What the likelyhood of us having to default.

eamonnm79

Someone call Bono we need to organise a drop the debt campaign for Ireland!
http://www.cnbc.com/id/30308959?slide=16.

We were recently awarded the amazing titile of world most indepted nation per person by CNBC
1. Ireland - 811%
External debt (as % of GDP): 811%
External debt per capita: $549,819

Gross external debt: $2.311 trillion (Q4 2008)
2008 GDP: $285 Billion

If we were to allow for the fact our GDP is inflated by about 50billion dollors due to our dodgy levels of foreign national based exports, we would well be over 1000%

So I think it fair to ask the Question

When/will we default?

Russia did it in the 90's so its not like it never happens.

TheInquisitor

This is old news. These figures are completely wrong. Not even close to true figures. They include banks debt operating in the IFSC which should not be added at all. It is much less than a quarter the figure you quoted

Économiste Monétaire

http://www.cso.ie/releasespublications/documents/economy/current/isafinre.pdf

eamonnm79

TheInquisitor wrote: »

This is old news. These figures are completely wrong. Not even close to true figures. They include banks debt operating in the IFSC which should not be added at all. It is much less than a quarter the figure you quoted

So you are saying there is bank debt in the IFSC to the tune of between 1-1.5trillion. Do you have a source for this? Are they covered in the bank guarantee scheeme?

eamonnm79

Économiste Monétaire wrote: »

http://www.cso.ie/releasespublications/documents/economy/current/isafinre.pdf

Thanks for the link but its 27 pages long and every page has hundreds of numbers, maybe im being a little lazy but where is the figure showing our gross external debt?

Saabdub

It's here http://www.cso.ie/releasespublicatio...ternaldebt.pdf last December it stood at Eur 1.66 trillion. Of course until last September the fact that a lot of it is bank/corporate borrowings wouldn't have worried me. I'm not so sanguine now.

eamonnm79

thanks Saabdub the link is not working but I take your word that it says 1.66 trillion Euro which is 2.26 trillion dollars which near enough (allowing for exchange rate fluctuations) the figure in the CNBC Report used.
So now that the figures are backed up by the official CSO figures can someone please help with my original question?

Purple Gorilla

I'm almost 100% positive that TheInquisitor is right. It includes credit card debt and all that and debt held by banks here (In the IFSC)

Sure the IFSC alone handles around €1 trillion every year

nesf

eamonnm79 wrote: »

thanks Saabdub the link is not working but I take your word that it says 1.66 trillion Euro which is 2.26 trillion dollars which near enough (allowing for exchange rate fluctuations) the figure in the CNBC Report used.
So now that the figures are backed up by the official CSO figures can someone please help with my original question?

Us defaulting on our debt will involve our Government defaulting on its debt. The debt held by institutions in the IFSC doesn't really directly effect this. Our Government's debt is an awful lot lower than 1.66 trillion Euro, thankfully.

eamonnm79

Purple Gorilla wrote: »

I'm almost 100% positive that TheInquisitor is right. It includes credit card debt and all that and debt held by banks here (In the IFSC)

Sure the IFSC alone handles around €1 trillion every year

well I am fairly sure that he is wrong. The figure is backed up on the CSO figures.
If you are saying the figure includes personal, government and corporate debt than yes yo are right, I know. The figure is trying to reflect the total foreign debt in the country.
The problem is they used the same criteria for every other country too and we are almost twice as indebted per capita than any other country in the world, does this not send a shiver down anyone elses spine?

nesf

eamonnm79 wrote: »

If you are saying the figure includes personal, government and corporate debt than yes yo are right, I know. The figure is trying to reflect the total foreign debt in the country.
The problem is they used the same criteria for every other country too and we are almost twice as indebted per capita than any other country in the world, does this not send a shiver down anyone elses spine?

