It’s hard to see how the Euro survives all of this, at least in anything resembling its current form.
6 thoughts on “Ireland’s Woes”
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It’s hard to see how the Euro survives all of this, at least in anything resembling its current form.
Comments are closed.
Being the Irish, at least they can drink their way out of it if everything else fails……..Oh, who am I kidding. They ARE going to drink their way out of it anyway!
With the current leadership here, I’m saying “There, but for the grace of God, go I.”
Is Anglo Irish Bank there only bank? If so, that’s their problem. If not, they have no problem. No bailouts. When are they going to figure out that putting all your eggs in one basket means eventually you lose all your eggs?
It’s like playing double or nothing. It’s great while you’re winning but has only one eventual outcome.
When the Euro was first introduced, I remember seeing a story that when subjected to extreme cold, the center of the coin falls out. I had no idea that was an omen.
So much for austerity measures involving deep government budget cuts being an infallible solution to the current economic problem. If there are more people unemployed, or salaries goes down, sales also go down, people start defaulting on loan payments, and the economy is depressed even more.
Depression is not bad by itself. The economy was inflated and needed to get real. The issue is how to gracefully handle the necessary deflation.
Ireland’s problem is that it is a small economy which is highly dependent on foreign capital. As the global economy collapsed they were deeply affected.
Leaving the Euro is not as good a solution as some would think:
– Ireland’s main business is as a tax haven for companies doing business in the EU. If Ireland leaves the EMU, these companies will move to Luxembourg, or some other tax haven in the EMU, causing Ireland to lose these cash flows.
– Ireland has a large foreign debt contracted in Euros. If they get their own currency back and devalue it, this will only make it even harder to pay back the foreign debt, increasing the risk of a government default.
My proposed measures would be:
– increasing interest rates for newly contracted credit.
– increasing VAT rates.
– more progressive personal income taxation.
– insuring deposits.
– letting failed banks go bankrupt.
– reduce unemployment benefits, pass savings onto job creation.
– negotiate government debt restructuring with foreign creditors.
The current worldwide crisis is caused by several factors:
– a globalized economy means enterprises are consolidated worldwide closing many small businesses which employed a large proportion of the workforce.
– oil prices are rising, decreasing productivity worldwide.
– to keep these unemployed people happy the state employed them, plus it decreased interest rates in an attempt to speed up the creation of new enterprises, and bet in the construction sector by giving tax credits for buying houses (which cannot easily be outsourced abroad).
– the decreased interest rates increased consumption of imported products, the construction sector seldom provides exportable products or services, this worsened the trade imbalance.
– since there was no profit in actually working, some smart asses turned the credit business into a casino. then some smart asses tried to break the bank (hah) and succeeded.
In order to have long term economic stability the balance of trade must be addressed. With a negative balance of trade, either foreign loans are used, or national assets must be sold, making the nation poorer as a result.
Countries with a positive balance of trade will have to invest wisely in countries with a negative balance of trade, in order for these countries to produce products and services of value to them and pay off their debt by work.
The alternative is for debtor countries to fall back into trade protectionism. Leaving the EMU is a protectionist measure designed to stimulate local trade flows. Tariffs are another. Large nations or trade blocks may even try economic policies of Autarky. These would deepen the recession.
Ireland’s problem is that it is a small economy which is highly dependent on foreign capital. As the global economy collapsed they were deeply affected.
Hogwash, although I admit it sounds good. They simply violated the first rule of borrowing. You only borrow when the ROI is higher than the cost of debt. A volatile currency just means shortening borrowing duration. You don’t take on long term debt if you are unsure of what you may have to eventually pay back. Devaluation actually helps you repay.
Ireland’s problem is the same as ours, which is why we need to pay attention. Increasing debt, “stimulating the economy” with nothing to show for it. Soon we will pay the piper as well.