30th May, 2003

From Mr Anthony Coughlan, Senior Lecturer Emeritus in Social Policy, Trinity College, Dublin

Euro forces up Irish cost of living


Campaigners against the euro in Sweden and Britain may find it useful to know that reports in  today's Irish newspapers (23 May 03) show that the Republic of Ireland is expected this year to replace Finland as the most expensive country in the 12-member euro-currency zone.

An official Irish Government study, the Forfas Consumer Pricing report, shows that Irish consumer prices are 12% higher than the EU average, that the Republic is the most expensive country in the eurozone for pub prices, restaurants, tobacco and residential rents, and the most expensive for food in supermarkets.

The same basket of consumer goods that cost E100 in Ireland can be bought for E85 in France, E72 in Spain and just E65 in Portugal.

Ireland's overall inflation rate last year was around 5%.

When Irish consumers joined the eurozone, they were told by their political leaders and advocates of the single EU currency that the ability to make price comparisons in the same money would bring down Irish prices, and that prices throughout the eurozone would even out around an average.

Although the specific effects of the euro-currency is not addressed in this report, studies last year by the Consumer Association of Ireland showed that Irish membership of the euro had led to significant price rises in restaurants, pubs and various private services.

The euro is widely blamed by Irish consumers at popular level for raising prices. People generally do not think easily or intuitively in euros. Their sense of the money value of things tends still to be mainly in their old national currency, in which they have been socialised since childhood. It is easy therefore for sellers of goods and providers of services to raise prices in euros without consumers realising at the time that this is happening.

The main headline in today's Irish Examiner is "Rip-off nation: the costs keep mounting."

The Irish Times carries the headline: "State to become most expensive in euro zone."

Today's London Guardian refers to the report on page 22 in a piece by Mark Milner, under the headline: "Ireland to overtake Finland on prices."

The opening paragraphs of this "Guardian" piece reads as follows:

"Ireland is about to overtake Finland and become the most expensive country in the 12-nation eurozone, a government report warned yesterday.

"The soaring price of cigarettes, alcohol and housing are fuelling a fast rising cost of living and threatening Ireland's economic competitiveness, according to the government research agency, Forfas.

"A trip to the off-license would be 60% cheaper in Spain according to the report, while rented accommodation in Porgugal is just a fifth of that in Ireland.

"The report, compiled using figures from accountants Pricewaterhouse Coopers, concluded that "Ireland is now estimated to have become the second most expensive country in the eurozone in 2002 for consumer prices, marginally behind Finland. It is likely that Ireland will become the most expensive country in the eurozone during 2003."

Ireland's economic boom in the 1993-2001 period was primarily due to its highly competitive exchange rate, following its 1993 currency devaluation, as the Republic does nearly two-thirds of its trade outside the eurozone.

The current rise in the euro vis-à-vis the dollar is hitting Irish trade competitiveness badly, while firms are also being hit by rising domestic costs.

As a member of the eurozone, Ireland has lost the ability to have direct control any longer over its currency competitiveness and it must watch the erosion of its two principal export markets, the UK and USA.

Irish Times economic correspondent Cliff Taylor writes in today's issue of that paper: "The implications of high prices and high inflation are a hit to competitiveness on a number of fronts. Companies operating here find their costs rising more quickly than their competitors - a situation made worse for those selling outside the euro zone by the recent rise in the euro. This threatens to accelerate job losses. The high cost of living - and of housing - also makes it more difficult to attract high-quality researchers and scientists here, a key goal of industrial policy. And the implications for tourism are obvious."

It is hoped that this information may be of some use to you.