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Thread: Should the Euro be forced to de-value?

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    Politics.ie Member Ulster-Lad's Avatar
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    Default Should the Euro be forced to de-value?

    There are several advantages and disadvantages to de-valuing a currency. Among the advantages are:

    Exports become cheaper and more competitive to foreign buyers. This would provide a boost to domestic demand. The knock on effect to this would be JOBS.

    The higher the level of exports should improve our account deficits.

    The combination of the above leads naturally to economic growth.

    There are some disadvantages but I do not see them as a factor in a recession. Inflation is the number 1 problem with devaluation. While the rest of Europe may see inflation in the future, I do not see Ireland experiencing inflation anytime soon although we will probably face interest rate rises when inflation does hit the continent.

    Probably the only country in the world not to experience the recession or it’s effects has been China. China has been accused and is facing sanctions now for intentionally devaluing and maintaining it’s currency at low levels. They are not in recession and in full employment. Their export market is strong.

    Question is should the EU be forced to devalue the Euro? Thoughts
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    Politics.ie Member danger here's Avatar
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    Quote Originally Posted by Ulster-Lad View Post
    There are several advantages and disadvantages to de-valuing a currency. Among the advantages are:

    Exports become cheaper and more competitive to foreign buyers. This would provide a boost to domestic demand. The knock on effect to this would be JOBS.

    The higher the level of exports should improve our account deficits.

    The combination of the above leads naturally to economic growth.

    There are some disadvantages but I do not see them as a factor in a recession. Inflation is the number 1 problem with devaluation. While the rest of Europe may see inflation in the future, I do not see Ireland experiencing inflation anytime soon although we will probably face interest rate rises when inflation does hit the continent.

    Probably the only country in the world not to experience the recession or it’s effects has been China. China has been accused and is facing sanctions now for intentionally devaluing and maintaining it’s currency at low levels. They are not in recession and in full employment. Their export market is strong.

    Question is should the EU be forced to devalue the Euro? Thoughts
    Why would you want to do that?The Euro is somewhat bigger than Ireland's domestic problems,I don't see the logic of dragging down countries like France and Germany which are booming at the moment.Also google "Chinese Property Bubble" and have a read.

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    Politics.ie Member Ulster-Lad's Avatar
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    Quote Originally Posted by danger here View Post
    Why would you want to do that?The Euro is somewhat bigger than Ireland's domestic problems,I don't see the logic of dragging down countries like France and Germany which are booming at the moment.Also google "Chinese Property Bubble" and have a read.
    I outlined the reasons in the Op to devalue. The main one there being jobs. Another way to look at your comment of dragging down countries like France and Germany is that in fact they (through the Euro) are preventing our growth.
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    Politics.ie Member HarshBuzz's Avatar
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    Quote Originally Posted by Ulster-Lad View Post
    I outlined the reasons in the Op to devalue. The main one there being jobs. Another way to look at your comment of dragging down countries like France and Germany is that in fact they (through the Euro) are preventing our growth.
    lol, they'd probably argue that we are having a more detrimental effect on them! (correctly)

    the euro isn't the problem, look around you - it's here at home (the detritus of a massive, burst property bubble and a useless, corrupt government)
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    MrFunkyBoogaloo
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    Quote Originally Posted by Ulster-Lad View Post
    I outlined the reasons in the Op to devalue. The main one there being jobs. Another way to look at your comment of dragging down countries like France and Germany is that in fact they (through the Euro) are preventing our growth.
    BOOM.

    The € massively fuelled our bubble and is preventing growth at the moment. It's the elephant in the room that no political party is willing to discuss, though it is only part of the problem.

    While I think we should devalue, countries like France and Germany simply won't let it happen. Perhaps we need to get out for a few years and establish an independent currency.

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    Quote Originally Posted by MrFunkyBoogaloo View Post
    BOOM.

    The € massively fuelled our bubble and is preventing growth at the moment. It's the elephant in the room that no political party is willing to discuss, though it is only part of the problem.

    While I think we should devalue, countries like France and Germany simply won't let it happen. Perhaps we need to get out for a few years and establish an independent currency.
    We fueled out own bubble. We could have used the interest rates wisely but instead built 100,000 houses a year. In a 'smart' economy where long term implication are considered, the Dutch are formally planning to build 500,000 until 2050.
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    Quote Originally Posted by Ulster-Lad View Post
    There are several advantages and disadvantages to de-valuing a currency. Among the advantages are:

    Exports become cheaper and more competitive to foreign buyers. This would provide a boost to domestic demand. The knock on effect to this would be JOBS.

    The higher the level of exports should improve our account deficits.

    The combination of the above leads naturally to economic growth.

    There are some disadvantages but I do not see them as a factor in a recession. Inflation is the number 1 problem with devaluation. While the rest of Europe may see inflation in the future, I do not see Ireland experiencing inflation anytime soon although we will probably face interest rate rises when inflation does hit the continent.

    Probably the only country in the world not to experience the recession or it’s effects has been China. China has been accused and is facing sanctions now for intentionally devaluing and maintaining it’s currency at low levels. They are not in recession and in full employment. Their export market is strong.

    Question is should the EU be forced to devalue the Euro? Thoughts
    The ECB can buy foreign currencies indefinitely such as the USD/GBP/CHF/JPY like the Japanese are doing now. This won't have any effect on euro members because the eurozone only runs a slight current account surplus as a whole with the rest of the world. The imbalances therefore are within the eurozone itself and since member countries all use the same currency no one is going to be able to export their way out of this mess.

    So, it won't improve our trade deficit or anyone elses for that matter. And since the eurozone countries have no control over their currency, exports will be capped when the euro rises against these countries. So, there can never be a large current account surplus for the eurozone, the euro and the Maastricht Treaty institutionalizes deflation across the eurozone.

    And it is not so easy to devalue your currency with the free flow of capital across borders, look at Japan just this morning lowering its interest rate to between 0% and 0.1% and have one of the strongest currencies in the world.

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    There's a difference between the Euro and the Renminbi in that the Euro is freely floated and the Renminbi isn't.

    That makes it a whole lot harder to just devalue the Euro.

    All you can really do is print money, but that causes its own problems as prices rise leading to demand for higher wages, which undermines any competitiveness gains. In fact, I'd go as far as to say that devaluations just hide underlying structural problems, which always return in the long run.

    Britain used the money printing approach to devaluing its currency and is just starting to see the knock on effect.

    In a way, China's situation is really that it won't let its currency rise. That doesn't present quite the same problem. Still, they should never have been allowed into the WTO without floating their currency. It is essentially a form of government subsidy.
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    MrFunkyBoogaloo
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    Quote Originally Posted by riven View Post
    We fueled out own bubble. We could have used the interest rates wisely but instead built 100,000 houses a year. In a 'smart' economy where long term implication are considered, the Dutch are formally planning to build 500,000 until 2050.
    Agreed. It needs to be pointed out though that cheap money from the ECB fuelled the speculation.

    The € is now a stranglehold on the Irish economy. How many countries, outside the eurozone, are devaluing their currency? We can't.

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    Politics.ie Member making waves's Avatar
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    McWilliams is right when he states that no country in an economic mess of the scale of Irelands has got out of the mess without a devaluation.

    The initial prompt for the Celtic Tiger was not MacSharry's hatchet job on public spending but the 8% devaluation of the punt in 1986. Indeed MacSharry's cuts almost derailed the recovery prompted by the devaluation (a lesson for the hatchetmen this time around).
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