Figures published by the Central Statistics Office show that the number of people signing onto the Live Register increased by 16,300 to 293,500 in December 2008. The unemployment rate rose to 8.3% in December from 7.8% in November. Exchequer figures for 2008 show that spending overshot Government income by €12.7 billion during the year. The deficit for 2009 could hit €20 billion.
Economist David McWilliams has suggested that Ireland should leave the Euro and then devalue its currency. He argues that no small country like Ireland has ever solved its problems without currency devaluation. It is incontestable that many Irish firms have been priced out of the UK market by the appreciation of the Euro against Sterling, which has suffered a massive devaluation as the Bank of England reduced interest rates. Similarly the Euro has risen in value against the Dollar.
The Euro is now overvalued against both Sterling and the Dollar. The Euro as a currency should be devalued by a slashing of Euro interest rates over a very short period of time. This is the route forward. The Irish government must administer the harsh medicine required and improve competitiveness.
David McWilliams suggestion that Ireland should leave the Euro is fraught with difficulty. Because the fundamentals of the Irish economy are so weak the Irish pound as a small currency would suffer a massive drop in value. Once it was floated it would go into freefall. This would trigger a massive rise in interest rates to protect the pound. The last state would be worse than the first.
Economist David McWilliams has suggested that Ireland should leave the Euro and then devalue its currency. He argues that no small country like Ireland has ever solved its problems without currency devaluation. It is incontestable that many Irish firms have been priced out of the UK market by the appreciation of the Euro against Sterling, which has suffered a massive devaluation as the Bank of England reduced interest rates. Similarly the Euro has risen in value against the Dollar.
The Euro is now overvalued against both Sterling and the Dollar. The Euro as a currency should be devalued by a slashing of Euro interest rates over a very short period of time. This is the route forward. The Irish government must administer the harsh medicine required and improve competitiveness.
David McWilliams suggestion that Ireland should leave the Euro is fraught with difficulty. Because the fundamentals of the Irish economy are so weak the Irish pound as a small currency would suffer a massive drop in value. Once it was floated it would go into freefall. This would trigger a massive rise in interest rates to protect the pound. The last state would be worse than the first.
3 comments:
Economics is not a subject I claim to know a lot about. However after devalued the post indicates it would eventually rise on its own because of higher interest rates. Could it rise as much as 20% after devalued?
When Ireland joined the Euro interest rates in dropped. I can remember interest rates of 21% in Ireland in 1981 when the country had its own currency.
There was huge speculation in the currency.
If Ireland left the Euro an independent Irish currency would crash in value because the economic fundamentals are so weak. Interest rates would rocket to halt the collapse in the value.
In 1993 the then Irish Finance Minister Bertie Ahern sought to prevent a devaluation of the then Irish pound.
The markets did not accept his strategy. Interest rates rocketed to a couple of hundred percent for a few days. This would have wrecked the economy if it continued so Ahern had to give in and devalue. Even with huge interest rates money flowed out of the country.
Yes, Ireland could float the punt as legal tender, accept payment of taxes in punts and immediately pay it's public sector with it. Those who want to continue to hold euros could still do - as with any currency. The punt would eventually reach its optimum price based on demand for the currency - which would depend primarily on demand for Irish goods priced in it. Personally, I think its crazy for Ireland to pay such a high price for euros just to pay its public sector - when most of this money will never leave the country. It is costing them a fortune just to play in the eurozone. It might knock some egos to refloat the punt but the thing I fear more is how long it will take the idiots to figure it out.
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