Returning to the punt would be 'horrendous for Ireland'
The global financial system could be set back 30 years if the euro was to collapse. Speaking yesterday at a briefing on the future of the single currency, Bloxham's chief economist Alan McQuaid said the collapse of the euro would be "horrendous" for Ireland.
Describing the "doomsday" scenario of returning to the punt, he said a devaluation would result in mortgages and savings reverting to the old currency.
He predicted a run on banks, coupled with higher interest rates, higher inflation and higher unemployment.
"The break-up of the euro would be a disaster. It would be a very painful experience for the ordinary person on the street. People were concerned about their deposits on Irish banks, but now they are concerned about the euro."
Bloxham managing partner Pramit Ghose said Irish people had invested more than €11m over the past two weeks in a new fund split between global cash and short dated bonds.
"People are moving their money out of other funds or moving savings. It's all about capital preservation and minimising losses if the euro was to go. They are also putting their money into German bonds or a basket of blue chip shares," he said
But not everyone would lose from a euro collapse -- Mr McQuaid maintains that the biggest winners would be the legal profession.
"Every euro [denominated] contract would have to be renegotiated. Take your tracker mortgage for example. Who would you track? You would track the central bank that controls your currency or if the punt was linked to sterling, you would track the central bank of England. But many people could dispute this arguing that they signed a legal contract to track the European Central Bank," he added
While he believed the currency would survive, he said there were no certainties.
"The markets anticipate that it will be resolved. . but every company dealing with the euro should have a Plan B.
"A collapse of the euro would result in a major reduction in international trade due to legal disputes. And there would be a mass exodus out of euro-denominated assets with sizeable and random transfers of wealth," he said.
But the country, he said, wasn't looking at a situation where someone dealing in euro on a Friday would wake up to dealing in punts the following Monday.
"There would be a dual currency for a number of years to allow people to convert back."
He said the demise of the single currency could also prompt the return of border controls as foreign exchange controls would be reintroduced.
But apart from the legal industry, the export industry would be the biggest beneficiary. "In theory, a devaluation of the currency would be good for exports. But it wouldn't be as good as assumed, because again contracts would be disputed," he said.
Mr McQuaid said that despite being one of a number of economists to have a recent briefing with Department of Finance officials, he wasn't aware if they had any view on a euro break-up.
"Ireland has a huge foreign multinational sector. The Government wouldn't want to decide to go back to the punt without asking the views of Google and other FDI companies," he said.