Economists investigate Irish currency issue

Date: 17/09/1998

By Tim Jones

EUROPEAN Commission economists are to investigate the potentially disruptive impact of the euro on the communities either side of the border between Ireland and Northern Ireland.

The move comes in response to fears, expressed by business leaders and politicians, that the uneasy peace in some of the North's volatile border counties could be disrupted by currency upheavals between the euro and the British pound.

“The integration of key economic activities on the island of Ireland must, in parallel with all the other objectives of the Good Friday agreement, be advanced in order to harness the economic dividends that will undoubtedly flow from peace,” said Irish opposition leader John Bruton after a visit to the Commission last week.

Following a meeting with Economics Commissioner Yves-Thibault de Silguy, Bruton will now make a written request for the study. Officials say this will be a formality because, in the words of one, “nobody wants to discourage cross-border business”.

Since the Irish Republican Army announced its first cease-fire four years ago, cross-border trade has increased by 55&percent; and topped 1.5 billion ecu last year, generating an estimated 2,500 jobs in the North.

The mid-August terrorist attack in the Northern Irish market town of Omagh, which killed 28 people, highlighted how integrated the border region is. The high street was packed with shoppers from Monaghan and Cavan in the South as well as local residents.

The Republic of Ireland, which sells 27&percent; of its exports to the UK, is particularly vulnerable to movements in the punt/pound exchange rate. Following the devaluation of sterling in 1992, the punt was worth more than the pound but now the British pound buys 1.13 punts.

“This has had a significant effect on the area,” said John Fitzgerald, a research professor at the Dublin-based Economic and Social Research Institute. “Petrol, for example, is vastly cheaper in the Republic than it is in the North, where stations are hardly doing any business.”

A widely predicted swing in the other direction, as the UK dips into recession and the single currency area expands, would have the opposite effect and undermine the competitiveness of labour-intensive Irish industries.

“These kinds of movements do not help business in what is, to all intents and purposes, a single economic zone,” said Colin Hunt, an economist at the Bank of Ireland.

Bruton fears that cross-border economic cooperation could be harmed by such currency volatility. He pointed out to the Commission last week that many joint programmes involving chambers of commerce, local authorities and regional investment were at an embryonic stage.

“While most commentators agree that EMU membership will be positive for the Irish economy, the impact on the border areas is less certain,” he said. “The implications for the competitiveness of businesses located in these zones should be evaluated at once.”