The Small Firms Association (SFA) yesterday warned Irish businesses to wake up to the new reality of a strong currency and stop awarding unrealistic wage rises.
As the surging euro threatens to price Ireland's goods out of the competitive global markets, Mr Kieran Crowley, chairman of the SFA, said the stronger currency was here to stay. And he advised companies wanting to survive the "new reality" either to strip out fattened cost structures or face liquidation.
In a hard-hitting address to over 250 delegates gathered at the SFA's annual conference in Dublin, Mr Crowley said the weak currency had lulled the Irish economy into a false sense of security and competitiveness.
"Since 1998 we have had an exchange rate cushion which has allowed us to fireproof our sense of economic reality.
"In the intervening period the relative value of our currency fell by between 18 per cent and 25 per cent against our main trading partners."
This has now changed and a strong euro is the new reality. Singling out Ireland's high inflation rate as a principle deterrent to increased competition and sustainable growth, Mr Crowley called on the Government to unveil its anti-inflation policy.
He argued that the "current employment levels are under threat because of unsustainable increases in business costs" and said the small-business sector's ability to create jobs was back at 1995 levels.
"The SFA is of the view that the Government must effect price stability by setting an overall inflation target of 2 per cent and implement competition policy in the sheltered sectors," he said.
The Minister for Finance, Mr McCreevy, also used a radio slot yesterday to warn that costs and wages needed to be kept under control if Ireland was to maintain its competitive edge in the face of the euro's appreciation.
"For an exporting country like ours, a quick ascent in the rise of the euro makes it difficult for exporters," he said.
There are concerns among euro-zone economies that America's weak dollar is exporting deflation to Europe and driving countries heavily reliant on output towards a recession. About 80 per cent of Ireland's €118.9 billion gross domestic product is based on exports, whose cost in dollar terms has risen as the euro has appreciated rapidly to over $1.17.
Mr Pat Delaney, a director of the SFA, admitted the weakened dollar was "partly a political decision" by the US government but said he welcomed the euro rise because it "forced the Irish economy to become competitive again".
However, Mr Michael Dwyer, managing director of Pigsback.com and a speaker at the conference, argued future growth must be underpinned by a knowledge-based economy and healthy seed capital funding.
Pointing to Ireland's poor broadband infrastructure, he said: "Being a knowledge-based economy means we need to be connected and at the moment we have an increasing divide between those that are using the internet and those that are not."
