Euro crash would set financial system 'back 20-30 years'

IRELAND WILL experience higher interest rates, inflation and a sharp devaluation of its currency in the event of the collapse of the euro, economist Alan McQuaid said yesterday.

Speaking at a media briefing on the possible end of the euro and what it would mean for Ireland, Bloxham’s chief economist said there was a 50 per cent chance that the euro would survive in its current form, though he believed the ECB would ultimately ensure its survival.

“The fact that the euro exchange rate has held up relatively well indicates that there is a belief that the euro will not break up,” he said.

In a worst case scenario, however, he said the periphery countries could opt out, leaving a smaller euro zone with “core” countries still intact. Alternatively, Germany could leave and readopt the deutschmark, a move that would prompt other countries to follow suit. In the event of Ireland exiting the euro, Ireland would see a devaluation of its currency, he said.

However, devaluation would also affect core countries such as Germany, which would see their foreign assets decline in value.

Overall, the collapse of the euro would put the financial system “back 20 or 30 years”, he said. Ireland’s decision to stay in the euro would be dependent on others.

“The question is if people want us to be there,” he said.

Bloxham has seen a number of clients move their money into short-dated bonds, mainly UK, US, Finland and the Netherlands, he said.

High-yield equities such as Vodafone, Tesco and McDonald’s are also popular, he said.