Megan Greene says Ireland should consider leaving the euro

The Economist Intelligence Unit’s Ireland analyst says Ireland should consider leaving the euro, since the major costs have been or will be incurred anyway.

She also says that this would be politically beneficial for a FG-Labour government. Perhaps, but I think it’s almost inconceivable that FG would want to leave the euro, whatever about Labour.

But the political arguments will remain, and who knows: Gerry Adams could be the Leader of the Opposition. Interesting times.

55 replies on “Megan Greene says Ireland should consider leaving the euro”

I certainly agree with her that it’s about time to start discussing how we might exit. It isn’t a no-brainer but there’s a case for it. The more I think about it, the less convinced I am that it would be impossible to exit in a reasonably orderly way. A lot of the talk about being “frozen out” of this and that is nonsense. We’re already frozen out of the bond market. Default is priced in. The Germans would probably say we should never have joined in the first place, so they would hardly place obstacles in our way.

Leaving the euro probably means Ireland would be forced to leave the EU. Then whenever the UK leaves the EU, then you can join back with them.

Should we not wait and see how the current IMF/ESFS deal pans out over the next 3 to 4 years and how the Eurozone structure evolves over the same period first?

It’s good to have a debate and the argument for an orderly exit (whatever that might be) is clear. Still don’t think that it is possible or desirable.

What would happen to euro-denominated sovereign and bank debt? There would have to be widespread default and even converting the debt into punts, if possible, would be considered default.

There would, of course, be enormous capital flight, so our banks would be toast. There would be huge problems for MNC based here and our attractiveness for future investment would probably be impaired.

I read a couple of weeks ago that 80% or 90% of Irish exporters said that they would prefer to remain in the Euro. It struck me as a very high % given the obvious advantages a weak punt would give exporters.

In any case, if ditching the Euro would involve banking collapse and some sort of sovereign default anyway, would it not be better to carry out debt-restructuring within the Euro first (à la Munchau)? This would seem the most obvious and most conservative approach.

@ Bazza

the exporters would obviously like a weaker currency, but they far prefer the lack of FX volatility for intra-EZ trade (and intra EU trade in general given the high correlations usually), and the lack of any trade barriers, duties etc that would likely be raised if we were to exit the Euro and/or EU.

bazza, I certainly think debt-restructuring within the Eurozone would be a good idea, and maybe a better idea than leaving. But we can’t make it happen. As Donald Rumsfeld might say, we need to deal with the EU we have, not the EU we’d like to have.

Of course converting the debt into punts would be considered default, but so would conventional default; and default of some sort seems inevitable. When the punt broke away from sterling that, too, was a kind of default. But a default via currency adjustments seems to me to be better than other kinds. For one thing, it cuts real wages and the cost of the output of the sheltered sector, so creditors don’t bear the burden alone. For another, it creates some prospect of higher growth in the future which will mean the punt is likely to recover, giving creditors some of their money back. Last but not least, it’s hard to sue the State for exercising its right to conduct exchange-rate policy. I don’t recall that any holders of Irish gilts sued after we broke from sterling.

@ Kevin

bit of a difference between leaving a currency peg and actually leaving a currency itself! We gave up the right to conduct an independent monetary policy when we joined the Euro.

Eoin Bond: … trade barriers, duties etc that would likely be raised if we were to exit the Euro ….

Likelier than flying pigs? Perhaps. Certainly quite probable if the UK sinks beneath the waves, but that would cause us serious problems in any event.

@ Kevin

with a 12.5% corporate tax rate, and a freshly minted currency 50% weaker than the EuroMark, you don’t think that Germany would look to impose duties on us to protect their own manufacturing base?


There are many ways of calculating an index of the real exchange rate and many things that could happen in the aftermath of an exit from the Eurozone, but I think you’ll struggle to create a plausible scenario for a 50% reduction in the real exchange rate. Nor is it a given that the Germans get everything they look for. The Brits would resist the suggestion that having our own currency makes us some sort of rogue state.

