# Does the Greek situation suit us in the short term?



## Purple (11 Feb 2010)

Following on from the thread about what would happen if the Euro collapsed I have a more immediate question;
On balance is the situation in Greece good for Ireland?
It’s a given that a Euro collapse would be a bad thing but at the moment the Greek situation is causing the Euro to weaken and interest rates to stay low.
This is good news for Irish (and EU) exporters and good news for indebted Irish households and businesses. The big concern a few months back was that the rest of the EU would come out of recession quickly and interest rates would start to climb. The current situation means that while economic activity might well increase ECB interest rates should not. It’s on a knife edge but does it suits us that way at the moment?


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## Firefly (11 Feb 2010)

I see your point...similiar effect of the "quantative easing" that the US and UK are employing. However, both methods could see inflation creep up.


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## Caveat (11 Feb 2010)

Maybe a new adage is in order?

_The US sneezes and the rest of the world gets a cold_

but

_Greece gets food poisoning and the rest of the world gets L caseii immunitas_ (or whatever)

Seriously though - I think you are right and what's more, could Spain be next? If so, might have quite different ramifications for the many UK/Irish interests there.


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## Bob_tg (11 Feb 2010)

I would have thought the opposite.  Economic activity notwithstanding, but if a currency is under threat (i.e. the Euro) would that zone's central bank (ECB) not increase interest rates in the short term to protect its very existence?  By increasing interest rates, the currency would then become more attractive.  Or another way of putting it, with interest rates higher, capital would be less likely to flee to other currencies.


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## Purple (11 Feb 2010)

Bob_tg said:


> I would have thought the opposite.  Economic activity notwithstanding, but if a currency is under threat (i.e. the Euro) would that zone's central bank (ECB) not increase interest rates in the short term to protect its very existence?  By increasing interest rates, the currency would then become more attractive.  Or another way of putting it, with interest rates higher, capital would be less likely to flee to other currencies.



Good point, that's why I asked the question.


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## dewdrop (11 Feb 2010)

From a home political point of view if the Greeks are subjected to further tight fiscal controls it might make the task of our Government easier in their row with the public sector as the latter might realise things could get much worse if the French and Germans started dictating what we must do.


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## Buddyg (11 Feb 2010)

Currency devaluation and rapid inflation would sort this country out very nicely.


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## chrisboy (11 Feb 2010)

Buddyg said:


> Currency devaluation and rapid inflation would sort this country out very nicely.



I've often wondered about that.. If the currency devalues, rapid inflation, wages have to follow the hyper inflation, and i get my mortgage paid off in a few years!! 

Alas, it just aint that simple...


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## Buddyg (11 Feb 2010)

No, wages will remain largely static, imports will become expensive and the standard of living will drop homogenously. Once we get going a bit wages can rise and then debt will be reduced.


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## chrisboy (11 Feb 2010)

Buddyg said:


> No, wages will remain largely static, imports will become expensive and the standard of living will drop homogenously. Once we get going a bit wages can rise and then debt will be reduced.




But they can only stay static for a year or two surely? Then they have to start following the inflation?


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## Buddyg (11 Feb 2010)

I'm kind of talking about inflation within the eurozone which will drive up imports from wihtin those countries. At the end of it we reduce our place in the world and get competitive whilst still cleaning up our personal debt situation. Once they don't go too crazy wtih interest rates I see this as our best chance of fixing ourselves.


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## chrisboy (11 Feb 2010)

Buddyg said:


> I'm kind of talking about inflation within the eurozone which will drive up imports from wihtin those countries. At the end of it we reduce our place in the world and get competitive whilst still cleaning up our personal debt situation. Once they don't go too crazy wtih interest rates I see this as our best chance of fixing ourselves.





Sign me up!


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## dubrov (11 Feb 2010)

All Greece does is highlight the risks to investors of investigating in troubled EU economies. This translates into higher borrowing costs.

Also, Greece's problems will have pretty much no effect on interest rates. If inflation takes off across the EU, rates will rise irespective of the economic situation in Greece


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## Sunny (15 Feb 2010)

One consequence of it that people forget is that the days of Countries making empty promises to bring their public finances into shape are over. The EU are going to take a much stricter line on member Countries. In Ireland's case, this means we either make the tough decisions ourselves or the EU will tell us what to do.


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## Firefly (15 Feb 2010)

Buddyg said:


> I'm kind of talking about inflation within the eurozone which will drive up imports from wihtin those countries. At the end of it we reduce our place in the world and get competitive whilst still cleaning up our personal debt situation. Once they don't go too crazy wtih interest rates I see this as our best chance of fixing ourselves.


 
Just need to move deposits into STG accounts first


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## csirl (16 Feb 2010)

> A weak Euro is good for Ireland as it stimulates exports and makes it cheaper for American and UK firms to set up here (so more jobs).


 
A weak Euro means lower repatriated profits for American & UK firms. When the Euro is strong relative to their currencies, they benefit from a favourable exchange rate. The recent depreciations of sterling and the dollar have increased profits in such multinationals by approx. 1/3rd without any increase in productivity. Multinationals based in Ireland trade in Euro and the profits are coverted to sterling/dollar when repatriated.


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