Eurozone

[KolaKubes]

http://www.guardian.co.uk/commentisfree/2010/jan/03/peter-oborne-end-of-eurozone

Not sure I agree with him but interesting stuff.

28% youth unemployment here and I think we're starting to see the effects on the street now.

[eire_sai]

Excellent article, the peso vs mark argument at the end is very convincing.
I can see countries returning to the safety of the nation state in the coming years.

[poulgorm]

Intersting. It is written by the Daily Mail correspondent, who would wish the Euro to fail anyway. It is too easy to say that if we break away from the Euro (and effectively depreciate our currency), we could fix our cost imbalances relative to our competitors. We would still have the same budget deficit and we would have inflation - oil etc would increase in price. And our central bank would have to jack up interest rates to keep our currency from falling through the floor. Imagine the effect on mortgages.

No, I think we have to stay within the Euro and cut our cost base and trim government spending

[The Magnificent Specimen]

Intersting. It is written by the Daily Mail correspondent, who would wish the Euro to fail anyway. It is too easy to say that if we break away from the Euro (and effectively depreciate our currency), we could fix our cost imbalances relative to our competitors. We would still have the same budget deficit and we would have inflation - oil etc would increase in price. And our central bank would have to jack up interest rates to keep our currency from falling through the floor. Imagine the effect on mortgages.

No, I think we have to stay within the Euro and cut our cost base and trim government spending

Better to fall on your own sword than be run through with someone else's perhaps.At least in self determined failure we have ourselves to blame rather than foreign politicians and electorates which are beyond our control

[KolaKubes]

Better to fall on your own sword than be run through with someone else's perhaps.At least in self determined failure we have ourselves to blame rather than foreign politicians and electorates which are beyond our control

We're already run by foreign politicians, I refuse to acknowledge that Offaly and Dublin are the same state.

[Corcaigh32]

Whatever about Offaly, you could definitely have a point about Dublin - place gets further away from the rest of the state all the time.

[The Magnificent Specimen]

We're already run by foreign politicians, I refuse to acknowledge that Offaly and Dublin are the same state.

LOL.All jokes aside,our politicians represent foreign interests,and I don't mean other countries.I mean interests like Shell and Goldman Sachs and their ilk.
We need to investigate corrupt swine like Cox,Sutherland and Ahern.

[Lostmeringtopaddypower]

Yet another englishman trying to break up the euro?

Better men than him have tried.

Britain should pull out of europe, lock down their borders, evict all muslims, blacks, asians and whatever the fuck else they have, revert to building wooden ships again and fail, albeit with honour, at everything.

Europe has moved on - as has the world - and britains empire is gone.

I know it stings.

But, well, they can always look back to WWII and '66.

God save a German woman.

[rebelicecreamman]

Better to fall on your own sword than be run through with someone else's perhaps.At least in self determined failure we have ourselves to blame rather than foreign politicians and electorates which are beyond our control

Membership of the eurozone is our best insurance against economic collapse.

[Eoin]

FFS, I got to the end before realising it was a daily mail columnist. Some interesting points, but his tone is so rabidly anti-europe, its hard to take most of them seriously.

[How bad boy]

Better to fall on your own sword than be run through with someone else's perhaps.At least in self determined failure we have ourselves to blame rather than foreign politicians and electorates which are beyond our control
An interesting point. If Ireland had been out on it's own currency, would we be better or worse off?

A look at historic Irish interest rates reveals that Irish interest rates were 15% back in 1997/1998. Pretty high. Would we have had a property boom with those rates? Probably not. Still, the interest rates of every country in europe dropped substantially in the past 10 years and that was in the middle of the Asian financial crisis.

What would have been likely would be that Ireland would have seen a lot of borrowing in Euros, as happened in Eastern Europe and Iceland. That could certainly have created a housing bubble, even with high domestic interest rates.

That would have created an incredibly dangerous situation, that is playing out in countries like Hungary and Iceland right now. With the financial crisis, money is retreating to the traditional centres. That would have played havoc with the punt, probably forcing a depreciation. Sterling dropped by 30% against the Euro at the peak of the crisis, a 50% depreciation would have been likely.

The question is, what would that have done? Two forces would have been at work, inflation because of the rising cost of imports versus the decrease in price caused by a drop in demand for goods. Demand for discretionary imports, such as cars, clothes and other purchases that can be deferred would have plummetted to virtually zero. Those items that couldn't be avoided, such as oil would have gone up substantially in price, hitting your average punter pretty hard. As we've seen in Eastern Europe, the cost of mortgages has also skyrocketed as they're denominated in Euros. Dangerous with a depreciating currency, that £100k mortgage = €100k back in 2007 would have turned into £150k with a proportionate increase in repayments if a 50% devaluation happened. This didn't affect the UK as nobody buys mortgages cross border there.

On the other hand, exporters would have had a great time, if they could find a market for their goods. Two big problems with that: (1) Irish exports aren't particularly price sensitive and (2) Demand was dropping for almost everything next year.

So to stop inflation, the central bank would have to raise interest rates. This kills domestic demand and domestic investment.

