# Chances of Ireland leaving the Euro?



## shnaek (26 Jan 2009)

What are the chances of Ireland leaving the Euro? I might have been reading too much McWilliams, but I am wondering if there is a reasonable chance of Ireland leaving the Euro in the next 3 years or so. What do ye think?

At the moment I am rating the chance at 30%. The reason I am thinking along these lines is that I don't think the government are going to take the unpopular decisions needed to get the country back on it's feet. The nations finances will inevitably get worse. Something will have to give. In the past Irelands choice has always been to devalue. Britain and the US are already doing this. Coupled with the rerun of the Lisbon referendum which the people may well vote against - this could give the government the choice of taking this option. 

Of course if we did this then we'd be in the company of Iceland and Latvia. Still, I wouldn't put it past our leaders to take this option in a couple of years if they (as is quite likely) mess up early opportunities to take the hard decisions NOW, and the country ends up heading down the same route as Japan. What do ye think of the chances of Ireland leaving the Euro?


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## Sunny (26 Jan 2009)

Zero percent chance to leave voluntarily. The entire Euro project could fall apart in the next 10-20 years which is a different story completely.


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## callybags (26 Jan 2009)

"What do ye think of the chances of Ireland leaving the Euro? "

Nil %


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## jhegarty (26 Jan 2009)

I think there is about 0% chance.

IMHO the euro is the only thing protecting us at the moment.


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## Gulliver (26 Jan 2009)

Participation in the Euro helped us greatly during the boom years - if we had an independent currency at that time, our currency would have appreciated, and this would have quickly ended the boom.

Now when in a different situation, we must rely on the Euro to maintain its value to sustain us.

No chance of us leaving


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## dub_nerd (26 Jan 2009)

Gulliver said:


> Participation in the Euro helped us greatly during the boom years - if we had an independent currency at that time, our currency would have appreciated, and this would have quickly ended the boom.


 
Participation in the euro was a disaster in the boom years! Do you think the current bust is unconnected with the boom? The boom _needed _to end, but we weren't able to damp down our economy to sustainable levels, so now we're crocked. (Yes, I know there are other factors not connected to our own particular little bubble). Now that the disaster has happened, continued participation in the euro is what stands between us and Icelandhood ... no chance of us leaving. In fact there is talk of Iceland _joining _the EU (and presumably eventually the euro) sometime in the future.


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## jhegarty (26 Jan 2009)

Even if there was a way to leave the euro , everyone would just keep their assets in euros until after any de-valuation of the "new punt" would take place.

With everyone keeping assets in euros then this new currency would be unworkable and without value.


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## j26 (26 Jan 2009)

Not a hope - the euro would collapse as business and investors would have no faith in the long term future of the currency.  The New Punt would probably fall faster for the reasons stated in the above post.

Hyper inflation anyone?


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## askalot (26 Jan 2009)

Very unlikely at the moment but it is possible that in three years time we will be out of sync with the main European economy. German could start its recovery, leading to higher interest rates while Ireland's recovery will be crippled by the hangover of the property bubble and will be further hampered by high interest rates. Basically we could have the reverse of the boom years. 

In that scenario will we be prepared to suffer higher interest rates because it suits the German economy even though it  may cause businesses to fail in Ireland or will we pull out of the Euro and regain control of our interest rates?


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## wolfspeed (28 Jan 2009)

askalot said:


> In that scenario will we be prepared to suffer higher interest rates because it suits the German economy even though it may cause businesses to fail in Ireland or will we pull out of the Euro and regain control of our interest rates?


 
Would this bring up the question of alligning ourselves with Sterling, if this scenario was to come through?


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## smiley (30 Mar 2009)

askalot said:


> Very unlikely at the moment but it is possible that in three years time we will be out of sync with the main European economy. German could start its recovery, leading to higher interest rates while Ireland's recovery will be crippled by the hangover of the property bubble and will be further hampered by high interest rates. Basically we could have the reverse of the boom years.
> 
> In that scenario will we be prepared to suffer higher interest rates because it suits the German economy even though it  may cause businesses to fail in Ireland or will we pull out of the Euro and regain control of our interest rates?



Askalot. I must agree with you. Its the situation in a couple of years time that could cause the real problem. When inflation starts to bite due interest rates will go up and the rich germans wont give a monkeys about us.

