Tuesday 6 December 2016

Will the euro fail?

The future of Europe's single currency is in the balance. Nick Webb, Louise McBride, John Reynolds and Harry Leech report

Published 20/11/2011 | 05:00

CURRENCY CONCERNS: Former EU Commissioner Ray
MacSharry believes the eurozone will break up unless the
European Central Bank becomes the lender of last resort
CURRENCY CONCERNS: Former EU Commissioner Ray MacSharry believes the eurozone will break up unless the European Central Bank becomes the lender of last resort

IT IS clear that the politicians haven't the faintest idea what is going on in terms of the financial crisis that is rocking Europe, so we asked some of the country's most successful and shrewdest business leaders whether they thought the euro was about to fail and what would happen to Ireland if it did.

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Barry Maloney

Balderton

"Something has to give. Regaining control on the value of our currency and an ability to set interest rates, as painful as it might be in the short term, may be what is required for us to get a longer term recovery under way," says Barry Maloney, Ireland's biggest technology investor. Maloney has bankrolled the likes of Betfair, Bebo, Globoforce and Openet. According to Maloney, "the eurozone will change from what it is today for sure.

"It's now only a question of when and not if."

Barry Maloney also sees the possibility of a two-speed Europe.

"For Ireland, the reality is that 80 per cent of our balance of payments are with the UK, which is sterling based; and 85 per cent of inward investment into the country comes from the United States, which is dollar based.

"So for us to be running Germany's currency, which today is one of the world's strongest economies, through our economy in its current condition, is madness that will get us nowhere fast and we can't just keep making cuts in an attempt to get out from under our debt mountain!" Maloney says.

Ray MacSharry

Former EU Commissioner

Former EU commissioner and Finance Minister Ray MacSharry believes the eurozone will break up unless the European Central Bank (ECB) becomes the lender of last resort.

However, countries such as Greece and Italy must get their acts together first, according to MacSharry. "Unless and until the member governments of the eurozone are prepared to do what is necessary to get their budgets in balance and reduce their debt, then why should anyone help them?" says MacSharry.

MacSharry hopes the eurozone doesn't break up.

"A break-up would have a serious impact on Ireland and all of Europe," argues MacSharry. "It would be a doomsday situation. The Irish Government would have to seek a 50 per cent debt forgiveness on its debts if there were a break-up because of the currency devaluation that would arise. Otherwise, we'd be back in the dark ages again."

Terence O'Rourke

Managing partner, KPMG

"I don't think it'll break up. A recent study showed that an exit from the euro could cost a country 20 to 40 per cent of its GDP. Those with the power to stop us falling in a financial chasm will bring an end to the current crisis," says O'Rourke.

"The ECB can't act unilaterally, so Germany might have to decide to do something that they haven't done before. I'm not sure what that will be, though.

"An alternative to that might be a multilateral effort involving the US and perhaps China and other countries.

"Ireland will continue to have further fiscal integration and monitoring of our budgets and our debt by our partners in Europe," he adds.

John Teeling

Cooley Distillery

John Teeling, chairman and founder of the whiskey makers, Cooley Distillery, believes that it is only a matter of time before the eurozone breaks up.

"Of course, the eurozone will break up," said Teeling. "The battle to save the eurozone has moved from an economic issue to a political issue. The history of monetary zones is that without political union, they will fail -- and the sooner that happens for the eurozone, the better."

Teeling believes that countries such as Ireland, Greece, Portugal and Italy have no chance of ever paying their debts -- and that they will have to adopt a softer euro to regain their competitiveness.

"Ireland needs a 30 per cent devaluation in its currency to regain its competitiveness," says Teeling.

"Devaluation is not necessarily a bad thing, though. Ireland's future is in exports and our exports will be cheaper if we have to take on a soft euro."

Nicola Byrne

Founder, 11890.ie

"The euro will survive as the impact on the world economy of abandoning it is too horrific to contemplate," says Nicola Byrne.

"But the euro that emerges will surely be different from the original concept of sovereign nations sharing a common currency. Some countries will leave because they're unwilling to cede fiscal policy-making to a centralised bureaucracy controlled by Germany. Those who remain, including Ireland, will undergo several years of unavoidably painful fiscal correction but will be able to fund public services and meet their debt obligations.

"A strong new euro-bloc should in time mean it can again improve the living standards of its people," she adds.

Adrian Hegarty

Friends First

"It's impossible to know with any certainty how the eurozone crisis will unfold. However, the pressure is building momentously and any lasting solutions will require fiscal federalism, which will involve the Germans bankrolling a very costly solution and countries like Ireland relinquishing their sovereignty forever as a trade-off," according to Friends First boss Adrian Hegarty.

"Politicians and voters everywhere will have to recognise that the cost of saving the system is likely to be far less than the political and economic chaos that would follow if the system is allowed fall apart. If the Germans agree to sign the proverbial cheque, the euro can survive, if the Germans refuse, it will fall apart. It is that simple.

"We need to create a contingency plan in the event of the system falling apart -- this could involve a re-establishment of the Sterling link or seeking to anchor to either the informal hard or soft euro blocs that will emerge."

Anthuan Xavier

Chairman, Hughes Blake

"This can't go on," warns Anthuan Xavier.

"The furthest that this can go on is another two or three months. There has to be certainty. Nobody can operate in this uncertainty.

"This will go down to the wire. Two things will happen: the ECB will either have to print money and we'll have a quantative easing scenario -- which they've refused to do so far -- or the ECB will have to intervene and get involved in propping up countries' borrowings.

"It'll have to come up with some kind of instrument or device for that," Xavier says.

Guy Hollis

CB Richard Ellis

Although Guy Hollis, managing director of the property consultants CB Richard Ellis, doesn't believe the eurozone will break up, he thinks that there are "four or five" painful years ahead.

"Europe usually muddles through -- and it will muddle through in the end," says Hollis. "The eurozone is in a mess and its recovery will be slow and painful, but I don't think it will break up. Ireland is a trading country so it would be in a very difficult situation if the eurozone broke up."

Tanya Airey

MD, Sunway Travel

"It's inconceivable that the leaders of the major eurozone economies would allow the euro to collapse, but if somehow this were to happen, the scale of the resulting fallout would be disastrous -- not just to Ireland, but to the world economy. It would be impossible to quantify or even contemplate. However, we could be sure that the tremendously negative effects would be felt here for at least a generation," warns Tanya Airey.

"The more likely scenario is that a last-minute rescue of the euro will be agreed and this will put us back on to the path to growth, a pick-up in employment and a gradual return to normal living standards," she adds.

Colm Kennedy

Managing director, Vayu

"The challenges faced last week by Spain and France do not help build confidence in the future of the euro. It is hard to believe that the German and French governments would allow the currency to fail. The political investment in the currency is too great for it to be sacrificed," says Colm Kennedy.

"No one can predict what would happen in the global economy and in capital markets were the euro to collapse. Decisive political action is needed. Political brinkmanship will only serve to hurt all eurozone countries," he warns.

Tom Noonan

Chief executive, Maxol Group

"In trying to answer that question, you've got to ask -- have the markets been right so far or have the governments? The markets have been right every time. There's a reason why they are acting this way towards Italy, Spain and now possibly France. It's what we saw with Ireland and Greece before them and that would worry me greatly," he says.

"The future for Ireland is worrying. The domestic economy has already fallen back to 2001 levels and doesn't look like it will improve in the immediate future. If the euro collapses on top of that, things will only get worse."

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