From Megan Greene (Ireland analyst at the Economist Intelligence Unit) in the Financial Times (Note – requires free registration for entire article, and only allows limited views per month; however you can also use a disposable proxy email to re-register as often as you like) – Ireland Should Leave the Euro:
… £6bn ($9.4bn) in new austerity measures are unlikely to be enough to put it back on the right path. Instead a more radical option should be seriously considered: leaving the euro.
Sovereign default, massive bank recapitalisations, and sharply falling real wages are all given as reasons why peripheral euro area countries should hang on to monetary union. Yet, in Ireland’s case, all three are going to happen anyway.
If Ireland’s government continues to guarantee bank debt, a restructuring of sovereign debt seems inevitable in 2013, when the present bail-out expires. Ireland simply has too much overall debt. A high-interest loan from the European Union and International Monetary Fund will only serve to buy a little more time.
Further bank recapitalisation is also so certain…
On wages, given it is unable to devalue its currency Ireland must undergo an internal devaluation to regain competitiveness by cutting wages and bringing down prices…
… if Ireland withdrew from the euro it would actually have reasonably good prospects for growth. It has a highly skilled labour force, open labour and product markets and a fairly robust export sector. The export sector would be bolstered by an immediately devalued new Irish currency.
… There is a political upside, too. The … government that [will] emerge after the next election could gain popular support by choosing to exit the euro. Sick of years of austerity, livid with the EU and the ECB for usurping Ireland’s sovereignty and unable to vote for significant change within the Irish domestic political system, voters could express their frustration by turning against the euro.
Of course, abandoning the euro would not be an easy process. Ireland would be frozen out of debt markets in the short term, although investors would eventually recognise that the country has hit the bottom, and would quickly be on a path towards sustainable growth.
… All of this would doubtless be painful. But there are no easy, painless answers to Ireland’s debt crisis whichever way it looks.
… Ireland is by far the best candidate in the euro for abandoning monetary union and soon returning to a path of sustainable growth. Its leaders, and its people, should consider the option seriously.