Vol. 564 No. 5
10 Ms Burton asked the Minister for Finance if his Department has undertaken an analysis or study of the implications for the economy of the war against Iraq; the results of any such study; and if he will make a statement on the matter. [9813/03]
As the House knows, Ireland has a very open economy which is more affected than many others by world economic conditions. The success of our economy relies significantly on continued inward investment and on the performance of the export sector in selling goods and services to other countries. My Department, therefore, keeps developments in the world economy under close and constant review.
One of the most immediate issues for the global economic environment is how its prospects have been affected by recent development in relation to the war in Iraq. The assessment of my Department is that the implications of the war in Iraq for the world economy are closely linked to the impact on the price of oil. A sustained, significant increase in the price of oil, if it were to happen, would tend to reduce spending power and economic growth in our major trading partners. This would be likely to reduce our exports to those countries and could also add to inflation here. However, the House should note that there has as yet been no sustained significant increase in oil prices. The other main channels through which the war in Iraq could affect our economy are through consumer confidence levels, potentially lower foreign direct investment inflows and possible exchange rate developments. Given the uncertainty about possible developments in the Middle East, it is not possible to quantify with any accuracy what the overall impact on our economy might be.
It should be remembered that the prospective outlook for the world economy was factored in to the budget day forecasts for the Irish economy. On budget day I specifically referred to the difficulties in the Middle East as one of the more obvious significant downside risks to those economic projections.
Does the Minister accept that his statements on the economy at this point have as much credibility as the bluster from the gentle man in the bunker in Baghdad, the Minister, Mohammed Saeed al-Sahaf? Does the Minister accept the true test of policy is when external conditions cease to be favourable and that he is failing the test spectacularly? Is he not concerned that the war is multiplying the problems for the Irish economy? Is he aware of the indicators every day – loss of jobs, serious loss of confidence among investors, loss of investments, loss of exports and loss of markets? Does he see that his policies are driving these indicators further downwards rather than helping to limit the damage the war is doing to the Irish economy?
One can only judge the Irish economy on what happens here vis-à-vis other economies. The situation in Ireland is far more robust than in the case of any of our EU trading partners. For example, Germany has an unemployment rate of 10% and France has debt difficulties. Both have serious problems with the EU Stability and Growth Pact. My colleague in Britain, Gordon Brown, will present a budget tomorrow and will face a public sector borrowing requirement of approximately €30 billion and rising, on top of a borrowing requirement this year of €25 to €30 billion. Unemployment in Ireland is approximately 5%, which is half the EU average.
One should not talk the Irish economy down. Confidence is a very fragile thing. No matter how one measures growth prospects this year, the Irish economy will do better than that of any of our major trading partners in Europe. We are in a strong, healthy position to be able to adjust to whatever the world economic situation throws up. As ours is the most open economy in the EU, world trading conditions have an impact on Ireland. If we temper our expectations, do the sensible things and remain competitive we will survive this downturn in world economic conditions better than most.
Is the Minister aware that the most serious problem for the economy is the increasing rate of inflation, which is way above the indicated levels of inflation for other EU countries? The Government is driving that rate of inflation. Despite the risks of the war to the economy the Government appears to be taking no action. What action is it taking to lower the rate of inflation until it is more in line with our EU counterparts? That is the single biggest risk the economy is exposed to in the context of the war. Most of our inflation is Government-driven by the various taxes and price hikes the Administration has imposed since it was returned to office. Those hikes are contrary to the promises the Minister and his partners in government made to the electorate.
It is a matter of statistical fact that most of the underlying causes of Irish inflation cannot be put down to the Government and its tax increases. The effect of the indirect tax increases I brought in through last year's budget would amount to 0.85% to the consumer price index. I accept that inflation in Ireland is at a level we want to see moderated, as it is about twice that of the EU average. If we were to lose competitiveness at that rate there would be a consequential loss of jobs as we would lose export markets. I accept what the Deputy says.
It is important to get our competitiveness in line and we can take the following matter forward: the European Central Bank will continue to have a policy of keeping EU-wide inflation at approximately 2% so unless we can get our inflation rate down to that level we will lose market share. However, it is also a factor that in any area which has to catch up there is higher inflation in some parts of that area. The Irish economy is in a strong position to withstand the exigencies of the war and the present economic situation.
