| Click for the Finfacts Ireland Portal Homepage |

Finfacts Business News Centre

Home 
 
 News
 Irish
 Irish Economy
 EU Economy
 US Economy
 UK Economy
 Global Economy
 International
 Property
 Innovation
 
 Analysis/Comment
 
 Asia Economy


Finfacts changes from 2015

RSS FEED


How to use our RSS feed

Follow Finfacts on Twitter

 
Web Finfacts

See Search Box lower down this column for searches of Finfacts news pages. Where there may be the odd special character missing from an older page, it's a problem that developed when Interactive Tools upgraded to a new content management system.

Welcome

Finfacts is Ireland's leading business information site and you are in its business news section.

Links

Finfacts Homepage

Irish Share Prices

Euribor Daily Rates

Global Cost of Living

Irish Tax - Income/Corporate

 

Feedback

 

Content Management by interactivetools.com.

Analysis/Comment Last Updated: Jun 16, 2015 - 4:07 PM


Ireland and leaving the Euro: 10 questions for pub-stool economists
By Michael Hennigan, Founder and Editor of Finfacts
Jun 22, 2010 - 6:53 AM

Email this article
 Printer friendly page

Green: EU countries using the euro: Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain

Mauve: EU countries not using the euro

Ireland and leaving the Euro: During times of crises, there is generally no drought in easy panaceas and while true believers will never be convinced by inconvenient truths, we nevertheless outline an number of questions that should be posed to the proverbial pub-stool economists.

We have said previously that while the EMU (European Monetary Union) has been a success, it is clear that the criteria for entry have been too low. Countries with weak governance systems; economies with deep structural flaws and a weak central surveillance system, coincident with an international credit boom, have seen increased living standards alongside unsustainable debt. Now, in the absence of the devaluation tool, it can seem like the Eagles' famous 1977 hit: "Hotel California" - - "You can check out any time you like/But you can never leave!"

Last week, we outlined why in reality, there is next to no chance that the Eurozone will break up as a result of the current economic crisis in Europe or as a result of a probable Greek sovereign default. There are several reasons why. SEE: The Euro: Despite the markets and prophets of doom, the common currency is safer than ever

The following are 10 questions for pub-stool economists:

1. Does leaving the euro imply leaving the European Union? It appears so as EU citizens' ultimate Court of Appeal is the European Court of Justice and within the EU, a citizen would have a right to object to contracts in euro arbitrarily changed to another currency.

2. Why are advocates of leaving silent about the inevitable turmoil and logistics that would follow a decision to revert to a new national currency? How would a siege economy work with exchange controls to prevent movement of funds overseas?

Would the key foreign-owned sector of the economy be subject to the same rules as residents?

It would take months to switch-over to a new currency and a fragile economy would sink amidst market mayhem, widespread economic dislocation and uncertainty.

The biggest Irish companies such as CRH and Ryanair would move overseas and the banking system would move from the respirator to the graveyard.

4. Would the public debt owed to foreign lenders be subject to a default or still payable in euros?

5. Why would devaluation help Ireland when most exports are made by the foreign-owned sector; import content is high and the majority of the trade is within multinational companies?

The majority of Iceland's goods trade is its own fishing resources i.e no import content

6. Sterling's trade-weighted exchange rate has fallen about 25% in the past 3 years. So why is the UK not experiencing an export boom compared with say Germany?

Advocates of devaluation generally ignore the reality that much of the claimed benefit arises when there is a positive international environment.

Even where a commodity producer gains via a devaluation, unless there is internal economic reform, advantages are generally short-lived.

Greece devalued the drachma twice in the 1980s and its key structural problems remained.

Selling finished goods and opening up new markets is a much bigger challenge than just price. Ask someone with experience of exporting not an armchair "expert."

In the case of Greece and most other Mediterranean Eurozone members (with Italy as the partial exception) large export gains from even a big competitive devaluation look very unlikely.