External debt is this: http://en.wikipedia.org/wiki/External_debt

It reflects every cent owed to someone outside the country. Be it the Government's own debt or a Stockbroking company in the IFSC that borrows money from abroad. Most of the IFSC companies aren't covered by the guarantee scheme, so looking at their debt levels isn't very useful when trying to figure out the chance of our Government defaulting. Ditto with debt owed by private individuals.

We have a large financial sector relative to the size of our economy (iirc) as well as just having gone through a housing boom that was fuelled by a lot of borrowing from other Euroarea countries so one would expect our per capita external debt to be quite large but because we are part of the Eurozone this isn't the problem it would be if we had our own currency.

Saabdub

nesf wrote: »

External debt is this: http://en.wikipedia.org/wiki/External_debt

We have a large financial sector relative to the size of our economy (iirc) as well as just having gone through a housing boom that was fuelled by a lot of borrowing from other Euroarea countries so one would expect our per capita external debt to be quite large but because we are part of the Eurozone this isn't the problem it would be if we had our own currency.

I don't understand how having a a huge external debt denominated in Euros is
less of a problem than having it denominated in a locally managed currency? I think the issue is that the value of the assets and projected revenue streams on which the debt is secured were over-valued, the economy is shrinking so that the ability to service the debt is declining and deflation is causing the real value of the debt to increase.

Flamed Diving

A country default is defined as a BOP issue, when a country cannot meet its obligations to foreign debtors. As far as I can see, we are not a great risk of that just yet. However, this NAMA thing will increase the risk of this occuring. It all depends on how that agency pans out.

nesf

Saabdub wrote: »

I don't understand how having a a huge external debt denominated in Euros is
less of a problem than having it denominated in a locally managed currency?

A currency crisis like what Iceland went through would pretty much collapse our banking system. All the loans given our by our banks are denominated in Euro, so all repayments by people are in Euro.

A simple example:

Say AIB borrows 100 euro from a German bank and loans it to me. Now say we still have the Punt and the exchange rate is 1:1. So AIB loans me 100 Punts. I pay back 14% a month over eleven months (i.e. total payback 140 Punts) and AIB pays back the German bank 10% a month over eleven months (i.e. a total payback of 110 Euro).

So each month AIB receives 14 Punts from me and converts them into 14 Euro so long as our exchange rate stays the same, making a profit of 4 Euro after repaying the Germans each month.


Now say there was a currency crisis and suddenly the exchange rate because 2:1, so that you need 2 Punts to buy one Euro. Suddenly the 14 Punts the bank gets from me is only worth 7 Euro and the bank is short 3 Euro to pay the Germans back.

This is currency risk, and it's the danger of borrowing money in one currency and lending it out in another and is the problem of having a large external debt in a different currency to that of the country itself. If the country is like Ireland and the currency the debt is owed in is the same as the currency used in the country then this risk disappears.

Saabdub

nesf wrote: »

A currency crisis like what Iceland went through would pretty much collapse our banking system. All the loans given our by our banks are denominated in Euro, so all repayments by people are in Euro.

A simple example:

Say AIB borrows 100 euro from a German bank and loans it to me. Now say we still have the Punt and the exchange rate is 1:1. So AIB loans me 100 Punts. I pay back 14% a month over eleven months (i.e. total payback 140 Punts) and AIB pays back the German bank 10% a month over eleven months (i.e. a total payback of 110 Euro).

So each month AIB receives 14 Punts from me and converts them into 14 Euro so long as our exchange rate stays the same, making a profit of 4 Euro after repaying the Germans each month.


Now say there was a currency crisis and suddenly the exchange rate because 2:1, so that you need 2 Punts to buy one Euro. Suddenly the 14 Punts the bank gets from me is only worth 7 Euro and the bank is short 3 Euro to pay the Germans back.

This is currency risk, and it's the danger of borrowing money in one currency and lending it out in another and is the problem of having a large external debt in a different currency to that of the country itself. If the country is like Ireland and the currency the debt is owed in is the same as the currency used in the country then this risk disappears.

