I post stuff about the Euro crisis because it is ongoing as we do our course on EU policy…so lest anyone say ‘the guy teaching the course never mentioned what was happening’. If you’ve time have a look at this interesting documentary by the RTE Primetime investigative journalism crew. You can watch it here: http://www.rte.ie/news/primetime/. If you don’t have time a brief summary could be:
There is quite a bit of doubt that the Euro will last with all 17 members.
The official line is nobody will leave, but some ‘experts’ think it makes sense.
However, the official line is dubious because the same official line was saying 12 months ago ‘what Euro problem?’
This would NOT probably mean a return to national currencies for all 17 EU states, but rather a smaller Eurozone…and maybe a new Euro…call it the DURO…(my own make up word for it) …….taking the D from the old Deutschmark…and signalling they mean to keep with it…….
The problem for Ireland is whether we would remain in any future DUROZONE?…..
Our current fundamentals would not make us an ideal candidate
Our exporters would want that for example…..and if we were not….we would probably end up re-issuing a national currency that would be lowly valued……and yet most of our debts would be denominated in DUROs (or would they?)……..
Could the complete collapse of the Euro be a neat way for us to reduce the scale of our debt?
Probably not if the debt we re-denominated in some highly valued currency, like the possible DURO, and our own new re-issued currency (let us call An Punt Nua…which has been suggested by some pundits)….. would likely be lowly valued…then we’d be paying back the money our banks blew on property to German and French banks in our own monopoly-money.
On the upside, having your own national currency again would mean that we might be able to engage in shameless competitive devaluation…making our goods and services seem cheaper than they really are…and therefore keep jobs….but most economists point out competitive devaluations are not a long term sensible approach to economic strategy……one cost would be that imported goods and services would become more expensive and inflation would probably rise…..
Another issue raised in the documentary is whether there is scope for some renegotiation of Ireland bailout and a modest reduction in the interest rate…..the programme makes it seem like such scope is almost zero…however…..there is probably some scope on the basis that it makes us better able to repay……but it may take as long as 2 years before a re-negotiation emerges AND it would be conditional on us keeping with our AUSTERITY budgets, AND it would probably not do much to dent the fundamental fact that we are facing a DEBT MOUNTAIN of huge scale.
Which suggests sometime eventually we may have to figure out a simpler way of going around the debt mountain if we cannot get over it?
What is the Irish for Default?
[“mainneachtain”…it turns out]
BTW another excellent source to get you up to speed on this debate is Daniel Gros from the Centre for European Policy Studies who was interviewed on Morning Ireland, RTE Radio 1’s early morning news programme. The podcast is available here: http://www.rte.ie/news/2011/0128/morningireland.html