@Kevin Donoghue

But why is leaving the Euro any more undoable than defaulting inside the Euro as God and Lisbon intended? If anything leaving the Euro would seem to create extra antagonism and extra opportunities to retaliate against us. We’d be doing the ECB’s dirty work for them, to start with. The one thing that would change the calculation is the wretched ESM, which as far as I can see is likely to give the EU much more power to prevent us restructuring. So we’d just have to take care of it before 2013.


If the EFSF/EFSM/IMF package isn’t working out for us, it’ll probably be evident after one to two years, no?

Is it me or does any one else think that most UK-centred/focused media organs are in favour of Ireland doing a kamikaze job on the EU aircarft carrier? I can understand the Torygraph, Mail, Express, Times and Sky – as they have a visceral, irrational detestation of anything EU-related, but The Economist has been flaky (this post seems to present additional evidence), we can hardly discern the pinkness of the FT through the Green Flag its wrapped around itself and the Guardian has openly advocated default by Ireland.

The political and institutional EU is struggling to cope with this crisis as it doesn’t have the necessary institutions and procedures in place to deal with it properly – and the markets are unwilling to give them the time necessary to get a solid package in place. But the EU will muddle through as it always does. The revised bank stress tests next spring will help to close a bit more the gap between the EU elite’s political fantasy and the economic reality the markets perceive. I would be surprised if Ireland were not to get some relief on its bank debt burden via this process.

I’m with Zhou. Let’s sweat this out, focus on the things we can improve ourselves and ignore these siren voices from the next island which is going through a managed economic decline.

Economic Intelligence Unit is in breach of trade descriptions. Megan gives one reason for exiting and devaluing – increased competitiveness, I thought we had a BoP surplus? We are not Greece you know.

She then skips over some enormous problems with the process. How she reaches her conclusion based on her own assessment of the pro (one only) and cons is a complete mystery.

@ Paul Hunt

+ 1 The pathologicaly eurosceptic anti Irish UK establishment would just love us to blow up the plane, as per you very accurate metaphor.

BTW bank shares up 60% since announcement of MOU. Does that mean anything?

Slightly off topic, but useful nonetheless ………


Mary is the proprietor of a bar in Dublin. She realises that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronise her bar. To solve this problem, she comes up with a new marketing plan that allows her customers to drink now, but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).

Word gets around about Mary’s “drink now, pay later” marketing strategy and, as a result, increasing numbers of customers flood into Mary’s bar. Soon she has the largest sales volume for any bar in Dublin.

By providing her customers freedom from immediate payment demands, Mary gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages. Consequently, Mary’s gross sales volume increases massively. A young and dynamic vice-president at the local bank recognises that these customer debts constitute valuable future assets and increases Mary’s borrowing limit. He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral.

At the bank’s corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into DRINKBONDS, ALKIBONDS and PUKEBONDS. These securities are then bundled and traded on international security markets. Naive investors don’t really understand that the securities being sold to them as AAA secured bonds are really the debts of unemployed alcoholics. Nevertheless, the bond prices continuously climb, and the securities soon become the hottest-selling items for some of the nation’s leading brokerage houses.

One day, even though the bond prices are still climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Mary’s bar. He so informs Mary.

Mary then demands payment from her alcoholic patrons, but being unemployed alcoholics they cannot pay back their drinking debts. Since Mary cannot fulfill her loan obligations she is forced into bankruptcy. The bar closes and the eleven employees lose their jobs.

Overnight, DRINKBONDS, ALKIBONDS and PUKEBONDS drop in price by 90%. The collapsed bond asset value destroys the banks’ liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.

The suppliers of Mary’s bar had granted her generous payment extensions and had invested their firms’ pension funds in the various BOND securities. They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds. Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.

Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multi-billion euro no-strings attached cash infusion from their cronies in Government. The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Mary’s bar.

@ BW/Paul H

the more i read it, the more it smacks of her saying: “This would be a cool experiment”. She even admits that the boost to exports will be hurt by the actual exporting companies leaving the country. Throw in debt funding freeze, bank run, capital controls, and basically all she has left is that the politics might work and the screaming masses might be placated for a while – “voters could express their frustration by turning against the euro”

Eh, great idea….

@Paul Hunt

Given that Barry Eichengreen has been editorialising against the EFSF/EFSM/IMF deal, I think it’s hard to dismiss international opposition to it, from the UK or elsewhere, as simply a matter of antipathy to the Euro.

