People and businesses need back-up plan if euro fails - Power
Published 01/12/2011 | 05:00
ORDINARY people and businesses should be thinking about contingency plans for the break-up of the euro, according to Friends First economist Jim Power.
While he remains optimistic that a solution will be found at a crucial European summit next month, it is prudent to plan for the worst case scenario, he said yesterday.
Mr Power has been receiving many calls from people with money on deposit in the Irish banks who are concerned.
The nightmare scenario that could play out is that if the euro fails, or peripheral countries leave the currency, we could see the return of the Irish punt.
"Assuming the currency unravelled in an orderly fashion, countries would re-create their own currencies," Mr Power said.
This dire announcement would be made on a Sunday and could shut down the banking system for a couple of weeks while the old currencies were reprinted, he suggested.
"Deposits and loans would then be converted on a one-for-one basis from the euro into punts and our currency would link with sterling in the interim," he said.
Bank deposits, up to €100,000, are guaranteed so there is no risk to savers covered by those limits. There would also be implications for people with tracker mortgages which are based on ECB rates.
Moving back to the punt would not radically affect consumers' purchasing power in Ireland -- but it would become more expensive to purchase goods abroad, he said. The Irish currency would be much weaker than the hard European ones. sterling and the dollar would also strengthen in this scenario.
Many people are taking steps to protect their savings and have been buying German government bonds, which ensure they would get paid back either in euros or in Deutchmarks should the euro break up. Others have been switching their money into American and Canadian dollars, the Danish kroner and opening sterling accounts in the North, he said.
The risk for them is that if the euro crisis is fixed, the currency will rise sharply against these currencies, and they could end up losing money in the process.
The impact of the collapse of the euro would be "truly horrendous", Mr Power said. "There would be financial, social and political chaos that would set Europe back 50 years. The risks of allowing this to happen are not worth it."