Vol. 495 No. 1
233 Mr. Kirk asked the Minister for Finance the contingency plans, if any, his Department has for possible trade and business outflow in Border counties subsequent to the introduction of the euro; and if he will make a statement on the matter. [19623/98]
Membership of EMU, irrespective of the UK's attitude to participation, will be of benefit to Ireland, a conclusion which has been reached by both the Economic and Social Research Institute and the National Economic and Social Council in independent reports. EMU will bring the elimination of some transaction costs, the elimination of exchange rate risk across the euro area, lower and uniform interest rates and generally easier access to a huge market. Participation in EMU will also add to our attractiveness for foreign direct investment as potential investors seek to gain a foot-hold in the euro area.
However, while EMU will open up huge opportunities, it will also bring increased levels of competition. It is imperative that companies, in Border counties and elsewhere, focus on the opportunities while at the same time addressing any weaknesses which might make them vulnerable.
Firms in the Border counties have enjoyed, and continue to enjoy, a competitive advantage over Northern Irish businesses in the recent part due to the relative strength of sterling. This offers an opportunity for such firms to improve their competitiveness and so improve their capacity to deal with any shocks that might emerge in the future.
Sustaining this competitive success in EMU is a major priority for the Government. In May 1997, the Government established the National Competitiveness Council to provide a basis for developing appropriate Government action aimed at ensuring that the overall environment for investment by the traded goods and services sector in Ireland is more favourable than it is in other countries.
Clearly, the sterling issue is important in the context of competitiveness but we must be careful not to overstate its importance. For an outflow of trade and business to occur arising from a "sterling shock", sterling would have to fall sharply below its equilibrium level. Sterling is currently significantly above what most commentators consider to be its equilibrium level. Therefore, sterling would have to fall a long way before it could be considered to represent an economic shock.
A further point worth noting is that while sterling remains outside the euro zone, UK business is likely to face higher interest rates compared with businesses in the euro-area.
The Government is not ignoring the need to prepare for the possibility of problems for Irish industry as a consequence of sterling falling significantly below its equilibrium level. Consultants were appointed by Forfás under the auspices of its EMU business awareness campaign to examine the implications for Irish industry of the UK remaining outside of EMU. Last July, Forfás launched a document which summarises the results of this study which identified actions in the fields of finance, marketing and distribution that firms could consider as part of their planning to cope with any fluctuations in exchange rates that may arise between the euro and sterling. The document is included in the Forfás business awareness campaign's information pack for business.
