Ministers' secret joy at euro meltdown
Economists say currency collapse a 'huge boost' for exports and tourism
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THE Government secretly welcomes the collapse of the euro even though publicly it is obliged to support the German-led dogma of a strong currency.
The beleaguered Irish economy will get a substantial boost from a weak euro through increased exports, more tourism and an improvement in trade in general.
A senior government source said yesterday that Ireland had worked closely with France in support of the rescue package for the euro.
"The irony in this is that, in private, we are delighted in the short term to see it fall," he said. "We have to be seen to be pulling together in public but it is my belief that Angela Merkel's solo runs on fiscal policy have done at least as much to destabilise the euro as have the Greeks."
He added: "After all, we are Ireland, not Germany, and we are minnows in this game. The strong euro has become a sacred cow, something like the gold standard used to be. Its weakness suits us fine."
The slide in the value of the euro is boosting food and manufacturing exports by
Analysis, pages 14, 22, 23, 25, 26
€6bn, giving hope to the crisis-hit tourism and retail sectors while also easing worries about hikes in mortgage rates.
Leading economists and industry chiefs say that last week's developments, when the euro fell to a four-year low against the dollar, are a golden opportunity because 80 per cent of our Gross Domestic Product (GDP) is provided by exports -- far higher than almost all of our European partners. In short, the fall in the euro makes a key element of the Irish economy competitive again.
While turmoil gripped global markets and fears rose about the long-term future of the currency, KBC Bank economist Austin Hughes told the Sunday Independent that there is a near-side benefit to Ireland from the fall of the euro which is more important to this country.
"When we talk about exports we tend to focus on multinationals. But we also have to remember the problem we had a year or two ago when we had a sharp rise in the value of the euro against sterling. It wasn't just exporters who were wounded by that but everyone trying to sell almost anything, whether it was in Dublin or Galway.
"Suddenly shopping in the North became dramatically cheaper. This fall in the euro is a very welcome development because it bolsters the position of a lot of small domestic companies that are competing with the UK or competing with importers," the economist said.
John Whelan of the Irish Exporters' Association said exporters are happy with the fall in the value of the currency against the dollar and, to a lesser extent, sterling. He said exports to America were receiving a tremendous boost.
Mr Whelan added Ireland had $42.6bn (€33.8bn) worth of exports to the US last year, and the recent euro fall was effectively a €6bn boost to the Irish economy.
Minister of State at the Department of Finance Martin Mansergh suggested in a speech in Cashel yesterday that the fall in the euro could save Irish jobs.
"We have made a lot of progress in restoring our lost competitiveness, reflected in double-digit export growth this year, which has also been helped by a weaker euro, particularly vis-a-vis the dollar. Improved competitiveness is by far the surest route to job preservation and replacement," Dr Mansergh said.
Former Taoiseach and economic commentator Dr Garret FitzGerald wrote yesterday that the sharp drop in the euro, if sustained, should help to start a reversal of the 25 per cent decline in the value of non-chemical and pharmaceutical exports of the past eight years.
"In the months ahead, the composition and value of our exports will, therefore, be monitored by everyone concerned with the future of our economy -- which depends upon our capacity to recover our lost share of global markets," he wrote in The Irish Times.
Austin Hughes added a note of warning that the country could not afford to waste the opportunity presented by the recent volatility.
"We have to seize this opportunity because we have got our costs in a little better order in recent times. The critical thing is, now that the exchange rate is weaker, we must make sure domestic costs don't rise again. What has happened is a hugely welcome development for the economy. It gives a lot of hard-pressed sectors a lot more breathing space," he added.
He also said that it could also provide a breather for hard-pressed homeowners fearing a hike in their mortgage rates.
"There will also be some benefit in that the weakness of the euro probably delays the day in which interest rates rise, so that is an important ingredient and that will help domestic borrowers.
"It is worth emphasising that the recent fall has brought the euro close to its long-term average. It started at €1.17 (against the dollar); the average over 11 years is €1.18; and now we are hitting €1.24 so it's not at crisis level," he added.
The tourism sector will get a boost in two ways, he believes. "People here will think twice about going to the US and may stay and spend at home, while at the same time Ireland becomes more attractive for transatlantic and UK visitors.
"In a general sense, if someone is looking at buying a camera, then the cost of buying it over the internet from the US relative to buying it in a camera shop here in Ireland has improved in favour of the domestic retailer.
"The fall also helps consumers because it should mean less pressure on jobs and to that extent consumers' fears about possible lay-offs will ease. There is no question that it significantly eases the pressure on a lot of firms that were in deep trouble 12 months ago," he added.
Meanwhile, the former chief executive of the National Treasury Management Agency (NTMA), Dr Michael Somers, said that if anything were to happen to the single currency, it would be a "complete and utter disaster for Ireland".
"We've got to stick in there [with the euro] no matter what happens. You certainly don't want to see the thing begin to crumble. I saw what happened to us in 1992 and 1993 when we had our so-called independent currency. We were in the EMS at the time and you could float a bit within that, but once Britain devalued or actually fell out of the system, the pressure was absolutely enormous to devalue the currency.
"I came to the conclusion that a small country, particularly a small open economy, could not have its own currency because you would have to maintain interest rates at a much higher level than would be justified by reference to your economic situation to defend your currency against speculators. I don't see any future for us in having an independent currency. We've got to be linked or part of a system like the euro. The only other thing we could do is join back up with sterling," he added.
- JEROME REILLY
Originally published in
