What would happen if Ireland left the Euro?

  • Emmett O’ConnellThe Consequences of Monetary Union (1972);
  • The EconomistComing In From The Cold, Lessons from Iceland: … the extra cost to a country of not standing by its banks can be surprisingly small… the benefits to a small country of being part of a big currency union are not all they were once cracked up to be… the euro looks more like a trap for countries struggling to regain export competitiveness.
  • Prof. Anthony Coughlan / Village MagazineEur-over; Ireland should abandon the Euro which was established for political not economic reasons and so has not worked: The value of having one’s own currency, and with it the ability to follow an independent exchange rate policy, was shown decisively in Ireland from 1993 to 1999.This was the only period in the history of the Irish State when we followed an independent exchange rate policy and, in effect, floated the Irish pound, giving us a highly competitive exchange rate. This boosted Irish exports, inhibited competing imports and gave us the “Celtic Tiger” years of high economic growth.
  • FT.com / LettersAccounts could be redenominated before Drachma in place: It is perfectly possible to redenominate euro bank accounts in Greece overnight at one-to-one into drachma without having any drachma banknotes or coinage in place. The drachma would be simply an accounting unit. It would take a day or two to establish the value of the new accounting unit against the euro, but if one assumed a 30 per cent discount, someone seeking to withdraw 100 drachma from a bank would be given 70 euro notes, while someone buying food for 10 drachma would pay €7. There would be no need to “impose exchange controls”, still less to “secure the borders to limit capital flight”, because euro notes and coins would remain unchanged in euros. Likewise, the effect on contracts can be exaggerated. In Greece itself, a one-to-one conversion could be done by Greek statute. As regards contracts governed by foreign law and jurisdiction, the Greek parliament could not change the parties’ obligations in foreign law, but it could certainly introduce a new insolvency regime for Greek companies modelled on Chapter 11, which could be very unfavourable to creditors claiming (non-Greek) euro-denominated debts. Adrian Jack, Barrister & Rechtsanwalt, London WC2, UK
  • FT.com / LettersAdopting Dollar will give Greece breathing space:
    The inevitable exit of Greece from the European Union will require it to implement its own monetary system. Re-implementing the drachma will require careful internal planning and external support and, if mishandled, could exacerbate Greece’s financial woes. Keeping the euro as the interim currency will not allow Greece the latitude it needs to resolve its problems as an independent nation. However, replacing the euro with the dollar as the interim currency will allow Greece the necessary breathing space to re-establish its own monetary system. In spite of all the criticism levied against it, the dollar remains the dominant global currency because there is just no other alternative for global finance and trade. Notwithstanding the dollar’s weakening over the past decade, most countries’ reserves are still in this currency. The dollar is accepted in all countries including Cuba, Iran and North Korea. Developing and emergent nations, such as Panama and Ecuador, even use the dollar as their de facto currency, a practice called dollarisation. The freely floating dollar enables dollarised countries to implement their national plans without having to worry about currency management – that is taken care of by the US and global finance. While dollarised economies are affected by variations in the value of the dollar, they are cushioned from the consequent impact as both internal and external transactions and trade are conducted in the dollar. Dollarisation allows these emergent economies the latitude to focus on fiscal policies and national development while being shielded by the US and the world at large from currency vagaries. Greece could, therefore, consider dollarisation as an interim solution for its monetary system when it leaves the EU.
    By adopting the dollar, Greece will be able to exploit both the dollar’s strength (global status) and its weakness (lower value). The recent quantitative easing by the US Federal Reserve chairman has injected hundreds of billions of dollars into the US economy, and consequently the global economy, thereby providing enough of dollars to absorb Greece’s needs without adversely affecting global dollar requirements. While the US government and the global financial institutions continue to manage the dollar, Greece can proceed to sort out its domestic financial and economic woes. At some stage in the future when Greece has attained financial stability, the country can consider introducing its own currency to exercise greater control over its financial affairs, or even rejoin the EU as a stronger partner. K. Pelly Periasamy, Nanyang Business School, Nanyang Technological University, Singapore
  • Daniel Hannan, MP / TelegraphThere is a way out for Ireland, and Britain should stand ready to offer it: Ireland could adopt the pound and treat its loans as having been issued in sterling. Immediately, Eire would be able to start exporting its way back to growth. And, because the UK and Ireland move in a synchronised, mid-Atlantic cycle, trade substantially with one another and have similar economic profiles, the problem of inappropriate monetary policy would disappear.
    In theory, of course, Ireland could simply declare sterling to be its currency without asking anyone’s permission. But this would be unsatisfactory on several levels. For one thing, Ireland is a sovereign country, and would presumably want to be represented as such: it would, for example, want to appoint its share of members to the Monetary Policy Committee. And, of course, much of the advantage of such a merger would be lost if Britain did not agree to accept the sterling denomination of existing Irish loans.
    Why should the UK be prepared to do such a thing? Because Ireland is our friend, because we have been through a great deal together, because we are intermingled and interrelated, because Ireland’s prosperity swells our own and because there is a risk that an economic breakdown would be followed by a political breakdown – which would be in no one’s interest. Is there any chance that we would agree? Interestingly, when Mark Reckless, the ancestrally Irish MP for Rochester, raised the idea with the Europe Minister David Lidington at a parliamentary committee meeting yesterday, the response was friendly.
  • Christopher M. Quigley / IrishCentral.comWhy Ireland should join dollar or sterling currency now: Thus Ireland needs to take action similar to that taken by Argentina in 2002. In that year the former South America tiger faithfully managed to “humble” American banks and dollar bondholders.She de-coupled her currency from a disastrous one-to-one parity with the Dollar and so saved her economy and the social contract with her citizens.In addition she forced American mortgage holders to accept “pari-pasu” payment in the new devalued currency rather than in old dollars. Thus Argentinean homeowners did not suffer the fate currently being experienced by Latvians and Lithuanians where hard Euro mortgages must be repaid in sinking national currencies.

    Ireland needs to get support from her Euro zone partners which will enable her to significantly cut her debt exposure to private bank bondholders. If this action is not allowed Ireland should let it be known that she will consider joining the Sterling Area or possibly merging with the dollar.

  • John GustavssonSterling; A solution for Ireland;
  • Barry Eichengreen / Department of Economics UC BerkeleyCosts and Benefits of European Monetary Unification;

Many of Ireland’s early banks depended for their survival on the issue of banknotes. Note issue was profitable as it amounted to borrowing money free of charge to lend again at interest.



Ploughman Notes: The consolidated banknote issue was created as a means to replace banknotes in circulation in the Irish Free State issued by the six commercial banks that ha the right of not issue under British rule. However, the Consolidated not issue extended this right to all eight joint stock commercial banks operating within the Irish Free State. Consolidated Banknotes were regulated by the Currency Commission, and were never Legal Tender, merely a promise to pay such.

This entry was posted in ECB/IMF, Economy, EU, Euro / Sovereign Money, iceland, Independence/Nationalism, ireland, Solutions and tagged , , , , , , , . Bookmark the permalink.

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