# What If Ireland was Declared Bankrupt



## jpeast

Hi

With all the doom and gloom going on the tv, radio etc i was just wondering what would be the cost to ordinary people of ireland if the country was declared bankrupt.

After listening and watching things over the last few days my o/h wishes we didn't buy our house few months ago and used the money to emigrate is he wrong??

Would there be a cost to you and me worse than it is now???


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## truthseeker

Just to tag a question onto the OP.

People worry about the safety of deposits if the country does go bankrupt - would the same logic apply to debt? You could lose your deposits, could you also lose your debt?


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## Towger

truthseeker said:


> You could lose your deposits, could you also lose your debt?


 
We discussed that a while back and the answer is No, for the likes of mortage debt etc.


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## sunrock

Ireland declaring itself bankrupt would be like a mortgage holder with negative equity here declaring himself bankrupt.The mortgage holder is still liable by law to pay his debts. In Irelands case we may be bankrupt but we can still service our debt, even as that debt increases.Our politicians have made it clear that the bond holders and those that lend money to the state are sacrosant and the burden will be placed on the irish people.


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## Brendan Burgess

It is likely that the IMF would step in before we actually default. 

They would take charge of our finances and reduce public service pay and pensions and social welfare payments by around 40%. Our public health system and schools would be slashed. It wouldn't be long before we realised how good they actually were, in retrospect. 

There would be a lot of social unrest but we would get over it. 

I presume that the the IMF would have to do something about our national debt as well e.g. postponing payments or doing some sort of settlement. 

At the moment, the international bond markets charge 4% more for Irish government bonds than German government bonds. This suggests that default is unlikely but more likely than the German's defaulting.


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## riddles

Would An post savings be accessible in the event of the country going bankrupt?

thanks


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## sunrock

It is likely the government would raid them to pay for the politicians perks and expenses and salaries.It is called the pecking order


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## Joe Q Public

I would doubt it. All bets would be off at that stage.


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## Godfather

brendan burgess said:


> it is likely that the imf would step in before we actually default.
> 
> They would take charge of our finances and reduce public service pay and pensions and social welfare payments by around 40%. Our public health system and schools would be slashed. It wouldn't be long before we realised how good they actually were, in retrospect.
> 
> There would be a lot of social unrest but we would get over it.
> 
> I presume that the the imf would have to do something about our national debt as well e.g. Postponing payments or doing some sort of settlement.
> 
> At the moment, the international bond markets charge 4% more for irish government bonds than german government bonds. This suggests that default is unlikely but more likely than the german's defaulting.



+1


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## mmclo

Brendan Burgess said:


> It is likely that the IMF would step in before we actually default.


 
Isn't it the EU really now, some sort of fund they have both put together. The Greek example seems to be the agreed formula. You get gaurunteed funds at 5% but with an austerity package so just a tougher version of what we are doing in conjunction with EU now. It saves the Euro but still trashes the reputation of the country?


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## Pope John 11

sunrock said:


> It is likely the government would raid them to pay for the politicians perks and expenses and salaries.It is called the pecking order


 
Are you referring to the postal savings


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## jpeast

So Basically for the ordinary person;
1)My Kids will suffer
2)My Parents in retirment will suffer
3)My Friends & Family on the dole will suffer
4)I'll end up paying more taxes.

I can live with 3 & 4 just about, but 1 & 2 especially 1 i'll probably wish we had left.


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## Chris

Brendan Burgess said:


> It is likely that the IMF would step in before we actually default.
> 
> They would take charge of our finances and reduce public service pay and pensions and social welfare payments by around 40%. Our public health system and schools would be slashed. It wouldn't be long before we realised how good they actually were, in retrospect.
> 
> There would be a lot of social unrest but we would get over it.
> 
> I presume that the the IMF would have to do something about our national debt as well e.g. postponing payments or doing some sort of settlement.
> 
> At the moment, the international bond markets charge 4% more for Irish government bonds than German government bonds. This suggests that default is unlikely but more likely than the German's defaulting.



