Monday, December 01, 2008
Even the Republic’s retailers are heading north…
For many years the border has cast a gloomy economic shadow by turns on either side. For a long time, towns on the northern side of the border have suffered economically. Letterkenny prospered at Derry’s expense. And Dundalk at Newry’s. In fact the shoe has been on the other foot for some time now, but it has only recently become a major issue in the Republic since the global credit crunch has fouled up the steady flow of FDI, and tax revenues have plummeted. Now it’s eating into the supply chain, the unpatriotic flow of shoppers out of Ireland the Republic into Northern Ireland may only be the tip of the iceberg… If you missed it last week, try and catch last week’s Question and Answers…
PS: Suzy wants to know why Tesco is whacking it’s prices upwards..
Mick Fealty @ 11:48 AM
A bonanza fo NI, woo hoo!
Posted by on Dec 01, 2008 @ 12:11 PMGreat stuff - this will build the all-island economy! It will also pressure southern companies into becoming more competitive, the process will be painful but we’ll come out of it stronger. (That’s capitalism, creative destruction).
The UK’s boost from devaluation will be temporary, the benefits from increased competitiveness & enhanced productivity at Irish firms, permanent.
Posted by on Dec 01, 2008 @ 12:26 PMMack
“this will build the all-island economy”
Nonsense - this is just about all - island trade which the EU heralded years ago.
An all - island economy is about uniformisation of currency and taxes and neither is on anyone’s radar unless the Republic pulls out of the Euro and re-alligns itself with sterling.
As for taxes Varney killed that off as far as the UK was concerned and the Republic doesnt have the London cash cow (although nor does London to the same extent) and needs to make its citisens pay more via VAT etc and let Corporates off the hook to encourage FDI.
Therefore with NI part of the UK there will be no tax harmonisation either.
As for increased productivity and competiveness there is only so much a Retailer can do.
I must say all this talk about patriotism etc is a lot of embarassing whingeing.
There is not a petrol station north of the border for miles as for so long the shoe was on the other foot and we just got on with it.
If the Republic decided in its wisdom decided to hitch its currency to the Euro rather than its most immediate neighbour then it only has itself to blame as this was an eventual accident waiting to happen - and now it has.
Posted by on Dec 01, 2008 @ 01:15 PMLets keep an eye on these cross border intrusions.
Children living in border counties come North for free education and with the abolition of prescription charges their parents will seek free medical treatment and drugs all at the expense of the British tax payer.
If things get any worse in the South, and they will, there may even be a desire to come back into the fold.Posted by on Dec 01, 2008 @ 01:35 PMJEB - I think we’re arguning over semantics. E.g. I disagree that an all-island economy requires tax equalisation and the like, but I agree with you and don’t see them on the agenda. Northern Irish tax rates are a matter for the UK gov. I don’t think we in the south have an interest in having them equalised!
Supply chain integration, though is certainly possible, and if it makes economic sense desirable.
“As for increased productivity and competiveness there is only so much a Retailer can do. “
That’s true, but we’re moving down the supply chain now. There is a lot producers of goods (farmers, manufacturers) can do to improve productivity. The government can help by ensuring that taxes on business are lower in the medium term, and perhaps provide grants, loans, increased tax breaks for machinery, education, IT - whatever it takes to increase productivity in the affected areas.
Posted by on Dec 01, 2008 @ 01:37 PMJEB - “If the Republic decided in its wisdom decided to hitch its currency to the Euro rather than its most immediate neighbour then it only has itself to blame as this was an eventual accident waiting to happen - and now it has”
The Euro has thus far proved a sounder currency than Sterling has it not? Devaluation reduces productivity per capita at purchasing power parity relative to your trading partners in the hope that the discount will provide scope for building it back up from a lower base. It is not equivalent to improving productivy via investment, you’ve simply reduced the cost of a unit of productivity in foreign currency. Quelle surprise the foreigners want to buy your discounted productivity! Keep attempting that, and you’ll soon be an emerging market!
Furthermore, in so doing you impoverish the holders of existing wealth in that currency in order to pass on a potential future gain to current and future wealth producers (workers, owners etc). It is a mere stroke, and not one I’d want the custodians of my retirment wealth (the guardians of the currency in which it is stored) to attempt.
Ulsterfan - There is free education in the south. Although the southern border counties are less densely populated than the Northern ones so maybe if there is a differential that accounts for it. It may not be the case today, but in years gone by many of the Unionist elite used to school in Dublin.
“If things get any worse in the South, and they will, there may even be a desire to come back into the fold. “
Not a chance :-)
Posted by on Dec 01, 2008 @ 01:51 PMAn all - island economy is about uniformisation of currency and taxes
Since when is economics only about “currency and taxes”?
There is not a petrol station north of the border for miles
There are at least two petrol stations between Newry and the border.
If the Republic decided in its wisdom decided to hitch its currency to the Euro rather than its most immediate neighbour then it only has itself to blame
So the Republic should have switched to sterling?
