What happens with State Savings Bonds if EUR collapses?

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Tastebuds

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Hi all

Under the NTMA, the repayment of state saving bonds is a direct obligation of the Irish Government. But, say you have 100K of prize bonds, what would happen if the EUR collapses?

Thanks
 
It is impossible to be definitive, but in all probability your €100k would become IR£100k overnight which would then devalue by anything from 30-60% relative to other major currencies.
 
Gordon Gekko said:
would become IR£100k overnight which would then devalue by anything from 30-60% relative to other major currencies.
Click to expand...

Obviously the level of any future IR£ is unknowable but why do you think it would devalue so much.

We would be cut free from the very weak economies in Greece, Italy, Spain and from the stronger but sclerotic economies of France, Austria, Denmark etc. If the Irish central bank put interest rates up to a reasonable 2% to 3%, why would an Irish pound not do reasonably well.
 
Can anyone see any situation where the new Irish Punt might revalue against other currencies?
 
We have never had our own independent currency, so I doubt we will have one in the future.
 
Gordon Gekko said:
It is impossible to be definitive, but in all probability your €100k would become IR£100k overnight which would then devalue by anything from 30-60% relative to other major currencies.
Click to expand...
Gordon "overnight"? Can you describe the train of events which would enable this to happen overnight without anyone having an inkling it was coming?

WADR I think your assertion that this would happen in "all probability" is a tad irresponsible. I presume the sort of scenario that OP has in mind is the election of Mme Le Pen in France followed by an announcement that she wants to exit the Euro. Even if the POF had that power which s/he hasn't imagine how long a process that would be. Brexit is expected to take 2 or is it 6 years. Introduction of the Euro took 3 years. An orderly unwind of the Euro would take at least 3 years IMHO.

OP refers to a "collapse" presumably implying complete disorder. There is nothing on the horizon suggesting that a disorderly collapse is on the cards.

In any event what do you mean by a 30%-60% devaluation? Against what? The Euro itself has collapsed remember in this hypothetical scenario. Ireland has a very strong balance of payments and very strong bond ratings. Possibly the IR£ would devalue against a DM. Against the Franc? Sterling? The Dollar?

I suspect this question, and it is an understandable anxiety, derives from McWillams' latest opportunistic exploitation of a possible Le Pen victory.
 
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And in the event of a euro collapse and a return to the Punt is it fair to assume that the promissory note debt (AFAIK some €30b odd magic trick by the Irish Central Bank of which we are slavishly repaying maybe €3b/year) would convert to euro . . and through some paper exercise we could simply put it on interest-only (which we'd be paying it to ourselves) for ever more?
 
Is there actually any stable currency at the moment ...

Euro ...possible French exit ( followed by collapse)
Pound ...Uncertainty around BritExit
Dollar ... Trump (God only knows whats coming next with the Don)

Swiss Franc perhaps ?
 
Protocol said:
We have never had our own independent currency, so I doubt we will have one in the future.
Click to expand...
Technically I think the old punt (pre 1979) was "independent". However the powers that be kept it linked at the hip to sterling and the populace had complete confidence in that parity linkage.

You make a very valid point though. Any "collapse" scenario would "in all probability" lead to a parity link with a reserve currency. Sterling the obvious candidate, if the FF/SF coalition could swallow its republican hubris.
 
Thinking more about this, after all the Duke has his fair share of Prize Bonds.
This latest euro scare from McWilliams is completely different from his earlier one back at the height of our crisis. Then he actively promoted Ireland's unilateral exit from the euro followed by massive devaluation and effective default on our debts. His proposal then got legs from future Minister Ross' false assertion in the Sindo that the CB were secretly printing punts. (Aside: Great trick that, allege something is happening secretly; by definition the allegation can never be disproved.)

The latest McWilliams Le Pen euro scare is vastly different. This time it is not the unilateral throwing the toys out of the pram by a dysfunctional basket case. This time, if it happens, it will be a consensus amongst all participants that the project has failed followed by a process of unwinding designed to cause the least damage. No one would have any incentive to throw the toys out. As I said above, the process is likely to be a very protracted one, longer even than the process of introduction of the euro. Accordingly there is no danger whatsoever of an "overnight" effective part default on State savings, plenty of time to encash them if that seems the safest bet.

But it won't happen. It won't happen because "the elite" know how horrendous and damaging such a process would be. And it won't happen because despite the euro's rather bad press the populace of every country from basket cases like Greece, to France, to Ireland, to Germany et. al. overwhelmingly do not want to leave the euro.
 
Do not want to leave and it actually happening are 2 completely different scenarios.
1. Can it happen? Oh yes.
2. Will it happen? Eventually yes. However, no one can say when.
3. What will be the consequences? Haven't a clue.
4. Does anyone know what the consequences will be? No.
5. Will we survive? Yes.
6. How do I know all this? Same reason as McWilliams. I'm unique, just like every other person on earth.
7. Is any of the above true? There isn't one lie in any of it.
 