This would be the chaotic version. But there is the ability for Ireland to approach default proactively. First the budget needs to be balanced, primarily through reducing employment in nonessential services. No need for higher taxes or lower pensions, or disgruntled nurses and guards. Then Ireland can approach debtors and re-organise existing debt with partial default, or to use the politically correct term debt restructuring.
Argentina defaulted in 2001/02 in a relatively organised way and at the time it was declared to be the end for the country. While it certainly was not a cake walk, the country quickly recovered and investment returned.
There is no easy solution to Ireland's debts, but the fact is that they are approaching unmanageable levels, that will have a serious impact on the prosperity of our children and their children. The short term pain of default will be far outweighed by the long term gain of a lower debt burden. It wouldn't be easy, but if you're facing a problem as big as Ireland's debts, the worst thing is to just remain in denial and let things happen.


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## Slim

Pope John 11 said:


> Are you referring to the postal savings


 
Can we please discuss this further? If Ireland 'defaults' or the IMF/EU steps in, what will happen to:

1) deposits in Anglo or INBS, BoI and AIB
2) deposits in An Post (certs & bonds)
3) deposits in NIB, Ulster & other non Irish banks, e.g Rabo. Nationwide, Investec
4) public service pay & jobs?

Slim


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## Importer

To answer OPs question, I dont think anyone will declare Ireland bankrupt.
At least it wont happen that way.

Right now, We are heavily dependant on foreign borrowings to finance the very large deficit in our economy. We are also dependant on foreign borrowing to pump billions into the banks. Its quite conceivable that a day will come when our 'country risk' becomes so great that the external money sources will dry up and no one will want to lend Ireland any more money.

When that happens the only source of funding will be either the EU and / or the IMF. We know from the Latvia case and some others that these
lenders of last resort will probably agree to lend us money but with 
savage conditions attached. Demands to get public spending under control
as a condition of loans granted will definitely be there. 

I dont believe that there is any political party in this country willing to slash public sector spending by the necessary 30%, 40% or 50%. (the Croke Park deal refers!) It will take intervention from the EU or the IMF to sort it out while our political heroes sit on the side lines pointing fingers at each other.

I cant see any other conclusion to this mess...........

By the way I dont believe that intervention by the IMF will mean that 
personal bank savings will disappear down some dark hole. I wouldnt panic on that front


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## ecstatic

well in argentina they frooze the citizens accounts and changed all dollars (even if different currency) divided by 3 on top off that they implemented a 30% tax... bottom line dont keep money in irish banks...


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## Duke of Marmalade

Brendan Burgess said:


> At the moment, the international bond markets charge 4% more for Irish government bonds than German government bonds. This suggests that default is unlikely but more likely than the German's defaulting.


I am not sure about that Brendan. On a purely mathematical basis it suggests the chances are quite high. 4% over 10 years is 40%. But that assumes 100% loss on default. More likely there would be a restructuring or a reduction and the actual loss would be much less than 100%. This suggests that the markets think the chances of some sort of default in the next 10 years are much higher than 40%, maybe 80%.

Against that, markets are very risk averse at the moment. That means that if they see, say, a 20% chance of loss they may want an 80% premium to compensate for taking the risk.


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## canicemcavoy

ecstatic said:


> well in argentina they frooze the citizens accounts and changed all dollars (even if different currency) divided by 3 on top off that they implemented a 30% tax... bottom line dont keep money in irish banks...


 
And compared to Ireland (and indeed the EU), Argentina's problems weren't even that severe:

http://sluggerotoole.com/2010/04/24/then-and-now-the-argentine-economic-crisis/


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## steviel

Trichet has made it quite clear that a eurozone country will not default - the solidarity of the EU was emphasised again in his interview in the FT yesterday.  the alternative for us is that the IMF come in, and take control of our budgetary process, making massive cuts that no amount of union wailing or street demonstrations will do anything to reverse.  It will be a nightmare for all of us.


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## Marietta

Brendan Burgess said:


> Our public health system and schools would be slashed. It wouldn't be long before we realised how good they actually were, in retrospect.


 
Is it possible the health budget can be slashed any further? we already have a third world public health system.


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## sunrock

Well if all the workers in the education and health services had their salaries cut  by half,...that shouldn`t effect the quality of the health or education services.That is the solution as these workers cannot blackmail the government.There is nowhere for them to emigrate to anymore.


