Charlie McCreevy
Ceist:18 Mr. McCreevy asked the Minister for Finance, in view of the current sterling weakness, the Government's policy with regard to tracking sterling or the Deustche Mark; and if he will make a statement on the matter. [4412/95]
Ceisteanna — Questions. Oral Answers. - Sterling Crisis.
Charlie McCreevy
Ceist:31 Mr. McCreevy asked the Minister for Finance, in view of the parity of the Irish pound and sterling, the proposals, if any, he has to financially assist Irish exporters; and if he will make a statement on the matter. [4424/95]
I propose to take Questions Nos. 18 and 31 together.
The Irish pound broke parity with sterling yesterday morning following the appointment, by the Bank of England, of an administrator to Baring's Bank. Until last Friday it was trading at around 99.7p sterling. The present weakness of sterling has to be seen against a background of tensions in the foreign exchange markets, the domestic political situation in the UK and the immediate aftermath of the problem in Baring's. It remains to be seen whether the current sterling weakness will be anything other than temporary: the Deputy will be aware that sterling recovered somewhat overnight and that the Irish pound opened this morning at about 99.93p sterling. At lunchtime it was about 99.8p.
The Irish pound has been appreciating gradually against sterling. In the circumstances of a small and gradual appreciation of the Irish pound against sterling which is underpinned by the strong performance of the Irish economy, I have no proposals to provide special financial assistance to Irish exporters. Regarding relative competitiveness I have no doubt that the Deputy is aware that bank interest rates in Ireland are significantly below those in the UK and that this is of considerable benefit to Irish firms competing with UK based firms.
As I indicated to the Deputy in response to a previous Question on 25 January last, the objective of exchange rate policy continues to be the maintenance of price stability, that is, low inflation. As the Government's programme, A Government of Renewal, points out, a stable currency is essential to the maintenance of low inflation and competitiveness. By helping to keep inflation and interest rates low, this policy is very beneficial to Irish firms, especially those competing in export markets. My recent budget supports this policy and contains measures such as reductions in PRSI, income tax and corporation tax which are of direct assistance to firms seeking to maintain and improve competitiveness in export markets so as to maximise sustainable employment.
As regards sterling and the Deutsche Mark, the position remains that while exchange rate policy does not target a specific rate against a particular currency or group of currencies, our aim is that the Irish pound should trade against the Deutsche Mark and the Dutch Guilder at least as well as the rest of the former ERM narrow-band currencies.
I would not necessarily disagree with much of what the Minister said. This question was tabled before the Barings collapse and the Irish pound has been appreciating against sterling for some time. What rate would cause alarm bells to ring, bearing in mind the crisis that occurred between September 1992 to early 1993? Despite changes in the makeup of our exports over the years from a total dependence on the UK market and on the sterling market in general in 25 years the position has been almost reversed from a ratio of 70:30 one way to 70:30 the other way. Given the fact that most of our exports are to the UK, what level would necessitate the need for some intervention or the setting up of a scheme similar to that which operated during the last currency crisis?
The Deputy has asked a number of questions to which I will try to reply. It would be unwise for anybody to suggest or nominate a rate for fear that that might in itself become some kind of a target. The slow but steady appreciation of the Irish pound against sterling over the past 18 months has been absorbed by most exporting firms because internal competitiveness within the Irish economy has accompanied that appreciation. Indeed, it is the markets which are determining the consistent rise in the relative value of the Irish pound. We must have regard to the value of the pound against the basket of currencies, not just sterling. The Deputy is not exactly correct when he says that most of our exports go to the UK; approximately 30 per cent of our exports go to the UK but the level of dependent employment is probably closer to 50 per cent in so far as statistics can enable us to make that judgment.
Many of those engaged in companies trading with the UK are in the more vulnerable sectors in employment terms and, therefore, are much more price sensitive to any rise there might be relative to one currency and the other. The action taken in last year's budget but, perhaps, more importantly, in this year's budget restores and maintains considerable competitiveness for Irish manufacturers and service providers trading into the UK. With the PRSI reductions this year they have had, in effect, 3 per cent off their bottom line in relation to employees who are paid between £9,000 and £12,000 this year. Any concern we might have must have regard to the sudden fluctuations that might occur. Part of the problem, as the Deputy will recall because he was in Government at the time, prior to the formation of the last Government, was the combination not just of currency fluctuation but the accompanying very high interest rates. It was the combination of those two factors that brought about the problems for Irish manufacturers. Those factors do not prevail at present.
Mr. McCreevy rose.
Three priority questions remain to be disposed of. We must have a brief question from the Deputy.
Given our experience of the last currency crisis, does the Minister believe that intervention into the market has any effect? The Minister will be aware that a small advisory group of exporters was set up at that time to liaise with various Government Departments.Is that still in operation and has it given any advice as regards this increase in the value of the Irish pound against sterling?
The Deputy would be wrong to refer to the present situation as a currency crisis.
I am not saying that.
It is not comparable to 1992-93. Due to purely domestic political reasons in the United Kingdom, now compounded by the collapse of Barings, there has been a domestic problem with regard to sterling combined with a strengthening of the Deutsche Mark against the dollar because of what happened in Mexico. Our concerns are to ensure that the Irish economy, and those people exporting from the Irish economy, have a currency rate that suits their needs. The market development fund set up by the Department of Industry and Commerce, has maintained contact with those companies that were most vulnerable during the previous currency crisis. I am not sure whether that group has been re-established in a formal sense but I will make inquiries for the Deputy. I know that informal contact has been maintained by my Department with the relevant associations representing IBEC and the exporters.