I think the chances of us leaving the euro are increasing day by day. At the moment exporters to the uk are crippled by this.

Most of our trade is to the US and UK. Why are we in this euro club? You will see this debate pick up momentum over the next while.


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## z109 (30 Mar 2009)

smiley said:


> Most of our trade is to the US and UK. Why are we in this euro club? You will see this debate pick up momentum over the next while.


Wrong, wrong, wrong. Most of our trade is to the eurozone, that is, most of our export trade. The eurozone accounts for 40% of our exports, the UK and US together about 35%.

The UK is our biggest import partner accounting for 35% of imports, so low sterling overall is of huge benefit to costs in the Irish economy, notwithstanding some undiversified exporters.
[broken link removed]


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## Joody1 (30 Mar 2009)

yoganmahew said:


> Wrong, wrong, wrong. Most of our trade is to the eurozone, that is, most of our export trade. The eurozone accounts for 40% of our exports, the UK and US together about 35%.
> 
> The UK is our biggest import partner accounting for 35% of imports, so low sterling overall is of huge benefit to costs in the Irish economy, notwithstanding some undiversified exporters.
> [broken link removed]



I feel that Brown would like to take the UK into Eurozone as it would be good for them.  However, he would have to have a referendum first and that would be a big stumbling block as most of the UK citizens would vote no.


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## smiley (30 Mar 2009)

yoganmahew said:


> Wrong, wrong, wrong. Most of our trade is to the eurozone, that is, most of our export trade. The eurozone accounts for 40% of our exports, the UK and US together about 35%.
> 
> The UK is our biggest import partner accounting for 35% of imports, so low sterling overall is of huge benefit to costs in the Irish economy, notwithstanding some undiversified exporters.
> [broken link removed]



Sorry yoganmahew, you are correct. Ive just checked my economist pocket world in figures. So we import almost twice as much as we export from the uk. 

So other than low interest rates which helped to get us into this mess, what are the real advantages of the euro straight jacket??


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## z109 (30 Mar 2009)

smiley said:


> Sorry yoganmahew, you are correct. Ive just checked my economist pocket world in figures. So we import almost twice as much as we export from the uk.
> 
> So other than low interest rates which helped to get us into this mess, what are the real advantages of the euro straight jacket??


Our trade with the rest of Europe (the major element in our exports) has been unaffected by the violent movements in exchange rates over the last two years. This provides stability and certainty for exporters. No currency hedging is required (look up KIKO hedges for how South Korean businesses have gone bankrupt on currency hedges gone wrong). 

The European single market is the largest single market for goods and services in the world. If the UK had joined the eurozone, the euro currency area within the single market would be the largest single currency economic area.

On the fiscal side, government debt costs have grown, but are still very low by international standards due to the backing of a large currency and a credible, conservative central bank. The average interest rate on government debt last year was 3.5% This will rise this year as recent bond issues have been higher, but this is down to uncertainty about the fiscal direction. The fact is that in a downturn, the euro allows for lower debt costs than would otherwise be available.

On the disadvantages - lower interest rates. What are these a disadvantage for? Is cheap debt not a good thing? The fact that the government, the Central Bank, the Financial Regulator and the banks couldn't agree on prudent borrowing limits is hardly a problem of low interest rates. From a business point of view, if you can get funding to start a business at low interest rates, that reduces the operating income you need to make. It makes it easier to operate a business. In particular, if the expectation that future interest rates will continue to be low, it makes it possible to get long-term funding at attractive rates.

The fact that being 'a business' or being 'a successful entrupeneur' in Ireland means buying apartments off-plan is not a fault of a low-interest single currency. The fact that 80some% of bank lending is solely to property-related business is also hardly a fault of the currency.

What interest rate do you think we would have had if we had not joined the eurozone?


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## Guest116 (30 Mar 2009)

No chance of that happening, eurozone will not allow any country to default or leave the euro as it would have such negative consequences for the eurozone as a whole.


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## Calico (30 Mar 2009)

I think it's a reasonable possibility - but it won't be Ireland to jump first. I've heard it said that Italy could be a weak link. 

However, something that many people seem to miss when discussing the merits of the euro is that it was the low-interest rate environment of the euro that has made our recession so much worse. We should have had rates at 10%+ to contain the property boom at a time when they averaged about 3%. 

