asked the Minister for Finance if he is aware of the serious crisis facing Irish industry because of the over-valuation of the IR£; if, measured by inflation levels, the IR£ over the past five years has lost over 20 per cent in purchasing power within the EMS and relative to sterling it has lost about 10 per cent and farming and agricultural processing and all exporting industries are now finding it difficult to export to the UK which is our main market and other markets and if the present position will lead to job losses and valuable markets being lost; the reason an EMS realignment was not sought that would have been favourable to the aforementioned sectors; the action he now proposes to take to alleviate the serious financial crisis and loss making within the sectors, especially agriculture and industry; and if he will make a statement on the matter.
Written Answers. - Over-Valuation of IR£.
I do not agree that the IR£ is over-valued or that the stance adopted by the Government in the recent EMS realignment was inappropriate.
The objective of the Government's exchange rate policy is to keep stable the value of the IR£ consistent with our EMS obligations, and with a view to securing a degree of price stability comparable with that of our trading partners. The benefits which might be derived from a departure from this policy would be only of a short term nature. Based on past experience, exchange rate depreciation, in our circumstances, would be reflected, within a relatively short period, in a corresponding increase in domestic prices and costs. Hence, any initial gains to Irish industry or agriculture from a devaluation would be quickly eroded by the increase in costs. Moreover, the level of inflation would be raised and interest rates, which are a significant cost to industry, would be likely to be higher than they would otherwise be.
The position regarding exporters has been dealt with by my colleague, the Minister for Industry and Commerce, in reply to a question on 13 March last (Official Report, columns 1969-72). At this stage all I would add is that Córas Tráchtála, the body responsible for the promotion of Irish exports, believes that the longer term benefits to the Irish economy in terms of lower inflation rates, lower interest rates and lower input costs, will outweigh the shorter term competitive disadvantage from the weakening of sterling. The Government, for its part, will do everything in its power to ensure that these benefits are transmitted throughout the economy as rapidly as possible. Industry must, however, take the primary responsibility for reducing its own costs, including in particular wage costs which have tended to be excessive.
At a meeting which the Taoiseach and I had with the CII recently, it was agreed that a working group representative of relevant Departments and the CII should analyse the various factors now affecting industrial costs with a view to determining what scope exists for reducing input costs. This work is now in progress.
In looking at the competitive position of producers and exporters, consumer prices, as used by the Deputy, are not an appropriate measure. The most widely accepted indicators of movements in international competitiveness, and those which are relevant to employment, are changes in relative earnings and unit wage costs. The broad picture which emerges from these indicators is that there was some improvement in the competitive position over the period 1980-85. In terms of relative hourly earnings, Ireland's position was broadly maintained between 1980 and 1985 compared with the weighted average of our main trading partners. In terms of relative unit labour costs Ireland's position has improved substantially since 1980 compared with our major trading partners, mainly because of the much faster rise in output per head in Irish manufacturing industry. If there are no further changes in exchange rates, the recent depreciation of sterling and the dollar will result in some deterioration in Ireland's competitive position in 1986. The extent and duration of this deterioration will depend on how quickly the effects of the exchange rate changes feed through into reduced domestic costs here and higher costs in the UK and US. Ultimately, we can only secure our competitive position by keeping growth in pay and other costs at or below the rate prevailing in our trading partners.