Dáil Éireann debate -
Tuesday, 12 Nov 1991

Vol. 412 No. 5

Written Answers. - Currency Link Implications.

Brendan Howlin

Question:

48 Mr. Howlin asked the Minister for Finance if he will outline the implications for interest rates, employment and economic growth if the Irish punt were pegged to the Deutschemark; and if he will make a statement on the matter.

Minister for Finance (The Taoiseach)

Our policy is to sustain a strong currency within the European Monetary System and to implement whatever monetary and other measures are necessary to that end. As the Irish pound is in the narrow band of the EMS, it cannot deviate by more than 2.25 per cent from the Deutschemark and other currencies in that band.

Our strong exchange rate policy has been a major factor in the reduction of inflation, the attraction of direct foreign investment and the creation of conditions which allow Irish industry to compete for markets abroad.

There is no evidence that pegging the Irish pound to the Deutschemark would of itself eliminate this remaining interest rate differential. The level of interest rates is not determined solely by exchange rate policy. The market also takes into account a number of other factors including the general economic environment and the size and liquidity of the market. Reflecting our greatly improved economic circumstances the differential between key Irish and German money market interest rates has fallen from over 9 per cent in March 1987 to less than 1 per cent at present.

As a small open economy, the generation of economic growth and employment opportunities is dependent on the competitiveness of Irish business and economic conditions in foreign markets. Our present policy of a firm exchange rate policy and fiscal adjustment has contributed to the improvement in competitiveness. There is no evidence that any further benefit maybe derived from pegging the pound to the Deutschemark.