Minister appeals for wage restraint

IRELAND is more exposed than most other eurozone countries to the ill-effects of a down turn in the US economy, but a recessionis in no way inevitable, according to Finance Minister Brian Cowen.

The country, and the eurozone generally, was never in as good an economic condition to withstand the cold draft from the plunging world stock markets and the pessimism over the US economy, he said.

But there would be repercussions and it was essential in this climate to exercise wage restraint, in a reference to next month’s social partnership negotiations, and increase productivity Mr Cowen said.

He was echoing statements made by the president of the European Central Bank Jean Claude Trichet earlier this month and by Jean Claude Juncker, chairman of the Eurogroup Finance Ministers yesterday.

Ministers had extensive discussions on the world economic situation over lunch at their monthly meeting in Brussels yesterday after the US Federal Reserve announced a 0.75% cut in interest rates to 3.5%.

Mr Cowen said he hoped the Fed’s move would have a beneficial effect but added: “It’s important that people do not see an immediate read across from the US with what will happen in Europe, because there are significant differences.”

He said it was important not to overreact and stressed that the economic fundamentals throughout theeurozone and in Ireland were sound with low budget deficits, low GDP-debt ratios and exports worth more than imports.

Growth expectations for Ireland have already been cut by the Commission to 2.2%, compared to 4.75% last year, but with 20% of trade with the US the country was more exposed.

“We need to make sure we deal with the situation sensibly to maintain our position. Pay negotiations start next month and all the constituencies will bring their own agendas to the table. But the best way of maintaining and improving standards of living is to increase and improve our productivity”, he said.

Ireland had a zone of stability within the euro area which was one of the benefits of belonging to a larger economic unit, he said.

The EU Economic and Monetary Affairs Commissioner Joaquin Almunia, said: “Big imbalances have been created, have built over the years in the US economy — a big current account deficit, a big fiscal deficit, a lack of savings. This is not at all the situation in our European economies. Our fundamentals are solid.”