In the past year the euro has risen 30 percent against the dollar, and Irish entrepreneurs currently anticipate that the European currency may eventually trade at an unprecedented $1.40 this year, having reached its highest level to date of $1.29 last week.
(Ireland’s exports account for more than 90 percent of its gross domestic product and 60 percent of its exports go outside the euro currency zone, of which Ireland is one of the 12 founder members).
John Whelan, the president of the Irish Exporters’ Association, has called for a urgent new “national strategy” to counter the effects of the dollar’s slide — as well as a euro zone strategy, since Ireland now holds the presidency of the EU.
Whelan accuses Irish Finance Minister Charlie McCreevy of not doing enough to address the currency issue. “A hands-off attitude is unacceptable,” he said. “The minister can influence the perception of the value, and eventually it changes.”
But John Dunne, the president of the Chambers of Commerce of Ireland, representing more than 10,000 businesses, said he did not see the use of putting pressure on the European Central Bank over the euro’s rise. He said 17 percent of Ireland’s exports went to the dollar zone, while over a quarter went to the UK.
David Croughan, the chief economist of the Irish Business and Employers’ Confederation, said: “We would be far more concerned had sterling followed the dollar, but sterling has actually decoupled from the dollar in the last year.”
Dunne was more concerned that the dollar’s fall could discourage inward investment. “The Irish economy is enormously dependent on foreign investment, primarily from the dollar region,” he said.
Croughan said he would not be surprised to see the euro go to $1.35 or $1.40. “That sends shivers down the spines of multinational companies because it puts Ireland at a serious disadvantage competitively.”
Nevertheless, many experts remain optimistic because of Ireland’s technological advances. The electronics firm Philips had decided to relocate to Poland, Dunne said, but “we are not particularly concerned about this kind of decision.” Five years ago international call centers represented a major source of national employment, but that sector has moved on now to India as Ireland has moved further up the technology ladder.
“Biotech, software, medical devices — these are the industries of the future,” Dunne said. In these areas, he said, Ireland is “recognized as a serious presence globally.” But there is growing concern about the country’s overall competitiveness, with Croughan saying wage costs had taken off “very significantly” in the last two years. This, and the strengthening of the euro, made Ireland less attractive to investors, he added.
The Irish economy is likely to outperform all its Euro-zone competitors this year, confirming the superiority of its low-tax, free-market economic model over the big-government policies favored by most other European countries.
Economists are predicting that the Irish GDP will grow by a 3.8 percent this year, far more than is expected for the UK, Germany, Spain, Italy or France. The European Commission believes that Ireland is on course to return to a growth rate of around 5 percent by 2005-06.
For most companies, the Irish business climate is unusually welcoming, especially by European standards. Not surprisingly, despite accounting for a mere 1 percent or so of the Euro-zone market, Ireland has received nearly one third of U.S. investment in the EU in recent years, especially in the computer, software and engineering industries.
From 1990-95, the Irish economy grew by 5.1 percent a year on average; from 1996 to 2000 growth reached 9.7 percent a year. In 2001, GDP grew by 6.2 percent, and in 2002 by 6.9 percent, before slowing to just 1.75 percent last year because of the global downturn.
While the future looks bright for Ireland, there are a number of clouds on the horizon, mostly caused by the government’s decision to join the euro when it was launched in 1999. Because of relatively high inflation during the last three years, Ireland’s competitiveness has suffered badly.