Euro exit would be a reckless gamble

SOME people have raised the question of Ireland abandoning the euro as a solution for our current economic difficulties.

But what would life back with the punt really be like for families and businesses across the country?

Anybody who has gone on holiday to Spain or Italy knows how easy the euro makes travel across Europe. The hassle of changing money to lira or peseta is gone.

As is losing out on the remains of the holiday money when it has to be changed back to punts after you arrive home. Leaving the euro would leave holiday-makers vulnerable to the transaction costs of ATM in foreign banks as well as bureau de changes for currency exchange.

Many people also find it very interesting to see the price of a pint or a meal in Portugal or Spain and how it compares to what they are being charged at home. Indeed, many a Friday night conversation in the pub has been fuelled by whether we are being ripped off here in comparison with similar goods or products that someone has bought abroad.

But, on a more fundamental level, if Ireland left the euro and returned to the punt, the potential negative consequences for families and for the wider economy are enormous. What would be the impact, for example, on personal debt? On the surface, a return to a devalued currency might seem attractive for improving domestic competitiveness. But in fact the opposite is the case for individual householders.

A person’s wages would be in punts. However, loans would still be in euro so a householder could end up paying double or triple (or even multitudes of that) the repayment amount on their debt in real terms. In simple terms, an “Irish” euro is worth the exact same as a “German” euro right now. But if a reintroduced punt was worth 50 cents, for instance, the cost of repayment of our loans in euro would automatically double.

It would also be disastrous for the wider economy. Ireland is the only English- speaking member of the eurozone. Even with the ongoing economic difficulties, we remain an attractive location for US and other foreign companies to set up their European operations and create local jobs.

In 2012, the IDA and Enterprise Ireland had their best years for job growth in 10 years and five years respectively. Leaving the euro would seriously threaten all that.

We simply couldn’t compete with other EU states in maintaining current and attracting new investment and jobs if we left the euro. There would undoubtedly be a significant loss of business from important centres of jobs and economic activity such as the IFSC as companies sought to relocate to countries which enjoy all the benefits of the single currency.

BEING part of the single currency also brings great certainty for businesses in terms of currency fluctuations and the elimination of exchange rate costs.

Many businesses are already under enough pressure without adding another layer of currency transaction costs in doing business across two, three, or more currencies. As an export-led economy this is particularly important for Irish firms.

Historically, one of the major causes of financial instability has always been speculation within international money markets on weaker currencies. Being a member of the eurozone offers Ireland protection from being at the mercy of this sort of appalling, predatory economic activity. A weak and volatile currency would harm our exports and make it more difficult to borrow money — or to borrow on reasonable terms and conditions — as other countries would not be inclined to want to hold reserves of the punt.

Our own banks have been stabilised but are clearly not out of the woods yet. They would come under renewed massive financial pressure if a weak punt was reintroduced as a range of their key assets would be devalued and would inflict serious damage on their balance sheets.

Many Irish people with savings may simply take the option of closing their account in punts and opting for a euro bank account elsewhere instead. Would we then see a return to capital controls where people are asked to empty their pockets in the airport?

In the past two years, we have begun to stabilise the economy and get economic growth moving in the right direction. Why jeopardise all that now by a reckless gamble which would leave us isolated, dependent on a weak and volatile currency, and a potential economic backwater?