Sunday 26 February 2017

Colm McCarthy: Economic growth is being held back by headwind of eurozone constraints

Initiatives to shore up our corporate tax rate and in the area of education are key to an export-led recovery

Colm McCarthy

Colm McCarthy

The different countries making up the eurozone have divergent interests and will not be equally well served by a common policy. This problem has been present from the beginning but has become acute over the last few years.

Countries with heavy debts and high unemployment often opt, when free to do so, for a policy mix of temporarily higher inflation and a softer currency. Inflation helps debtors at the expense of creditors since it erodes the real debt burden. A softer exchange rate gives a short-term boost to competitiveness. Stuck in a currency union committed to low inflation and a strong exchange rate is not the best place to be for struggling countries.

The expectation of both the Government and the EU Commission is that the Irish economy will grow its way out of the current difficulties through an export-led recovery but there are serious headwinds which inhibit better export performance. The main barrier is the policy stance of the eurozone.

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