McWilliams: roundly ignored

You can count them on one hand and they tend to huddle together for intellectual warmth. But Ireland's tiny band of devaluers are likely to become a permanent feature of the economic landscape as the financial crisis deepens.

The devaluers are a tiny knot of economists, most prominently David McWilliams, who say the answer to our problems is withdrawing from the euro and attempting a wrenching devaluation to restore competitiveness. Many economists are suggesting Latvia does something similar, but so far McWilliams and others are very much voices in the wilderness.

Up to now the devaluers have been dismissed as a mixture of cranks or alarmists, but the Economist, which was ultimately right about the Irish property market, has demolished their arguments in a rather savage economic sermon. What would happen if the government took the McWilliams devaluation route?

"The mere whiff of devaluation would cause a bank run: people would scramble to deposit their euros with foreign banks to avoid forced conversion to the new weaker currency. Bond-holders would shun the debt of the departing country and funding of budget deficits and maturing debt would be suspended," is the magazine's blood-curdling verdict of what would happen. But it gets worse.

"Changing all contracts in euros to the new currency would be a logistical nightmare," it says. And businesses wouldn't get off lightly either. "If businesses converted their debts to a weaker currency, that might constitute default and trigger legal challenges."

And not only would Ireland suffer. "The convulsions would be felt by other euro-area members too. The write-down of the departing country's government bonds might threaten the solvency of banks in the rest of the eurozone."

All in all, not the most encouraging remedy then. But don't expect that to stop the devaluers from continuing to articulate their radical proposal. But do expect them to be roundly ignored by anyone in power.