Re: Re: Why did Ireland bother? Don’t they have Trojan horses?

#101613

rt21
Participant

Adiep

I think the eurozone is in unchartered waters and depending upon events in the future anything, even the unthinkable, is possible. I don’t think anyone knows how things will pan out and that is why I used the expression at this stage.

There are 3 possible options facing those eurozone members who are facing sovereign debt problems. And as I mentioned in an earlier post I feel that it is the sovereign debt problems that are driving this crisis.

Firstly they could withdraw from the eurozone. However, Greece and Ireland have not shown any interest in doing so even when both are facing great pain in continuing their membership of the club. One of the main reasons for not withdrawing is that both countries may recognise that they could face huge problems in the lead up to a withdrawal. For example there would probably be a huge flight of money out of each country as people and companies realised that their savings were at risk through a devaluation in currency. This would lead to a currency crisis.

Secondly a country could default on its obligations. However, this would have a huge negative impact on its trading partners and also bond holders. It would find it very difficult to go back into the market place to seek future loans and if it did the premiums demanded by bond holders would be unbearably high. Bear in mind that Greece and Ireland spend more money than they take in income from tax so they have to bridge the gap with loans.

Thirdly they could continue to belong to the eurozone. However as we all know the euro concept is deeply flawed and both countries and indeed others are having to face deep and unpopular cuts in order to regain competitiveness within the straight jacket of the euro. Changes could be made to address the flaws but this would result in a significant reduction in sovereign independence, which may be unpalatable to some if not all members

All three options carry huge risks and from what I understand the option to withdraw is considered the most damaging.

Richard