Dáil Éireann debate -
Thursday, 27 Apr 1995

Vol. 452 No. 2

Written Answers. - Currency Fluctuations.

Dermot Ahern

Question:

57 Mr. D. Ahern asked the Minister for Finance if he has taken into account the adverse effects of currency fluctuations as between the punt and pound sterling in his currency policy, in relation to Border county economies; and the action, if any, he proposes to take to ensure that these economies are not further affected in the future; and if he will make a statement on the matter. [7229/95]

Minister for Finance (Mr. Quinn)

I can assure the Deputy that I am very conscious of the impact of recent currency flunctuations on Irish firms, including those in Border counties.

It is important to keep recent foreign exchange developments in perspective. While the Irish pound has recently appreciated against sterling, that appreciation has essentially been brought about by the foreign exchange markets themselves and has largely arisen because of the weakness of sterling; in addition, it occurred despite the UK base rate being increased by 1.5 per cent since end-August 1994, compared with a rise of 1 per cent in official interest rates in Ireland which occurred only in March 1995. Also, the pound's appreciation against sterling should be providing offsetting benefits for some firms, in terms of lower import costs.

As regards other currencies, the Irish pound has in fact depreciated against the deutschemark and other ERM curriencies, including the French franc, while its value against the US dollar has remained within the range of normal experience: the dollar has of course fallen sharply against most currencies.

Moreover, in recent years, the Irish economy has achieved very strong economic growth and increased employment against a background of low inflation, a balance of payments surplus and firm control of the public finances. This greatly improved growth and employment performance has been achieved at a time of significant appreciation of the Irish pound against sterling.

The Government is committed to a policy of price stability — this is, the maintenance of reliably low inflation. This is essential to help the Irish economy, and especially firms in Border areas to maintain competitiveness. To this end, the Government is committed to a stable exchange rate within the Exchange Rate Mechanism. A stable exchange rate, flowing from Ireland's participation in the zone of stability which the ERM represents, has helped to underpin the policy approach within which low inflation has been achieved in recent years. This low inflation is central to our longer-term strategy, based on moderate wage developments and continuing improvement in the public finances, to strengthen our employment performance.

I would also point out that I introduced significant improvements in income tax and PRSI in the 1995 budget: these are in part specifically aimed at helping Irish firms to improve competitiveness, especially in the Northern Ireland and British markets.

Finally, the Government is particularly conscious of the potential benefits of the development of the peace process for the economy of the Border counties. In addition to increased investment in North-South programmes, such as INTERREG and the provision of EU assistance under the peace process, the prospect of peace and political stability arising from the peace process should greatly enhance the climate for business, both in Ireland generally and particularly in the border counties.