Euro strength

Quick one here on the strength of the Euro and how it may impact on Ireland’s recovery efforts. The Euro has been on the charge of late strengthening across the board against all the major currencies around the world. 

A combination of factor at play here but namely the currency wars being played out by other governments namely US and Japan whereby they are deliberately (of course they will not outright say this) devaluing their currency through certain stimulus measures in order to drive their currency lower versus their main trading partners to encourage economic activity.

Japan and the US are the most aggressive nations playing this game, the Swiss franc is devaluing through a combination of factors and the pound is also weak for a host of reasons.

So far the ECB are not playing these games directly and have come out on record to show their distaste for these actions by their peer central bankers. Also compared to a year ago the Eurozone is in a much safer place. Still in the doldrums in terms of economic activity but not nearly the risk factor or contagious effects of a debt crisis that we have witnessed for the last couple of years.

What does this mean for Ireland? I was pretty bullish on the Irish recovery story and still am, we have provided ourselves through savage and painful restructuring a platform to push forward and achieve some consistent growth . Not to sound to paranoid but global events are currently perhaps conspiring against us a little and hampering this momentum shift. 

There are still elements of political wrangling in the EU which will hamper our ability to get a deal done on our debt situation, I think it will get done but certainly wont be overly generous so as to appease other nations. Also this appreciation of the Euro may slightly hamper our ability to lead ourselves out of trouble through exports. 

The below shot taken from the CSO website is a bit dated in that it is 2011 numbers but it should be relatively similar to today in that it shows our dealings with the other big economies. It showed that Ireland as a country were actually a net importer of goods and services from the UK our biggest trading partner. Therefore if the situation is still the same a stronger EUR/GBP rate may actually help slightly.

Next biggest trading partner is obviously Europe so a bit of a push here as the only thing hampering that is the EU itself.

Next on the list is the US, so the EUR/USD appreciation may start to have an impact here, but just as a casual observation historically our ties with the US are strong and hopefully more based on reputation than currency. 

Next on the list is broadly categorised as “rest of world” so difficult to go into it in any great detail but the attached article is a great one to have a quick look at and shows where Ireland managed to alter their balance of trade for an overall net economic benefit, i,e reducing imports from and simultaneously increasing exports to. Worth a quick look.

So overall my hope is that a strong Euro while is concerning I think we can weather the storm as long as it doesn’t get out of hand altogether, more worrying is the malaise and lack of growth in the EU and UK, these are the biggest problems facing Irish industry at the moment in my eyes. 

Main Trading Partners – 2011 €m    
  Exports Imports
Great Britain and Northern Ireland 14,264.90 16,686.30
Other EU Countries 38,293.20 13,669.10
USA 21,601.30 5,907.10
Rest of World 17,068.60 12,052.50
Total 91,228.00 48,315.00


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