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## Meathman99

According to The Irish Times Irelands education spend in 2007 was the fourth lowest of 30 OECD countries.  At least we now have the chance to top one international list.  Why dont we struggle and toil with the goal of bringing that fourth place up (or down ) to first (or last).  Surely a noble goal.  The American Chamber of Commerce in Ireland disagree but who are they to pass comment??


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## sunrock

That placing can be misleading.For example in 2007 the government had much more tax revenue than 2009 or will have in 2011.So education spend as a % of total government spend would rise dramatically as total government spend falls.Then the education budget would come under the spotlight as being too generous and would be cut.The model of educating our people  so we can attract inward investment or let them emigrate to get good jobs abroad doesn`t stand up to scrutiny anymore.We need a leaner meaner education system.


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## panel123

will . it's not possible if a country is getting lost or it going to bankrupt because of the politicians who hold ,..


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## joe sod

*effect on the euro*

all the talk of doom and default may have a good side affect, a fall in the value of the euro, this is what ireland needs more than anything, i think the ecb will have to allow it fall for the benefit of all countries. there was an interesting article in the economist on the euro, and the fact that more changes happened in a few weeks in europe than happened over the the previous decade. I think the solution is to allow the euro to fall by at least 30% and to allow countries like ireland to repay debts over the very long term.


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## Chris

joe sod said:


> all the talk of doom and default may have a good side affect, a fall in the value of the euro, this is what ireland needs more than anything, i think the ecb will have to allow it fall for the benefit of all countries. there was an interesting article in the economist on the euro, and the fact that more changes happened in a few weeks in europe than happened over the the previous decade. I think the solution is to allow the euro to fall by at least 30% and to allow countries like ireland to repay debts over the very long term.



Any gain in exports from a weaker € would be offset by an increase in import costs, especially oil. Too much credit of Germany's recovery is being given to the weaker €. I'm not trying to dismiss the fact that a weaker € is having a positive effect on German exports. But the main fact is that Germany still produces things that the rest of the world wants in large quantities, i.e. cars, electrical appliances and industrial engineering expertise. And all of these are seeing increased demand in especially China. Add to that the fact that Germany is actively reducing public and private debt levels and saving more, and you have the recipe for recovery, not by merely devaluing the currency.


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## joe sod

Chris said:


> Any gain in exports from a weaker € would be offset by an increase in import costs, especially oil. Too much credit of Germany's recovery is being given to the weaker €. I'm not trying to dismiss the fact that a weaker € is having a positive effect on German exports. But the main fact is that Germany still produces things that the rest of the world wants in large quantities, i.e. cars, electrical appliances and industrial engineering expertise. And all of these are seeing increased demand in especially China. Add to that the fact that Germany is actively reducing public and private debt levels and saving more, and you have the recipe for recovery, not by merely devaluing the currency.



but europe isnt just germany and the european economy isnt just about germany, whether the ecb likes it or not they will have to allow the euro to fall significantly and allow inflation to rise, of course prices wont rise in the weak countries like ireland because the economies are too weak, but in the strong ones. Therefore the weaker countries will regain competiveness. Either way they dont have much choice .


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## Duke of Marmalade

joe sod said:


> ...a fall in the value of the euro, this is what ireland needs more than anything...I think the solution is to allow the euro to fall by at least 30%...


By value you mean the exchange rate. The primary test of an exchange rate is that it balances imports and exports. At Eurozone level that is broadly happening which is not surprising given the freely floating nature of the currency. Even Ireland with its peculiar sterling/dollar exposure is not having an issue with its Balance of Trade.

So the euro exchange rate is not an issue when considered from the point of view of what it is meant to achieve - a BoT neutrality. But could it be manipulated to reduce real government debt?

It is conceptually possible to visualise all prices being increased by 30% and all incomes being increased by 30% with the exchange rate reduced by 30%, no change to real output i.e. no "competitiveness" factor. This new exchange rate would also strike a BoT neutrality. But the nominal economy would be 30% higher and so the Debt/GDP ratio would be equivalently lower. 

