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Strong euro could derail Irish recovery

Monday, February 25 14:50:02

The Irish economic recovery is in danger of being derailed as the euro continues to gather strength against the US dollar and the pound Sterling, according to the Irish Exporters Association (IEA)today.

The loss of Triple A rating by the UK is expected to put further pressure on Sterling extended which had already declined by 5pc against euro since the turn of the year.

The IEA today said that Irish exporters are "very concerned" that a continuation of this trend will derail the expected export growth in 2013.

"There has been a 5pc fall in the value of Sterling against the euro since the 1st January, which if continued will undermine the competitiveness of our goods and services exports to the UK. On a full year a 5pc devaluation of Sterling will wipe around E1.5 billion off Irish exports to the UK over the full year," said John Whelan, Chief Executive of the IEA.

The IEA boss said he is very worried that there is concerted moves by various governments internationally to boost their economies, effectively by a devaluation of their currencies and using this mechanism to boost their export growth.

"Despite the recent G20 assurances, there is unlikely to be any change in the stance of the incoming Bank of England governor Mark Carney with regard to quantitative easing, who has stated he will continue with it until a revival of the UK economy," he said.

"Nor is it likely that the US Treasury will cease quantitative easing, having in recent months committed to doing whatever it takes to get the economy growing again. The Chinese government has by proxy also taken advantage of the quantitative easing of the dollar with which it's Yuan currency is pegged.

The Japanese economy has suffered a decade of slow to no growth, not helped by the US dollar and the Yuan in tandem depreciating by quantitative easing. A legacy the new Japanese government under Shinzo Abe is determined to break and have in the past three months reformed its monetary policy by undertaking aggressive fiscal measures, which has resulted in an average 20pc depreciation of the yen against the euro and the dollar," said Mr Whelan.

"Regrettably, these measures leaves the euro strengthening beyond its underlying competitive position, which is 1.1 to the US$ and .787 to the £ sterling, which was the rate at the time of the euro floatation," he added.

Mr Whelan said that there are not many options open to the Irish Government except to keep a tight control of wage and overhead costs so that exporters can continue their drive to improve productivity and remain as competitive as possible on export markets.

"But it makes no sense for the ECB to hold interest rates at a several times that of the Bank of England. This will, as a minimum, drive currency investors into the euro and push exchange rates into further non-competitive prices for exporters, not only in Ireland but across the Eurozone. Hence, the IEA call on the Government to make the necessary calls to the ECB for a reduction to 0.125 pc interest rate, as an immediate move to reduce the strength of the euro and boost export competitiveness from Eurozone exporters."