Digital Closure and the Currency Crisis, Irish Press and Irish Times, 26 February, 1993.
Asks whether the closure of the Digital factory in Galway resulted from the currency crisis and argues that the Irish currency should have been devalued by 15%, in view of the effective 20% devaluation in Britain and the Depressed state of the British and continental economies.
Telephone Charges, Irish Independent, 27/8/93 and Irish Times, 3/9/93.
Calls for the extension of local charge rates in rural areas to include local shopping and administrative centres.
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Prior to 1979, when we joined the ERM, the Irish Pound was tied to the British Pound and our little currency and economy were buffeted about by the fluctuations of the unstable British Currency. After we joined the ERM we enjoyed greater stability against the European currencies and this facilitated our developing trade with them. The fact that our currency decreased in value against Sterling, after joining the ERM, also helped our trade with Britain. Fluctuating Sterling still exercised a destabilising influence, however, and we had to devalue twice within the ERM during the eighties. After the 1986 devaluation we enjoyed our period of greatest currency stability, with Britain maintaining a stable exchange rate against the ERM and eventually joining it. This lasted until Sterling withdrew from the ERM last September. During this period our trade increased, we achieved large balance of payments surpluses, and we had low interest rates and inflation.
The lesson of all this is that devaluation, if properly managed, pitched at the right level and accompanied by a regimen of fiscal restraint, can lead to currency stability, relatively low interest rates and low inflation. This is also the experience of Britain after their recent downward flotation. Even outside the ERM, after an initial sharp drop, the fluctuation of the currency has only been about 6%, which is what is allowed by the wide band of the ERM, their interest rates are low and recent figures show that, even after a massive devaluation, their inflation rate is less than ours.
I would not advocate a flotation of the Irish currency, as we would be too small to withstand speculative pressures outside the protective environment of the ERM. Our present circumstances require an immediate devaluation of 15% within the ERM. A 10% devaluation would have done last October but a larger one is required now, if interest rates are to be brought down to reasonable levels. We must also strengthen our competitive position in the face of a continuing recession in Britain, and a deepening one in Germany and other European countries. I do not agree with the recent scheme of the Government, for the banks to borrow hard currency and lend it out to Irish business at low interest, with any loss due to a devaluation being guaranteed by the Government. This is a dangerous scheme and the money could be used for further speculation against the Irish currency.
The Irish Government should swallow their pride and devalue now. This is the only course if we are to protect and maintain existing industry and jobs, and make any progress in growing the economy and expanding the workforce.
Current Comment
Within a week of the publication of this letter, the Irish Pound was devalued by 10%. Interest rates, though dropping back quite a bit compared with the highs of the currency crisis, remained relatively high compared to British and continental rates. The Irish Pound remained close to parity with Sterling and even exceeded parity for a period. In the ERM it remained at the upper level of its permitted value, far above the other Euro currencies. This led to a revaluation of the Irish green pound, resulting in a reduction of prices paid to farmers for their produce.
Had the pound been devalued by 15%, a lower value of the currency and lower interest rates might have led to an earlier upturn in the economy and a longer lead-in to the boom economy we have at the moment. This might have ameliorated the labour shortages being experienced in some sectors and the upward price spiral in the price of houses might have been a lot less than we have experienced. There would have been more time to plan and less crisis management of the economy. (27/9/98)
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I wonder if the present controversy, concerning the Digital Factory in Galway, in any way resulted from the fruitless defence of the over valued Irish Pound. Four months ago, back in October, when Dessie O’Malley, as minister for industry and commerce, visited Digital in the United States, the position of Digital in Galway seemed secure. In the meantime we had our Government almost completely taken up in the defence of the Irish currency and in a disagreement over the what was said at the Beef Tribunal, which resulted in a general election. Could it be that the Government, apparently acting against its own best interests, in defending an overvalued Punt with its attendant high interest rates, was a factor in the equation which made Digital reconsider its position in relation to Ireland. "If it were so, it was a grievous fault" and I hope Ireland does not "grievously" pay for it. We are very ready in this country to blame the "nasty British", the Bundesbank or the hand of fickle fate for our problems, but:
I was appalled at some of the negative comments of some people, interviewed on RTE, in relation to Digital; "It’s gone", "we’re finished" ect. It was not the people who made the comments that annoyed me so much, but RTE for highlighting them. The comments coming from Scotland were more positive, like "we are quietly confident that the decision has gone in our favour". The situation was redeemed somewhat by the positive comments made by, in particular, the Mayor of Galway and other Galway people, on Morning Ireland this morning (February 23). It was heartening to see the Mayor and other people from Galway, going to the United States along with Minister Rurai Quinn, to make the case for Galway. It is good to see the Minister and high officials from the Government in Dublin going out, and to see people of influence like Mayor Flynn of Boston and Dr Toni O’Reilly being called on to bat on our side, but ultimately the case for Galway is best made by Galway people themselves.