I do not think it is reasonable to be confident (as opposed to merely hopeful) that the EU will muddle through such a severe crisis in any remotely acceptable manner. I remember the quality of the EU’s muddling through in response to the breakup of Yugoslavia. In particular, as long as the path of least resistance for the EU is over our backs, then that is the path it is likely to continue on.

@ B.E.B

Actually what I hear is “thank God we are in the euro”. And as for the EU/IMF they’re heroes. Maybe I mix in the wrong circles.

The export sector would be bolstered by an immediately devalued new Irish currency while there is a risk of most MNCs leaving!

We are already competitive in the MNC area and the majority of the exports are intra-company.

It amazes me that people who have likely never taken a big risk in their lives, can make this proposal without even knowing the nature of the market.

Sarkozy was able to sell 2 nuclear reactors to India while Cameron with a weak pound while Cameron got very little business in recent trips to India and China.

So, lemme understand.

Our native exporters don’t want a separate currency (they have to buy lots of their inputs, remember).
Our MNCs don’t want a separate currency.
We could (maybe) borrow in punts some day, albeit probably at a very high interest rate to account for currency risk.
We’d have a run on Irish banks, capital and exchange controls, and immediate huge drop in living standards.

Where’s the upside? The primary illogic she’s asserting is that people who are sick of pseudo-austerity would want to leave the Euro so that we could have immediate bedlam and experience austerity properly.

It seems like madness to me, but it’s quite possible that people would vote for that, I guess. SF’s poll numbers are up, after all.

It’s still a surprise to see someone from the EIU using illogical arguments in support of a dangerous course of action.


I’ve had quite an amount of engagement with US economists over the years and one thing I’ve found is that their perception of the world outside the US is filtered by their instinctive allegiance to the US’s exceptional constitutional (legislative, executive and judicial) arrangements. Having being inculated from the cradle with the belief that they live around the ‘beacon on the hill’ many find it difficult to grasp the functionings of other long-established democratic polities. For better or worse, the EU is what we have. And we have a responsibility to engage with our partners and develop the Union. (Michael Noonan was particularly good yesterday on the hubris and bragging that has helped to isolate Ireland within the EU.)

And yes, the EU’s approach to the break-up of Yugoslavia was reprehensible, but it has learned from that experience. The EU is nothing more than a work in progress, but it is a work worth progressing. The alternative doesn’t bear thinking about. And it would ill-behove Ireland to do anything that would cause it to stumble.

And Michael H, your final observation encourages me to add ‘increasing isolation in an emerging multi-polar world’ to Britain’s managed economic decline.

It’s rubbish. Leaving the euro would clobber the economy. Doubtful if significant financial services sector and mncs would remain with a volatile punt/euro exchange rate. What would happen to companies trying to service euro debt off a broken punt?

I can’t see how exiting the Euro would be less traumatic than welching on ALL our debt, scrapping the bank guarantee and writing down the debts of insolvent people.

Even if the Euro collapsed, I’d probably be in favour in unilaterally adopting the Deutschmark 2.0 or the dollar.

re: erry Adams could be the Leader of the Opposition. Interesting times.

When this budget hits with additional levies of 5% on people from €352 per week to €500 per week, the Gerry Adams could well be negotiating with the bondholders.


Don’t seem to remember what the female equivalent of ‘puerile’ is at the mo – but this is a most simplistic piece of journalism by Ms Greene ….. The Economist must be missing that new lad in the Irish Times – may we expect a little retort from DanO Brien to this stuff?

…. & some comments in FT earlier thread on eBond are plainly – well – wrong: projected disaser_ous_ly as a bail-out for the peripherals when it is a much more progressive and substantive move to greater integration and strength within the European Union – such drivel assists in splitting EU opion making political progress even more difficult. Who counts? Who controls? And in whose interests is this stuff peddled ……..

WE ARE EUROPEANS. The present battle within Europe – philosophical + political + economic + financial + social + psychological – is happening NOW. Let’s play vigour_US_ly.

