Written Answers. - Currency Market Development.
Peadar Clohessy
Question:
22
Mr. Clohessy
asked the
Minister for Finance
the discussions, if any, he has had with business representatives in relation to the difficulties being experienced with the value of the punt; and if he will make a statement on the matter.
[8103/95]
Patrick D. Harte
Question:
23
Mr. Harte
asked the
Minister for Finance,
in view of the urgent need to harmonise the economies of the Republic and Northern Ireland as part of the developing policy of achieving economic closeness, the need to stabilise the values of sterling and the punt to achieve this and to protect the competitiveness of Irish manufacturing companies exporting to Great Britain, if he will consider rejoining sterling or developing a stable relationship with the British currency: and if he will make a statement on the matter.
[8403/95]
Martin Cullen
Question:
49
Mr. Cullen
asked the
Minister for Finance
if he will assist firms facing difficulties due to the continuing high value of the punt against sterling as the Irish economy cannot sustain its position within the Exchange Rate Mechanism to the detriment of industry exports to Britain.
[9410/95]
David Andrews
Question:
51
Mr. Andrews
asked the
Minister for Finance
the concerns, if any, among exporters of Irish goods and services and the damage which will be caused to their positions by the unfavourable trading level of the Irish currency; and if he will make a statement on the matter.
[8426/95]
I propose to take Questions Nos. 22, 23, 49 and 51 together.
I am aware of the concerns of exporters trading with the UK about the situation in the foreign exchange markets. As the House is aware, the Minister for Finance has met representatives of IBEC to discuss this situation and the IBEC representatives expressed their concerns about the impact of currency market developments on the competitiveness of those sectors which are in competition with UK-based producers. The Minister has asked his officials to maintain close contact with IBEC on these issues and this is being done.
The Government is of course 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.
While the concerns of exporters to Britain and Northern Ireland about the impact of our higher exchange rate against sterling are appreciated, it is necessary to put recent developments in a proper perspective. Over 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 the Irish pound against sterling.
I should also point out that while undoubtedly the Irish pound has appreciated recently against sterling, that appreciation has essentially been produced by the markets themselves and should be providing offsetting benefits for some firms, in terms of lower import costs. In addition, the Irish pound has depreciated against the Deutsche Mark and other ERM currencies, a factor which should generally be of advantage to exporters to EU member states other than the UK, while its value against the US dollar has remained within the range of normal experience. Overall, that is on a trade-weighted basis, the Irish pound's value has not in fact changed much because of the recent currency fluctuations.
As regards the relationship between the Irish pound and sterling, I should explain that it is essentially market forces which determine the value of the Irish pound against sterling. It is not possible to guarantee a fixed exchange rate against sterling or any other currency in circumstances where exchange rates are determined by market forces. Even if it were possible it would mean the Irish pound's value would be determined by that of sterling even in circumstances where the value was declining with inflationary effect or required increases in interest rates to sustain it. As the Deputy will be aware, the UK implemented three half per cent increases in interest rates over the period August 1994 to February 1995 while Irish rates were not raised until March 1995, and then only twice. Such a fixed link would also, of course, run contrary to the policies pursued by successive Irish Governments since Ireland joined the European Monetary System in 1979.
The Government has of course a role in ensuring that the economic environment is conductive to economic activity, including exporting. In this context, I would point out that a stable exchange rate, flowing from our recent 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.
The Government has no plans to provide special assistance for exporters affected by the recent currency fluctuations. It is primarily a matter for Irish exporters themselves, as it is for exporters in other countries, to cope with the economic environment in which they find themselves. This includes coping with currency fluctuations on and when they arise.
I should, however, point out that the 1995 budget contained improvements in income tax and employer and employee PRSI which were, in part, specifically aimed at helping indigenous firms with markets in the UK. The improvements in income tax and employee PRSI will underpin the moderate wage developments enshrined in theProgramme for Competitiveness and Work. The increase in the income threshold below which the lower, 9 per cent rate of employee PRSI applies will support some 170,000 existing jobs and will help to reduce labour costs in employment-intensive sectors which are particularly dependent on the UK market. The income tax improvement in the 1995 budget will cost the Exchequer some £111 million in 1995 while the PRSI concessions in the budget will cost some £93 million.
