I propose to take Priority Questions Nos. 3 and 58 together.
One of the most notable effects of Government economic policy in recent years has been the improvement in the cost competitiveness of Irish industry resulting from reduced inflation, lower interest rates, competitive wage increases, a stable currency within the EMS and reduced public utility costs. This improved competitiveness has been reflected in increased employment and output and record export levels.
Recent changes in interest rates reflect an international trend designed to keep inflation under control, while the fluctuations in the sterling/punt exchange rate are a reflection of events in the UK rather than any problem in the Irish economy.
Since the beginning of 1987 there have been significant improvements in the differentials between Irish interest rates and those in other countries. While in March 1987 the key three month rate in Ireland was nearly 3.5 per cent higher than in the UK it is now considerably below the UK rate. Similarly, differentials vis-à-vis German rates have improved dramatically. The stronger punt/sterling exchange rate will inevitably have some adverse effect on the competitiveness of Irish industry on the UK market. However, against this must be considered the considerably higher UK inflation and wage rate increases. Overall the competitive position of Irish industry has improved considerably in recent years both generally and more especially over UK industry.
The priority for Government policy is to continue the efforts to restore order to the public finances and create a favourable economic climate in which interest rates can be kept as low as possible while maintaining the value of the punt within the EMS. This will create the right environment in which industry can invest with confidence.
I do not believe that the recent increases in interest rates will have any adverse effect on our ability to attract inward investment. Quite the contrary, the strength of the Irish economy and our clear determination to maintain a competitive environment for industry will make Ireland more attractive for such investment.