Gordon Gekko said:
It is impossible to be definitive, but in all probability your €100k would become IR£100k overnight which would then devalue by anything from 30-60% relative to other major currencies.
Click to expand...

On the contrary Swiss economists and bankers believe that the Punt and the DMark would be the only two currencies that would rise in such a situation.
 
Nothing is impossible in this world but the idea that "overnight" 19 countries could co-ordinate the return to national currencies without anyone having a clue that it was coming is surely a scenario we can safely dismiss. So no need for a panic dumping of state savings, if that is what is concerning OP.

The project that is the EU and its concomitant the Euro could well be deemed at some point to be past its use by date. Unless this occurs as a result of some traumatic upheaval like a war (which doesn't seem likely any time soon) the process will be controlled and measured. As I said, if Brexit takes 2 - 6 years to implement imagine the timescale involved in the far greater project of unwinding the whole ball of wax.

To actually directly answer OP, my guess is that a link to sterling just as in the old days would be the least worst option for the State to follow.
 
Tastebuds said:
Hi all

Under the NTMA, the repayment of state saving bonds is a direct obligation of the Irish Government. But, say you have 100K of prize bonds, what would happen if the EUR collapses?

Thanks
Click to expand...

I wrote to the Prize Bond Company in 2011 asking for clarification and as the Op correctly states these are a direct obligation of the Irish Govt.

Prize Bonds have the same level of security as Irish Govt Treasury Bills, and ALL other financial products that form part of the national debt. if you have money invested in the State in products like Prize Bonds then it is in my opinion as safe there as anywhere else, a revaluation/ Euro exit will hurt all savers no matter where you stash it.
 
Palerider said:
Prize Bonds have the same level of security as Irish Govt Treasury Bills, and ALL other financial products that form part of the national debt. if you have money invested in the State in products like Prize Bonds then it is in my opinion as safe there as anywhere else, a revaluation/ Euro exit will hurt all savers no matter where you stash it.
Click to expand...
Yes and no to these points. At the time of the first McWilliams scare there was a possibility of unilateral Irexit from the euro. There would undoubtedly have been some advance warning - you simply cannot print billions of punts secretly despite Minister Ross' assertion otherwise. So I always perceived that there would be time to jump ship from Irish bank euro deposits to, say, German bank deposits. State savings might not have been so easily exited in time. I don't think thoughts like this are relevant to a consensual break up of the euro which would happen on a very protracted timescale.

Now on to the question of security. I firmly believe that State savings were much safer than the other forms of National Debt when yields soared to 14%. State savings amount to about €11bn out of a total National Debt of €200bn. There is no legal onus for the State to treat all its creditors as pari passu if it decides to default. My conviction is that the widows' and orphans' funds locked up in State savings would be the last to be jettisoned.
 
Surely if we reach a point where the Euro is gone but Punt Nuas haven't been produced yet, there's a risk of capital controls?

My own view is that the safest bet is to hold German bonds, German property, or simply globally diversified assets, all custodied outside of the EU.
 
Thanks to you all for your insightful replies... Yes, as some of you pointed out, the thread origin was influenced by McWillams article...

I know the thread subject says "if EUR collapses", but what would be the case if the EURO does not collapse, and it remains a North Europe currency, but Ireland is out of the EURO? In fact, this scenario will align more to McWillams' article

Will the Irish bonds still be converted to IR£? In other words, why will the bonds convert to IR£, if the EURO is still a valid operating currency?

Cheers
 
Tastebuds I knew it, McWilliams has spooked you. I am not going to bore you here with the litany of self publicising Armageddon style nonsense he has spewed out over the years. I saw the headline, shrugged my shoulders, "here he goes again" and didn't even bother to read it. Anyway I have now corrected that.

This article is outrageous. His prediction is that the day after Le Pen wins France leaves the Euro. Germany and a few selected friends remain in the core Euro. Ireland is unlikely to be invited. All alarmist rubbish. McW boasts that a year ago he discussed Brexit and six months ago he wrote about the implications of a Trump victory. These have morphed in his ginormous self estimation into where he believes that he predicted these events just as if Le Pen wins he will claim that prediction too. Le Pen is trailing Macron 65% to 35%. Pity coz I would now like to see her win just to expose McW once and for all as a complete chancer.

But to answer your latest question which does actually see through the McW nonsense. This latest prediction is unlike his original suggestion that Ireland should exit the Euro, redenominate its debt and massively devalue i.e. default. Under his latest scenario the transition is consensual and you are right, Euro denominated debt of the State would remain so denominated.

Won't happen.
 
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