One of the things about crises is that they tend to blow the credibility of shibboleths out of the water.
A shibboleth is a mantra to which people get attached because it is easier than hard thinking. If enough people repeat the mantra it becomes gospel, and instead of using our heads, we exchange alleged truisms. Ireland’s been exposed to enough shibboleths in the past five years to last us a lifetime.
One of these was “property only goes up”. The second was “the fundamentals are sound” which, along with “this time it’s different”, are particularly costly mantras. We also got the “soft landing” shibboleth. Or what about the one last October, “our banks are well-capitalised”?
Well we all know where these mantras have landed us. If you are not aware what is going on in our country and you have access to the internet, have a look at the following clip of the unemployed queuing in Dublin on www.youtube.com/watch?v=Cf31q4TC790. Much has been made of this clip already, but it’s worth looking at it again.
Yesterday, the ‘Frankfurter Allgemeine’ ran a story about how Limerick was like the third world, while the influential US magazine the ‘Weekly Standard’ devoted its front page to our woes at the weekend. Here in Australia, a waitress — a second generation Irish Aussie — asked me worriedly this morning: “Is everything okay in Ireland?”, having just read a report in ‘The Australian’. This was a reasonable question because, with unemployment rising at this level and tax revenue falling, there will come a time, not too far in the future, when Mr Lenihan will cross the corridor to Mr Cowen and tell him that we have “no money to pay the teachers next week”.
Make no mistake about it, countries run out of money and if this happens in Ireland you can be sure another mini-Budget will be introduced and the State will expropriate whatever wealth it can to stay afloat.
This is when things get critical, and rather than putting a plan B in place for this event, the State is again clinging to a mantra rather than examining our options.
Anyone with a basic understanding of economics knows that we can’t deflate our way to growth. The problem is a lack of demand. People are hoarding money. There is plenty of money in Ireland, but as we are hoarding, this money on deposit doesn’t translate into cash spending.
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.
There are clearly issues with doing something as radical as this, as it would have to be coincident with a lifting of all state guarantees on interbank lending. The State could still guarantee deposits in the new currency. Many investors who owed the Irish banks or invested in Irish government bonds would get burned. But that is the nature of markets. They would be paid back in the new currency, which would have to find its value.
The new currency would fall rapidly, giving our trading sector a significant boost and making Ireland cheaper overnight for people to do business in. Clearly, the government deficit would have to be addressed through strict spending targets.
As the Central Bank would do what the US, UK, Australia, Canada and Sweden are doing now and print money, the liquidity trap that we are in would evaporate. Clearly inflation would rise rapidly, and the State would need to introduce CPI-linked bonds to refinance itself.
But lots of successful countries have done that in the past — Sweden, Finland and Israel come to mind.
There are more than enough domestic savings to cover any government short-term shortfalls. In fact, inflation in Iceland, a country which embarked on a similar policy last September, shot up but has now collapsed. Clearly, the Irish banking system that gambled in Euro would be bankrupt. But banks are only institutions and maybe that’s no bad thing because it would allow a new bank (or banks) to emerge. The price of land would fall dramatically even in the new currency but would find its level. After this, we could reboot the engine.
Unemployment would fall rapidly as it has done in practically every country which has embarked on such a policy. The Asian Tigers, after their collapse in 1997, are the best example of this rapid re-employment phenomenon. One look at the Asians or the Scandinavians should put paid to arguments about what small open economies can do.
We are already running a trade surplus and we’d run a bigger one. Our deposit base is significant. Clearly lots of money would flee the country initially, but it would come back as the domestic economy recovered quickly. Sure we’d have a lot of explaining to do politically, but we’ve to do that anyway.
There are other problems in terms of fairness. Young people with debts would benefit, middle-aged people with assets would lose out. But as most of the value of these assets will be wiped out in the grinding recession the next few years will bring, over a five-year period there might be no net change.
Obviously there are many other issues at stake, such as whether investors would re-engage with Ireland after a devaluation. Conventional wisdom says no. But conventional wisdom has been wrong from the start here.
I’ll leave you with one example of this. In 1992, conventional wisdom said that if we devalued, the economy would implode, investors would take flight and we’d pay for years. In the event, we were forced to devalue and the economy boomed.
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.
That job queue in Dublin (youtube clip) was a complete stunt, that company could have requested CVs and called people for interview, it was disgraceful treating people like that. This however does not take from the fact that unemployment is a serious issue. How things have changed.
There’ll be no dropping the euro though, but stimulating article nonetheless.
