Would Leaving the Euro Help the Irish Economy?

[DontSayBanana]

Seriously though, the Irish are offensive to me.

Who isn't? FDR? Grant? Charlemagne? Cicero?

[Cerr]

I live in Dublin () and a lot of people I meet put the whole Celtic Tiger thing down almost entirely to their own merit and dismiss EU aid as a footnote.

Well that's your experience. What age roughly were most these people? Most people I know are well aware of the help the EU gave Ireland but the EU aid wasn't the only factor in creating the boom. Portugal and Greece got lots of EU aid and as far as I know they didn't experience quite the boom that happened in Ireland.

It's 'funny' to see how everyone here is downplaying EU aid. They built a some kind of regional rail system called DART over the past few years and all the billboards say "Partially financed by the EU (85%)" Please note the difference in font size

Kevin

The DART was built in the early 1980s, hardly a few years ago. I haven't seen the 85% figure before I'll be on the lookout for it next time I use the DART.

[DontSayBanana]

On a tangent, the "$$$ Area Rapid Transit" naming convention needs to be drug out and shot. It's just a shame that somebody thought to change the acronym for San Francisco before we got to laugh at "SFART."

[Neil]

Seriously though, the Irish are offensive to me.

Who isn't? FDR? Grant? Charlemagne? Cicero?

Ethnic Albertans.  Richard Nixon.  Benjamin Disraeli.  There are tons of people I don't find offensive.  However, few of them are rebels or terrorists.

[Cerr]

Let me just chime in to say this: the only reason why Ireland hasn't gone bankrupt is because the Irish State guaranteed *every single cent* deposited in all the banks in the country.

This avoided a MASSIVE run on the Irish banks that would have led to instant financial collapse.

BUT Dublin only got away with it because it was in the Euro Area - its moves were done in a very large currency (the euro) and the market knew full well that the ECB and the European Governments would never let a member state of the Euro Area go bust. So, the deposits stayed in place (and Ireland was criticized for this, as in effect it forced many other states to adopt the same policy of ensuring all deposits).

Now, outside the euro, the chances of the Irish State to be able to repay the total sum of money deposited in the country's banks are precisely zero.

That means that all major depositers would try to get their money out of the country and into safer areas ASAP, before all the banks collapse. The Irish economy would last for about three days, tops. After that time period, it would turn into something that would make 1992 Russia look like Heaven on Earth.

That's interesting, thanks. Yeah I don't see it actually happening. The author is very much in the wilderness on this issue. None of the parties in parliament are calling for us to leave the Euro.

[Cerr]

Seriously though, the Irish are offensive to me.

Who isn't? FDR? Grant? Charlemagne? Cicero?

Ethnic Albertans.  Richard Nixon.  Benjamin Disraeli.  There are tons of people I don't find offensive.  However, few of them are rebels or terrorists.

What's an Ethnic Albertan?

[Neil]

Seriously though, the Irish are offensive to me.

Who isn't? FDR? Grant? Charlemagne? Cicero?

Ethnic Albertans.  Richard Nixon.  Benjamin Disraeli.  There are tons of people I don't find offensive.  However, few of them are rebels or terrorists.

What's an Ethnic Albertan?

Me.  People who agree with me.

[Cerr]

Seriously though, the Irish are offensive to me.

Who isn't? FDR? Grant? Charlemagne? Cicero?

Ethnic Albertans.  Richard Nixon.  Benjamin Disraeli.  There are tons of people I don't find offensive.  However, few of them are rebels or terrorists.

What's an Ethnic Albertan?

Me.  People who agree with me.

So just you.

[Neil]

Seriously though, the Irish are offensive to me.

Who isn't? FDR? Grant? Charlemagne? Cicero?

Ethnic Albertans.  Richard Nixon.  Benjamin Disraeli.  There are tons of people I don't find offensive.  However, few of them are rebels or terrorists.

What's an Ethnic Albertan?

Me.  People who agree with me.

So just you.

Also:  Centrist and conservative white people in Alberta, British Columbia and Saskatchewan.

[HVC]

Just like the Irish to take the money and run

[Sheilbh]

Most people I know are well aware of the help the EU gave Ireland but the EU aid wasn't the only factor in creating the boom. Portugal and Greece got lots of EU aid and as far as I know they didn't experience quite the boom that happened in Ireland.

No.  There were genuinely local factors such as Ireland speaking English, good education and the low tax rates.  But I think the EU aid facilitated the growth of the economy enormously and, more importantly, having a base in Ireland (a low tax, educated, English speaking country) gave access to the Common Market.  I think that's the great key of what the EU's done for Ireland and all member states, even Greece and Portugal.

[Alatriste]

Let's start by stating some things: first, we live in a world of floating rates, devaluating isn't so easy as it was; second, each bold crusader defending devaluation supposes his country would be the only one doing it and would face no reprisals; last but not least, countries with national currencies can devaluate at will but aren't... clearly, the advantages of devaluation aren't so obvious as they maintain.