…. so lets get back to figuring out how to restructure banking system debt, in intense communication with other EZ citizens, and push for a European solution – which ‘theoretically’ [and a la Olli ‘intellectually]’ exists.

Sitting and waiting it out to 2013 is a frightening option – sovereign default becomes inevitable …. but events, dear boys and girls, EVENTS within the European Project are accellerating and anyone who thinks they can predict 2013 at the mo is a fool or a spinner in someone’s interests.

I am not an economist bit I have at least an Economics 101 academic exposure to the field. I recently stated checking the hoping for some clarification on the economic choices facing the country. I have just checked out a definition of what are called ‘gilts’:
Risk-free bonds issued by the British government. They are the equivalent of U.S. Treasury securities. The name “gilt” comes from the original British government certifications that had gilded edges.
Are our government bonds not supposedly in the ‘gilt’ category? Following the September 2008 guarantee are the Irish banks senior debt not now ‘gilts’? Access to the expert opinions on this website have left me even more uncertain about the best economic choices for the country and unsure of the accuracy of the definition of ‘gilts’. If the State now defaults hasn’t the ‘gilt’ of out bonds now and in the future been removed and then should not the interest that we pay for government borrowing increase in perpetuity to reflect increased risk.

True experts, it is said, know when they don’t know. However, non-experts (whether or not they think they are) certainly do not know when they don’t know. Subjective confidence is therefore an unreliable indication of the validity of intuitive judgments and decisions. “High-validity” forecasting environments exist when there are stable relationships between objectively identifiable cues and subsequent events or between cues and the outcomes of possible actions. Medicine is practiced in environments of reasonably high validity. In contrast, outcomes are effectively unpredictable in zero-validity environments. To a good approximation, predictions of the future value of individual stocks and long-term forecasts of political events are made in a zero-validity environment.

An environment of high validity is a necessary condition for the development of skilled intuitions.
Other necessary conditions include adequate opportunities for learning the environment (prolonged practice and feedback that is both rapid and unequivocal). If an environment provides valid cues and good feedback, skill and expert intuition will eventually develop in individuals of sufficient talent.
Although true skill cannot develop in irregular or unpredictable environments, individuals will some-times make judgments and decisions that are successful by chance – David McWilliams, Paul Sommerville?. These “lucky” individuals will be susceptible to an illusion of skill and to overconfidence. The financial industry is a rich source of examples – with regard to this point Leonard Mlodinow’s “The Drunkard’s Walk – How Randomness Rules Our Lives” should be compulsory reading for all economists.

Fractionation of skill is another source of overconfidence. Professionals who have expertise in some tasks are sometimes called upon to make judgments in areas in which they have no real skill (many of the panellists on Tonight with Vincent Browne?). For example, financial analysts may be skilled at evaluating the likely commercial success of a firm, but this skill does not extend to the judgment of whether the stock of that firm is underpriced. It is difficult both for the professionals and for those who observe them to determine the boundaries of their true expertise.

It seems to me that those who claim to have expertise in economics are using their intuitions in a very low validity environment. So I am now going to rely on my own non-expert intuition in coming to a view on what is right. Having read many of the recent posts I have to say that I find Paul Hunt’s views to usually sound right and pragmatic (of course, I am responding intuitively in saying this).

The fundamental issue at stake is control over the money supply. Money itself has no intrinsic value. Its value is that of a means of exchange.

The government could issue a state ‘credit’ card indexed and backed by the resources held by NAMA. Those ‘credits’ could then be used as a means of exchange for goods and services within the domestic economy facilitating the transfer of econmic resources (activity / work)

If the interest charged on ‘credits’ were zero, supply would be dictated by the the value of assets held by NAMA and the creation or addition of new resources in the economy. Distinct from currency, these ‘credits’ would not be traded as goods in themselves (0% interest rate)), and would exist only as a means of exchange to facilitate transfers within the domestic market. No debt is generated by this model. Precedent has been set by existing corporations such as TESCO.

The domestic market would operate as a sub-economy without necessitating leaving the euro as those ‘credits’ would be indexed to the assets held by NAMA which have in turn been valued in euro. ‘Credits’ could ultimately be exchanged for tax credits at the end of the fiscal year. So long as ‘credits’ in the economy exceed tax credits, the model will perpetuate as the demand for tax credits equates to the demand for ‘credits’. Thus the government control the supply.

