Ministers to discuss impact of strong euro

Euro-zone finance ministers are expected to discuss the euro's recent appreciation against the dollar when they meet in Luxembourg…

Euro-zone finance ministers are expected to discuss the euro's recent appreciation against the dollar when they meet in Luxembourg on Monday. The euro yesterday continued to hold on to most of its recent strong gains on the foreign exchange markets, with the European currency remaining firm against the dollar and sterling.

During the ministers regular assessment of the economic state of the euro zone, they are likely to consider the impact of a stronger euro on European exports. The currency's strong performance has raised some concerns for Irish industry although some economists believe it could have longer-term positive results for the Irish economy.

It closed virtually unchanged last night at $0.9337 against the US currency after making good gains throughout the week. Against sterling the euro closed at £0.6388.

In the Republic, economists have warned the euro's appreciation is worrying for Irish industry but it may have positive side-effects in the longer-term.

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"Exporters in particular are concerned that the strength of the euro will make their exports less attractive abroad," said Ulster Bank economist Mr Niall Dunne. "This is true. But I think that ultimately a rising euro will benefit the Irish economy."

He argues that the higher value of the euro will make it easier for Britain to join the single currencies in the medium term. He added that Irish exporters had benefited from an unfair competitive advantage over the past few years, because of the unrealistic weakness of the euro.

"Manufacturers and exporters in the UK and the US have managed to increase their productivity and cut their costs to cope with strong domestic currencies and Irish exporters will now have to adjust as well," Mr Dunne said.

Mr Wim Duisenberg, President of the European Central Bank (ECB), warned last month that the US's gaping current account deficit posed a risk to the world's economy. EU policy makers have long maintained that the euro is undervalued against the dollar. But a sudden appreciation of the euro could make EU exports less competitive on the world market.

The ECB would welcome a stronger euro as a brake on inflation, which last month fell below the Bank's target of 2 per cent for the first time this year. But politicians, especially in major exporting countries such as Germany, fear that a soaring euro could strangle economic growth.

The ministers are also expected to discuss the perception throughout Europe that the introduction of euro notes and coins has been followed by widespread price rises. The Consumer Affairs Commissioner, Mr David Byrne, yesterday condemned retailers who used the cash changeover as an excuse to put up prices.

A Eurobarometer opinion poll has found that 70 per cent of consumers believe prices have been rounded upwards since the currency changeover. Almost three out of four Europeans still always or often calculate prices in their old currency.