It should be remembered, even though we often think of the multi-nationals as large impersonal corporations and the people at the top as hard headed business men, working to strict rules of economics, that they are still flesh and blood people and that, in this media conscious age, even the economic theories and equations themselves are taking on concepts like public image and perception. Digital can service EC markets, including the British market, just as well from Ireland as from Britain; Intel and Apple are doing so and Britain is forbidden by EC regulations from engaging in unfair competition. It should be remembered, however, that Britain over the last five months has devalued by about 20% while we devalued by only 10%, and contrary to the expectations of some, inflation, in a depressed British economy, has not wiped out the difference.
I think we should have devalued by 15%, to put us in a proper competitive position with respect to Britain and the rest of Europe. I think we should still go the additional 5%. As well as putting us in a more competitive position, it would further bring down our interest rates, which are still 8% ahead of those in Britain. It is regrettable that a regression of government policy of simplification of the income tax system, as well as dismantling of our PRSI system are being proposed to counteract the high interest rates and our lack of competitiveness. Further devaluation in Britain, even is it occurs, is unlikely to affect us to the same extent, as inflation must eventually catch up with them.
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In the present controversy about increased telephone charges, which affects everyone in the country, very little of heard of the plight of people living in rural Ireland, who must pay inflated prices for telephone contact with vital and essential services within their local area.
Now that Telecom Eireann’s own leaflet Telephone Prices for Residential Customers includes the following statement:
and with the forthcoming reduction of the local call time interval to three minutes, the case for giving local calls to all places in rural Ireland, with their local administrative and shopping centres, is unanswerable.
As an illustration consider the south east region of County Galway, which is thirty to forty miles from Galway City, its main administrative and shopping centre. According to the summary on the last page of the above information leaflet, the cost of making a fifteen minute call form Woodford to Galway City will go up from the present very high cost of £3.53 to an exorbitant £3.97, under the new charges. In fact it costs the same to ring the most distant parts of the country as to ring Galway City. Calls from the adjoining Loughrea area are local to Galway City and a fifteen minute call from there costs less than twelve pence at the moment and will cost about 55 p with the new charges. I have personal experience myself of making calls to County council offices, shops and the like, in Galway, where the call has extended up to fifteen minutes. These calls have to be made in business hours.
Perhaps, if Telecom stopped paying dividends to the Government for the present and concentrated on reducing their debt, everybody would benefit. With a reduced debt they could then pay bigger dividends to the Government, have more money for investment and maybe reduce telephone charges a little. It is ridiculous to be paying two and a half times as much to private interests as is being paid to the Government and this adverse ratio will continue unless the debt is reduced.
Current Comment
Well Telecom's debt has been reduced and the company is now in a much healthier position. However, rural telephone charges are still high, compared to their city counterparts. Perhaps competition will succeed in bringing about a reduction. Perhaps it is time to have a standard charge for all calls within the country and to Northern Ireland. This might involve a small increase in the unit charge, from 11½ p at the moment to maybe 13 p.(27/9/98)
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