think we have one of the highest levels of private debt in the world. This is what is making the recession in Ireland so severe.

However we have the monetary policy of Germany, a nation of savers.

well once the debts are paid of, we better make damn sure we don't end up in square one and have government policies in place to encourage savings, things wouldn't be so bad now if people didn't get up to their eyeballs in debt and saved for rainy day

.

andrewdeerpark

SkepticOne wrote: »

I think we have one of the highest levels of private debt in the world. This is what is making the recession in Ireland so severe.

We also have one of the highest level of individual house and asset ownership thus increasing the private debt level relative to Germany.

professore

andrewdeerpark wrote: »

Most people are not up to their eyes in debt, FACT. Only sections of the, we have had it easy young generation, a few rouge developers / bankers and idiots who bought multiple properties as investment vehicles. The 1st time buyers buying at the top of the market the only exception as these people were conned and do deserve help.

Take a poll in the morning and I guarantee the savers (stay in Euro with no 30% devaluation of wealth) will outnumber spenders (swap my euro debt for 30% devalued Irish currency) 2/1.

The prudent people are voiceless up to now in this economic mess, however they are the ones being asked to pay. Fair?

LOL are you for real? So you're telling me anyone who bought a house in the last 5 years could actually afford 300 K + mortgages + 2 SUV's + 2 foreign holidays a year ? Also you live at home with mammy or have a good job with no kids then yes you should have substantial savings. Otherwise it's simply not possible on average industrial wages to save anything significant and still have any sort of life in modern ireland. I was speaking to an Austrian colleague who has been to Ireland several times and worked in Dublin a few summers. He asked me "how do you live? Everything here is so expensive."

The ones who are paying are the people on the dole queues. Of course it's not fair but neither is life. I wouldn't put say a 20% tax on savings past the current government "in the national interest".

professore

andrewdeerpark wrote: »

We also have one of the highest level of individual house and asset ownership thus increasing the private debt level relative to Germany.

Unless you own your house with no mortgage it is a liability not an asset.

SkepticOne

ionix5891 wrote: »

hmm true

tho if people realized they are being "had" (they may not cop on initially as the media is practically owned by the government with RTE propaganda machine, just look at our neighbours in UK who got robbed in daylight :eek:) after recent deep disillusionment with the current government there could very well be riots

No, I disagree. If you want to avoid riots keep unemployment down and keep paying welfare to those that are unemployed.

Also, make sure that people are able to withdraw money from the ATMs.

I don't think erosion of savings through devaluing has ever caused riots particularly when wages and most prices are not rising relative to the currency.

The Brits moan about the pound not going as far as it did when they are abroad but it is never going to be a cause of riots unlike the other things I mention.

We are much closer to riots in Ireland since our unemployment is shooting up at an absolutely alarming rate and our public finances are in the toilet. Where are we going to get the money to pay the dole?