The Minister for Finance, Mr McCreevy, is not someone who is usually lost for words. But - thus far at least - he has opted to keep his own counsel about the continuing selling pressure on the Irish pound which has fallen in the past week to an eight-year low against sterling. Nonetheless, the Minister - who yesterday accused business leaders of fuelling fears about rising inflation - will know that he faces some awkward policy choices.
It already seems probable that the collapse in the value of the pound will, at the very least, help to intensify the inflationary pressures which are already bearing down on the economy. Importers have warned that price increases on British goods are now inevitable. And with the pound falling against most major currencies, those who rely on imported goods do not have the option of switching to other markets.
The irony is that the speculative wave affecting the value of the pound has little to do with the robust state of the Irish economy. At issue is the rate at which the pound should lock into the monetary union which is due to get under way on January 1st next. Next June, EU governments are due to decide on the rate at which their currencies will be locked together in the monetary union. It is likely that the central rate in the Exchange Rate Mechanism (ERM) will be used, since most other currencies are trading close to these levels.
The pound is being driven down because investors take the view that it will enter EMU at its central rate in the ERM - 2.41 deutschmarks - a rate well below that at which it which has been trading on the markets. Investors have calculated that the value of the pound must fall in the run-in to EMU.
Through it all, the Minister has opted to sit tight. There has been no clarification about the rate at which the Government would prefer the pound to lock into monetary union next January. There has been no hint from any official source of any revaluation upwards of the pound's central ERM rate. The markets have taken this silence as an official confirmation that the Government would prefer to see the pound enter EMU at the central rate of DM2.41. If Mr McCreevy wants the Irish currency to lock in at a higher rate, he has declined to say so.
The case for a revaluation at this time has some merit; it would help to dampen down the inflationary pressures in the economy and it would also ease the speculative pressure on the pound. But Mr McCreevy must weigh these advantages against the benefits for the economy of locking in at the central ERM rate. A relatively low exchange rate of DM2.41 should allow Irish exporters and farmers to maintain some kind of competitive edge within the monetary union.
For all that, the remarkable current strength of sterling is exerting great pressures on the economy. The most benign view is that events in the Far East have helped sterling to rise on the coat-tails of the dollar and that the British currency is now at an artificially high level which is unsustainable in the longer term. The less benign view is that the current difficulties are but a taster of the difficulties which Ireland may face when Britain stands aloof from EMU next year.
In all the circumstances, Mr McCreevy will need to weigh the various policy options carefully. But the over-riding imperative is not to respond to what it is happening at any given moment in the markets. On balance, the Minister is probably right not to respond publicly to the turmoil in the currency markets. The priority is to look to the longer-term interest of the Irish economy and the need to maintain competitiveness over the long haul.