Collapse of the euro would herald a new level of crisis for Ireland - - PowerPoint PPT Presentation

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Dr. Pat McCloughan Tier One Presentation 30 June 2011 Collapse of the euro would herald a new level of crisis for Ireland and Europe For Ireland, there would be little or no hiding place in terms of credible alternatives What might the

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Dr. Pat McCloughan

Tier One Presentation

30 June 2011

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Collapse of the euro would herald a new level of crisis for Ireland and Europe
For Ireland, there would be little or no hiding place in terms of credible alternatives
What might the ‘alternatives’ be?
Reversion to the punt without capital controls – likely disastrous
Reversion to punt with capital controls – unsustainable in a very small economy
Align punt to another currency (sterling, dollar or mark) – complex issues
Monetary policy risks being ineffective with capital movement
Consequences for inflation of maintaining alignment
Re-denomination of national debt
Two-speed eurozone – huge challenges for the lower tier
Best outcome: Greece knuckles down and the euro lives to fight another day

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Fire-fighting and longer-term economic reform strategy The crisis has resulted in a horribly complex maze of emergency interventions Sustainable vision for Europe needed – rapidly changing world economic order Full economic union not feasible…political union not possible Basic principles of the EU plausible Fiscal and monetary policy – support euro and macroeconomic stability Microeconomic policies – underpin basic principles Every major crisis reveals a new lesson for economists and this one has taught us that

Don’t get too hung up on ‘knob-twiddling’ inflation control

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Triad → BRIC Share of world GDP: China in the coming years

Low-end manufacturing → research and innovation → services
Higher value consumer society – Chinese tourists, even bigger middle-class
Property development – urbanisation of the rural interior, small to mega cities
China as a home country for FDI – vigorous competition between host countries

2010 2030 Abs ( Δ ) % ( Δ ) EU27 27 14

US 24 12

Japan 9 3

China 9 24 15 167% India 2 10 8 400% % Share Change ( Δ)

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Main manifestations are ↑ inward FDI and ↑ exports But no room for complacency and more action needs to be given to:

Public sector reform – but not so that the private sector is (inadvertently) depleted
Promotion of competition policy to improve the functioning of goods and services markets
Research, development and innovation (RD&I) – SFI and PRTLI, and EU FP7
Educational reform – through the lifelong learning process (focus on STEM, Chinese)
Cross-border dimension for cooperative initiatives, including energy, infrastructure, health

Banking sector

Risk that the re-structuring plan will result in over-regulated and uncompetitive banks
Re-structuring plan will need competition as well as regulatory/supervisory monitoring

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Best case scenario for Ireland

Greece bites the bullet
Euro survives
Consolidation of Irish competitiveness

Inward FDI Exports growth Moderate but steady growth Improved international markets

Ireland unlikely to return to bond markets until 2013 (at the earliest) Euro collapse would be unthinkable European reform China’s century

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