# We need to get out of recession before the rest of the EU



## Purple (8 Apr 2009)

If we don't get our house in order before France and Germany start to recover we could find that interest rates start to creep up while we are still in the doldrums. This will suck money out of the economy, put back our recovery for years and will but pressure on us to leave the Euro.
Therefore we have a short window to get things sorted... do posters agree and if so can it be done?


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## shnaek (8 Apr 2009)

I agree. This is a very real risk. Interest rates are getting so low, that sooner or later they will only have one way to go. Germany isn't in too bad a shape at the moment. It is suffering mainly because of the drop in it's exports. But once China starts to spend money again, and it will soon - it has plenty, then Germany will be back in the black. We have two years at most in my opinion, before interest rates start to rise.


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## Chocks away (8 Apr 2009)

Yes, this would be brilliant if it could be engineered.


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## Shawady (8 Apr 2009)

Purple said:


> If we don't get our house in order before France and Germany start to recover we could find that interest rates start to creep up while we are still in the doldrums. This will suck money out of the economy, put back our recovery for years and will but pressure on us to leave the Euro.
> Therefore we have a short window to get things sorted... do posters agree and if so can it be done?


 
Yes, this has been a concern of mine. The drop in my mortgage payments has cancelled out some of the 'pain' inflicted in the past couple of months. I'm sure this is the case for a lot of people.
The rate rose from 2 to 4.25 very quickly the last time and if that were to happen before we recover you are looking at potentially several hundred euro a month hit to a lot of homeowners.


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## Latrade (8 Apr 2009)

Too true Purple, but I think we may be able to limit it more to just Germany's or France's recovery rather than "and". 

Unfortunately I don't see it happening. I think we were positioned to be too vulnerable to this collapse and the necessary measures can't happen in the near future (such as tax revenue reform) and can only come about in the long term. 

The set up of the "Toxic" Bank is a gamble as is the emphasis on getting back foreign investment (even if the intellectual property measures only mean a paper investment rather than a full on job creation investment). IF they work, well hats off for getting it right. But is it the right time to be sticking everything we've got on red? 

If it doesn't work, it sets us back even further behind Europe and then things will really get bad.


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## UptheDeise (8 Apr 2009)

Why do folks think that interest rates are there primarily for mortgage holders?

True, if interest were to increase home buyers would be hit but this would also encourage savers to save more which in turn would be loaned out to businesses and entrepreneurs and therefore increase employment.

Also, isn't it true that one of the reasons banks are not lending because the risk is not worth it considering interest rates are too low?


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## Purple (8 Apr 2009)

UptheDeise said:


> Why do folks think that interest rates are there primarily for mortgage holders?


 They are not there primarily for mortgage holders, they are also there for businesses. When the cost of credit is low it stimulates business and injects more money into the economy.


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## UptheDeise (9 Apr 2009)

Purple said:


> They are not there primarily for mortgage holders, they are also there for businesses. When the cost of credit is low it stimulates business and injects more money into the economy.


 
But isn't that the last thing we need, even cheaper credit? We don't need people using cheap credit and buying all the tat around them. That's one of the reason why we're in this mess.


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## Latrade (9 Apr 2009)

UptheDeise said:


> But isn't that the last thing we need, even cheaper credit? We don't need people using cheap credit and buying all the tat around them. That's one of the reason why we're in this mess.


 
No. A business cannot operate without access to credit. It'd be great if everyone paid their bills on time and if you never had to invest in new technology or repair or upkeep, but alas all businesses need to be able to borrow.

The sub prime issue has nothing to do with allowing businesses to access credit.


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## Bronte (9 Apr 2009)

Purple said:


> When the cost of credit is low it stimulates business and injects more money into the economy.


  That is true but it's useless when one cannot get access to the money.  The banks are not lending despite what they are saying.


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## Firefly (9 Apr 2009)

That's why so many are fixing their mortgages I suppose.


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## MOB (9 Apr 2009)

UptheDeise said:


> Also, isn't it true that one of the reasons banks are not lending because the risk is not worth it considering interest rates are too low?



I don't think this really hits the nail on the head.  If a bank can borrow money ( from its despositors and\or from a central bank and\or on a money market) at 1.25% and lend it out at 3.75%, then they are selling money with a mark-up of 200% on cost.  

I think the problem is rather more prosaic - the banks would lend money if they had it; they don't.


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## Timbo (9 Apr 2009)

MOB said:


> I don't think this really hits the nail on the head. If a bank can borrow money ( from its despositors and\or from a central bank and\or on a money market) at 1.25% and lend it out at 3.75%, then they are selling money with a mark-up of 200% on cost.
> 
> I think the problem is rather more prosaic - the banks would lend money if they had it; they don't.


 
Actually, it is more complicated.

Banks don't "have money". All they do is borrow from one place to lend to another. They are known as intermediaries. 

They are lending, but it is very constrained as they try to manage a drop in their liabilities (deposits, bonds, interbank lending etc.) to match some shrinking assets (mortgages, loans etc.).


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## UptheDeise (9 Apr 2009)

Latrade said:


> No. A business cannot operate without access to credit. It'd be great if everyone paid their bills on time and if you never had to invest in new technology or repair or upkeep, but alas all businesses need to be able to borrow.
> 
> The sub prime issue has nothing to do with allowing businesses to access credit.


 

Latrade I agree with you 100% about businesses and credit. I was refering to people and credit, who used cheap credit to get themselves into debt.


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## dockingtrade (9 Apr 2009)

Purple said:


> If we don't get our house in order before France and Germany start to recover we could find that interest rates start to creep up while we are still in the doldrums. This will suck money out of the economy, put back our recovery for years and will but pressure on us to leave the Euro.
> Therefore we have a short window to get things sorted... do posters agree and if so can it be done?


 I made this point before the problem is we're correcting our wages downwards and mortgages are still huge but there is some relief in interest rate drops. If the world turns interest rates may shoot up , not creep up as "they" would not want the growth rates of the last boom.


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## z109 (9 Apr 2009)

Debt is not credit. Credit is something you get for free - like the 30 days free of payment on your credit card.

The banks are responsible for selling debt. Who supplies credit? To my mind it is suppliers. They are now nervous about getting their money back so have shortened invoicing times and asked for cash up front.

What then, is this 'credit' that is the lifeblood of the economy?

What function, other than as a payment intermediary, do the banks serve in the provision of credit from suppliers?

Investment in capacity is a different issue, that is debt-funded, but it relates to future business and not to current operations. Let's look at the major multi-nationals in the state. How many of them have borrowed from Irish banks for their investments? Any? None? None would be my guess. So the banks don't have a role in FDI. There is rampant overcapacity in the SME sector (otherwise businesses wouldn't be going bust) - new investment is probably not required. 

So what use the banks? Would an invoice insurance corporation not be a more useful measure?


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## UptheDeise (9 Apr 2009)

Another problem is inflation. The Americans and British think that small increases in inflation will help pay off their public debt. What will happen though if the inflation rises too fast for their own liking? Will these governments try and rein it in with higher interests rate, like they did in the early 1970's? Where will that leave us then?


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## Askar (9 Apr 2009)

Not clear to me how this will happen. Our cost base is in Euro. Our main trading partners purchase in Dollar and Stg. Surely there is significant risk of inflation in those jurisdictions with their government stimulus packages. If that happens then I assume that euro increases in value (as their currencies devalue) and our competitiveness further declines resulting in reduced exports.


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