Jason OMahony - Irish political blogger, Irish politics, EU politics
 
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Things that could happen if we left the Euro.

Posted by Jason O on Aug 24, 2011 in European Union, Irish Politics

I’m not an economist, but assuming that An Punt Nua would be devalued:

1. Tourism, and employment in tourism, would improve, at least from countries with stronger currencies like Switzerland and Germany.

2. Exports would initially be stronger. Non-food exports would eventually rise in cost to some degree as the cost of importing raw materials would rise.

3. Fuel prices would rise sharply.

4. Imported product prices would also rise sharply, possibly costing jobs in the retail sector.

5. Mortgage interest rates would probably rise sharply to protect the new currency. Political debate about who sets interest rates would become an issue. Would opposition parties pledge to bring the setting of mortgage rates under political control, and what effect would that have on the currency?

6. Foreign holidays to non-devalued countries would become much more expensive, boosting domestic tourism, presumably.

7. Exchange rates and charges would be back.

8. There would be a huge capital outflow as savings are moved out, into Sterling, etc, on the assumption that the new currency will fall in value, and could then be bought at a lower costs in the future, thus allowing savers to make a substantial profit. Would the government need to control how much money people are permitted to bring on holidays? Perhaps ban credit cards above a certain limit?  

9. Long term, the currency would probably recover strength if the government stuck to the EU/IMF plan. But a possible nominally left-wing Sinn Fein government would have an interesting effect on the currency. Ironically, it could lead to Sinn Fein having to do a Trevor Manuel as in Nelson Mandela’s government, or Robert Gates as appointed by President Obama, and appoint a very un-Sinn Fein finance minister so as to not frighten the markets and scuttle the currency. SF in government could begin to resemble SF in government in the North. Or 1960s Fianna Fail.

10. Overall, it would not be the disaster some suggest, at least in the long term, but it would mean some very serious pain in the short and medium term, considerably higher prices and mortgage rates, gains and losses in employment, and an outflow of cash. Along with the additional problems of managing a currency, one would have to question the benefits, but it could be a close run thing. 

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