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CrashConnoisseur

Mcwilliams: Ditching The Euro Could Boost Our Failing Economy.

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Another interesting article from David McWilliams...

'Ditching the euro could boost our failing economy':

http://www.davidmcwilliams.ie/2009/05/06/d...failing-economy

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.

On top of this, we face the twin spectre of wages falling at a time when our debt burden is rising. Wages will fall because there are simply so many people on the dole prepared to work for less than their neighbour. The debt burden is rising because so many people who bought houses at the tail end of the boom on low interest rate deals are now facing those “enticement†rates rising.

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.

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.

[...snip...]

The one thing that scares investors most is a dying asset. No one will touch it. I don’t know about you, but I’d prefer to live in a country that gives itself a chance of life, than one where the current policies can only lead to slow strangulation.

Edited by Crash Connoisseur

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The article makes some fair points. I suppose there is a price to pay for relinquishing control of your monetary policy but in any event Ireland couldn't stand alone right now anyway.

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It isnt the currency thats the problem. Its Irelands POS speculation based debt economy. If theyre dumb enough to actually buy Gordons short termist all-out-borrowing-by-the-government-because-no-one-will-lend-to-anyone-else, then more fool them.

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The article makes some fair points. I suppose there is a price to pay for relinquishing control of your monetary policy but in any event Ireland couldn't stand alone right now anyway.

All the PIIGS are bleeding to death because of the Euro.

If they pulled out of the Euro together, they would stun financial markets and pull it off. Sadly, I don't see that happening.

More likely, the ECB will eventually have to cave in to the pressure, face reality, embrace QE and let the Euro sink to more realistic levels.

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All the PIIGS are bleeding to death because of the Euro.

If they pulled out of the Euro together, they would stun financial markets and pull it off. Sadly, I don't see that happening.

More likely, the ECB will eventually have to cave in to the pressure, face reality, embrace QE and let the Euro sink to more realistic levels.

BoE gets plenty of stick on here, but at least we're not lying on the floor in a pool of blood waiting for JCT to decide whether or not to call 999 before Xmas.

Nearly back to 1.20 :)

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Hang on a moment...

"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."

Compare with his previously posted article

Sterling has been allowed to collapse and there is no sense that they are worried about it falling further. In short, they are trying to borrow their way out of a recession that was caused by too much borrowing in the first place.

On the one hand he seems to be saying that weak sterling (essentially caused by excessive and increasing debt) amounts to borrowing our way out of a recession.

On the other hand he seems to be suggesting a similar remedy for Ireland.

Edit: I think the second quote above is a non-sequitur on McWilliams's part, but he does seem to be saying that allowing the currency to fall is irresponsible when done by Britain. I wonder what his real opinion is?

Edited by huw

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I don't see that monetary policy has any impact any longer. What good is QE actually doing? It is all rubbish, it is just doing something for the sake of it. The only reason the UK appears better off, is due to better spin, nothing more.

Edited by BalancedBear

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I don't see that monetary policy has any impact any longer. What good is QE actually doing? It is all rubbish, it is just doing something for the sake of it. The only reason the UK appears better off, is due to better spin, nothing more.

Monetary policy is about interest rates and exchange rates as well as QE.

Allowing sterling to fall has been a relatively pain-free way for UK workers to take a real pay cut, making them more competitive than they otherwise would be. I say "relatively pain-free" because their fixed costs (debt service, rent, council tax, etc) are all denominated in sterling.

Compare with the position of an Irish worker, who'd have to accept a nominal cut in his euro income to bolster his competitiveness.

Edited by huw

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Thought the ECB had already started a little QE with the announcement that they have started buying bonds across the EU.

Yes, but how do they decide which government to buy bonds from? How much of that extra liquidity will make it to Ireland? And of that, how much will actually make it into the Irish economy? I suspect that ECB QE will end up as more of a token gesture and be of little use to Ireland or any other EU country facing strong deflation.

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