But to be fair, out polticians are so inept they probably would have gotten us to the same place even with the advantage of being able set interest rates...


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## Chris (30 Mar 2009)

Calico said:


> However, something that many people seem to miss when discussing the merits of the euro is that it was the low-interest rate environment of the euro that has made our recession so much worse. We should have had rates at 10%+ to contain the property boom at a time when they averaged about 3%.



Interest rates are not the only way of 'controlling' a property boom. What caused the property mess in this country is:
1) Cheap credit
2) Low/No stamp duty for new builds, first time buyers
3) Very high tax relif on mortgage payments
4) Tax incentives for developers
5) Tax incentives for investors
6) Unprudent/sub-prime lending criteria

To blame just the low interest is extremely simplistic. The government had plenty of tools at their disposal that would not have equated to throwing petrol on the fire.


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## Firefly (30 Mar 2009)

Calico said:


> But to be fair, out polticians are so inept they probably would have gotten us to the same place even with the advantage of being able set interest rates...


 
Spot on - far too many brown envelopes in circulation


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## Purple (30 Mar 2009)

Chris said:


> Interest rates are not the only way of 'controlling' a property boom. What caused the property mess in this country is:
> 1) Cheap credit
> 2) Low/No stamp duty for new builds, first time buyers
> 3) Very high tax relif on mortgage payments
> ...


I agree.


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## Duke of Marmalade (31 Mar 2009)

wolfspeed said:


> Would this bring up the question of alligning ourselves with Sterling, if this scenario was to come through?


We never had an independent currency and G forbid that we ever will. For c.60 years we were at par with sterling - punts could be spent freely in NI. 

Then we got this ERM thing in '79. We thought that we could technically break from sterling as, after all, the mechanism "guaranteed" we would never drift more than 2.5% from the £. Wrong!! By the time the Euro came along we were at 85p. Nice comfortable devaluation that and so nobody thought twice about joining Euro and breaking from Sterling for good. Bad, bad decision. We never really had any currency issues whilst we followed sterling, that is because our economies are culturally so entwined. The UK has devalued its currency and this has been of some advantage to them - how very much better position we would be in if we had preserved that sterling link.

No, we are not going to leave the Euro but we are instead going to have to follow sterling down the painful way - by cutting our incomes and prices. That has already begun but it can never be fast enough to stave off massive unemployment.

*WE ARE IN THE WRONG CURRENCY BUT THERE'S NOT A DAMN THING WE CAN DO ABOUT IT.*


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## MichaelDes (31 Mar 2009)

Duke of Marmalade said:


> *WE ARE IN THE WRONG CURRENCY BUT THERE'S NOT A DAMN THING WE CAN DO ABOUT IT.*


 
Here Here. And to compound matter the debt swaps have been downgraded overnight from AAA to AA+ with a negative outlook by Standards and Poor.

Meaning the next €4bn emergency saving budget will have more of its money eaten than forecast by these debt spreads. Three cheers for Brian Cowen. Hip Hip Horray, Hip Hip Horray, oh forget it.



> Ireland Loses AAA Rating at S&P on Deficit, Slump (Update4)
> 
> 
> By Ian Guider and Fergal O’Brien
> ...


 
Ireland's stuck in a rudderless ship. If it abandons the euro, any new currency will crash and it will still owe its debt in Euro's. Which would be impossible to pay, and would led to overnight interest rates of 15%+ ala Iceland.


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## jhegarty (31 Mar 2009)

MichaelDes said:


> Here Here. And to compound matter the debt swaps have been downgraded overnight from AAA to AA Negative with a lower classification outlook expected from Standards and Poor.



Was it not AA+ ?


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## smiley (31 Mar 2009)

MichaelDes said:


> If it abandons the euro, any new currency will crash and it will still owe its debt in Euro's. Which would be impossible to pay, and would led to overnight interest rates of 15%+ ala Iceland.



Now thats not entirely true. If Ireland left the euro we could dramatically revalue our currency which would massively help the economy through super competitive exports, further reducing any trade deficit and leading to a surplus very quickly. GDP would increase thus enbling us to repay our debt much faster.

Nothing is ever rudderless. There is always a solution.


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## Chris (1 Apr 2009)

smiley said:


> Now thats not entirely true. If Ireland left the euro we could dramatically revalue our currency which would massively help the economy through super competitive exports, further reducing any trade deficit and leading to a surplus very quickly. GDP would increase thus enbling us to repay our debt much faster.
> 
> Nothing is ever rudderless. There is always a solution.



