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

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


  1. Dr. Pat McCloughan Tier One Presentation 30 June 2011

  2. 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 � 2

  3. � 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 3

  4. � Triad → BRIC � Share of world GDP: Change ( Δ ) % Share Abs ( Δ ) % ( Δ ) 2010 2030 EU27 27 14 -13 -48% US 24 12 -12 -50% Japan 9 3 -6 -67% China 9 24 15 167% India 2 10 8 400% � 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 4

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  8. � 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 8

  9. � 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 9

  10. 30 Pembroke Street Upper Dublin 2 Ireland Tel: +353 1 234 2507 Fax: +353 1 234 2400 Email: pat@pmca.ie or info@pmca.ie Web: www.pmca.ie 10

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