7. After each devaluation, inflationary risks rapidly appear, which require more monetary tightening than would be the case within the euro. What level of interest rate would  offset the short-term benefit of devaluation?

Expectations of further devaluations would arise, increasing both interest-risk, currency-risk and country-risk premiums.

8. How much was the export boom in the 1990s attributable to the huge influx of US direct investment (Intel, HP, Dell etc) or was the 10% devaluation of the punt in 1993 the main factor?

It would be the height of economic illiteracy to claim that the punt devaluation was the key issue.

9. How much did Irish government bond spreads widen after the 1993 devaluation? What premium would foreign lenders require after leaving the euro?

We would simply be locked out of international debt markets for years.

10. Why would it benefit Ireland long-term to abandon its biggest market?

The Eurozone is Ireland's biggest market and it has been largely unexploited by indigenous Irish firms.

We hear of the problems of "peripheral" countries, but the Baltic republics are eager to join and Poland, one of Europe's successful emerging economies, may be in the EMU by 2015.

Apart from rejecting its biggest market, absent the liquidity support of the ECB, why would the IMF be a more benign supporter?

Related Articles


© Copyright 2015 by Finfacts.ie

Top of Page

Analysis/Comment
Latest Headlines
Disastrous 44-year War on Drugs and ignoring the evidence
HSBC & Tax Evasion: France/ Belgium issued criminal charges; UK/ Ireland nothing
Analysis: Germany world's top surplus economy; UK tops deficit ranks
Facts do not always change minds - can even entrench misinformed
Finfacts changes from 2015
Facts of 2014: Guinness not Irish; 110 people own 35% of Russia's wealth
In defence of dissent and Ireland's nattering nabobs of negativism
Dreams of European Growth: France and Italy facing pre-euro economic problems
Globalization's new normal needs permanent underclass - Part 1
MH17 and Gaza: who is responsible?
Israel vs Palestine: Colonization set for major expansion
Aviva Ireland's 'fund' runs dry and life cover to die for
We wish Martin Shanahan - new IDA Ireland chief - well but...
Ireland as an Organised Hypocrisy is in lots of company
Dr Peter Morici: Friday’s US jobs report won’t alter Fed plans to raise interest rates
Own Goal: Could FIFA have picked worse World Cup hosts?
Ireland: Spin and spending will not save bewildered Coalition
Irish Government parties set for 2-year vote buying spending spree
European Parliament: Vote No. 1 for Diarmuid O'Flynn in Ireland South
Dr Peter Morici: US April jobs report may show 215,000 added in April
Dr Peter Morici: Hardly time to call Obamacare a success
Celtic Tiger RIP: Change in conservative Ireland six years after crash
Dr Peter Morici: Five things to know about the Fed’s obsession with inflation
In age of acronym/ Google, Trinity to rebrand as 'Trinity College, the University of Dublin’
Hoeness case part of ‘painful’ change for Swiss bankers
Dr Peter Morici: The Cold War was only on vacation
Dr Peter Morici: US economy drags on Obama's approval ratings; Don’t look for changes in Washington
Dr Peter Morici: Bitcoin debacle shatters the myth of virtual money
Dr Peter Morici: US Tax Reform: Eliminate the income tax and IRS altogether
Wealth threatens the simple life in Gstaad, Switzerland
Irish journalists get cash payouts over 'homophobic' defamation claim
Irish academics get lavish pension top-ups as private pensions struggle
Dr Peter Morici: Inequality is President Obama’s highest priority, but solutions are naive
The Finfacts Troika: Better times ahead and a hangover to forget?
Dr Peter Morici: Volcker Rule arrives with the hidden jewel in Dodd-Frank financial reforms
Ireland's toothless fiscal watchdog threatens to bark
Analysis: Germany's current account surplus - - Part 2
The end of western affluence?
Bono's hypocrisy on Africa, corporate tax avoidance in Ireland
France like Ireland is run for the benefit of the old