May 10, 2009

Rewind to 2005

Posted in Your Ideas ·

Dear David,
I read your article (“Ditching the euro could boost our failing economy”, Irish Independent, May 6) with interest. Your articles are always stimulating.

I feel the political and social imperatives of the euro outweigh any European territory´s economic problems, such as Ireland´s and indeed the euro has been to our advantage (look at Iceland, in contrast, without support from a larger economic group), nevertheless I recognise your point that our economy has been built on an overvaluation of our work and our assets and a consequent loss of competitiveness.

Therefore rather than a currency devaluation, why don´t we achieve the same objective of a more competitive economy and a truer reflection of our assets´ worth via a different route.

If the country COLLECTIVELY rolls back its salary and wages to 2004 or 2005 levels on, say, 1 January 2010, with a rigorous enforcement of 2004/05 prices by a legislatively strengthened consumer body, we reduce budget expenditure, we make ourselves more competitive, we attract investment and jobs and we simultaneously reduce the cost of living.

It could be done in cooperation with Private Residential Tenancies Board in relation to landlord rents, the banks in relation to their fees, the supermarkets in relation to their prices, the energy companies in relation to their charges, etc. Salaries would fall, but so would the cost of living, so people would not be worse off.

It would mean a national effort in solidarity and it would mean the budget deficit is corrected more quickly and it would demonstrate to the world just how effective the Irish can be when they act in unison. Ireland would dramatically restore its lost competitiveness over the last 3 or 4 years and it would restore much lost reputation on the markets. Purchasing power would not be reduced even with a decrease in wages across the board of the private and public sectors, as the cost of living would also be reduced.

Essentially, we would be collectively devaluing OURSELVES, as we CANNOT devalue our common currency. People might say it would be too difficult, but so would a huge financial burden in extra taxes and extra interest on debt for many more years than instantaneous relief with this method. And we also get to stay in the eurozone and we don´t affect the stability of countries with which we are meant to be in solidarity and on whose goodwill we rely for our export growth.

We can approach it from the Government perspective of raising taxes and crippling people with unnecessary interest burdens for the national debt, OR we can preserve purchasing power, at the same time as reducing expenditure with lower wages WITHOUT cutting jobs, thereby reducing the forecast budget deficit. The Government prescription means prolonged pain. This means rolling back to start again from a point that was not too bad in our economic history, when Ireland was still in the top 15 of developed countries.

I think rolling back the clock in relation to retail prices, labour and energy costs on a fixed date around which people could budget, could be a novel solution. It would be instant, rather than the prolonged pain the Government is imposing. This way we roll back to a time we knew we had the balance right and we start from there again and we don´t cut jobs.

Imagine a world fascinated by our actions … we would become trendsetters with a novel approach to boom-bust scenarios, where it is beyond a country´s power to devalue its currency, but within its power to devalue its costs.