Interest Rates Rising, Inflation Rising, Hearts Sinking

[jjcarroll]

While toady ECB interest rates rise was wholly expected, I’m sure the announcement today by Jean Claude Trichet caused many Irish hearts to sink a little further. The quarter percent (0.25%) rise is moderate but on top or previous rises and with further rises expected this will surely be putting pressure on some household around the country. The rise is also going to be a knock for those looking to buy their first home as this marginal rise also will put an extra €15,000 on the cost of repaying the average mortgage of €250,000 over 35 years.

From everySecondPaycheck.com

[rockofcashel]

Not to worry, some of the FF lads on an earlier thread said that some pessimistic economist said a few months back, that we're in for a soft landing, so really its a case of move along, nothing to see here folks.

Apart from that, the frightening thing remains is that the real interest rate still remains lower than inflation, which encourages more borrowing, which encourages more people to go deeper into debt, which means the likelihood of serious financial repercussions when that debt is eventually called in, will be all the more devastating.

I think Irish people don't actually realise, that borrowed money has to be eventually paid back.

[KevinL]

Quite right Rock.

While EMU has been generally good for Ireland, one problem is that becuase we're such a small part of the eurozone Interest rates are not properly set for us. Such a low rate in a bouyant economy was just encouraging excessive and vulgar spending.

[Sidewinder]

While EMU has been generally good for Ireland, one problem is that becuase we're such a small part of the eurozone Interest rates are not properly set for us. Such a low rate in a bouyant economy was just encouraging excessive and vulgar spending.

Yeah, and if there is a crash in Ireland while the continent is doing OK, we could end up in the exact opposite situation with interest rates being too high and depressing our economy further.

Maybe joining the Euro was a bad idea after all.

[KevinL]

While EMU has been generally good for Ireland, one problem is that becuase we're such a small part of the eurozone Interest rates are not properly set for us. Such a low rate in a bouyant economy was just encouraging excessive and vulgar spending.

Yeah, and if there is a crash in Ireland while the continent is doing OK, we could end up in the exact opposite situation with interest rates being too high and depressing our economy further.

Maybe joining the Euro was a bad idea after all.

That's exactly the same problem, just in reverse. Overall the benefits outweigh the disadvantages.

[Sidewinder]

What benefits, exactly? Not having to change money on yer holidays?

IIRC, only about 35-40% of our total trade is with the Eurozone, another 40% odds is to the UK and US, and the balance to the rest of the world. "Getting rid of currency charges on business" only actually applied to a minority of businesses, and most of them were multinationals.

"Lower interest rates" was touted as one of the major advantages at the time, but as we have seen that has turned out to be a dubious benefit indeed. Now we could be looking at the next decade stuck in an interest rate regime that is too high for our circumstances.

Transparency in pricing across the Eurozone only showed us how much we are getting ripped off in this country, and yet, years after joining the Euro, have we seen any of the promised price convergence? No, we are still being shafted just as much as before.

I think at this stage it looks like we were conned.

[MichaelHennigan]

What benefits, exactly? Not having to change money on yer holidays?

IIRC, only about 35-40% of our total trade is with the Eurozone, another 40% odds is to the UK and US, and the balance to the rest of the world. "Getting rid of currency charges on business" only actually applied to a minority of businesses, and most of them were multinationals.

"Lower interest rates" was touted as one of the major advantages at the time, but as we have seen that has turned out to be a dubious benefit indeed. Now we could be looking at the next decade stuck in an interest rate regime that is too high for our circumstances.

Transparency in pricing across the Eurozone only showed us how much we are getting ripped off in this country, and yet, years after joining the Euro, have we seen any of the promised price convergence? No, we are still being shafted just as much as before.

I think at this stage it looks like we were conned.

Iceland did well in recent years as it attracted foreign money in search of a yield. Money has flowed out in recent times and the base interest rate is now 12.25% compared with the ECB's 2.75% rate - quite a difference when paying a mortgage.

[KevinL]

What benefits, exactly? Not having to change money on yer holidays?

Benefits of the eurozone:

1) EMU develops a deep, liquid capital market that improves investment.

2) A large currency is protected from speculation.

3) The ECB in charge of monetary policy means important levers of macroeconomic policy are depoliticised. There is a clear correlation
between the independence of central banks and lower inflation.

[quote:wuesai2b]

IIRC, only about 35-40% of our total trade is with the Eurozone, another 40% odds is to the UK and US, and the balance to the rest of the world. "Getting rid of currency charges on business" only actually applied to a minority of businesses, and most of them were multinationals.

Outward investment in ireland has increased hugley in Ireland since EMU and with the large amounts of cash here probably will continue. Most multinationals are in Ireland as a European base rather than for our domestic market so no more ex. rate flucuations and commission is a big incentive for them to come here, and we all know about celtic tiger and the rest of it.

"Lower interest rates" was touted as one of the major advantages at the time, but as we have seen that has turned out to be a dubious benefit indeed. Now we could be looking at the next decade stuck in an interest rate regime that is too high for our circumstances.

Ireland is coming off the back end of an exceptional economic boom, and as such our business cycle is off that of the continent. As growth picks up in Germany and europe and Irish growth stabilises we can look forward to long term stability and lower rates.

Transparency in pricing across the Eurozone only showed us how much we are getting ripped off in this country, and yet, years after joining the Euro, have we seen any of the promised price convergence? No, we are still being shafted just as much as before.

Comparsions of absolute price levels for consumer goods, small items and food products are meaningless. There are a huge variety of factors that influence prices. For really big things like steel, energy and inputs their is a common market. more importantly you can't compare prices just by looking a bottle of water in France and Ireland without considering wages as well. It's real purchasing power that actually matters.

I think at this stage it looks like we were conned.

[/quote:wuesai2b]

Yeah, by you.

[FutureTaoiseach]

I wonder is it right that we include mortgage-interest rates in our calculation of inflation? They don't in the UK and I don't think we should here. In so far as the rise in inflation relates to this, the govt cannot be to blame because the ECB now controls it.

Regarding ther contributory factors to inflation we could tackle it with greater competition. In particular the Electricity Regulator needs to give new entrants to the market an easier time. Airtricity has left the market. ESB keeps hiking our bills. We need real competition. We also need more of it in the gas-market.

Also with reports in the press today about a doctors' cartel the National Consumer Agency or whoever needs to crack down on that. We need a whistleblower's charter to protect insider informers on cartels from being sacked. It is indeed unfortunate that the govt refused to back the Whistleblowers Bill earlier in the year, and sadly ppl will draw their own conclusions as to why.

Maybe joining the Euro was a bad idea after all.

Disagree. Inflation would be even higher without it, as we would still have exchange rates and consequently probably, with a still strong Deutschmark, more expensive imports from Germany. Imports from the US would also have been more expensive, and this would have fed into inflation too.

[krayZpaving]

Maybe joining the Euro was a bad idea after all.

Maybe 8 years of Charlie McCreevy's inflationary budgets was a bad idea after all.