Simultaneously, Ireland would be insulated from any currency war / flucuations.

‘Credits’ would equate to a cross between food stamps and greenbacks.

NAMA is a clean,fully capitalised, soverign CORPORATION.

By issuing ‘credits’ backed up in full by property assets, the floor of that market will be set.

Demand for expensive loans from international money lenders is thus reduced and domestic activity is incresed.

if we raised the coporate tax rate we could appease our european financiers and probably dispel many of the doubts regarding such a plan. ultimately, corporations could then exhange domestic ‘credits’ for tax credits…..

One of the advantages of leaving the Euro would be the potential to fund some sort of investment program. Is it clear-cut that defaulting and leaving the Euro would result in a complete freeze-out of international markets, or is it just that the interest rates demanded by would-be investors are likely to be so exorbitant that it would be an effective freeze out? In the case of the latter would it not be possible to issue bonds (at very high interest rates) in which case the central bank could buy them back off investors so that it would just be one branch of the state owing the other. In the context of massively reduced demand and excess capacity such ‘printing of money’ is unlikely to be excessively inflationary. Indeed, most of Japan’s 220% of GDP debt is held by its central bank. Any thoughts?


Common Currency in Trouble: What Europe Should Do about the Euro Crisis [Der Spiegel]

‘Even the bankers — who it seems are to be protected from a general debt restructuring and any fresh pressures — doubt that this is the correct strategy. Andreas Schmitz, president of the Association of German Banks and head of the bank HSBC Trinkaus & Burkhardt says:

“The check’s on the table. The question of who’s going to pay is still open.”
To the question of whether the governments would be better advised to let creditors such as banks and insurance companies foot some of the bill as well, Schmitz says:

“Private banks are fundamentally in favor of such a concept.”,1518,733388-2,00.html

@ all:

It seems about time I joined this debate, given that I helped to spark it. The headline of the FT piece (“Ireland should leave the euro”) is slightly misleading (I obviously did not write the headline). If you read the article, you will see that the piece is not actually prescriptive.

Leaving the euro area comes down to a political decision, given that there is currently no mechanism for kicking a country out of the common currency. In Greece, Portugal and even Germany’s case, I cannot imagine a political leader doing the cost/benefit calculus and deciding to withdraw their country from the common currency. The costs far outweigh the benefits for these countries. This might also be the case for Ireland, but the calculus is MUCH less clear. I think Ireland is the best candidate in the euro area for abandoning the euro, clearing the deck and returning fairly quickly to a path of sustainable growth. I outline some of the reasons why in the FT piece.

It is not currently my central forecast that Ireland will leave the euro zone. I imagine a number of policy changes will be tried before it comes to this (among them QE by the ECB to stem the contagion of this crisis until mid-2013, when the ESM kicks in and orderly defaults occur). However, I would not rule out Ireland leaving the euro area either. Painful as abandoning the euro would be, it should be on the table as one potential path for Ireland out of the current crisis.

Why leave the Euro and stand alone when you can destroy it and put everybody in the same boat?

Apart from that, I think we should ask Germany to leave before we consider leaving ourselves. Or is there some over-arching reason why we want to keep Germany at the centre of this financial/political union… ?

@Megan Greene

I Accept that you did not write that prescriptive headline – and I have made positive comment on your journalism in earlier posts …. yet such headlines are simply giving ‘live ammunition’ (as one of the locals puts it) to the zenophopic far right nationalists throughout Europe [see votes in Finland and The Netherlands] and to their fellow travellers in the UK – and HERE, where the FT and The Economist retain some cred within certain sectors of our present servitude ….

“If Ireland’s government continues to guarantee bank debt, a restructuring of sovereign debt seems inevitable in 2013, when the present bail-out expires. Ireland simply has too much overall debt. A high-interest loan from the European Union and International Monetary Fund will only serve to buy a little more time.”

