Earlier this week Ashoka Mody, one of the original troika representatives when they took hold of the Irish economy last year, has admitted that austerity alone was a mistake.
Then the Taoiseach comes up with “well, hindsight is a wonderful thing.”. Yes, Enda, it is, but there was no need for hindsight when many economists, including Nobel prize winner Paul Krugman, economics popularist David McWilliams and your’s truly told you so back then. It’s information that can be found in standard textbooks for third-level economics studies.
But I suppose you need to be a VSP (Very Serious Person) to be taken seriously.
In the first series of Blackadder, the king sends a messenger away telling him: “I don’t like that news, bring me some other news!” The messenger leaves the room and immediately returns, saying exactly the opposite of what he had just said. At the moment we’re all like Brian Blessed’s wonderful King Richard IV – we don’t want to hear the bad news, and both sides of the current referendum campaign are telling us it could be different.
I’ve been musing over the scenario facing us regarding a possible Eurozone exit, assuming we follow the route that now seems inevitable for Greece. Our crisis was different to that of Greece – there they had a government debt problem that became a banking problem. Here it was the other way around. Either way, we’ve ended up at the same place and we need to keep a close eye on Greece now as they are the canary in the coal mine. I think in a few ways we’re in better shape, the most important of which is that many Irish people do still have money, they just aren’t spending it at present. If we can get them to stop hoarding it in European banks, but rather to invest it directly into the Irish economy, we can fund ourselves, we won’t need bailouts from Europe. This recent pronouncement that we’ll be unable to return to the bond markets is such so much fear-mongering nonsense. The markets have no memory, they will move on.
But what will happen if we leave the Eurozone? There is no question that a new currency will be significantly devalued compared to the Euro. This is because of confidence factors that are inevitable in such a situation. People will want to hold euros during any change, and the initial differential in demand between the two currencies means that the new currency will cost less. This means that anything we import – in particular fuel and medicines, will increase in price, and we all know the knock-on effect of fuel prices. The ubiquitous “sun holiday” will become a luxury few can afford. Our standard of living will drop significantly; in fact we’ll achieve overnight what the Fiscal Treaty aims to achieve in 5 years. So austerity is here to stay, for a while, no matter which choice we make next Thursday.
That’s the bad news, is there any good news? A weaker currency than our major trading partners means a boost in exports. We can also expect to see more local shopping – buying from and selling to each other. A current account surplus (resulting from export trade) along with private savings means we can fund ourselves. We will be able to borrow on the bond markets if we need to, because the markets like a country with low debt. At present, the EU wants to increase our debt burden. We need debt forgiveness; we need relief for our mortgage holders in negative equity, and an organised, clearly communicated default on our sovereign debt to European banks, debt which should never have been made sovereign to begin with.