Euro breakup – the warning signs

As a group of German University Professors prepare to challenge EU’s Greek bail out in Germany’s notoriously tough constituitional court, Morgan Stanley analyst Joachim Fels warns that Eurozone countries with a preference for price stability, led by Germany, may break away. He posits three signs indicative of a Eurozone break up

What are the signposts that would indicate our break-up scenario is in fact unfolding?

First, watch fiscal developments in other euro area countries closely: Our suspicion is that the aid package for Greece lessens other governments’ resolve to tighten fiscal policy, especially in an environment of ongoing economic stagnation or recession.

Second, watch ECB policy closely: If the ECB turns out to be slow in raising interest rates once inflation pressures return, this would be a sign of a politicisation of monetary policy.

Third, watch the political debate in Germany: Support for Greece has been extremely unpopular and fears that the euro will turn into a soft currency abound. If the aid package for Greece, which so far is a backstop credit line, becomes activated, eurosceptic forces would receive a significant further boost. And, needless to say, if other countries also needed financial support, this would further strengthen euro opposition.

Read more: http://www.businessinsider.com/morgan-stanley-bailing-out-greece-massively-increased-the-chance-of-a-eurozone-collapse-here-are-canaries-to-watch-out-for-2010-4#ixzz0lBL73NaI

Related George Soros warns of European disintegration.

  • Henry94

    May it die roaring. Germany leaving would be the absolute benign scenario for Ireland. The euro would collapse along with our debts and we would emerge from the shower like Bobby Ewing wondering who built all those houses.

    We can hope.

  • Mack

    Henry94 – Depends. The Telegraph article about the constituitional challenges is more apocolyptic.

    “This court hearing is going to be very dangerous,” said Hans Redeker, currency chief at BNP Paribas. “It could lead to Germany itself being catapulted out of the currency union. Once investors begin to fear this, there will not be single euro in further financing for the EMU periphery.”

    That’s us too..

  • mack

    As our in-house economist, or anyone else come to that, in the long run, is it possible to have a currency like the Euro without political and tax raising unification of the member states.

  • Henry94

    Mack

    It would be a rough ride of course but I would compare it to Britain being forced out of the EMU. Each country would be free to find its own level and investment decisions would soon be made on the basis of local conditions.

    If the euro is to go then Germany leaving first would be the best and safest way for it to go. There would be a rush to the new Deutschmark and to the USD in the short run but things would return to stability quite quickly.

    The euro was a very bad idea and the end of a bad idea is a good thing.

    When did the Celtic tiger start? When we broke with Sterling. When did it turn into a property bubble? When we joined the euro.

    That’s not the whole story but it is a lot of it.

  • Damian O’Loan

    This is not objective reporting; it is designed to add pressure to the Eurozone do comply with the financial sector’s interests.

    “Our suspicion is that the aid package for Greece lessens other governments’ resolve to tighten fiscal policy, especially in an environment of ongoing economic stagnation or recession.”

    Privatise, extensively and quickly, or we’ll accuse you of stability, ‘we’ including the arbiters of your stability.

    “If the ECB turns out to be slow in raising interest rates once inflation pressures return, this would be a sign of a politicisation of monetary policy.”

    Politicise monetary policy to comply with our strategy, or we will accuse you of instability. Create instability with our methods and we stay silent.

    “If the aid package for Greece, which so far is a backstop credit line, becomes activated, eurosceptic forces would receive a significant further boost.”

    If Germany calls on countries to respect the tight fiscal policy regarding Eurozone membership, thereby decreasing the number of bankrupt countries, we will call it Eurosceptic and call the entire EU project unstable.

    Basically, accept our proposed form of instability or we will impose a worse one.

    Or perhaps the EU just reached an agreement which ensured that the ECB is not replaced by the World Bank, and MS/Soros don’t want it to establish an EMF.

  • FitzjamesHorse

    Hopefully its just the start.
    Europe is destined to break up. The sooner the better.
    As the Saint Garret claimed……nobody would have voted for the Common Market if the full extent of loss of sovreignty was explained to them.
    It was done by stealth so that only nutters like Nigel Farage and a nutter like myself can still go on about leaving EU (or whatever its called these days).
    Probably it was astep too far (hooray) to bring in Eastern Europe en masse and set up effectively two tiers of economy and similarly the whole Euro Zone thing was at best bad timing or at worst a bad idea.
    Of course national sovreignty can be dismissed as old fashioned in times of good harvests so to speak…..but in bad harvests as we are now experiencing, its a good fall back position.
    If the German taxpayer who doesnt get a pension until hes 103 or whatever doesnt want to work until hes 110 so that Greeks can retire at 41 or whatever……well I dont blame them.

  • Mack

    Damian –

    I don’t quite get your reasoning?

    I think the financial sector analysts are saying that Euroscepticsm will rise in Germany (backed by their constitutional court) if Germans get lumbered with the bill for other EU nations fiscal incontinence.

    They’re not calling German demands that other nations respect the stability and growth pact Eurosceptic (in fact the opposite).

    The Verfassungsgericht has already ruled that nations are the masters of the Treaties and not vice versa. Creating a potential legal aswell as a political headache for Germany if the ECB & Eurozone becomes more latin and less Tuetonic in character. The warning signs are all based on actual policy changes that would be interpreted negatively in Germany.

  • Damian O’Loan

    In that regard, Mack, the German government did the right thing from the perspective of this organisation, except using the wrong instruments.

    The counter argument is that by having all these individual nations competing to attract business, Morgan Stanley would personally gain. Or that a successful plan for Greece could increase confidence within and in the Eurozone. That the UK is in a more perilous position but retains its AAA and is not criticised, because it is presumably buying the same debt restructuration services that Greece was.