I agree. Not only Ireland, but many other EZ sovereigns need a restructuring of banking/financial system debt. This is primarly an EZ problem – and mainly an exceedingly difficult political one ….. I can visualize a ‘default’ within the EZ (assuming a sufficiency of peripherals and core pragmatists) before a default and exit from European Union.


‘Or is there some over-arching reason why we want to keep Germany at the centre of this financial/political union… ?

Without German Philosophy – Present Day Europe Does Not Exist. Without German Philosophy the Future of Europe Does Not Exist. In terms of the front row – Munster Rugby Philosophy would suggest that the Limerick Hooker keep an Englishman on the ‘loose’ side and the German on the .. er .. ‘tight’ side …. good way to keep an eye on the two of them (-; and the main reason the EU exists in the first place.

@David O’D
The Englishman is largely irrelevant in the EU project, as are we. We can both be good Europeans and we should be, but the EU project is most important for and relevant to the countries who physically adjoin each other. France, Germany, Netherlands, Belgium, Italy, etc.

Hi Megan, and welcome. Thanks for adding your comment.

You are absolutely right, and I apologise for mis-stating your position. You say we should consider leaving the euro: I’ve fixed that now. And I agree with you: there would be big gross costs, and big gross benefits, and a mature society should be able to debate these things.

I also think we should be thinking about what happens if the whole euro project goes belly up: we may not choose to leave the euro, but others might make the decision for us.

@Hugh Sheehy

Are you seriously suggesting that an Irishman should take his eye of the Englishman? (-; Or that any sentient Englishman with an ounce of nous would be so foolish as to reciprocate? This would signal the collapse of Western European Civilization as we know it! Not to mention the ol reverse take-over of these islands that quietly if latently stirs in the hearts of the Celts, not to mention the Goths!


Patricia the Sovereign_in_Exile appreciates the loan of the few bob from HRH.

@ Megan

Welcome. I am one who wished we never had departed from sterling in 1979. I also believe that entering the euro in 1999 was a mistake though the correct alternative of rejoining sterling when the punt had falled to 85p over the 20 years of ERM would have been a difficult sell. But we never, ever should contemplate a stand alone currency.

The low interest rates and the huge liquidity brought by the the euro project unfortunately got us completely drunk. Now we have the hangover. But believe me, everyone I know thanks their lucky stars that we are now in the euro, otherwise it would be Argentina (if we had gone solo i.e. without sterling).

There were some excellent articles in the FT and the Economist recently which explained how in practical terms leaving the euro would cause absolute chaos. But they also hypothecated that even if we could achieve that at the click of a mouse it actually would be counterproductive. For example our GDP would overnight collapse by the extent of the devaluation (maybe eventually recovering) whilst our debts (mainly external) would not be so devalued, hence greatly increasing our debt/GDP ratio. Anyway you yourself have given several reasons why it would not make economic sense even if it was logistically achievable.

@ Paul Hunt

“For better or worse, the EU is what we have. And we have a responsibility to engage with our partners and develop the Union. (Michael Noonan was particularly good yesterday on the hubris and bragging that has helped to isolate Ireland within the EU.)”

The hasty and uncoordinated bank guarantee which instantaneously made the sovereign insolvent is the central event in our progressive isolation within the EU. Surely rowing back on that idiotic move, which none of our European partners replicated, would be a start to becoming a normal country again?

@Mick Costigan,

I’ve written previously about the guarantee sending us into the orbit and the rest of the EU. through gritted teeth, seeking to get us back on to a safe flight path. This has been achieved, as the Government grimly clung to power, over an extended period and at enormous cost to the economy – in particular, because the EU does not yet have the institutions and procedures in place to bring us to a safe landing and because the voters in the core EZ countries have not yet been squared to accept the costs that they might have to incur. (These result from a fundamental democratic deficit at the core of the EU project, but this cannot be addressed during this crisis – though it will have to be addressed eventually. In nay event Ireland was a willing party to the development of the institutions and procedures that have now proved so inadequate.)

But this will happen. Maybe not as quickly as we would like; but it will happen. In the meantime we will have to grin and bear it – and not do anything rash that will scupper this effort. We need to remove any policy-imposed burdens on the tradable sectors – which are displaying remarkable resilience – as this will benefit the domestic economy both directly and indirectly.

