Chances of Ireland leaving the Euro?

What are the chances of Ireland leaving the Euro? I might have been reading too much McWilliams, but I am wondering if there is a reasonable chance of Ireland leaving the Euro in the next 3 years or so. What do ye think?

At the moment I am rating the chance at 30%. The reason I am thinking along these lines is that I don't think the government are going to take the unpopular decisions needed to get the country back on it's feet. The nations finances will inevitably get worse. Something will have to give. In the past Irelands choice has always been to devalue. Britain and the US are already doing this. Coupled with the rerun of the Lisbon referendum which the people may well vote against - this could give the government the choice of taking this option.

Of course if we did this then we'd be in the company of Iceland and Latvia. Still, I wouldn't put it past our leaders to take this option in a couple of years if they (as is quite likely) mess up early opportunities to take the hard decisions NOW, and the country ends up heading down the same route as Japan. What do ye think of the chances of Ireland leaving the Euro?

Zero percent chance to leave voluntarily. The entire Euro project could fall apart in the next 10-20 years which is a different story completely.

"What do ye think of the chances of Ireland leaving the Euro? "

Nil %

I think there is about 0% chance.

IMHO the euro is the only thing protecting us at the moment.

Participation in the Euro helped us greatly during the boom years - if we had an independent currency at that time, our currency would have appreciated, and this would have quickly ended the boom.

Now when in a different situation, we must rely on the Euro to maintain its value to sustain us.

No chance of us leaving

Gulliver said:

Participation in the Euro helped us greatly during the boom years - if we had an independent currency at that time, our currency would have appreciated, and this would have quickly ended the boom.

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Participation in the euro was a disaster in the boom years! Do you think the current bust is unconnected with the boom? The boom needed to end, but we weren't able to damp down our economy to sustainable levels, so now we're crocked. (Yes, I know there are other factors not connected to our own particular little bubble). Now that the disaster has happened, continued participation in the euro is what stands between us and Icelandhood ... no chance of us leaving. In fact there is talk of Iceland joining the EU (and presumably eventually the euro) sometime in the future.

Even if there was a way to leave the euro , everyone would just keep their assets in euros until after any de-valuation of the "new punt" would take place.

With everyone keeping assets in euros then this new currency would be unworkable and without value.

Not a hope - the euro would collapse as business and investors would have no faith in the long term future of the currency. The New Punt would probably fall faster for the reasons stated in the above post.

Hyper inflation anyone?

Very unlikely at the moment but it is possible that in three years time we will be out of sync with the main European economy. German could start its recovery, leading to higher interest rates while Ireland's recovery will be crippled by the hangover of the property bubble and will be further hampered by high interest rates. Basically we could have the reverse of the boom years.

In that scenario will we be prepared to suffer higher interest rates because it suits the German economy even though it may cause businesses to fail in Ireland or will we pull out of the Euro and regain control of our interest rates?

askalot said:

In that scenario will we be prepared to suffer higher interest rates because it suits the German economy even though it may cause businesses to fail in Ireland or will we pull out of the Euro and regain control of our interest rates?

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Would this bring up the question of alligning ourselves with Sterling, if this scenario was to come through?

askalot said:

Very unlikely at the moment but it is possible that in three years time we will be out of sync with the main European economy. German could start its recovery, leading to higher interest rates while Ireland's recovery will be crippled by the hangover of the property bubble and will be further hampered by high interest rates. Basically we could have the reverse of the boom years.

In that scenario will we be prepared to suffer higher interest rates because it suits the German economy even though it may cause businesses to fail in Ireland or will we pull out of the Euro and regain control of our interest rates?

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Askalot. I must agree with you. Its the situation in a couple of years time that could cause the real problem. When inflation starts to bite due interest rates will go up and the rich germans wont give a monkeys about us.

I think the chances of us leaving the euro are increasing day by day. At the moment exporters to the uk are crippled by this.

Most of our trade is to the US and UK. Why are we in this euro club? You will see this debate pick up momentum over the next while.

smiley said:

Most of our trade is to the US and UK. Why are we in this euro club? You will see this debate pick up momentum over the next while.

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Wrong, wrong, wrong. Most of our trade is to the eurozone, that is, most of our export trade. The eurozone accounts for 40% of our exports, the UK and US together about 35%.

The UK is our biggest import partner accounting for 35% of imports, so low sterling overall is of huge benefit to costs in the Irish economy, notwithstanding some undiversified exporters.
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yoganmahew said:

Wrong, wrong, wrong. Most of our trade is to the eurozone, that is, most of our export trade. The eurozone accounts for 40% of our exports, the UK and US together about 35%.

