IRELAND has taken the necessary steps towards regaining competitiveness on its labour costs, ECB president, Jean-Claude Trichet, told the European Parliament in what came close to a vote of confidence in the Government.
He was pressed by several members of the Parliament on the danger Ireland poses to the euro and on what one MEP called the “massive competitive distortion” of our corporation tax.
Mr Trichet avoided answering these attacks directly but said that each government had to do its job as had each of the EU institutions in dealing with the current economic environment.
“We have observed a number of countries have done a good job. Ireland had lost in terms of unit labour costs an enormous amount of competitiveness during this buoyant period, and a number of decisions were taken to regain, especially in unit labour costs, competitiveness,” he said.
The challenges facing each country were different, he said and added: “In Ireland you have the additional issue of a very big financial sector that is part of the challenges that the country has to cope with.
“Ireland has proved in the past they were able to take up the difficulty and challenges and face up and I think it is what the Government of Ireland and the parliament understand well in the present period,” he said.
He added that each country has to be as alert as possible and vigilant as regard their own fiscal competitiveness policies as we are still in a very demanding period that requires permanent alertness.
He reiterated that no country, the EU or the eurozone could declare victory over the recession, despite the union having reviewed upward its growth rate for the eurozone by 0.6% to 1.4% this year, and instead he urged “caution and prudence” for this year and next.
He did concede, however, that the direction was towards more dynamism and evidence of this was an increase in household loans being taken out, which was in line with the aftermath of recessions in the past, and corporate loans should typically follow.
Inflation, in line with moderate economic growth, he did not expect to rise beyond the benchmark of 2% – a signal the ECB does not intend to raise interest rates in the near future.
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