    It is true that there is a strain on the Eurozone, which the two sources stand to gain from, but that a currency should meet a recession after 10 years is not remarkable and does not mean it is in existential crisis. That nationalism increases during economic hardship and that there is a permanent tension in the EU and Eurozone between sovereignties doesn’t amount to existential crisis either.

    I would have thought that Germany or the Eurozone, like the two authors, is waiting for the moment when the Dollar is no longer the global reserve, watching the Yuan closely and thinking it may well profit from the shifts.

  • Mack

    Damian –

    I doubt the UK is in a more perilous condition than Greece. They can (and have) devalued their currency (and thus their debts) – the yield on a 10 year British government bond is around 4% – the yield on a 10 year Greek government bond surged past 7.5% last week.

  • Mack
  • Martin Wolf has been developing an interesting line of argument in the FT that a lot of the periphery’s problems are less about fiscal incontinence, than the collapse of strong private sector demand that was the necessary counterpart to weak demand in Germany.

    The project of monetary union confronts a huge challenge. It has no easy way of resolving the Greek crisis. But the bigger issue is that the eurozone will not work as Germany wishes. As I have argued previously, the eurozone can become Germanic only by exporting huge excess supply or pushing large parts of the eurozone economy into prolonged slump, or, more likely, both. Germany could be Germany because others were not. If the eurozone itself became Germany, I cannot see how it would work.
    http://www.ft.com/cms/s/0/d598e6fc-3c2c-11df-b40c-00144feabdc0.html

  • for fairly good news coverage from Germany (in English):
    http://www.spiegel.de/international/

  • Mack

    Tom –

    With regard to Ireland it’s another way of expressing the same thing. The Irish banks borrowed huge amounts of money on the European wholesale markets, which was then multiplied in Ireland through the magic of fractional reserve banking. The government mistook the increase in money (and concomitant tax revenues) slushing about in the country as a sustainable boom and decided to cut taxes and massively raise spending. Had the recognised the bubble for what it was – a bubble fueled by cheap European credit – they would have recognised their behaviour for what it was – fiscal incontinence.

    The ruling idea here is that the weakening of fiscal positions in peripheral countries reflects a lack of fiscal discipline. That is true of Greece and, to a lesser extent, Portugal. But Ireland and Spain had what seemed to be rock-solid fiscal positions (see charts).

  • Damian O’Loan

    Mack,

    The Euro/Dollar exchange has also changed quite dramatically. Not to the same effect perhaps, but the prospects for the UK as an exporter of goods are nil so they have a more simplistic leverage – not more stable long-term. The value of UK bonds also depends on a number of things including UK Treasury purchases, transparency (in a converse relationship) and the formation of the next government – although that last is most likely minor.

    My main point is that we aren’t seeing front pages on the collapse of Sterling, and the evidence presented here seems so weak as to make the discussion seem like simple pressure being placed on the Eurozone.

  • Mack

    Damian – there isn’t so much evidence being presented here (outside of the constituitional challenge) more a set of warning signs that would signal trouble ahead.

    http://www.spiegel.de/international/europe/0,1518,688580,00.html

  • Damian O’Loan

    Mack,

    I think it’s important to distinguish between the views on vehicles of Eurozone rescues and the desirability of the rescues themselves. It seems to me that the former is being taken for the latter in an effort to encourage certain courses of action, and this doesn’t reflect political reality as much as a certain market demand.

  • slug

    I am an economist. (Though micro is my specialism).

    I think yes that greater fiscal policy coordination within the Eurozone – including transfers from one part to another – will characterise the future. The Irish economy may however be one of the successful parts of the zone and need not feel threatened by this greater coordination.

  • Procrasnow

    the slide has started

    http://www.xe.com/ucc/convert.cgi?Amount=1&From=GBP&To=EUR

    I would not buy it yet, will probably reach 1.25 1.30 within a few weeks, a good time to start buying small would be 1.22

    good to see it

  • There are some of us who think getting the hell out of the Euro would be a very good thing. We (flat broke, brassic, us!) have actually volunteered ‘X’ amount to Greece? Under what blue moon did that happen? And why should we underwrite the debts of those who lied to get into the ‘club’ to begin with.

  • Framer

    It seems only fair that Ireland should hand over $500 million to prop up the Greeks. Didn’t they pay more over the years to Ireland for its demands based on the law of the Irish exception?

    Anyway the costs of leaving the Euro would be more than staying put.

  • John East Belfast

    What a lot of you are totally under estimating is the total financial chaos that would associate a break up.

    A Euro break up was never regarded as a possible scenario and indeed my understanding is that there isnt even a plan. I am not just talking about the administrative chaos of accounting etc – that is small fry.

    The main problem is the Financial flows that would occur in the run up to such an event. It wouldnt happen over night but would be flagged up with a series of problems over months.

    What would everyone do in that period ?

    Let’s take the ROI for an example and lets say you had Eur 100k in a bank in Dublin. If break up became a likely reality currency speculation would become a one way bet against the Euro and you would immediately head north and put it in a UK bank in Sterling and buy £ with them knowing for sure that you wouldnt get £1 = IR1.14. Not a chance.
    Everyone with Euros would be selling them at a high price when they could get it knowing that the near future would see their fortunes decimated. This would especially happen in the poorer PIIGS states and you would end up with 1970s foreign exchange controls to stop it.

    Not to mention somebody with a say Eur 400k Pension pot hoping to retire to the sun would be decimated over night.

    That is just the citisens and companies – what do you think will happen with the likes of George Soros etc.