I take your point.

If the markets sell the punt the banks are left with non-performing loans and payments that no longer cover the cost of capital. In danger of insolvency they turn to the Government to Guarantee all their loans and deposits. The Government must then decide whether to nationalise the banks, inject more capital, buy the loan books (the current situation) as well as implement policy measures to influence the exchange rate.

On the other hand, if the control of monetary policy had remained in Dublin we might not have got into this situation in the first place, but that's another discussion.

nesf

Saabdub wrote: »

On the other hand, if the control of monetary policy had remained in Dublin we might not have got into this situation in the first place, but that's another discussion.

The downsides of having your own currency in a small open economy outweighs the benefits I think.

eamonnm79

nesf wrote: »

Most of the IFSC companies aren't covered by the guarantee scheme, so looking at their debt levels isn't very useful when trying to figure out the chance of our Government defaulting. Ditto with debt owed by private individuals.

If that is true that most of these financial institutions are not covered then, I think you should give a source for this information.
Which ones are and why?

The bit where you say "Ditto with debt owed by private individuals" is wrong.
Recent figures from America show that they believe there will be massive default on credit card loans. Since we have similar levels of card debt it is not unreasonable to suppose we will have a similar problem.
Now if there are massive defaults on personal debt then the banks have to write it off. Something they can ill afford to do, to put it mildly. This in turn puts massive preasure that the banks and therefore on the government Guarantee.

Purple Gorilla

eamonnm79 wrote: »

If that is true that most of these financial institutions are not covered then, I think you should give a source for this information.
Which ones are and why?

The Bank Guarantee Scheme only applies to the following banks:
AIB
Bank of Ireland
Anglo Irish Bank
Irish Life & Permanent
Irish Nationwide
EBS Building Society
Postbank
(Source:NTMA)

It only covers Irish banks. The IFSC is the base of many European Banks and Financial Institutions. Just because they have an operation here doesn't mean we have to cover them. If a foreign bank with operations here fails, then all that will happen here is the people it employs will lose their job..and of course your screwed if you have savings in it

nesf

eamonnm79 wrote: »

The bit where you say "Ditto with debt owed by private individuals" is wrong.
Recent figures from America show that they believe there will be massive default on credit card loans. Since we have similar levels of card debt it is not unreasonable to suppose we will have a similar problem.
Now if there are massive defaults on personal debt then the banks have to write it off. Something they can ill afford to do, to put it mildly. This in turn puts massive preasure that the banks and therefore on the government Guarantee.

Default level does not equal amount of credit which is the point. Looking at the headline external debt number doesn't give you much of an idea on the likelihood of default by the Irish Government which is what you're trying to do.

nesf

Purple Gorilla wrote: »

The Bank Guarantee Scheme only applies to the following banks:
AIB
Bank of Ireland
Anglo Irish Bank
Irish Life & Permanent
Irish Nationwide
EBS Building Society
Postbank
(Source:NTMA)

It only covers Irish banks. The IFSC is the base of many European Banks and Financial Institutions. Just because they have an operation here doesn't mean we have to cover them. If a foreign bank with operations here fails, then all that will happen here is the people it employs will lose their job..and of course your screwed if you have savings in it

Further the IFSC is a lot bigger than the Irish banks, from their site:

More than 430 international operations are approved to trade in the IFSC, while a further 700 managed entities are approved to carry on business under the IFSC programme. Click a category to list these companies.

Source: http://www.ifsconline.ie/directory.html

eamonnm79

Flamed Diving wrote: »

A country default is defined as a BOP issue, when a country cannot meet its obligations to foreign debtors. As far as I can see, we are not a great risk of that just yet. However, this NAMA thing will increase the risk of this occuring. It all depends on how that agency pans out.