We need to realise that misgovernance, stupidity and greed has temporarily excluded us from the full approval and support of better governed countries. We will have to re-earn the right of full inclusion. Any talk about brave and foolish gestures such as a unilateral default on bank debt or leaving the Euro cannot be in Ireland’s interests.

Finally I get to hear the view of someone who has been through what the advocates of a default propose.

Could some of the economist contributors to this forum critique what Martin Redrado has to say about the perils of default. He appears to me to be suggesting that for the less well-off in society the misery resulting from default is unacceptable.

@ Paul Hunt, Gerry Fahey

What we are talking about here needs to be defined clearly. Default, with its connotations of “walking away” and not facing up to responsibilities, is a loaded word. Restructuring so that a debt burden can actually be paid off is much clearer.

I and many others on this site and in the wider media and economics profession have consistently argued that the combined bank and sovereign debt burden we now bear is unsustainable and renders us insolvent*. We simply cannot grow our way out of the hole that was dug when the banks debt was added to that of the sovereign. In such circumstances restructuring of at least part of this debt is inevitable. The markets know this. As I have alluded to before, when a debt burden is unsustainable, well-organized restructuring can actually increase its value (see Michael Pettis book The Volatility Machine for more).

I/we are arguing that the first step on that restructuring is the separation of the banks from the sovereign, which would restore us to something like the position many of our European neighbors are in. Further, if it could be achieved credibly, it would instantaneously make the sovereign a more credible borrower, because its overall debt burden would have been reduced. The arguments that the seniors and the sovereign debt holders are the same people and if stiffing one group means the others will take tehir ball and go home are, to be frank, the product of people being bullied by the financial markets who don’t know a thing about negotiation or financial markets.

It has been made perfectly clear by the revelations around the IMF deal that the reason the EU/ECB/Germany doesn’t want to allow a restructuring of any Irish debt is that they believe that it could set off a chain reaction which would bring down the European financial system. So Ireland is in a position where it is being forced to save the European banks by imposing an historically never-before-tried amount of austerity on its population. And we know that this austerity will ultimately be futile, because we will still be insolvent. Restructuring is the endgame, John McHale and John the Optimist’s views aside.

In case you’re in any doubt about the issue with separating the banks and the sovereign being at the heart of this, read John Dizard in Monday’s FTFM on the negotiations between Iceland and the Icesave creditors in the UK and the Netherlands: “The question in the Icesave dispute was the responsibility of the state for covering all the liabilities of an insolvent banking system, as distinct from an insolvent bank, or banks, whose deposits could be covered by solvent national deposit insurance schemes. The Icelanders had their position on that point; the UK and the Netherlands disagreed, and the Icelanders were prepared to go through with litigation to determine who was right. The Icelandic bank bondholders as distinct from depositors, will have to wait to get a partial payout on their losses. One of the reasons the Icesave dispute will be settled, rather than litigated, is that European authorities do not want a definitive, Europe-wide answer to that deposit-insurance-responsibility question, or at least not yet. You can add that can to the rubbish-bin-load that is being kicked down the road.”

I do not argue that a restructuring default will inflict some pain on Ireland, though I strongly disagree with the attempt to draw parallels with Argentina. The problem with us doing this is not what the consequences will be for Ireland, it is the consequences might be for the European financial system. The people behind that system need to take responsibility, a la the Gros proposal of a few days ago, and stop forcing the Irish people to suffer.

* At last count Martin Wolf, Barry Eichengreen, Kevin O’Rourke, Ken Rogoff, Daniel Gros, Michael Pettis amongst many others

@Mick Costigan

What we are talking about here needs to be defined clearly. Default, with its connotations of “walking away” and not facing up to responsibilities, is a loaded word. Restructuring so that a debt burden can actually be paid off is much clearer.

Actually, for most people it is the term ‘restructuring’ that is unclear. To many it sounds like nothing other than a euphemism for default.

Perhaps ‘partial default’ is the most appropriate and understandable term.

You write that a restructured default ‘will inflict some pain on Ireland’. Do you expect that some to be greater or less than the pain imposed by the ‘never-before-tried’ austerity currently in the pipeline?