    If you think the bank bail out was expensive a Euro bail out would impoverish Irish citisens for decades.

    The Euro is too big to fail so they wont let it happen – what they will force though is economic and fiscal convergence and make it work this time – ie not only will you lose monetary independence but you will also lose fiscal in all but name.

    That is why Sterling stayed out of the Euro and was totally vindicated in doing so.

    What the ROI should do – and I know Irish Nationalism cannot bear the though – is seek its own phased withdrawel from the Euro – VIA STERLING !

    The UK and ROI Ecomonies are more closely aligned and the BOE Monetary Commission will effectively act in the better interests of the ROI economy (by default) than the ECB will. Assuming of course if the UK authorities and BOE would allow them to re-join – and that is a big if

    The ROI should transfer its Euros into Sterling sooner than later and start using £ – it will accelerate the fall in prices south of the border relative to the north much more quickly but orderly and would provide a floor to the currency free fall.

    In 10 years – if you must – you can exit sterling and have your Punt back.

    I must say it is weird times watching the ROI consitantly contort its economic policies – ridiculously low corporation tax and abdicating it monetary policy to the Europeans – just to distance itself from all things UK.

    The correct model is on your doorstep and always has been and indeed if you want the Punt back and monetary independence then you should grab it with both hands

  • Framer

    The mood Im in? my answer is: fucking sue me!

    As for the cost of leaving Europe (that would be gentlemans club), its worth it. Our biggest customer still has its own currency and that aint going anywhere anytime soon.

  • Mack

    JEB

    must say it is weird times watching the ROI consitantly contort its economic policies – ridiculously low corporation tax and abdicating it monetary policy to the Europeans – just to distance itself from all things UK.

    Neither policy were influenced by a desire to get away from the UK.

    Ireland didn’t have a large indigenous base of companies to tax to fund a generous welfare state etc. So instead they sought to attract foreign companies here. Particularly taking advantage of the emergence of the European common market and the Irish diaspora. As a policy it has worked, and continues to work spectacularly well.

    AFAIK, when Ireland started to plan for EMU and the Euro they did so on the understanding the UK would be joining too!

  • Mack

    JEB –

    A Euro break up was never regarded as a possible scenario and indeed my understanding is that there isnt even a plan. I am not just talking about the administrative chaos of accounting etc – that is small fry.

    The main problem is the Financial flows that would occur in the run up to such an event. It wouldnt happen over night but would be flagged up with a series of problems over months.

    I think overnight is the only way it could be done. You make an announcement at 6 PM €1 (Euro) is worth £1 punt – retrospective legislation to be put in place (is this possible?). All deposits, debts (a default for sure, but neccessary) etc are converted into punts at the same nominal value and the punt floats against the Euro.

    Internal trade would continue to be done in Euros (until changeover logistics can be organised), which banks would treat as a foreign exchange transaction on withdrawal & deposit.

  • Mack

    If Ireland ‘understood the Brits would join the EMU, they forgot a minor detail: the English…

  • Mack

    Mick –

    Not sure blogging on economics qualifies me to give any sort of definitive answer to that. I did a bit of research, there are opposing views – but I don’t think it’s ever been done successfully without leading to some sort of fiscal union..

  • John East Belfast

    Mack

    What I meant was that the ROI as a small nation on the edge of Europe which “didnt have a large base of companies” has had to create innovative economic policies to survive.

    I dont believe in small nations in the 21st Century – unless you are Switzerland or have your own natural resources it makes sense to be part of a larger critical mass.

    The United Kingdom provides that and connects you into the power house which is the City of London. At the same time you can be as Irish, Scottish, Welsh as much as you like – the UK is a unity of Kingdoms and identities.

    Irish independence did not make any sense or deliver for most of the 20th Century and that is how the early decades of the 21st Century is shaping up as well

  • John East Belfast

    “think overnight is the only way it could be done. You make an announcement at 6 PM €1 (Euro) is worth £1 punt – retrospective legislation to be put in place (is this possible?). All deposits, debts (a default for sure, but neccessary) etc are converted into punts at the same nominal value and the punt floats against the Euro.”

    You cant be serious ?

    Overnight ? – you dont make decisions like thsi overnight.

    I assume you mean the ROI of course ?

    However even if they managed to keep it a secret I think you would most definitely have a revolution the next day – I think they literally would be lynched.

    You go to bed with Euro 100k and wake up the next morning with Ir £100k which by lunch time is worth Eur 50k !

    LOL there would be another storming of the GPO – what about doing it on midnight on easter Sunday 1916 for the nostalgia.

    Mack I dont think you are thinking this through

  • Mack

    Irish independence did not make any sense or deliver for most of the 20th Century and that is how the early decades of the 21st Century is shaping up as well

    Irish independence didn’t deliver because of the policies that were pursued prior to the late 1960s were nothing short of mental.

    Compare the first 50 years of Irish Independence (1921-1971) to the first 50 years of the Union (1801-1851) – there’s is catasclysmic event in there somewhere, the collapse of the Irish language, penal laws, Fenian wars etc.

    I’d rather live in Dublin than Cardiff, Edinburgh or Belfast.

    I dont believe in small nations in the 21st Century – unless you are Switzerland or have your own natural resources it makes sense to be part of a larger critical mass.

    Singapore posts 32% GDP growth (annualised) in Q1 2010

    http://ca.news.finance.yahoo.com/s/13042010/2/biz-finance-singapore-s-economy-soars-32-cent-q1-2010.html

    We’re part of the EU, so we’re not quite on our own, but many of the richest countries in the world are small states that specialise in niche areas.

