Thursday, Jan 22, 2009
Lean times for the Celtic tiger
MoneyWeek: Lean times for the Celtic tiger
Investors are getting jittery about the possibility of European governments defaulting on their debts. Could Ireland be the first - and could the eurozone break up?
Posted by damien @ 12:51 PM (1025 views) Add Comment
19 Comments
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1. japanese uncle said...
A nation must be seriously alarmed when it started to be called 'XXX Tiger', which is now an old trick to dupe a national economy into the frenzied bubble, under well-coordinated plot engineered by the tricky financiers. Asian Tigers are still fresh in our memory. The lesson is; a central bank must instantly increase its IR by one percent, to kill off any boom (destined to grow into another bubble and eventual/inevitable bust). when a media under their control starts the Tiger call.
Anyway euro at least in the form as we see now (prevailing all major economies including Ireland) will be no more in 2012.
2. bidin'matime said...
Welcome to the economic science lab - hypothesis (check), method (check), observations - still underway...
3. mark wadsworth said...
"Yes" and "Yes" to 'could'.
Whether they "will" depends on how much Germany and The Netherlands are prepared to subsidise them via the EU and ECB. In the long run "Yes" and "Yes" to that question as well.
4. drewster said...
Minor complaint, but why is the article dated "Jan 23, 2009"? Today is only the 22nd.....
5. still renting said...
@drewster
It fell through a worm-hole from the future. Obviously. :o)
6. mark wadsworth said...
@ Drewster, Still Renting - maybe Fionaulaulaa's Time Machine goes to the future and back, not just to the past and back?
7. drewster said...
Come to think of it it probably just means the article will be printed in tomorrow's (paper) MoneyWeek magazine.
8. drewster said...
If Ireland did default on its debt, why would that cause the Eurozone to break up? I don't see a clear causal link.
A default would mean sky-high borrowing costs for Ireland in future, and probably slightly higher borrowing costs for other Eurozone countries, but it shouldn't destroy the Euro. If anything surely the Euro would strengthen, because investors will see that the ECB is refusing to print money or bail out profligate countries.
9. drewster said...
Ecuador last month defaulted on its dollar-denominated government bonds. The country has been using the US dollar as its main currency since abandoning their national currency in 2000.
This is similar to the Ireland / Euro situation, except that Ecuador has no influence on the Federal Reserve board. However Ireland has barely 1% of the population of the Eurozone and thus has very little influence on ECB policy too.
As far as I can see, Ecuador's default hasn't had any discernable effect on the US dollar. Why would an Irish default kill the Euro?
10. mark wadsworth said...
Drewster, good point, but 'Euro breaking up' is a bit grandiose, what I envisage is Spain, Greece and Ireland just leaving in a huff, which may well make the Euro worth more, rather than less.
It's only if Germany etc have to bail out Ireland that tempers get really frayed.
11. bellwether said...
Why does everyone tend to assume that Germany is in good shape? It is an exporter with a strong currency and no-one to sell too. It was the biggest exporter in the world untill people stopped buying cars.
It's got its employment down to 7.5% but that's about to go up.
3 of the top 10 and 5 of the top 15 companies are car manufactuers, luxury cars, well no-ones buying those
2 of the top 10 are banks. Massive lending to the baltic states. Frankfurt is a financial centre. Gubbed.
Who does that leave, bosch? Metal production?
Nivea are a good company but come on a bit of thought and a bit less assumption.
12. inbreda said...
but bellwether - aren't we being led to beleive that the fall in the value in the gbp is a good thing cos it will help uk manufacturing to export their goods.
But if no-one is buying...
...oh dear.
13. bystander said...
exactly inbreda - as can be seen by the most recent disastrous manufacturing data. Methinks there are other reasons why sterling has been allowed to quietly sink into the abyss, any thoughts??
14. bellwether said...
Sorry not for a second suggesting UK is in a better position just that assumptions tend to be made about certain features of what is going on.
A favourite on a site of people who have worked saved and eschewed credit (ie here) tends to be that saving/ producing nations (eg germany) will be spared and consuming nations will be dammed, when in truth both are likely dammed, being 2 sides of the same out of balance equation
15. Stub said...
It seems to me that this thread is implicitly saying that free trade/specialisation is inherently floored; as far as possible should national economies be closed systems?
16. drewster said...
bellwether,
Almost every country is in trouble. It's relative - Germany isn't doing as badly as us, Ireland is doing worse than us.
When the recession ends, people will still trust German cars. They won't trust British and American banks.
17. little professor said...
The rumours are that if anyone is going to leave the Euro, it will be Germany. They are the only country with a withdrawal framework in place (they insisted on an exit strategy as a condition of joining.) They are being held back by the likes of Spain and Ireland, and will be the most likely to withdraw. Is Ireland left the eurozone safety net and tried to launch its own currency they would be buried.
18. stillthinking said...
Great point bellweather. They have to start spending and we have to start making.
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