Euro down in depths a good trend for Irish exporters

Mr Wim Duisenberg and his friends at the European Central Bank may be tearing their hair out at the dreary depths to which the euro has plunged in recent weeks, but the fall is good news for Irish exporters.

For importers from Britain and the US, however, and travellers to those countries, the cost of doing business or holidaying outside the euro zone has risen as steadily as the new currency has plunged.

Meanwhile, the cost of doing business with other euro businesses has remained static. According to IBEC's economic affairs director, Mr Brian Geoghegan, anecdotal evidence suggests that Irish companies are beginning to source product directly from the Continent.

With the fall of the euro driving the Irish pound this week to its lowest rate against sterling since the separation of the two currencies in 1979, Mr Geoghegan said the rise in the price of non-euro goods was eating into profit margins in the Republic.

His comments were echoed by ISME, the small and medium enterprises' association, which this week called on the Government to reduce VAT by two percentage points to offset pressure on profits.

And exporters gaining from the weakness of the Irish pound outside the euro zone are faced with rising marketing and distribution costs, Mr Geoghegan added.

Not surprisingly, however, the chief executive of the Irish Exporters' Association, Mr John Whelan, took a different view of the euro's declining fortunes.

"It's like manna from heaven as far as we're concerned," he said. "I would see the dollar as an over-achiever at the moment, rather than the euro as an underachiever."

The euro's weakness means that Irish people travelling to Britain and the US will pay more during their holidays.

Of course the opposite is true for visitors arriving here from those two countries and the tourism industry stands to gain accordingly. But a Bord Failte spokeswoman stressed that the strength of sterling will be felt throughout the euro zone. This means the Irish tourism industry will probably not make exceptional gains, although Bord Failte is using a "pound goes further" slogan in its British marketing.

And the chief executive of the Irish Hotels' Federation, Mr John Power, said the industry was expecting "very strong growth" from the US market this year. He added, however, that the indications had been positive even before the current phase of weakness in the euro.

While Mr Geoghegan noted the positive climate for Irish exporters, he accepted that importers were encountering difficulty.

"It's good news from an exporter's point of view, particularly those exporting outside the euro zone, and it should strengthen indigenous industries," he said. "But for importers, it's a different matter. Importers are under pressure - there's no doubt about that, particularly from sterling and dollar denominated producers."

Companies dependent on oil faced particular problems, because the price of fuel - already at a high rate - was generally denominated in dollars, Mr Geoghegan said. Rising costs were being felt right across the economy and no one sector was feeling the brunt of the weakness.

While accepting that the dependence of Irish businesses on the UK market had declined in recent years, he warned that Britain was a still a major trading partner for Irish businesses.

Mr Whelan, meanwhile, said this effect was tempered by the fact that about 55 per cent of material imported from the UK was re-exported out of the State.

Irish manufacturers in the IT and pharmaceutical industries were making particular currency gains, he said. "A lot of those sales are going back to the US and worldwide with a sizeable Irish-based currency gain."

He added: "It's a major boost to export activity and if the various economists in the banks would step back a little, they'd see that each of the individual economies are doing better than when the euro launched 16 months ago."

Mr Geoghegan agreed that some weakness in the euro could boost European economies which are in recovery. "But there does come a point where excessive weakness undermines confidence." Stating that the economic fundamentals in Europe "appear to be sound", he suggested that moves to decrease rigidity in European labour markets - as agreed at the recent Lisbon summit - could enhance confidence in the euro on the international markets.