The individuals who still have employment may grumble, but there are still many who have less. The cost reduction is in full swing here. We still seem to be commenting on where the ball was rather than where the ball will be?

With deflation here, we will increase native, full value, GNP positive exports. As the EU dismantles subsidies for CAP we will need to increase productivity. We surely have learned about bio-char, green manure crop rotation etc so that we need fewer environmentally poisoning additives based on petrochemicals? What is wrong with farmin fish inland in dammed valleys naturally prone to flooding? They may help to solve the flooding problem, or if left to local councils, exacerbate it.

We are looking at the wrong things, as is common in divided societies. We are in Europe, what makes you think it was ever voluntary? It had the appearance of choice, but we all know about psyops, don’t we? Getting the right answer by referendum did not take half as long as some thought. Lets start playing the ball and not learning to change the rules of the game!!

This would do credit to Hunter S. Thompson!

“…you have come up with the theory that the function carried out by the steering wheel in a normally-equipped car can in certain circumstances be quite adequately exercised if the driver of a car without such equipment throws himself around the vehicle at a certain velocity and trajectory.”

I guess we’re testing this one now too.

The final paragraph is worth quoting in part:

“Yet another theory that you are currently working on, with the help of some gifted intellectuals, is that the car itself will adapt its expectations to the countours and gradients of the mountain road and obviate the need for anything other than the most modest of movements on your part.”

I’m afraid the theory has been falsified by events.

They can’t say they weren’t warned.

Since announcing that we were leaving EMU would bring financial Armageddon upon us I don’t think we should leave.

(If the incredible bank guarantee brings Armageddon upon us anyway, then that might be another matter.)

But in any event I don’t think an ESRI study would have much credibility.

A detailed assessment of staying in the EMU or exiting could be done by the ESRI and it could have the value of dovetailing with James Conran’s point about increasing indigenous exports.

The point about “indigenous exporters lumbered with an overvalued currency,” raises an issue about exporting competence, beyond price.
Indigenous exporters are concentrated in food and drink but even in this area, they are not exploiting potential.

In 1973, 55% of Irish exports went to the UK; over 50% of indigenous export still go there.

I have dealt with some of these issues in a recent article:

http://www.finfacts.ie/irishfinancenews/article_1018704.shtml

Sorry, no. If the share of wages in national income doesn’t change and per capita GDP is growing (i.e. nominal GDP rises by more than the rate of inflation) then wages are rising faster than inflation. This is true by definition.

Economy A: 10% interest rate, 10% inflation, per capita income up 2% in real terms (12% in nominal terms)

Economy B: 8% interest rate, 6% inflation, per capita income up 2% in real terms (8% in nominal terms)

Nominal rates are lower for Joe Bloggs B, real rates are lower for Joe Bloggs A. Joe Bloggs A is better off despite paying a higher nominal rate.

Re: substitution
I don’t see us being able to build flat-screen TVs, cars, JCBs, aircraft or anything else any time soon. The food stuff is in the ha’penny place where we could provide an alternative.

Irish goods, to the tune of 90% (?) are MNC owned and run. They are priced in other currencies anyway and would continue to be so. The MNCs have, at a wild guess, zero borrowing requirements within the Irish economy, so they only require an administrative banking system. Their wages would be in local amounts and that might be a saving to them, or they might just peg the Irish peso amounts to the previous foreign currency equivalents as part of a global wage structure…

PS. I accept that real interest rates were a concept, but wage rises also lag inflation even where inflation is very high, so real interest rates don’t have a meaning to people paying them - headline rates are what matter…

The point about incomes vis a vis inflation was related to real interest rates - specifically, income growth generally matched or surpassed inflation, therefore real interest rates was indeed a relevant concept under the punt, just as it is now.

The effects of a devaluation on competitiveness is a separate issue. A devaluation would indeed increase inflation, which would decrease competitiveness. But the drop in prices of Irish goods internationally would happen immediately whereas the inflation would happen gradually. Plus domestic demand would be shifted from imports to domestic goods, thus helping balance the current account (the imbalance of which you have suggested was Ireland’s basic problem - i.e. we “spent more than we earnt”).