That job queue in Dublin (youtube clip) was a complete stunt, that company could have requested CVs and called people for interview, it was disgraceful treating people like that. This however does not take from the fact that unemployment is a serious issue. How things have changed.
There’ll be no dropping the euro though, stimulating article nonetheless.
“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.” Maybe I am missing something here but if the new currency was allowed to plummet by the Irish Central Bank by keeping interest rates low, wouldn’t the cost of all imported goods/services rocket, thereby making our economy even more uncompetitive? Those companies which did not have strong exposure to international markets would be destroyed. Inflation would be rampant and the government would be under more pressure to postpone cutbacks in… Read more »
The Brits have allowed sterling depreciate by 25% and their inflation won’t rise much above 2%.If Ireland hadn’t devalued in 1993-the economy would of collapsed within 2 years.Not one politican is in favour of exiting the Euro, and this is as good a reason as any to follow Dave’s advice.The unemployment will hit 20% within a year under the present idiotic policy.Dublin is just a poor man’s Liverpool and trying to convince people that we are a Milan or Geneva is risible.There is no inflation to import in the first instance-devalue or perish.
….there will come a time, not too far in the future, when Mr Lenihan will cross the corridor to Mr Cowen and tell him that we have “no money to pay the teachers next week”.
July 12’th 2010 is my guess.
Sure they’ll be on their holliers then, no worries Brian wha!!!
Ireland will have a long painful death in Eurozone
Ireland has to pull out of the Euro to survive. It’s just so obvious. Time to cut losses and rebuilt
This is an interesting article David.
I remember putting forward all the arguments against the Euro many years ago in pub conversations with friends and was generally ridiculed because of the “Europes been good to us” mantra.
I would imagine that similar mantras will be put forward
should your suggestion gain currency (forgive the pun)
Also it is a risky strategy given the momentum for
a single global financial and ultimately monetary system
(A momentum that isn’t talked about but that is freely observable
to anyone with a will to do so)
Subscribe.
I’m thinking it would be more palatable politically to defer such a move until we’ve voted to accept the Lisbon Treaty.
This would essentially tell the Eurozone that we love them, but we’re not currently in love with them.
Tim et all – did he say teacher’s pay ? Wow this is a very serious article maybe wills prognosis in last blogg is best discribed to sleep facing Albania .And I am not blasphemous .
This is going to be an entertaining blog for the next few days. Great article. The lines are being drawn for sure now.
I think we will be turfed out of the Euro along with Spain, Greece and Italy. We are not a Germany. We would be doing the decent thing to exit it now. As David says, we’d have to dump the millstone of the guarantee and just look after the deposits.
Only the ECB is keeping money flowing into the banks. Paying back the debts in euro borrowed for the property bubble would bankrupt the country immediately if we left the euro.
irish Betting Office – a Mac Bet would be : bubble bubble toil and trouble fire burn and cauldron bubble – woopie woopie Dun Aengus calls in ……..plumber is fixing the circle still …….and no toilets
@ bloggers
Maybe they can play this after the leader’s speech at the next Ard Fheis, I wonder will the automatons be jumping up then??????
Forgive the profanity, but I just couldn’t help it, it seems so appropriate for the times we live in
Lily Allen (just feel we need some humour)
http://www.youtube.com/watch?v=-ITZBBV8Syg
If that doesn’t do it then maybe this can motivate:
http://www.youtube.com/watch?v=cNVVoH9-QH0&feature=PlayList&p=1D126B6C073A96A1&index=0&playnext=1
It doesn’t matter what the currency is – if we still have ICTU MEMBERS in the pay of the employers we can never have honest negations with employers, they still see ‘workers’ as being beneath them and whose only purpose is to make them Richer.
As you well know David, Trade Unionists are not afraid to tell Lies. Jack O’Connor did it to your face, in Crawdaddy. Instead of ditching the euro why don’t you campaign to ditch lying union officials who cover up the fact that their union sacked its own members.
If Ireland ditched the Euro, the new currency wouldn’t be worth a lot I’d guess, imported goods would be expensive. People would have to buy locally. Foreign investment and jobs would come back. The Euro is only good for Germany.
Ireland is going to have to pay back it’s debts, and it’ll never do that within the Eurozone. People in employment exporting will.
Get people back working. Get control over currency.
Joining the Euro was the most stupid thing ever.