Exporters would be laughing though. Everyone else would be fucked. Possibly even more badly fucked than they are now. Price sensitive exports don't make up much of the economy, so we would still have a recession.

Ireland's sovereign debt would also have been screwed. Commentators from big countries, like the UK, the USA and Germany frequently forget that small countries have their soverign debt denominated in big currencies. If you depreciate your currency, your sovereign debt goes up. Ireland's national debt, while low at the start of this crisis, would have skyrocketed. There was a time in '92 where Ireland was paying 120% annualised interest rates on short term national borrowing. Iceland hit the same problem recently, but they had no national debt whatsoever.
Nobody would have given us a penny. Or a cent, for that matter.
I would be fairly certain that if Ireland had this boom with its own national currency, it would have defaulted.


Changing back to the punt now would be economic suicide. Complete and utter insanity with very, very little upside.

[ManielMan]

Changing back to the punt now would be economic suicide. Complete and utter insanity with very, very little upside.

repped...

[doppellanger]

The guy is right about the high unemployment. 10%+ unemployment is here to stay for the next decade, get used to it. France and Germany both had unemployment average about 10% over the last 5-6 years and it's considered the norm there. It keeps wages down and therefore inflation is lower and growth is slow and steady and Trichet is happy.

But that regions within a currency zone have different rates of growth, potential, economic activity etc. is perfectly normal. Dublin and the West of Ireland for example. Or east and west Germany. City of London and rural Scotland etc. It doesn't mean that the currency will necessarily collapse.

[ho chi feen]

The guy is right about the high unemployment. 10%+ unemployment is here to stay for the next decade, get used to it. France and Germany both had unemployment average about 10% over the last 5-6 years and it's considered the norm there. It keeps wages down and therefore inflation is lower and growth is slow and steady and Trichet is happy.

But that regions within a currency zone have different rates of growth, potential, economic activity etc. is perfectly normal. Dublin and the West of Ireland for example. Or east and west Germany. City of London and rural Scotland etc. It doesn't mean that the currency will necessarily collapse.

Sorry if I've picked you up wrong here, but were you implying 10% unemployment will be the norm because of the Euro?

That's got little do with the Euro and everything do with the way the French and Germans run their economy and, more crucially regulate their Labour markets. 8/9% unemployment has been historically rather typical in France. Germany's higher than normal unemployment rates over the past 15 years both predate the Euro and in fact has everything to do with the burden of integrating the moribund East German economy on what had been Europe's undisputed powerhouse. No mean feat, and with many areas of the former east Germany seeing rates of 25% unemployment in light of the collapse of the innificient state-run communist industries, it's a challenge that's going to be ongoing.

Neither have anything much to do with the Euro.

The Netherlands had an unemployment rate even lower than ours during the boom, and this has been the case for decades. And is still posting fairly healthy figures. So nothing to do with being in the Euro.

You have other countries out there of course. Spain historical unemployment rate has been 20% going back decades. Their recent, sustained boom saw this drop as low as 9% but no lower (although there is a bigger black economy, and dole is 'earned' for a period of work over years... many people I know who lost their jobs in Spain have gone off to use their year's entitlement to travel for a year but of course are in the official jobless figures, just as they were in the bbom years). Although Spain's labour market has become steadily less regulated then before, it's still riven to an extent by the sort of bureuacratical pains that prove so bothersome in France and Italy, and has a large state sector.

Then you have those countries in the Eurozone which have been underperforming for decades. Portugal, already overtaken by Greece (another laggard) suffered the ignonimy of falling behind Slovenia, a former communist state in GDP per capita recently. I might be wrong, but did I read that the Czech Republic isn't far off them either?

Italy of course is the biggest of all the laggards, and has been punching below its weight for so long now that it seems endemic. Go back to the 1960s, even as far as the late 1970s, and Italy was significantly richer than Britian, and much, much more so again than the weak Spain of late Franco/handover. Italy's slow relative decline has seen it long since fall behind Britain per head of capita, but even more embarrasingly, in recent years, Spain.

There are many countries within the Euro operating through very different social and economic models. Some have performed better than others, and this will continue to be the case. Having the Euro has generally been a good thing for the bloc (and for the likes of Ireland in the current circumstances, a fucking godsend) and in no real way inhibits countries from persusing the sort of social and enonomic model they wish. So while we we were bingeing ourselves on cheap credit, the Portuguese bumbled along in the mediocre manner that is their wont, and the French persisted with an unfair Labour contract system that has kept youth unemployment unnacceptably high there for decades, euro or no euro.

[Langer Dan]

Fuck that, I'm not changing my money to go on hollers.

[doppellanger]

I reckon 10% unemployment will be the norm but not just because of the euro.

ECB's mandate is to keep inflation close to and just under 2%. The FED in the US has the dual mandate of economic growth and keeping inflation low. Keeping inflation low means keeping unemployment a bit higher than it would otherwise be. If the economy starts to grow too fast the fears about inflation mean the brakes go on, interest rates go up and potential employment is stifled.