  • Mack

    JEB –

    You go to bed with Euro 100k and wake up the next morning with Ir £100k which by lunch time is worth Eur 50k !

    Yeah you are right – local prices marked in Euro would be sticky. You get currency devaluations (maybe not that extreme) but certainly of the order of 20-30% and people don’t really notice because what they are purchasing comes down as well.

  • JEB,
    “You go to bed with Euro 100k and wake up the next morning with Ir £100k which by lunch time is worth Eur 50k !”

    Interesting. I suppose this is why German withdrawal form the Euro has become a possible scenario. If German withdraws it is possible that the Germans will find their currency appreciating against the Euro.

  • Mack

    I totally agree with you regarding the first fifty or so years. After all barefoot and pregnant is not much of a policy.

    I do not believe the Brits either want or can afford us in the 21st century, when everyone expects to eat!

    I do think this small group of islands have more in common than we Irish acknowledge. We aught to be self supporting. We aught to be able to take Europe or leave it. So we aught…

  • John East Belfast

    Mack

    “Irish independence didn’t deliver because of the policies that were pursued prior to the late 1960s were nothing short of mental”

    Yes two or three generations unnecessarily wasted.

    “Compare the first 50 years of Irish Independence (1921-1971) to the first 50 years of the Union (1801-1851) – there’s is catasclysmic event in there somewhere, the collapse of the Irish language, penal laws, Fenian wars etc”

    Scotland had similar early problems with its union in the previous century but it quickly realised the benefits of embracing the Union. Just like the northern protestants – therefore it wasnt an Irish thing – why didnt the south of Ireland develop in the British industrial revolution ? I suppose that was Britain’s fault ?

    It cant blame the British for the first half of the twentieth century either

    “I’d rather live in Dublin than Cardiff, Edinburgh or Belfast”

    I am sure all those cities could say the same about each other. However nobody is asking you to move home – and may I say a sizeable number of your fellow countrymen over the last 100 years would obviously disagree with you.

    “Singapore posts 32% GDP growth (annualised) in Q1 2010”

    I am sure you would rather live in Edinburg, Cardiff or Belfast than Singapore though where some police man would beat you senseless with a big stick for spitting on the pavement.

  • John East Belfast

    Aldamir

    That is undoubtedly crossing the minds of the Germans.

    They gave up the mighty Deutch Mark and they are being dragged down.

    The problem is they cant adopt the DM overnight – there would be total chaos once a break up of the Euro became a serious proposition

  • John East Belfast

    I get the feeling you are loving this…

    In the real world however: The Brits, in the unlikely event, that there was ever some sort of reunion outside of a rugby pitch, would support the whole of the island, not just your bit of it and that might mean cuts all round.

  • Mack

    JEB –

    I am sure all those cities could say the same about each other. However nobody is asking you to move home – and may I say a sizeable number of your fellow countrymen over the last 100 years would obviously disagree with you.

    Well, that would depend on what you mean seeing as I moved from the north to Scotland to Dublin, but 100 years ago is not now.

    why didnt the south of Ireland develop in the British industrial revolution ? I suppose that was Britain’s fault ?

    I’ve no idea, but given it was the only part of the Union where the industrial revolution didn’t take hold, what benefit was it (the Union) to them?

    There is some danger of this descending into another slugger merry-go-round, which we should probably avoid. I would guess that although leaving the Union was probably driven in large part by emotions there were almost certainly strong rational reasons also.

    Do I think Ireland would be better off as part of the UK today? Not really, no.

  • Mack

    Pippakin –

    Ireland (south) would be the second wealthiest part of the UK (after South East England) and as such would be a net contributor, assuming of course that our present economic model was allowed to continue and worked..

  • John East Belfast

    pippakin

    I am fundamentally an Irish Unionist – I am not loving the chaos that has been visited on this island by wrong headed Irish Separatism over the decades.

    I am glad you would even contemplate a re-union though.

    However I wasnt advocating that – I was just pointing out how you could get an orderly withdrawel from the Euro via Sterling but that wont happen either because “pride” would stop it. People would rather the 26 counties was impoverished for another 50 years just to be separate from England.

    My problem as an Ulster Unionist is the people who would totally screw up my country as well and destroy my wealth along with it

  • Mack

    However I wasnt advocating that – I was just pointing out how you could get an orderly withdrawel from the Euro via Sterling but that wont happen either because “pride” would stop it. People would rather the 26 counties was impoverished for another 50 years just to be separate from England.

    There isn’t any serious level of support for withdrawal from the Euro in Ireland. Money talks – if it would be cheaper and more beneficial for the country to withdraw via a move to an established currency managed within a similar business cycle then I’m sure people would be open to it – if it came to that. The reason you don’t hear it discussed is that withdrawal isn’t really on the agenda.

    In the long run the fiscal discipline a hard currency will impose should be good for Ireland. Tough those long term benefits are being purchased with a world of pain right now.

  • Mack

    I am not in favour of being some sort of second class ‘cousin’ either, but, put us on equal footing? and I see more for us within this group of islands than within Europe.

    John East Belfast

    I am not advocating any such thing. I am saying this group of islands has more that keeps us together than pushes us apart. I am also saying that in a group of equals I, for one, would listen, but not to the extent of losing identity, no more than you would.

  • John East Belfast

    Mack

    “There is some danger of this descending into another slugger merry-go-round, which we should probably avoid”

    I dont know what you mean but as many of your threads undeservedly dont get in to double posts then I certainly cant appreciate you caution.

    You regularly raise ROI economic threads on a web site focused on NI but it is of course very relevant. This is a small island and wealth and poverty on the island will ultimately not respect the border.