Anyone with a basic understanding of economics knows that we can't deflate our way to growth. The problem is a lack of demand. People are hoarding money. There is plenty of money in Ireland, but as we are hoarding, this money on deposit doesn't translate into cash spending.

Probably, but scrapping the euro woudn't help in this aspect, rather the opposite. Such a move would be guaranteed to cause a big bank run and worse still, as the euro would keep being the currency of some 15 countries, including France, Germany, etc. how many Irish would choose to keep euros hidden under the mattress? I bet most would, since the new currency would fall sharply initially even if it became stable later.

Monetary policy in Ireland is broken. The banks are now too sick to play an active role in refinancing the economy, so therefore the economy continues to contract. As taxes rise, this has the same effect as taking cash out of people's pockets so we spend even less.

I think the author is mingling (deliberately?) monetary policy - run by ECB and guvmints - and credit policy - run by each bank, there is a flagrant contradiction between 'There is plenty of money in Ireland' and 'The banks are now too sick to play an active role in refinancing the economy'... and of course taxes take cash out of people's pocket; that's what they are supposed to do.

Contraction, IMHO, is not caused by lack of financing. The main reason is fear; demand is weak, very weak, unemployment is soaring, and people are saving money like crazy. No amount of financing, cheap or not, is going to change that in the short run and I'm highly dubious it would in the long run too. We are facing an scenario with inflation near zero... or lower!

What can we do about this? The obvious answer is to leave the euro, reinstitute our own currency, allow it to plummet to reflect the real competitive position of our ruined, feeble economy and start again. The vast majority of economists and commentators say this is not possible. In fact, they ridicule those who suggest that this might be worth entertaining.

There is no word as dangerous as 'obvious' in the whole dictionary... Just to mention two weak point in the argumentation, devaluation is supposed to be good because it boosts exports and hinders imports, but in a world of falling demand and falling international trade the benefits of devaluating are doubtful; and many of your biggest commercial partners are going to be royally pissed off... which is not a great idea when you are in your last gasps.

Let me just remind you that the vast majority of economists and commentators believed the "soft landing" mantra. New ideas go through a cycle. First they and their proponents are ridiculed, then they are violently attacked and only then are they accepted as a universal truth. I suspect the same will happen to the idea of leaving the euro.

Cheap, demagogic, and false. Many new ideas are ridiculed; a few level up to being violently attacked; fewer still survive to be accepted as universal truths. Every good idea has something new, but not every new idea has something good!

But lots of successful countries have done that in the past -- Sweden, Finland and Israel come to mind.

Meaningless. Many countries have devaluated in the past; some were successful, some weren't.

There are more than enough domestic savings to cover any government short-term shortfalls. In fact, inflation in Iceland, a country which embarked on a similar policy last September, shot up but has now collapsed. Clearly, the Irish banking system that gambled in Euro would be bankrupt. But banks are only institutions and maybe that's no bad thing because it would allow a new bank (or banks) to emerge. The price of land would fall dramatically even in the new currency but would find its level. After this, we could reboot the engine.

Great, just great. Soaring inflation, falling land and housing prices, an Icelandish economic collapse, ruined banks all aorund (but hey, banks are only institutions!) and government somehow securing domestic savings to cover 'short-term shortfalls'. Now about the bad part...

Unemployment would fall rapidly as it has done in practically every country which has embarked on such a policy. The Asian Tigers, after their collapse in 1997, are the best example of this rapid re-employment phenomenon. One look at the Asians or the Scandinavians should put paid to arguments about what small open economies can do.

That's building castles in the air. In the late 90s countries could rely on the rest of the world absorbing their exports. Who's going to do that today?

I could go on, and on, and on...

[Eochaid]

Well that's your experience. What age roughly were most these people? Most people I know are well aware of the help the EU gave Ireland but the EU aid wasn't the only factor in creating the boom. Portugal and Greece got lots of EU aid and as far as I know they didn't experience quite the boom that happened in Ireland.

This is, of course, my personal experience. Most Irish people I know are 25-35yo. The older people are, the readier they are to recognise the importance of EU aid.

Having said that, Eu aid helped of course, but there are a number of other factors that played. In nor particular order:

• English-speaking country (and proximity to London where a lot of companies had their European HQ)
  
• Qualified, litterate and hard-working workforce.
  
• Irish gvt incentives.
  
• Cheap country (back the anyway )

The DART was built in the early 1980s, hardly a few years ago. I haven't seen the 85% figure before I'll be on the lookout for it next time I use the DART.

I don't take the DART a lot (I live in the Liberties), but I know of at least two stations where I saw that info, including Connolly Station (on your right-hand side when northbound).

You could find the same kind of signs at LUAS stations as well until about a year ago.

Kevin

[saskganesh]

What's an Ethnic Albertan?

Dene. Black Foot. Cree.

[Jos Theelen]

Surely the Irish people won't mind, that their import will costs a lot more. Who needs gasoline and other import products? Because that is an inevitable consequence of leaving the euro. Their Irish pound will drop a lot.