Ireland is a hedge fund leveraged on EURGBP.
At 69½ pence, the euro has fallen against sterling to a level last in September 2007. This is significant, because Northern Rock collapsed in September 2007, signalling the beginning of the banking and sovereign debt crises. At one point, the euro almost reached parity with sterling. The reversal shows that the UK has dealt with these problems, while the EZ still struggles to do so.
There are several reasons for the strength of sterling against the euro
- strong UK GDP performance vs EZ
- failure of the EZ to deal with the Greek crisis
- ECB QE program is ongoing, when BOE's has ceased
- prospect of higher interest rates in the UK
Pound soars to eight-year high as Carney talks up rate rises - Telegraph
As seen from the chart, Ireland's GDP growth has matched the UK's and Germany's in recent years. However, Ireland is uniquely placed in the EZ to benefit from weaker EURGBP.
Volatire would like to make some predictions:
- Irish growth will be by far the strongest in the EZ in coming years
- Irish growth will exceed UK growth
- This growth will happen without excessive buildup of credit
- Since this looks more like the 1990's than the 2000's, pundits will begin to talk about Celtic Tiger II.
Two further remarks of a political nature:
- none of this has anything to do with government policy, as the Irish government has no control whatsoever over EURGBP.
- whoever wins the next general election stands to reap a large dividend