Causes of inflation

Sir, - I was amused to see (Business & Finance, February 22nd) Commissioner Pedro Solbes laud the "EMU Project" as a major…

Sir, - I was amused to see (Business & Finance, February 22nd) Commissioner Pedro Solbes laud the "EMU Project" as a major contributor to the Celtic Tiger, while chiding Charlie McCreevy for stoking-up inflation.

Inflation here is more properly attributable to the mismanaged euro which has driven our pound to a discount of almost 25 per cent against our major trading partner. The declining euro has suited the stagnant economies of socialist Germany and France who lack the political will necessary to get their people back to work. They depend upon it to reduce costs that they are unwilling to address directly. Their economies must deregulate rigid labour laws before the EU expands. Attacking Irish tax incentives, and miring the rest of the community in German-style bureaucratic regulations will not restore competitiveness or confidence.

By comparison, Charlie's attempts to return demand to those who created it can scarcely be described as inflationary. It is a fine type of socialist nonsense that governments can spend money smarter than the earner. People cannot create inflation, because in the medium term they can at best match their income and their demand. But governments and banks can and do exceed this fragile relationship through the creation of credit. I would suggest that Charlie's policy of allowing people to retain more of their earnings will moderate future pay demands and encourage people back to work, both of which are anti-inflationary.

Of course rapid economic growth such as we have experienced in Ireland will always be accompanied by structural inflation. It is the price of success which will disappear when the economy re-stabilises at a higher level. If growth continues to accelerate, this cycle will re-occur prior to each "plateau" reached.

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If Pedro Solbes wishes to reduce inflation in Ireland particularly, and in Europe generally, he might ask the European Central Bank to be more pro-active in its euro policies. He might also ask why it has supported the dollar. Traditionally the dollar is "the" reserve currency, facilitating trade and allowing the US to live at a higher standard of living as a result of nations' willingness to buy dollars. At a time when the rising price of oil (denominated in dollars) once again threatens to collapse world trade, the ECB dollar-support policies are a form of insanity that Europe cannot afford. - Yours, etc.,

Michael Dixon, Stillorgan, Co Dublin.