Chances of Ireland leaving the Euro?

[Duke of Marmalade]

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.

 

[MichaelDes]

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

March 30 (Bloomberg) --

Ireland had its AAA credit rating removed by Standard & Poor’s in the fourth downgrade of a euro- region government this year as the global financial turmoil fueled borrowing costs and swelled the budget deficit.

The rating was lowered one step to AA+ with a “negative” outlook, S&P said in a statement today from London, indicating the company is more likely to lower the classification again than raise it or leave it unchanged. Ireland received the top rating in October 2001.

“The deterioration of Ireland’s public finances will likely require a number of years of sustained effort to repair, on a scale greater than factored into the government’s current plans,”

The downgrade, which puts Ireland’s rating on the same level as Spain, Belgium, Hong Kong and New Zealand, came before Prime Minister Brian Cowen’s emergency budget on April 7. The government is seeking at least 4.5 billion euros ($5.9 billion) in savings through spending cuts and tax increases. The country is “committed to restoring order” to the public finances and aims to bring the deficit below the EU’s 3 percent ceiling by 2013, the finance ministry said in a statement from Dublin today.

“S&P has no confidence that the budgetary measures will be enough,” Ciaran O’Hagan, the Paris-based head of fixed-income strategy at Societe Generale SA, wrote in a note. The downgrade “is worse than expected and will weigh on Irish gilts and AA sovereigns generally,” he said.

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.

 

[jhegarty]

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+ ?

 

[smiley]

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.

 

[Chris]

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?!?!?!

 

[Duke of Marmalade]

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.

 

[z109]

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?

 

[Duke of Marmalade]

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.

 

[UptheDeise]

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.

 

[z109]

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!

 

[Howitzer]

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."

 

[sunrock]

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.