    However this whole Euro issue raises important issues about sovereignty and the UK as a concept and hence has a fundamental relevance to 21st Century unionism and nationalism.

    I think the ROI is in an economic mess – and joining the Euro at all, let alone without sterling was not a cold rational decision but one based on distancing itself as much as possible from perfidious albion as possible.

    I think those emotions have caused all kinds of wrong headed decisions and continue to do so

  • John East Belfast

    Mack

    “The reason you don’t hear it discussed is that withdrawal isn’t really on the agenda.”

    Wait until the ECB starts to push up interest rates at Germany’s request and crucifies ROI residential mortgage holders.

    Pippikin

    “I am saying this group of islands has more that keeps us together than pushes us apart. I am also saying that in a group of equals I, for one, would listen, but not to the extent of losing identity, no more than you would.”

    That exactly sums up the United Kingdom – have the English, Welsh, Scots and Northern Irish lost their identity ? Not at all.

  • George

    JEB,
    Considering the Irish Republic has been outgrowing the UK economically for the last 50 years, I think independence hasn’t been that bad.

    It’s hardly as if we took over a functioning society or strong economy in 1922. The country was a wreck. Times are different now.

    Indeed, even at the end of 2009 after so much of the economic malaise, the Irish Republic had the 11th highest GNI in the world, seven places ahead of the UK, which even managed a larger budget deficit than us in 2009. No mean feat.

    They have quantitative easing, we have NAMA. Time will tell which works. The UK’s size will not protect it if it backed the wrong horse.

    Also, let’s not forget that Northern Ireland GNI is still 12% below the UK average.

    Not only has independence (in time) allowed the Republic to catch up, it has been able to pass out its nearest neighbour.

    It has also managed to wean itself off total dependence on the UK market and, by association, farming and drink production.

    But it’s not only economic signs, there are other indications. It has the highest birthrate in Europe while Scotland’s population is declining.

    But I don’t have to cross the Irish Sea, I only have to look at the part of the island that remained in the UK and the part that didn’t to realise that independence was the way to go.

    I look at Northern Ireland and they are on at generation six of wastage with no end in sight.

    They used to have the powerhouse economy of the island, now that is all gone and all they have left is subvention and a dependency culture.

    Ireland is struggling at the moment, no doubt, but it’s nothing compared to the 30s, 50s or, dare I say it, 80s.

    And economically it is certainly still miles ahead of what exists over the border.

  • Mack

    JEB –

    “There is some danger of this descending into another slugger merry-go-round, which we should probably avoid”

    I dont know what you mean but as many of your threads undeservedly dont get in to double posts then I certainly cant appreciate you caution.

    What I mean is, we could go to far down the road of Ireland is better than the UK, Ulster is best, identity route etc. The thought popped into my head when I was about to mention the famine above (having chastised a commenter yesterday for the same on another thread!).

  • George

    It is not a question of what we did or did not do, there is no race, no real comparison, not when you are talking about 4 million in one country and 60 million in another.

    This has always been the main problem. We insist on comparing us with them, their houses were enormously expensive so ours had to be, that may sound simplistic, but thats where it started. They will recover, as they always do, because they have the market, we have empty houses…

    The question should be: is this group of islands stronger together than apart and I, subject to ongoing independence, believe they are. If Germany and France can gang up on smaller, less powerful groups, so can we.

  • John East Belfast

    George

    “Considering the Irish Republic has been outgrowing the UK economically for the last 50 years”

    I am not so sure about the last 50 years but annual % increases in emerging economies are always going to be higher than ones that reached those levels a decades earlier.

    As for GDP it didnt go ahead of the UK until 2000 and that bubble has well been popped with a 13% drop last year. Not to mention that the level of profit repatriation to other countries means that GNP is a better measure of relative wealths and the UK remains far ahead.

    I think it is generally accepted that the wealth wasnt spread around equally in any measure. I think Gerry Adams made that clear in his recent Annual Conference sppech in Dublin.

    As for Northern Ireland – I have had a great life in the UK – along with most people I know. Of course we are not as wealthy as the South East of England but with their unaffordable housing, childcare and school fees we dont need to be. there is bound to be a disparity between the North West of the UK and the South East. No different than the GDP of Donegall is to Dublin ?

    Also Northern Ireland had 40 years of terrorism when our Deputy First Minister and his friends tried to bring the country to its knees.

    Who knows what NI would be like today in the absence of the Troubles – we will never know but it is fair to say we would all be better off

  • Mack

    If Germany and France can gang up on smaller, less powerful groups, so can we.

    You don’t think that Ireland and Britain work together to ensure the survival and success of our economic model in the EU? If there was a single state – we’d have less say, not more.

  • Mack

    No, I dont think Ireland and Britain work together on anything much.

    If there is ever a single state: that state will be Europe, and Australians better move up to make room for me.

    If we really worked together in the time honoured European way of ignoring anyone else, we would be way ahead of all of them, and Ireland would not be in the bloody expensive Euro.

  • John East Belfast

    pippakin

    I cant really deduce what it is you are advocating ?

    Please explain ?

  • John East Belfast

    Must I advocate anything? I am saying we have more in common than not. I am saying that together we are a force to be reckoned with. It does not mean any subjugation of people or independence, merely that we, and the Brits, recognise our joint strengths. Why is it the French and Germans understand this sort of thing so much better than we do?

    BTW, Not well so going to bed early. Hope this makes sense… Apologies if not. I cannot understand why there is no real cure for flu!

  • George

    JEB,
    Not to mention that the level of profit repatriation to other countries means that GNP is a better measure of relative wealths and the UK remains far ahead.

