Three years into the crisis and we are still trying to “save the euro,” when we should have decided to leave, set our own interest rate, scorched the bondholders, and allowed the new Irish pound to find its own value.
If the experience of other defaulting countries is anything to go by, our economy would by now be experiencing positive growth on the basis of improved competitiveness, and unemployment would be going down.
Another common feature of defaults is that, typically, the bond-holders take a cut of between 40 and 50 per cent, on the grounds that some repayment is much better than no repayment.
But people will rightly say: “Hold on. If the new currency fell by, say, 40 per cent against the euro, wouldn’t our euro debt jump overnight in the new currency?” This is true; but the same is true for the present policy of “internal devaluation.”
The present austerity and internal devaluation policy, where the Government grinds down wages and prices over a number of years, is designed to have exactly the same effect.
Your euro wages will just fall for longer, and you will still not be able to pay the euro debt you took out in the boom when your income was much higher. So the internal devaluation is just a slow version of the overnight devaluation—though it would not be without pain.
But why do things slowly and prolong the agony?