Thanks everyone for helping me understand this a bit better. After taking in what everyone said I think the comment above is a fairly good summery.
Thanks Nesf for helping show me that half the external debt is Basicly belong to foreign parent "Irish" financial institutions which are not covered under the bank guarantee scheme. So therefore if they cant pay their debts it will only effect the employment they create which is by no means insignificant.

So now we have Nama to worry about as well as the resulting bad depts levels that will have to be published by the banks in a drip drip fashion for the next few years.
I guess the question is can our economy sustain it?
The answer to that is that no one knows.

eamonnm79

http://www.bloomberg.com/apps/news?pid=20601087&sid=aS9QKnSLGNys&refer=home

OK I know its Borats Birthplace, but as I keep saying, it can happen.

Vincent Browne and Ivan yeats were discussing banks defaulting the other night on Vincents show.

Vincent was saying that they should and Ivan said if we did default 'they' would never lend to us again. I guess "they" are international investors but surely the ECB would after a while.

eamonnm79

15% in the next year.

How many models does it take to work out that? :eek:

http://www.independent.ie/business/irish/economist-says-15pc-chance-of-country-going-bankrupt-1741423.html

amacca

Purple Gorilla wrote: »

The Bank Guarantee Scheme only applies to the following banks:
AIB
Bank of Ireland
Anglo Irish Bank
Irish Life & Permanent
Irish Nationwide
EBS Building Society
Postbank
(Source:NTMA)

It only covers Irish banks. The IFSC is the base of many European Banks and Financial Institutions. Just because they have an operation here doesn't mean we have to cover them. If a foreign bank with operations here fails, then all that will happen here is the people it employs will lose their job..and of course your screwed if you have savings in it

Know this is probably more relevant to banking and investment

but does the older deposit protection scheme (ie. deposits guaranteed up to 100k or is it 40k) not apply to some foreign owned banks with operations here.

I thought banks like halifax (hbos/bosi) and ulsterbank (rbs) came in under older irish deposit protection scheme which is still in operation.

I know that NIB (danske bank) comes in under the danish deposit protection scheme but was sure the older deposit protection agreement with banks was also still valid in the case where an institution is not part of the guarantee scheme that protects all deposits not matter what the amount.

ionix5891

amacca wrote: »

Know this is probably more relevant to banking and investment

but does the older deposit protection scheme (ie. deposits guaranteed up to 100k or is it 40k) not apply to some foreign owned banks with operations here.

I thought banks like halifax (hbos/bosi) and ulsterbank (rbs) came in under older irish deposit protection scheme which is still in operation.

I know that NIB (danske bank) comes in under the danish deposit protection scheme but was sure the older deposit protection agreement with banks was also still valid in the case where an institution is not part of the guarantee scheme that protects all deposits not matter what the amount.

ulsterbank is covered up to 100K

but imho if the **** ever hits the fan i dont see where them money to pay will come from

the "guarantee" are just that words to keep some sort of confidence in the system

eamonnm79

After morgans article in the times today I think it brings this topic back on the radar?

One other important question is, How much of the decisions that the government are taking re the economy are being decided/heavily influanced in Europe?

Saabdub

Hope no one minds me quoting this memorable comment from
LorcanRK on irisheconomy.ie this lunchtime:


"The phrase ‘zombie banks’ is used to describe the situation where banks continue to exist, but are not capable of continuing normal everyday banking business (B. Lucey calls the effect Japanification after the banking system during Japan’s ‘lost decade’). Well perhaps economists will soon have a new word for their lexicon. ‘Irelandification’, after the worlds first zombie country, where the country is held in stasis by ECB liquidity, but remains unable to continue normal everyday economic activity."

The prospect may not be default but a permanent economic coma.

Économiste Monétaire

That money will probably start to dry up by the 2nd to 3rd quarter of 2010. That's the scenario that I worry about, rising (variable) mortgage rates and taxpayers trying to square those payments with new income taxes/property taxes. The main pressure from Europe is to meet excessive deficit procedure guidelines. Given that a lot of people will be breaking this over the next two years, it's not so much a short-term issue. Unfortunately, we can't make an argument that out deficit is (largely) based on cyclical factors.