    Actually that’s not true, Ireland is ahead of the UK on a GNP basis too. If you look at what I wrote, I took GNI as the figure, not GDP, as otherwise I thought you might wheel out a comment like that.

    I think it is generally accepted that the wealth wasnt spread around equally in any measure. I think Gerry Adams made that clear in his recent Annual Conference sppech in Dublin.

    You’re not seriously quoting Gerry Adams as an authority on the Irish economy? If he’s the man to ask, maybe you can tell me what he has to say about the UK? Perhaps not.

    As for Northern Ireland – I have had a great life in the UK – along with most people I know.

    Believe it or not, most people in independent Ireland feel the same way about their lives.

    Also Northern Ireland had 40 years of terrorism when our Deputy First Minister and his friends tried to bring the country to its knees.

    Who knows what NI would be like today in the absence of the Troubles – we will never know but it is fair to say we would all be better off.

    Indeed, who knows? Socially maybe Northern Ireland would be more at peace but there is certainly no guarantee that it would be economically less of a basket case.

    Northern Ireland was no economic or social Eden before 1969 and hasn’t been much of growth area since 1998 either. The gap to the rest of the UK is still the same as it was in 1998 and the gap to the Republic has grown.

    Who knows what Ulster would be like today if the island hadn’t been partitioned and we were an island nation?

    We can only talk about where we are.

  • John East Belfast

    George

    I actually watched Gerry Adam’s speech that evening and a lot of it raised my eye brows as I thought it was one of the best justifications for partition there could be – indeed all unionists should get a transcript of it for future quoting.

    He laid into the corruption and waste of the 26 county political, business, property development and banking environment and compared it to Northern Ireland. Granted his reference to the latter was post GFA and his own involvement in the administration.

    However it was a partitionist speech as he didnt quite get the point that the things he was berating were among the reasons unionists existed in the first place. He should have added the RC Church role as well but didnt.

    I am not saying he has any practical solutions but he can sniff out the failings.

  • Davros

    You go to bed with Euro 100k and wake up the next morning with Ir £100k which by lunch time is worth Eur 50k !

    This is exactly what happened to Icelanders. You want to make an omelette…

  • bke

    Lots of people here overstating the importance of the UK to the Southern economy.After the US, the biggest destination of Irish exports is Belgium, taking nearly 18% of the total exports. Belgium is the biggest destination of Irish exports in the EU. The UK (including NI) only accounts for 14%, and the figure is falling. So it is hardly can be called our largest trading Partner. Norn Iron accounts for 1.5%.

  • John East Belfast

    bke

    “.After the US, the biggest destination of Irish exports is Belgium, taking nearly 18% of the total exports. Belgium is the biggest destination of Irish exports in the EU”

    Does that not strike you as odd ?

    I dont know the details but that looks like a corporate tax dodge to me.
    ie some multi national does assembly/adds value in ROI to pay low Corporate Tax and then sells them onto another Group Company based in Blegium for finishing and eventual distribution. When the Intrastats are done the transfer to Belgium is declared as a Despatch to Belgium and all of a sudden it appears Belgium is a major source of Irish exports.

    However it is an artificial export and purely dependent on Group strategy decided elsewhere and could change over night.

    I think you will find the exports to the UK are more real involving food and pharmaceuticals

  • bke

    Full breakdown of figures found at

    http://www.cso.ie/releasespublications/documents/external_trade/current/extrade.pdf

    it seems “Mineral fuels, lubricants and related materials” are souths biggest export to The UK. While the Belgians prefer Pharmaceuticals.

  • bke

    If anything exports to Belgium appear are to be real, as opposed to diesel!

  • Alias

    Ask George to explain carousel VAT fraud. It’s just another hidden cost of EU membership that costs Irish taxpayers billions annually.

  • Kaido

    In the 70’s when Ireland left Sterling for the Punt an Irish chat show host had asked when Ireland would be introducing an £1 Ir coin to be told that they didn’t have to as the currency was falling out of bed so fast against sterling they could use the 50p sterling coin instead.

    A lot of water under the bridge since those good old days when we were ignorant of all things economic, preferring to leave it to the expertise of our betters.

    “Where ignorance is bliss, tis folly to be wise”

  • Mack

    bke –

    30% of our imports come from the UK. So the fact that Ireland trades in a hard currency while the UK in a relatively soft one has actually meant Ireland now has a balance of trade surplus (we export more than we import).

  • Mack

    JEB –

    25% of our exports are pharmacetuicals, then add in the big presence of software, hardware and internet multinationals (Microsoft, Google, Intel, Facebook etc) many of whom have their EMEA headquarters here, finally add on exports from the IFSC – there’s no reason why any of those exports would be focused on the UK.

    For Irish small business – absolutely. For multinationals who want to access the entire European market – not so much..

  • Mack

    Read this – Internationally Traded Services (financial, software, internet advertising etc).

    http://www.ibec.ie/IBEC/Press/PressPublicationsdoclib3.nsf/vPages/Newsroom~ibec-report-on-internationally-traded-services-launched-05-06-2009?OpenDocument?OpenDocument

    The value of Irish exports of services increased from €21.7 billion in 2000 to €67.6 billion in 2008; services now account for 45% of total Irish exports. Exports of computer related services, including software, reached €23.5 billion in 2008, an increase of 8.9%. Other key sectors include Financial (€6.9 billion), insurance (€8.3 billion) and business (€19.9 billion) services. In 2000, services exports comprised just 27 per cent of all foreign sales by Irish-based businesses.