Its currently politically impossible to consider leaving the Euro. But if other economies such Britain and USA pull out of rescission and were still stuck in the doldrums, maybe the alleged truisms will no longer be true. We are part of the PIIGS, and all our countries have serious competitive issues to address from been part of the Euro. This is made more difficult without having full control of the economic leavers. Hopefully there is solution without the drastic measures of even contemplating ditching the Euro. The EU as whole will eventually need to address these issues. The Gulf between… Read more »
David, you need to add some flesh to this kite! To present a credible argument, there would need to be a lot more work in teasing out the related issues. In joining, it was a lot easier to follow a framework devised by others who have a much better record than our bumbling poltroons. Siege economy with the IMF as insurer International debt market Small Irish export sector 50% dependent on UK market Overwhelmingly dependent on US firms – – huge indirect linkages including tech transfer knowledge Personal debt more than 100% of GNP Possible breakdown in social order/strikes with… Read more »
Yes I’ve wondered about the ‘small open economy’ while tied to the Euro. It struck me as being a bit of a contradiction. The central plank of the euro is control and we simply do not have any. And Oh, another one, ‘we were all in this’, the F*** we were. Most people simply wanted a safe home to live in, a reasonable chance for the kids and that they would not rot in a hospital. So, after all the bullcrap of the last number of years what have we gotten. A system where Health is so expensive that firing… Read more »
David said: “…the Central Bank would do what the US, UK, Australia, Canada and Sweden are doing now and print money, the liquidity trap that we are in would evaporate.” I said in response to previous blogs, there is no point in printing money unless it is tied to something of intrinsic value like copper, silver and gold, even though the value of those may fluctuate, at least people could calibrate their currency against published market prices. On 22nd April in the “Bad debts” blog and subsequent blogs I suggested: ‘The solution seems to be a return to specie money,… Read more »
I was shopping for groceries in Germany recently and wanted to buy some cheese. Kerrygold had some pre-sliced cheddar on the shelf, nicely packed, I think 175g for something like €2.50. Next to it was German produced cheese, 250g for about €1.50. Now, I really wanted to buy the Kerrygold but the head won out over the heart and I bought the less expensive German product. I know transport has to be factored in, but if we had our own currency we could sell our products cheaper abroad and boost our real export economy and balance of payments. Maybe it’s… Read more »
David, I have been following your ideas for a few years. I am sick and tired of commentators suggesting “nobody saw it coming”, “everybody got it wrong” etc. On the contrary, I read your book “The Generation Game” and it does good job of saying what was going wrong and how it could get bad. I see also that our “incredibly intelligent” leader spoke a few days ago touting your idea of tapping into the Irish diaspora – did he credit you with this? Your latest article leaves me puzzled. You say: “There is plenty of money in Ireland, but… Read more »
It is a real shame that RTE havent comissioned a program on Iceland, how they are doing and what their options are…
Even if it was done by our host who believes our future lies outside the eurozone, it would be informative and a timely reminder of whats going on outside our little island.
“beware of Greeks bearing gifts”. Must confess that I did throw my eyes to heaven a little this morning when I read your article. “There’s David with that old chestnut again” I’m sure I’ve posted most of this before, but here goes again. Firstly David, you are to be commended in the way you set out your stall. The first few paragraphs spend knocking straw men does pay some dividends when you approach your central argument. But unfortunately, your central argument is so ill conceived that any amount of reader ‘softening up’ could not save it. So yes I agree… Read more »
Lorcan: Good to see you back as a valued contributor.
You may have missed my suggestion above that a species currency basis for the nuapunt could be an acceptable alternative to the Euro. Those Euros in circulation could be used as collateral to purchase the necessary metal reserves and would remain legal tender during the transition.
Best thing that can happen this country now is that Lenihan has to make that walk of doom across the corridor to Biffo and tell him that the teachers can’t be paid in 2 weeks time because the cash has run out and let us take it from there. I think while we’re sorting out the house, well we may as well sort it out good and proper and while we can’t get anyone to take a chainsaw to the public sector current liability, well maybe then the solution is to show public sector workers what happens when the business… Read more »
did david say teacher’s pay I am still confused did anyone hear him…..teacher’s pay…….teacher’s pay……is that really true ? The coffers are dry……all gone ……imithe …….I am beginning to believe people are chosing to live in the sureal world and not the real one .The ignorance of the reality is mind bending a jiu jitsu of the senses .
Tim – algebra came from the middle east so did architecture so did business actually you could say the computer also came from there too in a round about way , there is still a lot to learn from them……..also ….the tongue Atlantean ( gaelic ) originated from there too and their world made it one of the original astrological languages full of it’s secrets untapped and unopened .