This would of course incur massive and unfair wealth transfers from those with nominal savings to those with nominal debts. Leaving this aspect aside the practical problem is how does one manipulate a 30% devaluation of a freely floating exchange rate when BoT considerations do not require it?

The first tactic would be to lower interest rates. But there is no further to go with this tactic and it has been matched by our competitors. The remaining tactic would be massive dumping of euros by the ECB on the international markets. This too could result in competitor CBs matching the tactic and everything going into a hyper inflationary spiral. Finally, no matter what tactic is used, the transition to the new paradigm would be slow and extremely painful because of structural frictions.


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## Chris

joe sod said:


> but europe isnt just germany and the european economy isnt just about germany, whether the ecb likes it or not they will have to allow the euro to fall significantly and allow inflation to rise, of course prices wont rise in the weak countries like ireland because the economies are too weak, but in the strong ones. Therefore the weaker countries will regain competiveness. Either way they dont have much choice .



That wasn't my point. My point is that even a weaker € is no guarantee that production will increase. In Germany's case it is the fact that they are producing stuff the rest of the world is willing to pay a premium for, while at the same time the public and state are trying to reduce debt levels and expenses.
There are two ways for a central bank to promote a weaker currency: lower interest rates and increasing money supply. Now the ECB has done and is doing both of these just like most other central banks in the world. But they haven't been doing it to the same extent as e.g. the Fed or BoE, which is why even now the € is relatively strong compared to them. But irrespective of the actions of the ECB, it is the market that decides the value of the currency. In the last 2 weeks Japan dumped a load of yen onto the market to decrease its value against the dollar. This resulted in a sudden rise in the USDYEN rate, but within days it is back to where it was.
Inflation is always and everywhere a monetary phenomenon created by governments and central banks. If the ECB creates more inflation then it will hit Ireland as much as it will hit other countries.
You can also take a for granted that Germany will resist any inflationary policies of the extent you are suggesting. And without Germany the € is pretty much a basket case.


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## joe sod

"You can also take a for granted that Germany will resist any inflationary policies of the extent you are suggesting. And without Germany the € is pretty much a basket case."

if the euro became a basket case it would suit ireland to some extent, also germany cannot easily leave it, it would be devastating for the german economy also as it exports so much to other european countries and it woud have to wave goodbye to the money owed to it by ireland, greece etc. Germany may not want a weaker euro and inflation etc but maybe thats what it will get.


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## Laoisa

Was there any comments on this? I agree they would be helpful


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## Chris

joe sod said:


> if the euro became a basket case it would suit ireland to some extent, also germany cannot easily leave it, it would be devastating for the german economy also as it exports so much to other european countries and it woud have to wave goodbye to the money owed to it by ireland, greece etc. Germany may not want a weaker euro and inflation etc but maybe thats what it will get.



Currency valuations are a direct reflection of economic activity and monetary policy. Compared to other western countries the ECB has been relatively tame in its policies. If Germany's economic strength cannot outpace the weakness of the weaker members then yes, there will be very little Germany can do to avoid a weaker currency.
I think you are overly pessimistic as to the consequences of Germany leaving the Euro. Yes in the short run it would be quite a difficult time, and those exposed to bad debt, i.e. PIIGS bonds will have to rightly take the consequences. However, the country would greatly benefit from much cheaper imports. There is always more than just the effect that immediately hits the eye.


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## MargeSimpson

Slim said:


> Can we please discuss this further? If Ireland 'defaults' or the IMF/EU steps in, what will happen to:
> 
> 1) deposits in Anglo or INBS, BoI and AIB
> 2) deposits in An Post (certs & bonds)
> 3) deposits in NIB, Ulster & other non Irish banks, e.g Rabo. Nationwide, Investec
> 4) public service pay & jobs?
> 
> Slim


I'd like to know the answer to this also.
I don't know whether it's scaremongering, but people are beginning to talk about withdrawing any money they have in deposit accounts, as it's only secured until the end of Dec 2010!
I wouldn't have a penny to my name if it all went the way of the IMF!


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## Roisinb

I don't see an answer to your direct question Slim, I also would like to know should I take my few bob out of the bank.


