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Unread 15-07-2011, 11:32   #1
Thomas Ralph
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Default Ireland should leave the eurozone

...according to today's issue of de paypor (http://www.examiner.ie/business/time...ct-161141.html.

Discuss

Last edited by Mark Gleeson : 15-07-2011 at 14:56.
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Unread 15-07-2011, 11:44   #2
Mark Gleeson
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We never had our own currency anyway....

Punt was pinned to Sterling then ERM and then euro

Looks like those Central Bank authority to conduct a foreign exchange transaction forms will be making a comeback....
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Unread 15-07-2011, 14:45   #3
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either wrong link or its been taken down!
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Unread 15-07-2011, 18:21   #4
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As someone who converted payroll and accounting system during the change to the Euro... I'm glad I don't do that any more!
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Unread 16-07-2011, 15:45   #5
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Quote:
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either wrong link or its been taken down!
Works for me, check you don't have an extra . or something on the end.
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Unread 18-07-2011, 07:08   #6
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I know, I fixed it
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Unread 22-07-2011, 07:35   #7
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The Euro saved us from the banking crisis striking here the same way it hit Iceland, UK, Serbia, Hungary, Latvia and several other countries. The UK didn't need IMF aid, but Sterling collapsed and hasn't recovered since.

If we lost the Euro, not only could we not spend our money in half of Europe, but the punt would last about 5 minutes before there would be a run on it. That's one thing we don't have these days because of the safety net of the Euro.
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Unread 22-07-2011, 10:47   #8
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I wonder what would happen to our interest rates without the Euro.

Either we hold it down to stimulate the economy, meaning a crash in the punt, and huge inflation on imported goods, with it's knock on consequences of industrial unrest.

Or the other alternative would be to jack them up to what they were in the late 80s/early 90s and crucify homeowners who are struggling at the moment anyway.

The Euro certainly has it's flaws, but it reminds me of Churchill's quote on democracy

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It has been said that democracy is the worst form of government except all the others that have been tried.
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Unread 22-07-2011, 11:51   #9
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People quickly forget that at the peak of the celtic tiger we were not even in the euro. Summer of 2000 interest rates on deposit were 4.5% (5k for 3 months) and a mortgage was upwards of 5.25%. Which is more or less where we are right now.

What killed us was a low interest rate which fueled everything else. That was great in Berlin but caused a ripple here as money was cheap, housing market either unable or unwilling to meet demand driving prices up, inflation followed as did the begging bowl for pay increases. Tax revenues soared on the back of all this and country actually ran a surplus and the Dail give away show began and fueled the bubble further

Had we held all taxes at 2001 levels we wouldn't have been in half as much trouble as we are now, assuming the excess was skimmed of to the pension reserve or into capital projects

The only thing which was done during the post euro mess was the pension reserve fund, the billions in there saved us from further overheating plus provided a safety net.

Outside the euro we probably would have still needed the IMF to come in as we couldn't defend the punt from the speculators, but we wouldn't be anyway near as much debt as we are and the classic devaluation trick would have helped.
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Unread 22-07-2011, 17:21   #10
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The sovereign (whatever that is here these days) debt is manageable, even with the Euro. Our problem is the banks. Businesses need credit from banks to stay open. Without credit, they can't manage their debts. If they can't manage their debts, they go bust, leaving hundreds of thousands of people out of work. That's exactly what has happened.

The decision to guarantee them unconditionally and without limit, was a decision made by central government. And things have only got worse since. A temporary nationalisation would have worked better, but Brian Cowen described it as an "Icelandic solution".
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Unread 25-07-2011, 19:21   #11
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I read this suggestion all over the place, that businesses need credit to operate. It's getting parroted so much everywhere that people don't really challenge it. But by definition, if a firm is reliant on credit to stay in business, then it is not viable.
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Unread 25-07-2011, 19:46   #12
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Thomas Ralph: If I produce widgets, I have to pay for raw materials, labour and equipment before I can get revenue from selling the widgets. So how do I do that without credit from someone? Of course I could try to persuade my suppliers and workers to wait for payment until I got paid myself, and even if I succeeded in doing that, then they would need credit in ordder to live.

Can't do without credit, I'm afraid.
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Unread 26-07-2011, 12:56   #13
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If you've been producing them for years, you use your retained profits as working capital. If you're just starting, you use some of your equity.
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Unread 26-07-2011, 14:37   #14
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In that case what about start-ups or people with innovative ideas? They used to be able to release equity in their houses: try that now! Recovery from banking-collapse induced recessions is often painfully slow, because of banks' being over-restrictive on credit, perhaps a reaction to their previous excesses in the other direction.
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Unread 27-07-2011, 10:06   #15
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Well, when I was a banker (I still am technically, but now decidedly a risk manager) the three Cs were mentioned in training character, capacity (to repay), and collateral; without all three we should be looking carefully at proposals.
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Unread 28-07-2011, 10:09   #16
Thomas J Stamp
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Quote:
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I read this suggestion all over the place, that businesses need credit to operate. It's getting parroted so much everywhere that people don't really challenge it. But by definition, if a firm is reliant on credit to stay in business, then it is not viable.
spoken like a true banker .

most businesses need overdrafts to tide them over when seasonal variants enter the equation and those overdrafts tide them over. this is the real credit crunch.

