Bank may act as euro rise puts jobs at risk
Tuesday January 13 2004
It edged close to $1.30 against the US currency yesterday and some economists say it could reach as high as $1.40.
Irish jobs will be lost to cheaper countries in Asia and eastern Europe if the single currency continues to soar, exporters warned.
John Whelan, director of the Irish Exporters' Association, called on politicians to speak out about the risks from the euro's 18pc surge in the past year.
"We want to hear more from Finance Minister Charlie McCreevy and Enterprise and Employment Minister Mary Harney," he said. "The rise in the euro has probably wiped out any growth in Irish exports."
Concerns also increased here and in other EU countries after forecasts that the dollar still has further to fall.
"The euro could yet rise to $1.40," said Niall Dunne, financial markets economist at Ulster Bank. "This year's presidential election, financial imbalances, the threat of terrorism and history all point to a weaker dollar in the year ahead."
Jim Power, economist at Friends First, agreed. "Once the dollar went through $1.20, it moved very quickly to $1.30. I believe the same thing will happen if it goes through $1.30 and we could rapidly approach $1.40."
The euro came close to $1.30 yesterday, before comments from ECB president Jean-Claude Trichet eased it back a cent. There are growing calls for the ECB to take steps to try to halt the euro's rise. It could cut interest rates, which could make euro assets less attractive, or support the dollar directly by buying US currency. The Bank of Japan bought $170bn last year.
The rising currency makes Irish and other eurozone exports more expensive in the US and Asian markets which price in dollars. "Agricultural exports, such as beef to countries such as Egypt, have become totally uncompetitive in the last six months," said David Croughan, chief economist at IBEC.
Euro countries also become more expensive for US investors and tourists.
The Irish average industrial wage has risen from $30,000 to $35,400 just because of the currency change.
A €100 round of golf would cost a US visitor almost $20 more than last year.
The process works in reverse, with cheaper oil and Asian cars and textiles in prospect, and bargains for Irish visitors to the US. Travel agents CanAmerica said bookings for the US had risen by up to 50pc over the past two months.
"We have had to reduce the brochure prices several times as hotel accommodation, car hire and attraction tickets, keep falling in price," said managing director Frank Kelly.
The big fear is that US multi-national companies might switch investment and production from Ireland to non-euro countries, but IDA Ireland said they had seen no evidence of this.
- Brendan KeenanGroup Business Editor