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## BazFitz

Presumably if the IMF cut salaries by 40%, the affected individuals would have no choice but to default on their debts.

Such a scenario could be horrific - People defending their property with baseball bats and being lauded by the public for doing so.


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## godsagnostic

*Hand it all back ...*

Actually lads, here's a thought: With the way we've totally screwed up our economy, what if we hand over the 26 counties to the British for a few years, let 'em sort out the mess. Then a few years on we can start the whole saga again to get the lot back, all 32 ... maybe 31, Leitrim's sh**e, they can hold on to it ... then after another 50 years, once we've screwed it all up again through our collective greed and ignorance we can just start the cycle again ... what d'ya think ... might be a winner?


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## markowitzman

interesting point.......I raised a similar sentiment with friends only yesterday....
re staple ourselves to the mainland for a decade or two and offer the naysayers and gaelgoirs etc bed and board on the islands along with the bankers.


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## scrooge1

sunrock  you are absolutely right.This is why Bertie Ahern and many other fianna fail politicians dont have bank accounts.


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## sunnygirl

Nobody seems to be able to give a definitive answer to what would happen to deposits in the event of Irish default - thats a question Id like Brian Lenihan to address. When my account in INBS matures in a couple of weeks,its heading for a RABO direct account, regardless of the extension of bank guarantee in Ireland. Am I wrong to think Irish bank guarantee will be worthless if state defaults? If state defaults will EU basically pick up the tab?


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## Chris

sunnygirl said:


> Nobody seems to be able to give a definitive answer to what would happen to deposits in the event of Irish default - thats a question Id like Brian Lenihan to address. When my account in INBS matures in a couple of weeks,its heading for a RABO direct account, regardless of the extension of bank guarantee in Ireland. Am I wrong to think Irish bank guarantee will be worthless if state defaults? If state defaults will EU basically pick up the tab?



The guarantee is worthless as it is, because the state could not possibly pay out all deposits even in a small bank. That is exactly why Irish banks cannot get money on the open market and are forced to borrow short term from the ECB.


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## Knuttell

sunnygirl said:


> When my account in INBS matures in a couple of weeks,its heading for a RABO direct account,



You would need to open an account outside Ireland,in Germany or Belgium,you may think that Rabo would be exempt from a currency changeover from euro to a new punt,or that in the unlikely event the Govt starts helping themseves to our savings but any bank foreign or Irish is bound by financial regulator and would have to do as they are told and comply with whatever new legislation is enacted to cover such an event.
*
*


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## mmclo

..not so sure about that, the ads usually say who they are regulated by. UK banks are covered by their gauruntee as was the case with N Rock when it had problems it was the UK Government that Irish depositors had to potentially turn to


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## Shawady

I'm just wondering is default now a serious option.

What actually happens when we default? Does this mean the money we owe the bondholders and ECB would not have to be re-paid? The downside would be we not be able to borrow and would need the IMF to balance the books in one go.


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## shnaek

Shawady said:


> I'm just wondering is default now a serious option.



I see no way out other than a default. But as to what it would mean for us - I haven't a clue. I presume we'd have to run the country on what we take in ie. 30bn?


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## Chris

Shawady said:


> I'm just wondering is default now a serious option.
> 
> What actually happens when we default? Does this mean the money we owe the bondholders and ECB would not have to be re-paid? The downside would be we not be able to borrow and would need the IMF to balance the books in one go.



Not being able to borrow (at least in the short term) would be the biggest upside. The last thing we want to do is renegotiate debt to a lower, manageable amount and then go on another credit binge.


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## jpd

Not sure that civil & public servants, both in employment and receiving a pension, would agree with this - if there was only €30bn in the kitty, that would translate into huge cuts in payments 

Current spending is €20bn on pay/pension, €20bn social wefare/transfers, €10bn elsewhere


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## Chris

jpd said:


> Not sure that civil & public servants, both in employment and receiving a pension, would agree with this - if there was only €30bn in the kitty, that would translate into huge cuts in payments
> 
> Current spending is €20bn on pay/pension, €20bn social wefare/transfers, €10bn elsewhere



And how is living within your means a bad thing? The country simply cannot afford the bloated public sector that expanded during a completely artificial and phony boom.