  • Mack

    Davros, JEB

    You go to bed with €500k mortgage and wake up the next morning with Ir £500k mortgage which by lunch time is worth €50k !

    Maybe there’d be parties on the street?

    Incidentally those €80 billion odd of exports would still be €80 billion odd (or £160 billion), the national debt would be manageable and there’d be payrises all round!

  • [quote]amanfromMars
    on April 16, 2010
    at 08:25 AM

    “[b]Morgan Stanley fears German exit from EMU[/b]”

    Of course Morgan Stanley fears Germany leaving the EMU and Euro, for then will third party dollar to new deutschmark exchanges/Gilt and Treasury Bond transfers, given Germany effective remote control of Uncle Sam’s Future and the Global Banking System.

    Which given the catastrophic incompetence of the present incumbents’ tenure, is bound to be a colossal improvement capable of delivering a massive positive change to everyone, and it is a very SMART Intelligence move too.

    http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7594859/Morgan-Stanley-fears-German-exit-from-EMU.html%5B/quote%5D

    As was famously said, before the Internet made local, global …….. “Give me control of a nations money supply, and I care not who makes it’s laws.” …… Mater Amschel Rothschild, founder of the Rothschild banking dynasty.

    However, what is also true today in this Postmodern Communication Age, is that IT Control and ZerodDay Placement of Novel Information for Advanced Intelligence would complement and reinforce such Monetary Control, and would easily Trump it to enable new Drivers in Instances of Necessary Replacement, because of both Natural and Unnatural Wastage/Loss of Mojo and Mindless Self Indulgent Profligacy, to name but two such reasons for seamless intervention.

  • John East Belfast

    Mack

    “You go to bed with €500k mortgage and wake up the next morning with Ir £500k mortgage which by lunch time is worth €50k !

    Maybe there’d be parties on the street?”

    Not quite – because your house is now worth Eur 50k as well – I suppose ok if you are not intending selling it.

    However you do raise another point in this – ie the Banks – the Euro Assets to be converted to Punts which would devalue overnight would not just be confined to households.

    Those Mortgages are the Banks assets – where they have probably borrowed in Euros from Non Irish lenders.
    Therefore you would wipe out bank assets overnight as well and have another banking solvency collapse.

    As I say a break up of EMU is inconceivable because of the chaos it would reap. I recall when it came in in 1999 debates about it and what the exit strategy was etc and it was pretty clear there was no exit strategy and was considered almost irreversable. It would probably collapse the European Union as well.

    As I said if the ROI wants a withdrawel it should do so in an orderly way via Sterling. Rely on the BOE Monetary Commission where you have similar structural economies and have a land border. The ROI is probably unique in its ability to get out of the Euro via Sterling.

    Exports

    Statistics, damned statistics etc – a lot has to do with multi national tax avoidance using inter group sales.

    I know Viagra is made in the south but I cant see the Belgians having the randiest senior citisens in Europe !

  • Mack

    JEB –

    There are large scale pharma operations in the south – Viagra, Collagen etc.

    Internationally Traded Services are a geniune big deal. Clearly a lot of value is created elsewhere – but if Google sells an German ad from Dublin and books it there, then that’s still a genuine win for Ireland.

    Google, Ebay, LinkedIn, Xing, Yahoo, Facebook all have their EMEA hq’s in Dublin. In the Internet space – that model has been proven and has reached critical mass / tipping point. Expect it to be copied.

    -Abandoning the Euro –
    The banks would have to default – as they probably should anyway. If the government guarantee is in place – then the government should default – as it would have to anyway (to convert sovereign debt from Euros to Punts).

  • George

    JEB,
    “The ROI is probably unique in its ability to get out of the Euro via Sterling.”

    That would really be a retrograde step.

    If getting out was the only option, it would make a lot more sense to get out via the US dollar than sterling.

    We export more to the US than the UK, the dollar is the world’s top currency (oil is also denominated in dollars).

    12.2 billion in exports to GB in 2009 as opposed to 17.5 billion to the US. That’s a 40% difference.

    There is nothing to be gained from a sterling peg apart from a return to exporting pigs and Guinness.

    Obviously staying in the eurozone would be the best of all as 34 billion in exports go there.

  • George

    Statistics, damned statistics etc – a lot has to do with multi national tax avoidance using inter group sales.

    I know Viagra is made in the south but I cant see the Belgians having the randiest senior citisens in Europe !

    You might want to think this the reason why Belgium is such a huge export market for Ireland.

    Of course, it might also have something to do with the fact that it’s Europe’s principal freight trans-shipment point.

  • Alias

    “Obviously staying in the eurozone would be the best of all as 34 billion in exports go there.”

    Which is a minority of exports (those that are not inflated by Missing Trader Fraud such as bogus exports to Belgium). It makes no sense at all to have the majority of exports crippled by an overvalued currency that is only of benefit to a minority of exports which are in an economic zone that is in terminal decline.

    Outside of the Eurozone, the EU’s share of global GDP is in freefall, collapsing from 27% in 2000 to a projected 15% by 2018. According to the European Commission itself, the EU’s share of global GDP (which includes the Eurozone) will be 10% by 2050. In other words, 90% of the world’s GDP will be generated outside the EU.

    The cost of regulating the Single Market is 600 billion euros a year on business while the benefit of it to business is 160 billion euros. That means that business loses 440 million euros more than it gains.

    The EU is a sinking ship, and it makes no sense whatsoever to be slave chained to one of its oars…

  • Alias

    Incidentally, the only value of a single currency to exporters within that zone is currency stability. That is an accountancy advantage and little more, since a fluctuating currency can go either way, resulting in lower or higher profits. In addition, manufacturers do not by default purchase their raw materials within the zone they export their product to so their costs are not as stable as the currency exchange rate, resulting in lower or higher profits anyway.