“Ireland should be back in surplus by next year (or is it this year?).”

Obviously no one can predict with certainty. But, for what its worth, ESRI now forecast a balance-of-payments surplus of 0.5% of GDP in 2010.

Why bother devaluing an independent currency at all…?

Figures for economic growth adjust for inflation. Therefore when growth was positive (virtually the whole time except one year in the eighties I think) growth in national income was higher than price inflation. Growth in national income doesn’t necessarily mean growth in individual income since population increases but population growth was low for most of the punt’s history.

So income must have been surpassing inflation for most people most of the time.

3 year Euro swap rates are 2.1% as per Bloomberg, so if your bank is offering 3 year fixed mortgage at 2.6% they are only making a 50bp margin on it. not much evidence of asset repricing there.

Or we could stop buying German stuff unless we get a return on investment on it…

Besides, only Spain really has a problem with balance of payments (beyond bubble level of imports). The Greek import problem seems to be exacerbated by large military spending. Ireland should be back in surplus by next year (or is it this year @JohntheO?).

Real interest rates under the punt were in fact quite often negative - i.e. nominal rates were high but inflation was higher. I’m no expert but 3.8% seems pretty high in an economy with 12-13% unemployment.

“The economic problems of Spain, Ireland, & Greece are precisely the same as each other. Spending more than they earn.”

If some people are earning more than they spend (Germany) than someone else has to be spending more than they earn. One way of ironing out such imbalances would be to have the German currency appreciate and the Irish/Spanish/Greek currency depreciate. The euro rules this out, which is one reason people are saying maybe the euro wasn’t such a good idea after all even if we can’t leave it now.

Or are they borrowing short to lend long… again?
Unconstrained by the FR or the CB or the government… again?
Offerring ridiculous multiples of debt… again?

When, in the whole lifetime of the punt, were interest rates 3.8%? @James and @Cormac, you really think that is high?

What are interest rates in Hungary? Iceland? Poland?

Who here seriously thinks that in 2002-2005 interest rates in Ireland would have been kept high with the punt? Who thinks the punt would have been allowed to appreciate, killing exports, so that the Irish punt became a carry-trade currency like the Icelandic krone? Who thinks that would have ended better?

Revisionist what-ifs are pointless unless they give a realistic alternative scenario of what might have happened. They are otherwise fairytales.

The economic problems of Spain, Ireland, & Greece are precisely the same as each other. Spending more than they earn.

Why are ECB rates higher than Bank of England and US Fed rates? The Eurozone economy is in terrible shape, unemployment is 10%, inflation is undershooting the target rate - so why is the ECB holding onto 100bp it could use to alleviate things?

“with interest rates at 1%, the ECB can hardly be accused of chasing a strong euro, now can it?”

See above - interest rates higher than US/UK, therefore strong euro vis a vis dollar and sterling (that’s before we even consider more unconventional forms of monetary policy).

And of course real interest rates (nominal rates minus inflation) are actually very high in Ireland.

You need to distinguish between nominal and real interest rates. And you need to distinguish between the ECB rates we will get and the interest rates that would be appropriate to Ireland (usually estimated using the Taylor Rule). Look at this rule to understand how appropriate monetary policy / central bank base rates are set.

Real interest rates are very high and are likely to remain so. In the middle of a depression, that is inappropriate to our needs.

Based on the Taylor Rule, nominal ECB rates are likely to remain well above what would be appropriate for Ireland. That will add further pressure on us to deflate in coming years.

Your criticisms of the Irish government might have validity if you identified the economic problems currently being experienced by Greece and Spain as being largely domestic in character to those economies. But the problems of Ireland, Spain and Greece are all largely the result of:
a. joining a currency union while not being part of an optimum currency area
b. “enjoying” ECB interest rates that were too low
c. engorging on debt
d. bloating the interest-rate sensitive construction sector
e. bloating the wider economy and requiring substantial immigration

Now each of these economies are experiencing severe deflationary pressures together.