But Ireland has lots of other problems anyway. The collapse of the private sector. Banks. Deficit. Dwindling tax revenues, which will be exacerbated by the cuts in public sector pay. Declining working population as immigrants go back home and Irish people head off. Housing glut. Lack of workin capital. Declining tourism. Weak sterling. Debt. Yadda, yadda, nama.

You're right about Germany but the west has been declining as traditional manufacturing moves east and the east has some pockets of growth. http://www.media-und-it-service.de/Pictures/Arbeitslos_Tagesspie gel_020708.jpg
The graph is from about 18 months ago - the south and the west have gotten a bit worse since then and the east has marginally improved. The relatively strong figures from Czech Republic and Poland probably help the east.

But overall unemployment in the eurozone is 10%:
http://www.rte.ie/business/2010/0108/eurozone.html
That can't all be down to individual countries' labour policies and regulation.

[How bad boy]

The Fed's dual mandate isn't worth a tack though, they're looking to influence two end results with just one variable. It's a virtually impossibe job.
The ECB are failing in their job to keep inflation on target and, if there is even vaguely a requirement for that target to be hit in a certain percentage of countries and within a standard deviation in others, it's likely that the failure of the ECB is even worse.

I would have to slightly disagree with your latter point too, unemployment rates vary massively across the EU. Saying that Ireland is likely to converge on that rate ignores the large number of countries that are either significantly above or below that rate.

[Vdub]

would it be an idea to buy some dollars and stirling

[How bad boy]

Nah.

[Eoin]

would it be an idea to buy some dollars and stirling

If you're going to the US or the UK, yeah, probably a good idea alright.

[eire_sai]

In fairness the 10% guesstimates at unemployment are very generous in
my opinion. I believe that it will be more likely between 15% and 20% for
several years to come.

[How bad boy]

In fairness the 10% guesstimates at unemployment are very generous in
my opinion. I believe that it will be more likely between 15% and 20% for
several years to come.
I assume it's your years of experience in analysing and writing on macroeconomics that informs that opinion?

[Lostmeringtopaddypower]

Ireland named in group posing ‘real risk’ to euro future
14 February 2010 By David Clerkin, Markets Correspondent

Ireland is one of a small number of countries that pose ‘‘a real risk’’ to the future of the euro, according to a major report by an influential German research group.

The report, to be published later this month by the CESifo group, names Ireland - along with Greece - as a country where international money markets see a significant risk of a sovereign default or an exit from the eurozone.

While the research group says that such events are not on the political agenda, it says that the pr ices demanded by investors to buy debt from countries such as Ireland and Greece reflect real fears.

As EU leaders react to the unfolding crisis by promising support to Greece, the report says a ‘‘wave of bailouts’’ of weaker member states must be avoided to maintain the euro as a stable currency.

Based in Munich, CESifo publishes the IFO Business Confidence Index, and its reports carry significant weight with governments and central banks across Europe.

A report on Ireland that it prepared in 2007 warned that the economy faced an imminent and ‘‘very serious’’ slowdown due to an overdependence on construction and a potential collapse in consumer spending.

In its 2010 report on the European economy, to be published on February 23, CESifo singles out Ireland as one of just two eurozone members, along with Finland, for which eurozone membership is ‘‘not optimal’’, because of our heavy reliance on trading with a non-eurozone country, namely Britain, and an inability to devalue to help exports.

It said that the ‘‘very large’’ fall in the value of sterling against the euro, and a similar problem faced by Finland - which exports heavily to Sweden, whose currency has also declined against the euro - ‘‘certainly plays some role in the fact that Finland and Ireland are the two euro area countries where the recession has been most severe’’.

The report says that, while eurozone membership helped to maintain financial stability in Ireland, it also made the recession worse than it would otherwise have been.

‘‘While membership of the euro area is favourable for financial stability . . . it may make the actual contractionary impact of the crisis more severe by preventing a quick adjustment of the exchange rate," according to CESifo.

The group also names Ireland and Greece as the two ‘‘most exposed countries’’ that markets have identified as being most likely to suffer a sovereign default - when a country is unable to raise borrowings - or to leave the euro.

‘‘While euro membership provides an insurance against currency and financial crises, its real effects on peripheral countries may lead to such large imbalances that they may end up in crisis despite the safe haven effect," it said.

Although the report says that defaulting or exiting the euro ‘‘is not currently on the political agenda of any member country’’, it says financial markets are testing whether the euro is capable of providing a safe haven to highly-indebted countries, such as Greece.

Last week, EU leaders promised to provide financial aid to Greece if it required it, and EU finance ministers are due to hammer out the details this week.

However, reflecting German concerns about helping countries in difficulty, the report warns against ‘‘more virtuous governments’’ bailing out ‘‘the least virtuous ones’’, arguing that ‘‘the end result would be an overall weakening of the euro’’.

‘‘To preserve the euro as a stable currency, a wave of bailouts should be avoided."


*****
Sunday biz post today.

[How bad boy]

Once again:
http://www.peoplesrepublico fcork.com/~peoplesr/forums/showpost.php?p=31695 85&postcount=5

[poulgorm]

(1) Irish exports aren't particularly price sensitive



I have seen the above statement in several posts: what is the basis for it? What makes Irish exports unique?