MrMatisse

The continuing deterioration in the economy is making default more likely. The economy wont improve until we can ramp up exports. Its unlikely we will attract huge amounts of FDI into an expensive economy ,as we dont have a Harvard or an Oxford the top level R&D which is the type of FDI we need given our cost base will never come in a large scale.

A rapid adjustment in wages to attract lower level FDI would really reduce consumption/tax revenue and bring is to the brink of default.

Otherwise we are relying on Irish entrepreneurs to start export led companies. Hopefully the death of the property monster will divert entrepreneurs to this.

eamonnm79

Really-Stressed wrote: »

The continuing deterioration in the economy is making default more likely. The economy wont improve until we can ramp up exports. Its unlikely we will attract huge amounts of FDI into an expensive economy ,as we dont have a Harvard or an Oxford the top level R&D which is the type of FDI we need given our cost base will never come in a large scale.

A rapid adjustment in wages to attract lower level FDI would really reduce consumption/tax revenue and bring is to the brink of default.

Otherwise we are relying on Irish entrepreneurs to start export led companies. Hopefully the death of the property monster will divert entrepreneurs to this.

I wouldnt really call most small scale propery speculators entrepreneurs.

But creating products/services for export or producing products of equal quality for similar prices that we currently import is the only way for us to try dig ourselves out of this.

Hasschu

There are a number of troublesome issues that affect whether Ireland will default. One is the fact that the gov't is treating the electorate as if we are mentally defective 3 year olds. The gov't is paralysed until after the Lisbon referendum because they do not want to do anything that might upset the electorate. In the meantime economic conditions deteriorate daily. Social cohesion is becoming more threadbare by the day, everyone wants a bigger piece of a pie that gets smaller daily. Violent crime is now at levels that puts us on the crime scale where we were on the economic scale at the height of the boom. As income and benefits are cut and unemployment climbs, will the gov't be able to maintain control or will they cater to the mob. So far the gov't has catered to a different mob the banks and developers. There is no reason to believe that there is enough backbone in the Dail to ensure the country is governed responsibly. I see an Argentina type scenario unfolding in the next two years. Unrest on the streets, unstable governments, exit the Euro and depreciate the currency 66.6%. This guarantees that the gov't will default on its obligations both domestically and internationally. The outcome 25 years of subsistence living similar to the period 1922-1973 but shorter because we are smarter now.

Time Magazine

Hasschu wrote: »

I see an Argentina type scenario unfolding in the next two years. Unrest on the streets, unstable governments, exit the Euro and depreciate the currency 66.6%. This guarantees that the gov't will default on its obligations both domestically and internationally. The outcome 25 years of subsistence living similar to the period 1922-1973 but shorter because we are smarter now.

25 years of subsistence living eh?

I bet you €100 that our national income will not fall below 2000 levels.

Purple Gorilla

Hasschu wrote: »

There are a number of troublesome issues that affect whether Ireland will default. One is the fact that the gov't is treating the electorate as if we are mentally defective 3 year olds. The gov't is paralysed until after the Lisbon referendum because they do not want to do anything that might upset the electorate. In the meantime economic conditions deteriorate daily. Social cohesion is becoming more threadbare by the day, everyone wants a bigger piece of a pie that gets smaller daily. Violent crime is now at levels that puts us on the crime scale where we were on the economic scale at the height of the boom. As income and benefits are cut and unemployment climbs, will the gov't be able to maintain control or will they cater to the mob. So far the gov't has catered to a different mob the banks and developers. There is no reason to believe that there is enough backbone in the Dail to ensure the country is governed responsibly. I see an Argentina type scenario unfolding in the next two years. Unrest on the streets, unstable governments, exit the Euro and depreciate the currency 66.6%. This guarantees that the gov't will default on its obligations both domestically and internationally. The outcome 25 years of subsistence living similar to the period 1922-1973 but shorter because we are smarter now.