It’s pretty clear you haven’t the faintest clue what you are talking about.
Posted by on Dec 01, 2008 @ 02:27 PMOn the last thread about this issue I mentioned the severe tailbacks leading into Newry on Saturday morning. Well I’m reliably informed that on Saturday evening a number of people drove up to Newry in camper vans and stayed in them overnight in The Quays car park so as to beat the rush!
That’s what you call dedication!
Posted by on Dec 01, 2008 @ 06:14 PMrunciter
“Since when is economics only about “currency and taxes”?”
Well we werent talking about econmics - we were talking about an all Ireland Economy as opposed to all Ireland trade and I was simply pointing out that without uniform Taxes and Currency that the former was a pipe dream. Surely that is simple enough for you to differeniate ?
Mack - I think it is about more than semantics - there is a hell of a difference between all island trade and all Ireland Economy. GB is an All Island Economy - Ireland isnt and cant be in the present circumstances.
I just wish people would stop using the wrong terminolgy to imply something that isnt there.If anything this is the opposite of an all Ireland Economy as what is going on is a distortion leading to capital flows from ROI to NI which if we had a genuine all ireland economy would not be occurring.
Runciter
“There are at least two petrol stations between Newry and the border.”
Wow that many ? and how much petrol do they sell compared to the 20 plus within a few miles south of the border ?
Talk sense the border has wiped out any real just north of border petrol industry for now but that may change“So the Republic should have switched to sterling? “
Did I say that ?
I said that if you choose a different currency from your immediate large neighbour with a land border and hitch its fortune, not to your own circumstances, but to the fortunes of other large neighbours with a sea border then there is a very real chance that you will get caught with a currency swing. That is what has happened.
The bottom line is that the ROI had an interest rate and now a currency rate not of its choosing and has only fiscal tools to deal with its current problems.
I think it is you who clearly doesnt know what you are talking about ?
Mack
Note last comment above regarding currency. Plus currency depreciation doesnt have to be permanent and indeed provides the opportunity to export your way out of a recession.
eg the current level of cross border shopping is the case in point and will be followed by further exports of goods and services from north to south and also from GB to ROI. There will also be sgnficant Import Substitution between the UK & ROI as well.Posted by on Dec 01, 2008 @ 06:55 PMThe singular advantage of the euro to the consumers in member states on the continent is that they can easily cross borders to compare prices without the need to carry a calculator for the purpose of currency conversion, having the effect of forcing retailers in different states to compete with each other on price. The euro offers no such advantage to consumers in the UK or Ireland because neither has a land border with another Eurozone member.
The problem for Irish consumers is profiteering by Irish and foreign-owned retailers. Unlike the UK, Ireland doesn’t have VAT on food, so food prices should be more competitive than UK food prices irrespective of currency fluctuations. In fact, food is more expensive for Irish consumers due to profiteering by retailers. In the case of the UK retailers of non-food consumer items who operate in Ireland who also have online shopping outlets, you will note that there is a policy on their Irish websites of not providing prices. The reason for that is that Irish consumers could easily compare the UK price with the Irish price and discover the profiteering differential, here is the Irish site of Currys electrical retailers and here is their UK site, and here is the Irish site for PCWorld and here is there UK site. The Currys example, a particular TV that will cost you 1295 euros in their Irish retail outlet will cost you 812 euros in their NI retail outlet. Only profiteering in the Irish retail market to consumers who were/are not price conscious explains the difference between the two prices.
Of course, goods purchased from UK retailers in NI will benefit the British Chancellor of the Exchequer and the UK economy to which those companies pay their taxes and not the Irish taxpayer or the Irish economy. Competition from the UK economy of NI for consumer goods will benefit consumers in the border region in the short-term, but in the mid-term it will result in job losses and other losses to their local economy, and it will not have any beneficial effect in the long-term or in the wider Irish retail market.
The core problem is profiteering in the Irish retail sector, and the government are unable to devise the appropriate regulations to tackle that because they are bound by one-size-fits-all EU directives. So, they will continue to be ripped-off by retailers (and those UK retailers who operate here will continue to display prices on their websites for UK buyers but deliberately avoid displaying prices for Irish buyers lest they quickly see much the profiteering).
Incidentally, the CSO the latest figures from the CSO show that Irish merchandise imports from Northern Ireland were 98,100m in August of 2008, down from a peak during 2008 of 118,100m in April. The figures for 2007 show that the Republic of Ireland imported 1,354,400 from Northern Ireland and exported 1,743,500 to it, giving a generous trade surplus to the benefit of the Irish economy.
Posted by on Dec 01, 2008 @ 07:48 PM“The singular advantage of the euro to the consumers in member states on the continent is that they can easily cross borders to compare prices without the need to carry a calculator for the purpose of currency conversion, having the effect of forcing retailers in different states to compete with each other on price. The euro offers no such advantage to consumers in the UK or Ireland because neither has a land border with another Eurozone member. “
Dave - the internet??? Unless we’re only talking groveries.