“There are clearly issues with doing something as radical as this, as it would have to be coincident with a lifting of all state guarantees on interbank lending. The State could still guarantee deposits in the new currency. Many investors who owed the Irish banks or invested in Irish government bonds would get burned. But that is the nature of markets. They would be paid back in the new currency, which would have to find its value.” This seems to be moving more and more into the bad state solution which I have half jokingly have mentioned a few times… Read more »
I think the message in David’s article is ADAPT and morph into spider man and then back to human again without cuts and bruises and the speed of it will tell us how successful the decision made was. It makes sense to me and we need to believe in ourselves to Win.It’s about men being men and be seen to do so. Unless that happens I can only see the economy growing in the growth of ethnic shops that are springing up overnight everywhere sourcing their cheap products in parts of the world where they come from and this will… Read more »
Tim – I agree with you .However , in my own inquisitive mind I still believe our island is a part of what Atlantis once was before it was distroyed and this is why I wrote the following
http://www.authorhouse.co.uk/BookStore/LargeCover.aspx?bookid=41087
Could somebody explain how a return to the punt would work? Would it be like the introduction of the euro, but in reverse? So we’d have a transition period during which the new punt would be pegged to the euro, after which it would be allowed to freely float (devalue)?
Also, if the government were to announce such a changeover, wouldn’t anyone with liquid assets in Ireland be very foolish not to transfer them into another eurozone country before the transition – i.e. wouldn’t there be an exodus of cash from Ireland (not so good for our banks’ capitalisation…)?
{ A shibboleth is a mantra to which people get attached because it is easier than hard thinking. If enough people repeat the mantra it becomes gospel, and instead of using our heads, we exchange alleged truisms.} You know all my life I have been living in a society that is full of this sort of thing. This is it. We have been lying to each other. And now we have a term to desribe this. And this term is something I have never heard mentioned publicly in Ireland. Knowing this will help reform our society. And worse, with every… Read more »
Did the Euro fail Ireland, or did Irish authority fail to use the Euro ?
The Irish concepts of authority and of managment have both failed…It is easier leave the Euro than fix those problems…because fixing those problems would take a decade…and might start another civil war…
{a story about how Limerick was like the third world} take out Dell and that is the way it headed….Ireland’s regional impovrished post industrial type city…a mini-Detroit….bread and circuses….clowns like O’Dea on a massive pension…..rotten with crime…awash with drugs….substance abuse the rule rather than the exception….cops scared of criminals….no law and order….gangs roaming the estates at will…..guns everywhere….chronic instutional failure and apathy….class ridden….even worse than Angela’s ashes….100 times worse. I think that currently Ireland is in a drift to becomming another Wales….skint….silently in despair…broke…everyone on a welfare scheme of some sort…and trashed out….based on the intellectual content of what the… Read more »
David: To begin, another fighting brave article as far as i’m concerned irrespective of the substance of your comments. It does not take a genius to see POnzi Rep and the Rep. of Ireland’s real economy and responsible communities are standing astride each other eying each other up assessing the economic abyss the POnzicon’s have sunk Ireland into. Ponzicon’s interests rest in figuring out how to re-inflate the property bubble and are beavering away in conjunction with the interlocking Ponzi web hub ECB too raise POnzi funds to hold the door open on the POnzi property re-inflation option. Rep. of… Read more »
After Dell announced they were leaving I had the following thought. Why don’t we, ie. the State, take control of the Dell factory and start producing cheap, generic computers-in effect Dell without the name-and start exporting them? Why couldn’t we do this with other products too? The know-how is there and in many cases the infrastructure is there. With our own currency this would be even more feasible. We could do this with software, pharmaceuticals, food, alcohol, etc. I mean really go for an aggressively competitive light industry export base. A kind of high tech Hong Kong for Europe and… Read more »
Folks, I sent the following as an email to Vincent Browne tonight: “Dear Vincent, John Maloney said that “no-one had predicted” that the economy would have been this bad, twelve months after Brian Cowen took the office of An Taoiseach. This is untrue. David McWilliams and George Lee were both predicting the bursting of the bubble. Please challenge John Maloney on his statement. Kind regards, Tim.” He did not read it on air. I wonder why? I know (from his article yesterday) that Vincent is annoyed with GL because he can do very little on the opposition benches, but why… Read more »
There is an urgency now of getting a real debate going on the value of the euro to Ireland’s future prosperity versus the potential costs ? Ireland over the next few years based on recent trends will lose more US multinational companies (MNCs) not necessarily for better tax regimes but relative cost per empoloyee compared to other developed markets. MNCs are leaving Ireland even from the so called ‘high tech’ sector which is dominated by US MNC’s with operations centers based in Ireland collecting license revenue from Europe, Middle East and Africa (EMEA). We are not competitive as an overall… Read more »
Folks, I posted this on the last thread, in answer to Macolm’s (very valid) question: it may help some of you to understand my position (with which, many of you disagree, I know…., but that’s okay, Robert and Furrylugs – we are allowed to disagree….). Malcolm, I understand your query. In fact, I am pulled in two directions, myself. If you will indulge me while I ramble a bit, I will attempt to articulate my position: There are many in FF who, like me, disagree vehemently, with current government policy and have been raising DMcW’s points since “The Pope’s Children”,… Read more »
Tim,
Within FF, you have a chance of promoting your view if you remain “loyal” and within the fold. If you do not, you risk being “shunned”. If one desires to be effective, one cannot suffer shunning – that renders one completely ineffective. That’s the way it IS. Criticise it all you want, but that’s it.
