Just over a year ago, I blogged that Ireland's imperative was to see the Euro fail. A somewhat bleak picture, perhaps, but if anything I am even more convinced of that now. The Euro project has been a disaster. While politicians have been kicking the can down the road, past one election after another, at some point someone needs to carry the can (see what I did there? nice, eh!). There are two important questions. What is the trigger point for someone to actually call a halt to this charade of a currency union? And what happens then?
I think the trigger point will be a de facto default in Spain or Italy, though it may take some time to take effect. Spain looks the most likely. The fundamentals of its economy are weak; its property bubble was as severe as almost anywhere else; its unemployment rates are appalling, and the black economy is burgeoning. So Spain one day will go to the bond markets and find itself priced out. that will result in a withdrawal from the bond markets, and a resort potentially to bilateral loans with major trading partners, or - if the shortfall can be reasonably contained at least in the short term - the EFSF. However, the EFSF will include monitoring, and that's where the damage could be done. The Euro project would not fail because of a de facto default, but because after the default the scale of the hole in Spanish finance - and by extension European finances - would begin to be revealed. Heading towards a trillion Euro funding shortfall, possibly several trillion Euro, the impact on the Spanish financial system would be catastrophic, and the domino effect on French, German and in particular English banks would be crippling.
The net effect would be for Spain to withdraw from the Euro and devalue its currency by 50% or more. Greece would immediately do the same, immediately followed by Portugal, Ireland and most likely Italy. The Eurozone would effectively agree to dissolve itself, shaking hands with one another and wishing each country all the best, with some wishy-washy think tank established to understand the causes of the collapse, and make recommendations for alternate structures towards future integration. The next thing likely to happen is the repudiation of debt - at such an enormous scale that bank collapses happen with alarming frequency. The banks that are left standing will be banks that are asset backed, and controlled out of other parts of the world.
The rest of the world of course would not be immune from the goings on in Europe, but most American banks have either hedged their Eurozone exposure or reduced it drastically. Chinese banks are heavily asset based, but would be exposed to the global slowdown that would inevitably follow a Euro collapse.
In Ireland, we would see an acceleration of the current austerity, but we'd get through it in two or three years, and everyone would be in the same boat both inside and outside the country. Mortgages would be dramatically written down; the public and civil service would be thinned more aggressively than is currently the case; the national debt would be repudiated, and currency trading would be regulated heavily. With no access to the markets, we would not have cash (which isn't really a concern given that the currency has just exploded) and we would have to rebuild our economy from scratch. The government has to have a plan for this scenario, it's a very obvious one with a high degree (relatively speaking) of probability.
Teachers would still teach. Guards would still do their work. Doctors would still practice medicine. Food prices would rise in the near term, and social welfare would need to go into overdrive, as would civic society. And we'd most likely have significant political upheaval. The new punt would take time to settle, there'd be no new cars for a year or two, and petrol could be in short supply for a time. But we'd get by. It would be a shock to the system, but we'd all feel better for it. A fresh start. Everyone would have to keep their heads, and stay calm, and for some this would be tough. Leadership would come to the fore, perhaps not from politics but from local and regional organisations. We'd probably make some of the old mistakes again, that's human nature. But we'd do our best to fix them. Most of all, we as a people would finally be able to take ownership of our country again, and I don't mean from the Troika. We lost ownership of our country a long time before that, when our political system became poisoned, and the national movement ended. It would be a wonderful thing to take it back.
So that's why I'm voting no. We're already living in delusion, and I just want it to end. I don't want my generation to have to suffer through 20 years of tortuous explanations about how well we're doing and how austerity is working, because, well, it's austere, and it destroys hope. Maybe Spain blows up in the bond markets, or maybe we can accelerate things a little bit by voting no. So to Old Europe, to the Old Establishment - Please get out of the new one, If you can't lend your hand, For the times they are a-changin'.
I think the trigger point will be a de facto default in Spain or Italy, though it may take some time to take effect. Spain looks the most likely. The fundamentals of its economy are weak; its property bubble was as severe as almost anywhere else; its unemployment rates are appalling, and the black economy is burgeoning. So Spain one day will go to the bond markets and find itself priced out. that will result in a withdrawal from the bond markets, and a resort potentially to bilateral loans with major trading partners, or - if the shortfall can be reasonably contained at least in the short term - the EFSF. However, the EFSF will include monitoring, and that's where the damage could be done. The Euro project would not fail because of a de facto default, but because after the default the scale of the hole in Spanish finance - and by extension European finances - would begin to be revealed. Heading towards a trillion Euro funding shortfall, possibly several trillion Euro, the impact on the Spanish financial system would be catastrophic, and the domino effect on French, German and in particular English banks would be crippling.
The net effect would be for Spain to withdraw from the Euro and devalue its currency by 50% or more. Greece would immediately do the same, immediately followed by Portugal, Ireland and most likely Italy. The Eurozone would effectively agree to dissolve itself, shaking hands with one another and wishing each country all the best, with some wishy-washy think tank established to understand the causes of the collapse, and make recommendations for alternate structures towards future integration. The next thing likely to happen is the repudiation of debt - at such an enormous scale that bank collapses happen with alarming frequency. The banks that are left standing will be banks that are asset backed, and controlled out of other parts of the world.
The rest of the world of course would not be immune from the goings on in Europe, but most American banks have either hedged their Eurozone exposure or reduced it drastically. Chinese banks are heavily asset based, but would be exposed to the global slowdown that would inevitably follow a Euro collapse.
In Ireland, we would see an acceleration of the current austerity, but we'd get through it in two or three years, and everyone would be in the same boat both inside and outside the country. Mortgages would be dramatically written down; the public and civil service would be thinned more aggressively than is currently the case; the national debt would be repudiated, and currency trading would be regulated heavily. With no access to the markets, we would not have cash (which isn't really a concern given that the currency has just exploded) and we would have to rebuild our economy from scratch. The government has to have a plan for this scenario, it's a very obvious one with a high degree (relatively speaking) of probability.
Teachers would still teach. Guards would still do their work. Doctors would still practice medicine. Food prices would rise in the near term, and social welfare would need to go into overdrive, as would civic society. And we'd most likely have significant political upheaval. The new punt would take time to settle, there'd be no new cars for a year or two, and petrol could be in short supply for a time. But we'd get by. It would be a shock to the system, but we'd all feel better for it. A fresh start. Everyone would have to keep their heads, and stay calm, and for some this would be tough. Leadership would come to the fore, perhaps not from politics but from local and regional organisations. We'd probably make some of the old mistakes again, that's human nature. But we'd do our best to fix them. Most of all, we as a people would finally be able to take ownership of our country again, and I don't mean from the Troika. We lost ownership of our country a long time before that, when our political system became poisoned, and the national movement ended. It would be a wonderful thing to take it back.
So that's why I'm voting no. We're already living in delusion, and I just want it to end. I don't want my generation to have to suffer through 20 years of tortuous explanations about how well we're doing and how austerity is working, because, well, it's austere, and it destroys hope. Maybe Spain blows up in the bond markets, or maybe we can accelerate things a little bit by voting no. So to Old Europe, to the Old Establishment - Please get out of the new one, If you can't lend your hand, For the times they are a-changin'.
1 comment:
Armageddon! Year zero! Reminds me of 1930s economic war with Britain when Dev witheld land annuities from Britain
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