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View Diary: Ireland ready to take the Euro hostage (256 comments)

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  •  Oh, I wouldn't be (2+ / 0-)
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    Odysseus, Onomastic

    so sure. Nothing left to lose would definitely be stretching it. Ireland's economy, underneath the banking fiasco, is in good shape and growing well (over 2% per year). Since its export partners are European, this represents a formidable hostage. There's a difference between 10 and 60% unemployment, after all, and being able to import food and oil or not.

    Iuris praecepta sunt haec: Honeste vivere, alterum non laedere, suum cuique tribuere. - Ulpian, Digestae 1, 3

    by Dauphin on Sun Feb 27, 2011 at 06:41:19 AM PST

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    •  Just don't think that would be the case. (5+ / 0-)

      If Ireland were to default and restart they should be in a better position.  The Eurozone isn't the only game in town.  

      Often after BK credit improves because one has the same resources, but now less debt to service.

      If you are, say a Chinese company, who would you rather be in a financial relationship with?  A country that is trying to pay the unpayable, or a country with sound monetary policy and low debt?

      •  You're forgetting three things. (3+ / 0-)
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        Odysseus, Jay C, deepsouthdoug

        We can't discuss the future without reference to a time period. Sure, in some sufficiently long period of time, that might happen. How long might that take and what would happen in the interim? I would argue that the interim would be terrible and might take a very long time.

        Firstly, consider specific assets. Often, a company produces goods or services which are in some way specific to its customers. Perhaps they use technology the customer has licensed to them or the production process is used to produce a good which is to a certain degree specific to a customer. It takes time and capital to redeploy such assets.

        And that time and capital might be out of Ireland's reach in that scenario. As Eichengreen has pointed out, leaving the euro, since it would be used to devalue one's currency, would occasion a run on banks of epic proportions and destroy the financial system. And the Irish financial system is on life support.

        Why does this matter? Because if you want your economy to reorient to other markets andd customers, the economy needs time and money to adapt. If Ireland defaults, foreign financial institutions won't touch Ireland for years and leaving the euro would cause the collapse of domestic ones. Capital won't be provided by the tooth fairy.

        Finally, if the Irish actually cause the collapse of the global economy, you'll be in general glut conditions where demand is insufficient to keep economies running at full employment. There'll be plenty of suppliers in most sectors, and I don't think the Irish economy, even without the stigma of sending the world economy into a tailspin, is teh awesome to such a degree that it would displace other suppliers.

        Iuris praecepta sunt haec: Honeste vivere, alterum non laedere, suum cuique tribuere. - Ulpian, Digestae 1, 3

        by Dauphin on Sun Feb 27, 2011 at 07:00:21 AM PST

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        •  I think the key here (10+ / 0-)

          Is that is the Irish withdraw from the Euro, they can devalue their currency, which is what an economy like Ireland's would normally do in this situation. Germany and France are engaging in monetary policy that makes sense for Germany and France, but in the process have hamstrung Ireland. It is a problem.

          Warning: Erwin Schroedinger will kill you like a cat in a box. Maybe.

          by strandedlad on Sun Feb 27, 2011 at 07:31:24 AM PST

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          •  That has been (9+ / 0-)

            the fundamental problem with the Euro for a long time.  Individual countries are unable to set their own monetary policy, so what serves the strong countries is often  detrimental to the weaker ones.

            •  That's one half of the fundamental problem... (15+ / 0-)

              The other half is that the Eurozone doesn't have any transfer of funds from the stronger countries to the weaker ones.  For example, in the U.S. we have the Federal government which funds various social programs (social security, medicare, etc), and that spending is independent of how things are going in a specific state.  If one state is doing poorly, but another is doing better, then some of that benefit will end up being transfered to the weaker state through the Federal government.  

              The EMU doesn't have anything like that.  So, a country gives up a great deal for joining (the ability to set independent monetary policy) and really gets nothing in return.  If Germany does great, that benefits Germans and not really anyone else.  And the problem is, the German public seems quite unaware of how they've benefited from the Euro, and thus have an extremely miserly attitude about helping the other countries out.  

              The current composition of the Eurozone is pretty close to disastrous.  And all of the current plans to "bail out" the weaker countries envision doing the bare minimum and keeping the Euro pretty much as it currently is.  Which, in the long run, is not going to work.  The problems we are seeing now are going to happen again in the future, and if nothing is changed the Euro is eventually going to fail (if it doesn't fail in the near future).  

              However, the political leadership of the stronger countries lacks and understanding of the bigger picture.  Add another problem to the Euro: lack of any centralized political authority.  Each country just wants to look out for its own interests.  

        •  There's only about 4 million of them (1+ / 0-)
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          if the Irish actually cause the collapse of the global economy
        •  IMO what we now call (7+ / 0-)

          money is, more or less, provided by the Tooth Fairy.  Our own government seems to be printing money out of thin air and we have a derivatives market that is purportedly more than the GDP of the entire planet.  Real capital - labor, factories, arable land - shouldn't be affected too much.

          The collective we appear to have decided that money created as debt can go to infinity.  Unfortunately for us our actual physical reality can't accommodate infinite growth.  We already seem to be bumping against the limiting factors of the planet.

          In other words, IMO, we are bound for some kind of reset.  Maybe sooner, maybe later, hopefully sanely and peacefully.  Drop kicking the parasitic financial sector and starting with a new monetary system that isn't based on debt looks like the best choice.

          I don't claim to know if it is better to be the first player to fold, or the last one.  I've read speculation that Bernanke is trying to push others out so that the U.S. folds last.  A spinning plate act that will eventually come to an end is the best analogy.

          I've seen claims that the collapse of the system is being done purposefully to bring in SDRs as the new world currency, but I just don't think the people in charge are that clever.  

          •  What is an SDR? (0+ / 0-)

            Since about 2005 I've been saying that TPTB are pushing forward despite common sense and self preservation because they want to break it now.

            If it is broken now, it's a total lose money but gain marketshare.

            Right now TPTB have everything:

            1. Powers of Production
            2. Military
            3. Media
            4. Food
            5. Water - kind of
            6. Real Estate
            7. I'm sure there's more....

            These vital institutions are totally owned by TPTB. If the system crashes now, they own the place.

            But if, instead, TPTB take actions to mitigate the problem we will have a 30-50 year slide where they will hemorrhage power. They will be slowly stripped of power and will becom the pariahs of history.

            It's a no brainer, double down and take the plunge.

            Democracy - 1 person 1 vote. Free Markets - More dollars more power.

            by k9disc on Sun Feb 27, 2011 at 08:07:27 PM PST

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            •  Special Drawing Rights (1+ / 0-)
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              It is a monetary instrument of the IMF.  


              The speculation is that this would be used to replace the dollar as the world reserve currency.  Local currency might remain the same, but it would not be used for international transactions.  Presumably each currency would float against the SDR.

        •  Banks caused the collapse of the Global Economy. (0+ / 0-)

          Blaming it on the Irish people is a terrible argument.

          Democracy - 1 person 1 vote. Free Markets - More dollars more power.

          by k9disc on Sun Feb 27, 2011 at 08:01:53 PM PST

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