The UK is our biggest import partner accounting for 35% of imports, so low sterling overall is of huge benefit to costs in the Irish economy, notwithstanding some undiversified exporters.
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I feel that Brown would like to take the UK into Eurozone as it would be good for them. However, he would have to have a referendum first and that would be a big stumbling block as most of the UK citizens would vote no.

yoganmahew said:

Wrong, wrong, wrong. Most of our trade is to the eurozone, that is, most of our export trade. The eurozone accounts for 40% of our exports, the UK and US together about 35%.

The UK is our biggest import partner accounting for 35% of imports, so low sterling overall is of huge benefit to costs in the Irish economy, notwithstanding some undiversified exporters.
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Sorry yoganmahew, you are correct. Ive just checked my economist pocket world in figures. So we import almost twice as much as we export from the uk.

So other than low interest rates which helped to get us into this mess, what are the real advantages of the euro straight jacket??

smiley said:

Sorry yoganmahew, you are correct. Ive just checked my economist pocket world in figures. So we import almost twice as much as we export from the uk.

So other than low interest rates which helped to get us into this mess, what are the real advantages of the euro straight jacket??

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Our trade with the rest of Europe (the major element in our exports) has been unaffected by the violent movements in exchange rates over the last two years. This provides stability and certainty for exporters. No currency hedging is required (look up KIKO hedges for how South Korean businesses have gone bankrupt on currency hedges gone wrong).

The European single market is the largest single market for goods and services in the world. If the UK had joined the eurozone, the euro currency area within the single market would be the largest single currency economic area.

On the fiscal side, government debt costs have grown, but are still very low by international standards due to the backing of a large currency and a credible, conservative central bank. The average interest rate on government debt last year was 3.5% This will rise this year as recent bond issues have been higher, but this is down to uncertainty about the fiscal direction. The fact is that in a downturn, the euro allows for lower debt costs than would otherwise be available.

On the disadvantages - lower interest rates. What are these a disadvantage for? Is cheap debt not a good thing? The fact that the government, the Central Bank, the Financial Regulator and the banks couldn't agree on prudent borrowing limits is hardly a problem of low interest rates. From a business point of view, if you can get funding to start a business at low interest rates, that reduces the operating income you need to make. It makes it easier to operate a business. In particular, if the expectation that future interest rates will continue to be low, it makes it possible to get long-term funding at attractive rates.

The fact that being 'a business' or being 'a successful entrupeneur' in Ireland means buying apartments off-plan is not a fault of a low-interest single currency. The fact that 80some% of bank lending is solely to property-related business is also hardly a fault of the currency.

What interest rate do you think we would have had if we had not joined the eurozone?

No chance of that happening, eurozone will not allow any country to default or leave the euro as it would have such negative consequences for the eurozone as a whole.

I think it's a reasonable possibility - but it won't be Ireland to jump first. I've heard it said that Italy could be a weak link.

However, something that many people seem to miss when discussing the merits of the euro is that it was the low-interest rate environment of the euro that has made our recession so much worse. We should have had rates at 10%+ to contain the property boom at a time when they averaged about 3%.

But to be fair, out polticians are so inept they probably would have gotten us to the same place even with the advantage of being able set interest rates...

Calico said:

However, something that many people seem to miss when discussing the merits of the euro is that it was the low-interest rate environment of the euro that has made our recession so much worse. We should have had rates at 10%+ to contain the property boom at a time when they averaged about 3%.

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Interest rates are not the only way of 'controlling' a property boom. What caused the property mess in this country is:
1) Cheap credit
2) Low/No stamp duty for new builds, first time buyers
3) Very high tax relif on mortgage payments
4) Tax incentives for developers
5) Tax incentives for investors
6) Unprudent/sub-prime lending criteria

To blame just the low interest is extremely simplistic. The government had plenty of tools at their disposal that would not have equated to throwing petrol on the fire.

Calico said:

But to be fair, out polticians are so inept they probably would have gotten us to the same place even with the advantage of being able set interest rates...

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Spot on - far too many brown envelopes in circulation

Chris said:

Interest rates are not the only way of 'controlling' a property boom. What caused the property mess in this country is:
1) Cheap credit
2) Low/No stamp duty for new builds, first time buyers
3) Very high tax relif on mortgage payments
4) Tax incentives for developers
5) Tax incentives for investors
6) Unprudent/sub-prime lending criteria

To blame just the low interest is extremely simplistic. The government had plenty of tools at their disposal that would not have equated to throwing petrol on the fire.

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I agree.