The banks are hording the money they have been given by the soverign, vie the IMF/EU loans. Despite what Brian Lenihan and Michael Noonan have said none of that money is earmarked or ringfenced to be lent, and any which notionally is, is governed by lending criteria which belong in fantasy island. This is because they simply do not want to lend or do not have it to lend, and they do not have it to lend because they want to hoard it so to be attractive to a purchaser (even at firesale prices like BoI this week).

Two examples. First a friend of mine worked in a travel agents, but a specialist one, high end. Bank overdraft was a massive 5k. Over the past few years they had put over a million a year in turnover through the bank account so i would guess the transactoin fees would have been lovely. Overdraft existed to keep the show going during the period when nobody would be booking holidays. AIB, for it was them, in 2009 decided that they didnt like giving credit to businessess whose customer base was discretionary, so pulled credit to this business, called in the over draft and converted it into a term loan.

At the same time, the Landlord insisted on his upwards only rent review. Upwards by almost 50%.

Right in the middle of the quiet period. So owner had no option but to lay off staff, and move the operation to her home. Her business is still going, but two staff laid off. They are on the dole, so their taxes are foregone and they need 180 a week from social wefare to keep going. The old office is still vacent, two years onwards. All for 5k, which AIB would have gotten back six months on.

Number two. I had a client three months ago looking for a mortgage for his house, refused by BoI and AIB. He had one third of the money himself. Was told that credit department wouldnt allow it in BoI, not given any reason by AIB. Unofficially told by his manager in BoI that they simply did not have the money. He is a consultant surgeon who has taken up a permanent contract in ireland having lived in the states for years.

Similar stories abound, in a situation where consumers are saving their money instead of spending it, and banks are encouraging it by high deposit rates, it results in shops, businesses getting less cash flow which means they need more liquidity funding from banks who are refusing to give it. Its a pincer movement, zombie banks killing the country.
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Unread 28-07-2011, 10:21   #17
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more on topic, can we afford to leave the euro?

As mark as pointed out, we had some tools to use to adjust our ecomony when we had our own currency and banking policy. By being tied to Sterling and the ERM we restricted that policy in the interests of keeping exports viable.

So we had the option of Devaluation, Rising or Lowering Interest Rates, Printing Money.

It is hard to see if any of these options would actually help us now, and in that regard look at the UK. They lowered interest rates to almost nothing, they printed money and that resulted in an effective devaluation of 20%. They are still in the mire, almost to the same extent we are, and they are embarking on an austerity programme much the same as we are.

Same in the US, oddly enough.

So, moving out of the Euro is in itself not the answer, although soem have saidf swap one union for another and go with Sterling again. Pegging to sterling would help exports as it would mean instant devaluation, but make imports more expensive. It also could be just a short term solution as I feel the UK is only a year or so behind us anyway.

I think the euro for now is the safest harbour we have, but that is not saying much. The fact is that the core is stable, and is because they have been reasonably pragmatic and level headed in their economic approach over the years. Yes, this has not always helped us, but lets face it, we the UK and the US all liked to have eveything we could in terms of public spending whilst also not wanting to pay any taxes for it.

I mean, we seem to ahve forgotten that we actually re-elected FF twice, and in the UK when the Lib Dems wanted a 1p rise in tax to pay for education they were laughed out of it.

Thats the real difference.
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Unread 06-09-2011, 15:41   #18
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I'm no econonomist (as my German cousin says), but I can see that they idea starting a brand new currency now would the craziest decision our government has ever made. How can anyone think it is logical. There would be no confidence in such a currency, especially in these economic conditions and it would become worthless quite rapidly. The Euro has not run as smoothly as hoped but we are in it now and there is no going back. The Euro is not the reason why the economic crisis hit Ireland harder than the likes of France and Germany. The reason it happened to us is because of how our government decided to deal with the boom and the crash and, as we all know, because our whole economic boom was based up one industry. Property. In Germany, not only is property far less important to the economy, primarily because far more people rent for their whole lives, but also because German has several other very successful industries. Even when one industry had some trouble (the car industry), they still had huge electronic/household/DIY/technology industries and engineering industry. And through all of that the economy picked up again fairly quickly.

Last edited by outtotime : 19-09-2011 at 15:42.
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