Is this an excerpt from some fiction novel or something?

Besides the rest of the nonsense in that post, do you honestly think that Ireland would ever leave the Euro?

Hasschu

Do I think that Ireland will leave the Euro? I think that Ireland has already demonstrated at least twice in large numbers that their attachment to Europe is one of fair weather friend. The gov't is demonstrating its lack of faith in the electorate by delaying necessary action to combat the economic slide we are in because "it does not want to get the electorate so upset with the gov't that they would vote down Lisbon at the first opportunity". We are talking about the Ireland that royally screwed it up from 1922 to 1973 give or take a couple of years. Improvement from 1973 on with the exception of the 1987 fiasco which was unavoidable. Long after it was obvious to bank economists in Frankfurt, Zurich, Basel, Toronto and elsewhere that Ireland would implode because of its dependence on low corporate taxes and internal consumption based on indebtedness the Irish gov't continued to apply the bellows to the flames. I had one very instructive conversation about 2005 with a Frankfurt economist who asked me what I thought of his Irish colleague who was building a 350 sq. metre house on the Galway coast a long way from Galway city. The Frankfurt economist could not see an economy in the area that would support that kind of expenditure. I told him that in my opinion he would be lucky to get half of what he spent when the time came to divest. The lack of property taxes on private residences and the tax benefits of financing they saw as inflating the bubble that would inevitably burst. The story of Ireland and how its gov't lived in cloud cuckoo land for over five years and then pretended there is just a little problem and the adjustments can wait because we cannot upset the naive little darlings or they will get us booted out of the Euro nest if they vote no in the referendum. Facts are stranger than fiction in Ireland. There will be some good books on Irish politics, the behaviour of its voters and how the economy responded to the machinations of the two. The most excitement is yet to come. Membership in the EU and the EMU is our only salvation but there are obviously many people who are deluded enough to think otherwise.

amacca

Hasschu wrote: »

Facts are stranger than fiction in Ireland. There will be some good books on Irish politics, the behaviour of its voters and how the economy responded to the machinations of the two. The most excitement is yet to come. Membership in the EU and the EMU is our only salvation but there are obviously many people who are deluded enough to think otherwise.

I sincerely hope there are not as many people as you seem to think there are that would even briefly contemplate leaving the euro.

I know there is an argument that if we could devalue our currency we could be more competitive but surely the many downsides imo outweigh this upside and most people aren't deluded enough to believe otherwise?

Do you have any sources/opinion polls/anything that would back up this idea that significant amounts of people, our politicians, public figures, opinion leaders etc want to actually leave the euro?

Out of curiosity what would happen to peoples savings etc currently denominated in euro if ireland did leave the euro, wouldnt the process be signalled well in advance and wouldnt anyone (large institutional investors etc included) with even an ounce of sense withdraw all of their holdings from this fair green isle immediately to the relative safety of an account where there funds are denominated in euros to avoid being the proud owner of 40 million oirish punts which could buy you half a cooked chicken and a pint of guinness?

Do a significant amount of people not think this way?

Yours fearfully.

eamonnm79

I dont think any of the major political parties would even contemplate leaving the euro.
However If we were to default on loans that were given to us by the european central bank (indirectly) and we continue to run large deificits the euro may leave us.
So the default question is more immediate than the euro question.
The reason for default will not be due to leaving the euro but it may be a consiquence of default.
Default is more likely to occour due to a level of insolvency that is unsustainable even for for an independent nation (very very insolvent)

amacca

eamonnm79 wrote: »

If we were to default on loans that were given to us by the european central bank (indirectly) and we continue to run large deificits the euro may leave us.