  • John East Belfast

    George

    “If getting out was the only option, it would make a lot more sense to get out via the US dollar than sterling”

    I think you would rather have the BOE in London setting your interest rate than the Fed. As I say you have more in common with the UK Economy than the US and you might have some influence over the BOE but would have zero influence over the Fed.

  • George

    JEB,
    I think you would rather have the BOE in London setting your interest rate than the Fed. As I say you have more in common with the UK Economy than the US and you might have some influence over the BOE but would have zero influence over the Fed.

    Ireland would have as much influence over the BOE in future as it did in the past when it was pegged to sterling until 1979, namely none.

    Why do you think it would have any influence over the BOE this time around?

    Also, I really don’t see how the export-driven Irish economy has more in common with the GB economy than the US one.

    US investment is much more important than any GB investment in Ireland, the US is a bigger market for our exports, we buy our energy supplies in dollars and we have a huge diaspora there.

    The US accounts for 60% of the Foreign Direct Investment in Ireland. There is 100 billion in US investment here. Two thirds of investment projects are American, one third of the corporate tax take is from US companies.

    The UK isn’t in the same league.

    Sorry, but if it’s a choice between sterling and the dollar, George Washington and his friends win every time hands down.

  • Mack

    It’s possibly difficult for Northerners to comprehend it – but the USA looms much larger in the south than the UK (in my experience anyway).

    I’ve always worked either for US companies or a companies that have a big US presence. I work as part of an American team – I talk to Americans everyday (incl. face-to-face via video conferencing every day), but rarely speak to an English person. The US market and general EU markets have always been very important, specifically the UK market – it does come up from time to time, but it doesn’t have anything like the focus an outsider might expect.

    I go home and watch mostly Irish and American tv (plus the odd British show I admit, but largely the later). On the web I’ll use Irish, British and American websites, but again probably more Irish and American sites (esp. if Slugger can be classified at least in part as Irish, that would leave the Telegraph and FT as the sole British sites I peruse regularly).

  • John East Belfast

    George, Mack

    I must say I am surprised that your anti British instincts would direct you in a crazy desire to become the 51st State.

    Lets think why the ROI would not want to adopt the USD as its currency.

    If a currency was just a medium of exchange then yes we could have one world currency.

    However it is more than that – it ultimately reflects the economic and trading strengths and prospects of one nation country relative to another.
    Those prospects and strengths will themselves be a reflection of the economic – fiscal and monetary – policies pursued by governments and then their ultimate impact on investment and fortunes by and of individuals and corporates within those nations.

    Basically the US Fed will act in the interests of an economy with rules, regulations and taxes over which the ROI would have no involvement with whatsoever. You would be a little tossing rowing boat on the ocean.

    Add to that of course the USD is an international reserve currency that itself undergoes significant instability – but ultimately will reflect the US economy and its fortunes.

    Therefore you would be straight out of the Euro frying pan and into the Dollar fire.

    Also dont forget the Interest margin in the US is not Base + but Base + Prime + Margin – borrowing in $ is quite expensive – not something that ROI borrowers need at present.

    However Serling ?

    Despiite what you say the ROI has far more in common with the UK than you give credit to.

    There is the exact same desire to own your own home and as a result there is significant negative equity in the residential mortgage market.
    There is a strong Finacial Services market and despite the ebbs and flows the UK has the potential to return to significant home grown exporters of goods as well as services.

    We have similar climates and terrain meaning similar farming industries in diary, cereals and meat.

    And of course the ROI sole land border is with the UK.

    In addition you ignore the importance that the UK economy will take on for the ROI Construction industry – the ROI market must be down 70% in construction and GB will be essential for its survival.

    Perishable food products are another obvious destination for the UK 60 million market.

    In terms of reglatory structures the UK & ROI are both well constrained within the EU and Chartered Accountant quals in England, Scotland and Ireland are all totally transferable.
    In terms of taxation with the exception of headline rate and focus the taxation frameworks are identical and indeed the Revenue Commissioners (mostly) and sometimes HMR&C effectively borrow each other’s ideas.

    In terms of US Investment in the ROI there is no reason why thay would stop if the ROI adopted Sterling rather than the Euro unless the latter was a major reason for US corporates in the first place.
    Either way dont put your trust in US corporate investment – as sure as night follows day they will up and go at the time of their choosing.

    In general I wasnt teasing and nor was I as a unionist trying to re-engineer a new Union if that is what you fear. Indeed anything that aligns NI more with the ROI is a threat to the UK of GB & NI.
    I was simply trying to be helpful in suggesting an alternative to the Euro train crash you have hitched yourself to.

    You are sitting on a residential mortgage time bomb when the ECB starts putting up interest rates. The BOE will not be doing that because it will recognise the deflationaty pressures within the UK economy arising from its own mortgage crisis.

  • George

    JEB,
    I must say I am surprised that your anti British instincts would direct you in a crazy desire to become the 51st State.

    Anti-British instincts? Why resort to such cheap jibes? It’s extremely disappointing and shows your up your own prejudices.

    It’s a simple reality that the Irish economy is more dependent on the US economy than the British one.

    But if you would rather tar me as anti-British rather than counter the points I made, then I think I’ll leave you be. I didn’t read beyond the anti-British sentence.

    The sun is shining and I’ve better things to do.

  • John East Belfast

    George

    I think your own response speaks volumes – sad really

    Anyhow you stick with the Euro and see where it takes you – I will watch from behind the sofa