The Irish government have found someone to blame for the country’s economic malaise – Gordon Brown.
Here are some snippets from an interview given by finance minster Brian Lenihan to the Irish Independent at the weekend.
“The fall in sterling is causing us immense difficulties”.
“They have in effect produced a devaluation of the pound through expansion of the money supply. That has put us under immense pressure”.
“It is a question for all of us in the EU as to the extent to which a competitive devaluation can be used as any kind of a weapon”.
Pretty strong stuff. But Mr Lenihan is half right.
Shoppers have been flocking across the boarder to Northern Ireland to take advantage of cheaper prices. Meanwhile, while the Bank of England has been doing everything it can to hasten the decline of sterling – slashing UK interest rates to a 315 year low of 1.5 per cent and flagging the benefits of a weaker currency, for example.
In fact, the Bank said as much in the statement accompanying its historic rate cut last week.
“At its January meeting, the Committee noted that the recent easing in monetary and fiscal policy, the substantial fall in sterling and the prospective decline in inflation would together provide a considerable stimulus to activity as the year progressed.”
All the while, Mr Brown and his ministers have had little to say about sterling’s plunge.
Clearly then, the UK authorities have hit on the importance of using a lower exchange rate to stimulate an economy once interest rates approach zero.
The Irish, as Eurozone members, don’t have this option. So far ECB policymakers have balked at dramatic interest rate cuts in spite of the region’s deep economic problems. And there does not seem to be much prospect of this changing when policymakers meet again this week.
Of course, the problems facing the Irish economy go much deeper than the euro/sterling exchange rate. Witness its property market, banking sector and the decision by Dell, Ireland’s biggest exporter, to close one of its main plans.
But when things go wrong it always good to have someone to blame.
Related links:
Talking down sterling – FT Alphaville
Could sterling’s plunge be a good thing? – FT Alphaville