There is a word for this, it is “oligarchy”. I suggest you re-read what you just wrote and re-examine your reasoning for continuing to support FF.
-L
Fillie Sophie – I think that some of us , all of us or a few of us should request our host to meet for ‘high tea’ for a chat in a light hearted way and we all listen to each other .It should be fun and it’s the least we should do for now.
Tim – the sharia ( Islamic ) banking law principle gives more protection to the borrower on a principle private residence, including those loans operated by bank of ireland and other irish banks, than the traditional common law rules applied .Thus in the event of a foreclosure those that have requested a ( say ) ‘moslem loan ‘ in ireland need not fear while those that up to recently received a ( say) a ‘christian loan’ do need to fear .After yesterday’s announcement by the Pope we here in Ireland should ponder our future wiser and seek a choice ,… Read more »
David – the real problem I see with your proposal is this – we import all of our fuel. In essence, the price of fuel would not go down. Our wages in real terms would decline. Our fuel bill would rocket. We would not get away with as much inflation as we wanted. And besides it would let all them quangos continue indefinitely. Besides are we not just reducing the value of our deposit base in the process ? I mean we have a capital availability crisis right now- and will cutting down the savings of those wise enough to… Read more »
Great article David. No doubt it will fall on deaf ears. It amazes me that we were so enthusiastic, and still are, for the euro. What has it done for us except make going on holiday easier? DId prices come down? Nope. Did we have the right interest rates for our economy? Nope. Did the wrong interest rates create a property boom? Yup. Is that the reason we are in such a state today? Yup. Can we devalue to help get us out of this mess? Nope. And yet, suggesting we drop the euro is heresy! The lunatics have well… Read more »
“”One of the things about crises is that they tend to blow the credibility of shibboleths out of the water. A shibboleth is a mantra to which people get attached because it is easier than hard thinking. If enough people repeat the mantra it becomes gospel, and instead of using our heads, we exchange alleged truisms. Ireland’s been exposed to enough shibboleths in the past five years to last us a lifetime.”” Surely a candidate for ‘bad writing of the year’. If Orwell was correct, and confused language leads inevitably to confused thinking, then we have the explanation for this… Read more »
Hi David,
This is your version of Kevin Myres it seems! You dont believe what you preach. Any logical person would not bite the hand that feeds them. Remember the 60s 70s 80s 90s 00s. Any positive boom the eurozone played a huge roll in it.
1. providing jobs training and skills.
2. Money
3. A voice on a larger stage.
You are an idiot if you think we should float our own currency.
Well….there goes the property boom….http://www.irishtimes.com/newspaper/property/2009/0507/1224246048049.html
Any comments Mr.Ahern ?? – the cheerleaders of the property porn mania are calling it a 50% drop. During the boom, were told the dynamic would not change, that the tren would continue forever and ever…. As that idiot Hanafin said….we have to go back to sustainable growth now…
David gave us the dropping a stone analogy in Prime Time in November. I remember him holding his hand and saying …in the next 12 months….property will drop….like a stone…..He was correct once again.
Re Euro etc The Euro is (and was designed to be) a one way ticket, the problems cited above by many contributors re leaving the Euro are real. The debt this country has drawn down is Euro and will have to be repayed as Euro. This is part of the movement towards a one-world system. If Ireland tries to back out we will pay a similar price to that paid when we had the Economic War post independence. If you try and stay outside the global financial system you will be punished for your insolence I don’t think that the… Read more »
Maybe Hobbs will stand for election………………………
http://www.independent.ie/national-news/hobbs-quits-post-over-celias-euro40000-loan-1731213.html