Has David McWilliams Economic Scope Confusion?

David McWilliams turns the Retrospectoscope on the euro and says that the decision to enter the Exchange Rate Mechanism and subsequently the euro was a big mistake, motivated by the psychological insecurity of the establishment and their need to perceive themselves as insider members of the EU club.

McWilliams sets out four distinct currency regimes in Europe
1. Euro zone
2. UK and Sweden with floating currencies
3. Denmark, Poland, Czech Republic and Hungary tied informally to euro but can devalue
4. Baltic states which have a currency board with the euro and need to keep euros as reserve in vaults.

Ireland has lost about 30% in competitiveness since joining the Euro and McWilliams agrees with those who say that we need to get our prices and wages down by that amount to regain competitiveness. But he questions whether it is possible to do so and remain within the Euro zone (Sunday Business Post, January 10, 2010). He glories in dubbing himself a Euro sceptic in the currency sense and claims that we will have to be more competitive than Germany to survive.

However Bill says that the flame haired econowarrior is wrong.

The Prospectoscope must not be confused with the Retrospectoscope.

If we leave the Euro, our Euro denominated debts will remain, the Punt Nua will devalue by maybe 20% or more, domestic interest rates will soar into the teens like in the 80s and 90s. Mortgage holders will default in their thousands because repayments in euro or Punt Nua will be impossible to fund. Import prices will soar and cause inflation, domestic wages will remain flat due to labour market oversupply and Irish people will be poorer. On the plus side, our exports will be cheaper and tourism will benefit. As Big Pharma plays a huge role in our exports and wages are not a big issue, the benefit will not be a marked as a superficial analysis might imply.

We will still have to repay out national debt in Euro or dollars or in another designated currency. These Euros will have to be bought with devalued Punt Nuas so domestic taxes will have to rise even higher just to
fund the National Debt. Irish bond interest rates will increase greatly and we will have difficulty borrowing money on the markets.

Mismanagement of our Euro economy by past and current Fianna Fail governments is a fact that cannot be wished away.

So David, less silly posing and attention seeking and more on a constructive road map to national salvation. Remember the innuendo in the Brian Lenihan garlic story is that you had the answers. Let us hear them
now instead of wistfulness dressed up as forward looking scepticism.

If I’m wrong send me an email to bill_tormey@oceanfree.net