Discussing the Argentina default, “After the default came the meltdown: a 70 per cent devaluation of the peso in six months, a rapidly shrinking economy, an avalanche of poverty and unemployment. Millions of middle managers, salaried factory workers and state employees lost their jobs in the sell-off of state-run industries and the collapse of local companies. Bank accounts were frozen in an attempt to stem a bank run. US and European bank subsidiaries converted customers’ dollar deposits into devalued pesos, virtually wiping out their nest eggs. The income of Argentinians went through the floor: in 1999 it was the equivalent of $8,909 per capita, double that of Mexico and three times that of Poland; by 2002 it had shrunk to €2,500 per capita, about the same as Belarus.”
Interestingly however the article notes that currently in Ireland it is not a desperate as it was in Argentina with “Six out of seven jobs are still in place, notes Seamus Coffey, an economics lecturer at University College Cork. More than nine out of 10 mortgage holders continue to pay up on their original contract terms. Out of every €100 of disposable income, €12 is being used to pay off debt or to build up savings.”
On the question of the damage done to Ireland’s reputation “would pariah status matter once we had decided to be proudly self-reliant? That depends on the value you place on reputation. ‘We are one of the economies in the world most dependent on international business,’ says Eunan King, of King Research. ‘We cannot walk away from 50 years of the Whitaker philosophy that we compete and co-operate on an international platform. EEC entry and the encouragement of foreign investment helped Ireland step away from protectionism and dependence on our major trading partner, the UK.'”
Many question whether there would be any money in the ATMs, in essence a shorthand for the citizens to buy the basics to survive. The article says that “‘we would be international pariahs without a functioning banking system. But as our money, or what’s left of it, is still in the bank, couldn’t we use the ATMs? ‘With no functioning bank system there’s no guarantee that the ATMs would continue to work,’ says Fergal O’Brien. Coffey thinks the notion of empty ATMs is a bit ‘overblown . . . The ATMs wouldn’t close, but we’d have no money in the bank accounts anyway, and that wouldn’t be the ECB’s fault’.”
It has been posited that the euro is the rooted of much of the current problems that face Ireland, yet “‘The EU has no provision to kick anyone out of the euro, and there’s no legal provision for handing banks back to the ECB either, for that matter,’ says Stephen Kinsella. ‘But if we did leave the euro I’d like to see the new currency being called the Anglo, so we’d never forget . Of course, the first item would be a 50 per cent devaluation, so all outstanding debt doubles immediately. And you’ve just burned €160 billion, so what central banks are going to hold our money?'” Secondly it is noted that “deposits would flee the system because the government guarantee to depositors could not be honoured, as Ireland wouldn’t be able to borrow abroad. Exchange controls would have to be reimposed. The Central Bank of Ireland would have to print money to keep the banks afloat.” As a result of this many argue that bartering would return with a lack of a real currency.
The article questions would Ireland survive if Ireland did default, “’Property prices would fall further, as there’d be no banks or Nama to prop up the market,’ says Coffey. And food? ‘Well, we’re food exporters. We’d eat a lot of dairy, but we wouldn’t starve.’ And oil? ‘The question is: if the government had it, could we afford to buy it from them?'”
Finally, “the external money supply would have been abruptly disconnected, our deficit of €15 billion to €19 billion (depending on who you talk to) would have to be wiped out – immediately. The Department of Finance warns that this would entail cuts of 30 per cent in public-sector pay and social welfare. Fergal O’Brien of Ibec suggests that the figure would be about 40 per cent.” This in turn “would trigger what economists call feedbacks: a crash in tax revenues as a result of pay cuts, zero consumption, a stalled economy and so on. So the amount to be made up could rise from €15 billion to €30 billion, according to Coffey, which is why some see the short, sharp shock not merely as an implement of terrible suffering but also as a futile gesture.”
Would it be worth it?