The Financial Wonderland of Covid-19

According to economic experts, Ireland does not have to worry about paying back the massive borrowings that were needed to fund the endless lockdowns : 

“Government debt does not have to be paid back, particularly the kind that sits minding its own business in the vaults of the ECB” - Chris Johns, Irish Times

 The problem with that is Article 123(1) of the Treaty on the Functioning of the EU :

 

 This means that it is illegal for any Member State to use the ECB as a bank overdraft facility.  The only reason why we can afford the luxury of endless lockdowns is our access to lots of free money. The Irish government have already borrowed €20 billion interest free this year and they plan to borrow another € 20 billion next year.   This is in addition to around €35 billion borrowed at very low interest rates since 2015 from the ECB's PSPP programme, prior to the covid "pandemic". So the free money bonanza that has enveloped the EU is not a new thing as some commentators have argued. 

All this free money being created by the ECB has resulted in the ECB becoming the largest single creditor of the member states in recent years. The German Council of Economic Experts have warned that this could present a threat to monetary policy independence in the long term.

In 2008, after the banking crash, the debt laden on to the backs of the Irish was paid back through taxation. This makes the situation at present different as there is no pressure to increase taxes. 

The natural effect of all this free money is massive inflation but we have not seen any sign of that yet (it may help to reduce government debt by de-valuing the euro). What is the most likely outcome - my guess is that we will see some inflation next year but more importantly negative interest rates will skyrocket so that most of the extra cash lying around on deposit will be recouped.   

There is already a similar precedent for this in the EU banking system, when deposits were confiscated in Cyprus in 2013 in what became known as a bail in. 

So as Mr Johns maintains, the ECB may well continue to play ball by printing infinite quantities of free money but the price will be an eradication of savings, either through inflation or negative interest rates or a combination of both. It will also mean that the EU will once again bend and mold its own laws laid down in it's treaties. This further erosion of the rule of law will sow yet more discontent within the union. 

Collapse of the Sterling ?

Brexit : What The Irish Media Don't Tell You

The Irish media have been forecasting imminent doom for Irish businesses in the event that the UK pull out of the European Union :

• “You can track the Irish export-led recovery, moving in perfect lockstep with the fall in the euro/sterling exchange rate. What’s the first knee-jerk reaction on the UK leaving the EU? The pound weakens.
• This would drive sterling’s value down against the euro, weakening the return to Irish exporters from their sales in the British market. There would be major implications for Irish food and drink companies.

While it's true there will be some short term weakness in the sterling,  had the UK joined the Euro project in the first place, Irish exports would never have been able to do as well as they did in the last few years as the current strong sterling would not exist. 

With the Irish media / establishment now getting hysterical about Brexit and a weaker sterling, what they don't tell you is that the sterling fell in value back in 2003 when Britain were poised to join the Euro : 

Thankfully, and to Gordon Brown's eternal credit, Britain never joined the Euro. But Ireland's political establishment were clamoring for them to join at the time. Fianna Fail, the party who the majority of Irish people voted for twice in the past decade, and who then proceeded to drive the economy over a cliff, were also pushing a policy back in 2003 that would have damaged Irish exports in the recent recovery by encouraging Britain to join the Euro : 

While some of the personnel have since changed, it's still the same clueless people in charge pushing crazy policies.