The reason for default will not be due to leaving the euro but it may be a consiquence of default.
Default is more likely to occour due to a level of insolvency that is unsustainable even for for an independent nation (very very insolvent)

You're not helping ease my fears here. I may have to go to a 24hr pharmacy to get something to help me sleep.


1)

O.K. and this is genuine curiosity on my part, is it true that in the event of the Irish govt defaulting (which I also believe is a possibility) we would be kicked out or stand a good chance of being kicked out of the euro? Is there a historical precedent for this either inside or outside of a monetary union?

2)

In the event of good old Ireland being kicked out of the euro, what happens to a persons deposits in a deposit account in an Irish owned bank and a deposit account in a foreign owned/controlled bank say BOI and HALIFAX for the sake of argument.

3)

Is something like this likely to happen overnight giving ordinary depositors no chance to get their cash out before it becomes much riskier irish punts or do you think something like this would take weeks from initial announcement to implement and would have been signaled for a much longer time before this?

4)

Can you suggest a good mild sedative?:eek:

Time Magazine

This is the Economics forum. If this thread doesn't stop being about politics verrrry quickly it won't continue.

Purple Gorilla

Now I'm no economist, so this is all open to correction by The Economist, but

amacca wrote: »

1)

O.K. and this is genuine curiosity on my part, is it true that in the event of the Irish govt defaulting (which I also believe is a possibility) we would be kicked out or stand a good chance of being kicked out of the euro? Is there a historical precedent for this either inside or outside of a monetary union?

No we would not be kicked out of the Euro. There hasn't been a case where a Eurozone country has defaulted and been kicked out of the Euro. If a Eurozone country defaulted, it would be a disaster for the Euro as a whole so that is why Ireland wouldn't be allowed to default on it's sovereign debt. The ECB would step in before that happens and give us a loan, much like the IMF would.

amacca wrote: »

2)

In the event of good old Ireland being kicked out of the euro, what happens to a persons deposits in a deposit account in an Irish owned bank and a deposit account in a foreign owned/controlled bank say BOI and HALIFAX for the sake of argument.

I'm not too sure. I mean in reality, the Irish banks would probably collapse because all their Euro-based debt would be worth a lot more IRL£. The person would most likely lose their deposit and the government would be unable to honour their €100,000 deposit guarantee. Once it is announced, people would withdraw their money and deposit it in foreign banks as money in a foreign bank would be unaffected I would think.

amacca wrote: »

3)

Is something like this likely to happen overnight giving ordinary depositors no chance to get their cash out before it becomes much riskier irish punts or do you think something like this would take weeks from initial announcement to implement and would have been signaled for a much longer time before this?

Well that's complicated. I mean it would take aaaggggeeesss to implement a new currency, print it etc. and get it into circulation. Immediately I would imagine that Investors would pull out of Ireland. Share prices of Irish banks, companies etc. would plummet and there would be a run on banks. I'd imagine an Argentina (I think? or Venzuela or one of those countries) type scenario would happen where banks limit weekly withdrawals to a certain amount like €500 for example.

But honestly, there is more a chance of boards.ie getting into government than Ireland withdrawing from the Euro or being kicked out. The president of the ECB himselft said back in January that any state leaving the Eurozone or being kicked out because it cannot service it's debt is not an option. The downsides of leaving the Eurozone far outweigh the benefits. The cost to service our debt would shoot up which would be pretty counter-productive. The biggest obstacle is reintroducing the new currency..Every single contract the government has (Wages, bonds, taxes, deposits etc.) would have to be re-denominated in the currency. Every bank would also have to do this and a lot of money would be spent printing the money and then getting it into circulation