But Ireland does NOT have a a trade deficit, quite the opposite!!!

To make our exports 'super competitive' the 'new punt' would have to be significanty devalued; how will we be able to pay for all the imports, especially oil, gas, cars and electrical goods?!?!?!


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## Duke of Marmalade (1 Apr 2009)

Chris said:


> But Ireland does NOT have a a trade deficit, quite the opposite!!!


Are you sure that is not just a transfer pricing thing?  The current account is in deficit, despite the trade surplus, mainly because of repatriation of multinational profits.


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## z109 (1 Apr 2009)

Duke of Marmalade said:


> Are you sure that is not just a transfer pricing thing?  The current account is in deficit, despite the trade surplus, mainly because of repatriation of multinational profits.


And how would having our own currency change this?


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## Duke of Marmalade (1 Apr 2009)

_Yog_, I feel a bit out of my depth in debating the macroeconomics of the Balance of Payments.

But this is my instinctive read of the currency thing and in particular our economic relationship with our nearest neighbour.

For 50 years it was our destiny to be poorer in every respect than our UK counterparts. Lower salaries, lower social welfare etc. etc.

Then we had the EU and the Celtic Tiger. Confounding everybody's prejudices we were now able to lord it over our NI brethren. Better public service salaries, better social welfare and boy what about those private sector executives and professionals!

The Celtic Tiger is dead, time to adjust back to being maybe 10% on average behind our UK counterparts. But look what has happened - the exchange rate has contributed to a 40% (92c / 67c) super increase over and above our Celtic Tiger superiority.

Did you know that the Irish Old Age Pension is now more than twice the UK equivalent? Did you know that teachers are paid more than 50% more than in the UK? etc. etc.

That is simply unsustainable. I never advocated an independent currency. But if we had stayed linked to sterling we would not be facing these horrific distortions. Our National Debt would have been so so much lower as it would be denominated in sterling. Our fiscal deficit would similarly be much lower. And that is before factoring in the BoP boost of a devalued currency.

I am convinced that our problems would be very much less today if we had plumped for a sterling link in 1999 rather than this reckless nationalist fuelled rush to sever that last remaining dependence on our neighbour.

Sorry for the rant.


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## UptheDeise (1 Apr 2009)

Ahhh... what exports worthwhile do we have? If we left the Euro, are own currency wouldn't be worth the paper it's printed on. We would never be able to afford our essential imports and paying off our debts would be near impossible. We would truely be a basket case, if we're not that already.


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## z109 (1 Apr 2009)

DoM, I agree with your analysis of the problems and yes, I was aware of the comparisons (having lived in England for a number of years - BTW, Irish social welfare has been more generous then the UK in all of my working life (1990 onwards)). 

But I don't believe being linked to sterling is the answer. It now accounts for a small proportion of our exports (about 15%) and about 30% of our imports. So relatively speaking, the decline of sterling is good news for us as it pushes down import prices (helping our balance of trade!). Meanwhile, with a sterling link our import costs would have risen dramatically. Look around you in the shops and find something other than basic foodstuffs that are made in Ireland - even the basic foodstuffs are largely imported. Petfood, bread, porridge, veg and meat. It's not much of a diet. So we would be facing high inflation because we don't actually make much here - the result would have to be higher interest rates to maintain the peg with sterling. Personally that would suit me, but I doubt it would suit many!


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## Howitzer (6 Apr 2009)

George Soros reckons there's no chance of us leaving the euro.

[broken link removed]



> In Europe, he said the crisis provides an incentive for countries that use the euro to remain inside the monetary union, though countries on the periphery still face serious problems. Soros said the euro has been "a tremendous advantage" to countries that use it, adding there's "no question of a weaker country dropping out."


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## sunrock (10 Apr 2009)

We can`t devalue with the euro.Devaluation of a currency is loved  by politicians as they can effect a reduction in living standards without taking any hard decisions.
Within the euro we can easily compete with the cheaper sterling by taking tough political decisions,like slashing public salaries and spending,reducing welfare rates and reducing the minimum wage to the u.k. equivalent.
Also we have to address our "greatest asset" of young unemployed people and put them working..there is a lot of things to do and we should organise work for our unemployed.


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