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## Shawady

Reports in the media are suggesting Portugal are coming under pressure to accept a bailout.
My understanding is that if it becomes difficult for Spain to borrow from bond markets, they are too big to be saved by EU fund. 
Would it be probable to have weaker countries asked to leave the euro and go back to use their own currency?
Could it be done if it came to this?


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## shnaek

Shawady said:


> Reports in the media are suggesting Portugal are coming under pressure to accept a bailout.
> My understanding is that if it becomes difficult for Spain to borrow from bond markets, they are too big to be saved by EU fund.
> Would it be probable to have weaker countries asked to leave the euro and go back to use their own currency?
> Could it be done if it came to this?



Check this article on the difficulties of leaving the Euro:
http://www.bbc.co.uk/news/business-11830532


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## pudds

Some eu official said today that the euro is *safe* but may have to be restructured  to a 2 tier system, one for the pigs+ and the other for the fat cats...or words to that effect.  Sorry cant remember who said this.


Sample coinage for the lower tier. 

[broken link removed]


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## Chris

shnaek said:


> Check this article on the difficulties of leaving the Euro:
> http://www.bbc.co.uk/news/business-11830532



I've commented on that article here: http://www.askaboutmoney.com/showthread.php?p=1110283#post1110283

Back to the thread title though, I think the declaration of bankruptcy is now only a formality. 

*Ireland is bankrupt!*


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## dockingtrade

Chris said:


> I've commented on that article here: http://www.askaboutmoney.com/showthread.php?p=1110283#post1110283
> 
> Back to the thread title though, I think the declaration of bankruptcy is now only a formality.
> 
> *Ireland is bankrupt!*


 
what happens to deposits in banks & the post office in a default. Can I ask where do you have you're cash?


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## dockingtrade

Wont the EU prevent a default and in view of tis couldnt the govt have told them today something like "3% or we default and lets see what happens then?"


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## Chris

dockingtrade said:


> what happens to deposits in banks & the post office in a default. Can I ask where do you have you're cash?


The little cash I have in Ireland is non-Irish banks, rest is outside of Ireland



dockingtrade said:


> Wont the EU prevent a default and in view of tis couldnt the govt have told them today something like "3% or we default and lets see what happens then?"



What are they going to do if Ireland defaults, invade?


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## elefantfresh

There are various people suggesting that we should reject this bail out  and perhaps even leave the Euro and go back to the Punt. This (they say)  would allow us to devalue and get ourselves back in shape. Apparently  we would have a "few months of pain" in order to sort ourselves out.  What does this mean "a few months of pain". What would actually happen  if this was to occur? I really am quite uneducated in this big economics  stuff. And it would appear I'm not on my own!!
It does seem that 10bil per year to service this new debt is quite unsustainable. That much I do understand.
Can anyone "simply" explain the couple of queries I've lined out above?


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## Chris

elefantfresh said:


> There are various people suggesting that we should reject this bail out  and perhaps even leave the Euro and go back to the Punt. This (they say)  would allow us to devalue and get ourselves back in shape. Apparently  we would have a "few months of pain" in order to sort ourselves out.  What does this mean "a few months of pain". What would actually happen  if this was to occur? I really am quite uneducated in this big economics  stuff. And it would appear I'm not on my own!!
> It does seem that 10bil per year to service this new debt is quite unsustainable. That much I do understand.
> Can anyone "simply" explain the couple of queries I've lined out above?



Yes, €10bn in interest alone is ridiculous. Imagine if someone came to you and said they had taken a huge pay cut, and were now going to take on an interest only mortgage which would take 30% of their income. You'd think they were insane.

As for leaving the € and then devaluing the punt, this would be like jumping from the frying pan into the fire. Imagine what that devaluation would do to all the imports. Now lots of people suggest this would be good, because it would force us to make and buy more of our own stuff. But there are lots of things that cannot be made here, the most important being oil. Even a huge devaluation would not make Ireland competitive with Asian countries for manufacture of clothing and electronics, so these would still be imported, but at huge costs. Those advocating the devaluation route are simply only looking at one side of the coin.


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