Basically, consider it near-impossible

Hasschu

Amacca- Currency devaluation is a short term tactic used by weak gov'ts to give the illusion they are doing something useful. Italy before it joined the EMU used devaluations of the Lira frequently because there is a short lived benefit followed by more pain than before the devaluation. A good analogy would be a country addicted to the devaluation drug, its bad for us but we can't stand the pain so lets have another shot of devaluation. The Irish electorate have voted no to two treaty changes and there is no guarantee that they will not do it again. Ireland was a party to all phases of the treaty negotiation, the gov't approved it and yet we vote it down. This behaviour is not going unnoticed in Europe, they are starting to look at Ireland as an impediment to progress. At some point if we do not show a willingness to play the game we will be offered associate status on a take it or leave it basis. Since EMU membership is contingent on EU membership we would be out of the EMU on the day we are out of the EU.
I am not aware of any sane person in a position of authority in Ireland who wants out of the EMU. I do see political turmoil months down the road and politicians grasping for straws, jingoism and nationalism are the cards that will be played. Currency devaluation with no notice whatsoever is not out of the question. In 2002 Argentina which had a currency tied to the US dollar devalued over night from $1 US = $1 Arg Peso to $1 US = $3 Arg Pesos. A 66.6% devaluation in an instant. They closed the banks for 72 hours and restricted withdrawals to 5% to 20% per year depending on amount deposited. In the case of the Irish Euro the notes are identifiably Irish and any deposits in domestic or foreign bank branches in Ireland would be devalued. Also anything liquid such as bonds, GIC etc would be devalued. The one thing you can rely on is there will be no notice. It will happen in seconds with an announcement that Irish issued Euros will now be worth 0.33 of a normal Euros. I still think that Ireland can negotiate with the ECB and get its affairs back on track. The electorate has to cooperate and if they do not the worst case scenario is a 66.6% devaluation. A very popular figure that has stood the test of time.

Purple Gorilla

Hasschu wrote: »

Amacca- Currency devaluation is a short term tactic used by weak gov'ts to give the illusion they are doing something useful. Italy before it joined the EMU used devaluations of the Lira frequently because there is a short lived benefit followed by more pain than before the devaluation. A good analogy would be a country addicted to the devaluation drug, its bad for us but we can't stand the pain so lets have another shot of devaluation. The Irish electorate have voted no to two treaty changes and there is no guarantee that they will not do it again. Ireland was a party to all phases of the treaty negotiation, the gov't approved it and yet we vote it down. This behaviour is not going unnoticed in Europe, they are starting to look at Ireland as an impediment to progress. At some point if we do not show a willingness to play the game we will be offered associate status on a take it or leave it basis. Since EMU membership is contingent on EU membership we would be out of the EMU on the day we are out of the EU.
I am not aware of any sane person in a position of authority in Ireland who wants out of the EMU. I do see political turmoil months down the road and politicians grasping for straws, jingoism and nationalism are the cards that will be played. Currency devaluation with no notice whatsoever is not out of the question. In 2002 Argentina which had a currency tied to the US dollar devalued over night from $1 US = $1 Arg Peso to $1 US = $3 Arg Pesos. A 66.6% devaluation in an instant. They closed the banks for 72 hours and restricted withdrawals to 5% to 20% per year depending on amount deposited. In the case of the Irish Euro the notes are identifiably Irish and any deposits in domestic or foreign bank branches in Ireland would be devalued. Also anything liquid such as bonds, GIC etc would be devalued. The one thing you can rely on is there will be no notice. It will happen in seconds with an announcement that Irish issued Euros will now be worth 0.33 of a normal Euros. I still think that Ireland can negotiate with the ECB and get its affairs back on track. The electorate has to cooperate and if they do not the worst case scenario is a 66.6% devaluation. A very popular figure that has stood the test of time.

Do you even know what you're talking about? Irish euros are no different to any other Euro. The only difference is the design on the back which is spread throughout Europe. You can't devalue one part of a currency. It would be like the US devaluing California's Dollar. Ireland will not be leaving the EU any time soon and leaving the EU isn't an overnight thing. Infact, until the Lisbon Treaty passes, there is no procedure at all for a country leaving the EU.

But as The Economist said, this is a political discussion in an Economic forum so lets stay on-topic