Monday, 12 January 2009

Begger thy Neighbour

This was bound to happen.....

The pound’s losses came as Brian Lenihan, Ireland’s finance minister, accused the UK authorities of in effect devaluing the pound by expanding money supply, action that was causing “immense difficulties“ in the Irish economy. “It is a question for all of us in the EU as to the extent to which a competitive devaluation can be used as any kind of weapon.” The Irish economy has been hit hard by the economic slowdown, with Dell, the US computer manufacturer, pulling production out of the country last week.

(from today's FT)

Mr. Lenihan, of course, is absolutely right. The recent slide of sterling has made UK exports more competitive, while at the same time, raising prices of Irish imports here in the UK.

What if every country pulled this trick? Suppose every country reduced interest rates, allowed their money supply to grow at around 16 percent a year (like the UK right now), and let their exchange rate sink like a stone, where would we end up? We would see a series of self defeating competitive devaluations that would only serve to raise world inflation and do nothing to resolve the world wide financial crisis.

15 comments:

Vado said...

A devaluation is the priviledge of countries with their own currencies. The Irish shouldn't have joined the Euro.

dearieme said...

A country that competes by offering tax shelters.... motes and beams?

Alice Cook said...

dearieme, the UK also has a couple of tasty little tax breaks.

Alice

John McClane said...

Alice, I'd love to know what those tax breaks are, because none of them seem to come my way.

Alice Cook said...

John, you should become non-domiciled. Then move your investments over to the Isle of man.

Alice

Anonymous said...

Guernsey and Jersey - same deal there

Anonymous said...

Alice it takes 17 years minimum to become domiciled in the isle of man even being a member of a golf club in the UK can cause you to be UK tax liable.

I was liable for UK tax when I was living over half the year in the isle of man, and used all the isle of mans services.

Another example of Brown screwing the poor man or small country

Ben

sobers said...

You can only devalue your currency in relation to another. So everyone can't devalue. Someone has to rise in value for others to fall.

APL said...

AC: "the UK also has a couple of tasty little tax breaks."

I can live with competitive devaluation, if I can get competitive tax breaks too.

Just imagine all that "unhealthy tax competition" that the EU fascists are always whinging about. LOVELY!

Anonymous said...

It's going to be ugly: right now it is every man for himself. Stuff the third worlders, the jumped-up Irish drunk on EU grants and American mercy businesses. Their economy was a bluff all along.

Anonymous said...

"Begger thy Neighbour"

But in fact it is beggar thy neighbors government, not the same thing at all as beggar thy neighbor.

Governments & Politicians all over the world but especially in the UK & EU have grown fat during the good times. Leaching off the productive sector of the economy - THAT, is a beggar my neighbor policy

John McClane said...

Thanks for the advice, Alice. It's easy to get non-domiciled status if you're a foreigner working in the UK but, as Ben says, nearly impossible for a UK national who's living abroad. You have to demonstrate to HMRC absolutely no links to the UK and total integration into the community abroad.

The only tax break I get at the moment is that my cigarettes cost £1.50 a pack instead of £6. Also I can get 19% interest on savings here.

Anonymous said...

The other countries won't be rushing to pull the same trick because they don't have such a chronically stupid population.
I should imagine that "sound money" is respected as part of the agreement between government and individual.

roym said...

They should have kept the punt then! The chinese have kept the yaun artifically low for years whilst building up their soon to be unconquerable manufacturing empire. what about Germany and their export credits?

dont you have any complaints about those policies?

roym said...

They should have kept the punt then! The chinese have kept the yaun artifically low for years whilst building up their soon to be unconquerable manufacturing empire. what about Germany and their export credits?

dont you have any complaints about those policies?