JOHN WHELAN: May’s summit will be watched by Irish firms

Whatever the outcome of England’s World Cup campaign, Irish business will be hoping that sterling wins on the currency markets.

Sterling has fallen to its lowest level in over six months and could be heading towards what is generally accepted as the pain threshold for Irish exporters: 90 pence against the euro.

Exports to the UK have already been affected — they have fallen by 7% over the four months for which data is available.

However, currency markets are notoriously volatile and the pound could strengthen on the back of a crucial Brexit white paper, due for release by the UK government in July.

An away-day for UK prime minister, Theresa May’s divided cabinet, at her official Chequers residence tomorrow, is meant to discuss the issues around the white paper.

Any agreement is supposed to be submitted to the EU for the Brexit negotiations.

But the Bank of England could also bolster sterling, if it were, at its next meeting in August, to decide to increase UK interest rates.

The euro strengthened late last week, following improved regional economic growth data and new assurances by Italian politicians that their nation would not leave the single currency.

Still, the single currency remains vulnerable to regional political instability. German chancellor, Angela Merkel, faces pressure to deal with the migration dispute that has divided Europe and threatened her own government.

However, for businesses trading across Europe, a stable euro is their number-one concern. They would support the eurozone’s statement last weekend to bolster the bloc’s emergency bailout fund.

The eurozone hopes to create a big enough firewall to protect the likes of Italy and Spain.

The idea was to keep national debt risk distanced from banking debt risk, in the hopes that dangerous contagion could be averted and that the Irish experience would not be repeated.

Promoting yet more integration was on the minds of French president, Emmanuel Macron, and the German leader.

At the heart of eurozone leaders’ agreement, the ECB is to become the overseer of the continent’s banking system by the end of this year, a decisive step towards a banking union.

Lessons have been learned from the hardship faced by Ireland, and other nations, in the 2008 financial crisis, when Ireland and others were obliged to bail out their banks.

Bolstering eurozone banks and the political uncertainty caused by the UK’s departure from the EU, the euro could strengthen against sterling in the second half of the year.

So, the pound could fall to 92 pence against the euro for a prolonged period next year.

The agri-food sector is most-exposed to any sterling currency volatility. In August, on the back of rapidly rising inflation, sterling fell for a few days.

But the last prolonged period of sterling weakness, around 92 pence to the euro, was way back in 2009.

Back then, Bord Bia reported a 12% fall in food-and-drink exports to the UK, wiping €400m from sales from the sector for the year and causing major contraction across the agri-food industry.

This time, there is the added difficulty that Brexit may include export tariffs, adding to the cost of exports sales to the UK.

Many Irish exporters are better-prepared this time around to handle the currency fluctuations.

Currency hedging 12 months ahead with their lenders can avoid the worst of the volatility.

However, with the increasing danger of a hard Bruit and the associated tariffs, there is a compelling case for exceptional State aid support to minimise the economic fallout in the industry in the year ahead.

John Whelan is a leading consultant on Irish trade.


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