Is this the end of the Euro?

Originally posted by no1marauder
Iceland devalued the krono but didn't default and their debt load was worse than Ireland's. True the government had to impose austerity measures also, but they did those that they felt were necessary not those ordered by the IMF and foreign banks.

Your second paragraph seems like a reasonable plan actually; bond investors should have to take a hit as their investment has really went south.

Yes, they didn't default. But they had something like 30% debt over GDP and are now over 90%. These countries cannot afford that. As for the second paragraph, I already said here that the countries should partially default. But they can do this within or outside the Euro. If they stay in the Euro, they can control how much they default while outside they are again dependent on the markets and there's much less stability.

Why are you so keen on depreciating the currency, anyway? Depreciation is good for exports because it decreases relative wages across the whole economy. Of course, what is said on the news is that "it makes your goods cheaper", they just don't explain that the purchasing power of people's wages just went down. Is that what you want?

Originally posted by Palynka
Yes, they didn't default. But they had something like 30% debt over GDP and are now over 90%. These countries cannot afford that. As for the second paragraph, I already said here that the countries should partially default. But they can do this within or outside the Euro. If they stay in the Euro, they can control how much they default while outside they are ...[text shortened]... explain that the purchasing power of people's wages just went down. Is that what you want?

I freely admit that I haven't followed the effects of the worldwide financial crisis on Ireland as much as I need to to make informed judgments on these matters. I'm basically brainstorming; it's hypothetical speculation anyway to say what the Irish could do if they weren't pegged to the Euro. History says that countries have successfully devalued their currencies as a solution to certain economic problems, but whether it would work here is problematical.

Staying with the Euro still leaves them dependent on the markets (i.e. rich investors and big banks); they set the value of the Euro and the rates Ireland must pay on future debt.

I believe the Irish Finance Minister (or whatever he's called) has said the Irish will have to export their way out of present difficulties. Devaluation would, of course, help that if it was a viable option. Virtually all proposals I have seen will reduce the average Irishman's purchasing power in one way or another, but none of them seem to be any long term solution.

My kneejerk reaction is that it seems unfair that investors who made bad investments will escape scot free while the Irish and European workers who are blameless have to pay the costs of fixing this mess. Whatever happened to the concept of "moral hazard"? How come it doesn't apply to the rich?

Originally posted by no1marauder
My kneejerk reaction is that it seems unfair that investors who made bad investments will escape scot free while the Irish and European workers who are blameless have to pay the costs of fixing this mess. Whatever happened to the concept of "moral hazard"? How come it doesn't apply to the rich?

I agree with a lot of that. It's insane that the bail-outs are trying to insulate the investors with no partial default. Especially since many of these countries have what's called 'subsidiary bonds' which are bonds that usually have higher return because they have the lowest priority in case of partial default. These investors are holding bonds have been paid more for taking risk on board for years and even now they are not paying the price.

The only reason I see is that the EU is trying to avoid contagion. But it doesn't seem to be working (obviously), so I think these countries should default partially. If history is any guidance, countries who have partially defaulted soon had access to financial markets which was not much worse than before the partial default. The key reason is that new investors are actually more willing to invest if the country has lower debt and seems more likely to be able to pay the newly emitted bonds. So the investors who held the debt before get immediate losses, sharing a bit the pain between taxpayers and investors. This seems fair to me, although it leaves the question of how much default is ideal.

Defaulting on the total amount is also not an option, I believe. The government needs liquidity to operate its various branches and taxation is simply very lumpy and there would be a relatively long period where it could compromise basic public services like police or the courts or even be unable to pay large groups of civil servants which could be extremely damaging. The repercussions on the whole European banking system also seem large given the amounts of sovereign debt these banks hold.

It really sucks that the situation was allowed to progress to a point where taxpayers have to bear a significant cost but I don't think one can avoid that at this point without major repercussions. What one can do is try to make it the smallest possible and that must come with haircuts for bondholders and default on subordinated bonds IMO. This should be done for all countries who are in trouble simultaneously and thus cutting the problem of contagion in the bud.

All of this could be done within the Euro. If it's big enough to lead to a depreciation of the Euro then so be it. Some say it's overvalued anyway. I don't see this being large enough (with respect to the whole Euro Area) to lead to a currency crisis.

Originally posted by Palynka
How does that show that the pound is the strongest currency?

you get more exchange currency per pound than any other. if not strength, what does that indicate?

Originally posted by kmax87
you get more exchange currency per pound than any other. if not strength, what does that indicate?

No. The Latvian Lat buys more exchange currency than the pound. The Omani Real buys more exchange currency than the pound. The Bahraini and Kuwaiti Dinars buy more exchange currency than the pound.

Originally posted by divegeester
Can trading entities of different and greatly varying economic strength be successfully joined at the hip by a common currency and common economic policy? Does Ireland's economic carnage represents the end of a common currency for the EU?

The short answer is "no". This kind of idea is easy to dream up during hard economic times. The euro is not the problem in Europe, the problem is is over spending despite lower incoming tax revenues (just like the U S A). Get the spending under control, balance the budgets, and fears about the euro will fade away.

Originally posted by Teinosuke
No. The Latvian Lat buys more exchange currency than the pound. The Omani Real buys more exchange currency than the pound. The Bahraini and Kuwaiti Dinars buy more exchange currency than the pound.

They are hardly international currencies though are they?

[edit] when converted into the international financial instrument of choice -US dollars- they then amount to less pounds sterling........

[edit2] if I knew what I was talking about I would be dangerous....but it seems a good enough surface argument....