I expect it will be greater in the short term. Those in favour of the ‘restructured default’ should come out and say so openly, if that is what they think.

‘Ireland is not Argentina’.
Let’s hope so.

@Paul Hunt
I think you are being harsh on the British. Much of their commentary comes with the observation that if they had been in the Euro they would now be toast. How would the UK be doing if it hadn’t devalued by 20%? Not well, they think. Irish anti-British Euroscepticism is often as knee-jerk and inflexible as British Euroscepticism. I remember Pat Kenny interviewing Bernard Ingham some years ago. Pat was declaiming negatively on illogical British euroscepticism. Ingham said that Ireland was pro-European because it got so much money from the EU. Pat swiftly changed the subject. Finally, I voted yes in Lisbon referendum.

+1 Paul Hunt and zhou_enlai

I’m a european citizen – let’s see this plan out – I hope the EU will muddle through and come up with a solution – too slowly for a lot of people but that’s the way the system works. My endorsement of your opinion probably doesn’t reflect well on your more thoughtful positions – but I am late to the debate and have only scanned some comments – I just want people to know that there are people out there who are not anti-Europe and pro-default, pro-exiting euro etc..

Can someone explain why not wanting the Irish taxpayer to bear the cross of the poor decision-making of European lenders, the obfuscation of fudged stress tests that covered up the capital weaknesses of those same lenders, and the gross cowardice of Euro-politicans who say “we all know what we have to do but we cannot say it publically” is equivalent to being anti-Europe?

It seems to me like you’re setting up a strawman there Mr. Fields

@Mick Costigan

I have no wish to set up straw men – some people feel strongly about Irish sovereignty – I feel strongly about the European project – Ireland is at least 50% (if not a good deal more) culpable for the position we are in – we signed up for the euro, we must now work within the confines of the EU to sort this EU wide problem – trying to bail out of the EU doesn’t appeal to me on an emotional level. You say it’s gross cowardice – I think it is realpolitik – the EU is like herding cats – it takes time for political leaders time to get beyond their national interests and see the larger EU interest. It’s late I’m not making a very coherent logical argument but just outlining my emotional attachment to Ireland’s commitment to the euro pitted against a lot of anti-European/IMF/euro emotion.

@Brian Woods II

Most in the default camp would be under the impression that our external debts would be defaulted on via a grossly devalued punt.
Is this another false meme being implanted by a loyal euro drone ?

Anyhow in any negotiation the defaulting party needs to be credible – it has to have a civil service independent of its parasitical central bank and fellow euro dreamers and also needs a coherent solid poltical base.
This conversation is acedemic when you have a blind , deaf and dumb civil service and a population that cares more about the results of X -factor then preserving any vestiges of freedom.

Massive euro deflation followed by artifical banks with no deposits here we come – Ben Bernanke once called for banks with no need for deposits that could give unlimited credit.
It looks like irish banks in this brave new world will have no deposits and no credit.
The ECB will occasionally produce high powered money for us if we are good little europeans and if we are not……….

I want to projectile vommit now – good night.


The UK retained some sovereignty to address the potential financial meltdown exacerbated by previous policy failures. The meltdown in Ireland was more severe becasue Ireland had ceded much of this sovereignty. Unfortuntaely seeking to claw this back and exercise it is no solution now.


Not wishing to restrict engagement but John McHale has posted on his Indo piece on these issues which might provide a more convenient location to resume engagement.

@ All,

This is unrelated I know, but I would like to share this with some of you. I happened to listen to a very interesting debate from LSE the other evening, and of the many things I have read or listened to, which attempts to describe the situation in Ireland, one person has come very close to going in correctly in my opinion. David Harvey, has been advancing his various ideas down through the years in various books, and comes from a background in geography. He looks at the conflicts inherent in the accumulation of capital. It seems to me, that that Ireland as a small nation was ideally suited to suffer from the ills, in the system, as outlined by Harvey. As many people become wealthier, they have a tendency to behave as a group, which can lead to certain behaviours around urban areas, and eventual collapse of the system, which underpinned their wealth. I am unable to describe it in short paragraphs. Harvey says it a lot more clearer than I can. I will simply direct you to his website. BOH.

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