More beneficial to have your life savings in a strong currency or a weak one?
Lower interest rates?
What about holiers?The rest of your analysis was excellent, imho, by the way.
Posted by on Dec 01, 2008 @ 08:48 PMJEB ,
‘Plus currency depreciation doesnt have to be permanent and indeed provides the opportunity to export your way out of a recession. ‘
It may provide an ‘opportunity’ but the British example in the 1970’s of continuing devaluation against the German Mark and other world currencies only made matters worse for British Industry . Eventually British manufacturers came to believe that all they had to do to remain or improve competitiveness was to wait for the HMG to devalue the pound. Bad money drives out good not the other way around .
Who has got the stronger mid size engineering sector in the EU today ? Tne UK with it’s 30 year long ‘devaluations’ or the Germans who pursued a strong mark policy and are influencing the rest of the EU to follow suit with the euro ? . Nowadays people are very aware that if their currency is depereciating that in effect it’s impoverishing them relative to the rest of the world with whom they trade .
Posted by on Dec 01, 2008 @ 09:06 PMJEB - “I think it is you who clearly doesnt know what you are talking about ?
Mack
Note last comment above regarding currency. Plus currency depreciation doesnt have to be permanent and indeed provides the opportunity to export your way out of a recession”
hmmm… not sure how to interpret that? Care to clarify, it sounds ad hominen. If you have a problem with any of the points I’ve raised feel free to argue.
It provides a way to export your way out of recession because you’re selling the same goods and services for less. My point, by the way, was you can only do this so much. Every time you do it, your savings are worth less (in terms of foreign goods and services purchased at least, and how much do you spend on British goods outside of food?).
The Irish economy will react to these circumstances (at the very minimum there are other countries we can sell into without cross currency risk). If Sterling rises in the future, it’s swings and roundabouts to the benefit of the Irish economy next time.
If it (Sterling) falls again…
Posted by on Dec 01, 2008 @ 09:29 PMJEB - Feel free to disregard that question! I (now) presume you meant the comment above that one again.
Posted by on Dec 01, 2008 @ 09:34 PMThere do seem to be certain advantages for some people (consumers, though not retailers) in having two jurisdictions on the one island. But Northern Ireland is unnecessarily large for the purpose and far too long a hike for most Irish residents. Perhaps we could agree with Britain to swop the 6 counties for Kingstown (Dún Laoghaire). So that Cork and Belfast people could do their shopping abroad as well, we could throw in Queenstown (Cóbh Corcaí) and Carrickfergus.
Posted by on Dec 01, 2008 @ 10:47 PMThe other important point about a falling currency is that it causes your debt obligations in foreign currencies to rise, and can reduce the appetite of foreigners for debt in your currency. The latter can led to further preciptous falls as foreigners sell out of your currency.
Posted by on Dec 02, 2008 @ 08:52 AM“Since when is economics only about “currency and taxes”?”
Well we werent talking about econmics - we were talking about an all Ireland Economy as opposed to all Ireland trade and I was simply pointing out that without uniform Taxes and Currency that the former was a pipe dream.
There is nothing in the definition of an “economy” that requires it to have uniform currency and taxes.
what is going on is a distortion leading to capital flows from ROI to NI which if we had a genuine all ireland economy would not be occurring.
So “distortions” and capital flows don’t happen in economies?
“There are at least two petrol stations between Newry and the border.”
Wow that many ?
You had stated that there were none close to the border on the northern side. I was pointing out that you were wrong.
“So the Republic should have switched to sterling? “
Did I say that ?
Yes. You stated that the south had made a mistake switching to the Euro rather than sterling:
If the Republic decided in its wisdom decided to hitch its currency to the Euro rather than its most immediate neighbour then it only has itself to blame
Posted by on Dec 02, 2008 @ 09:26 AMDave
“Unlike the UK, Ireland doesn’t have VAT on food, so food prices should be more competitive than UK food prices irrespective of currency fluctuations.”
The UK doesnt have VAT on Food either.
Greenflag & Mack
I agree the longer term negative implications of an erosion in your currency are not to be under estimated. However the shorter term benefits during a shallow recession are not be either.
There is no doubt that more UK people will take their holidays at home and be joined by Europeans and American tourists.
There is no doubt that shopping trips to New York and mainland Euope will be curtailed and on the micro level the UK Retail industry in Northern Ireland will benefit.During the hellish next 12 months all industry is going to be facing this will be some comfort to the UK but the ROI has nowhere to go.
runciter
I am not going to split hairs with you.
I simply made the point that there are two competing economies on this island and what we have is all island trade as opposed to what people are trying to call an All Island Economy.
Nor did I say it was a mistake for the ROI to join the Euro - you drew that conclusion yourself from what I said about the current predicament that the ROI finds itself in because monetary policy is no longer in its hands. You could equally argue that the experience to date has outweighed the benefits - although I wouldnt as the low Euro interest rate fuelled the Irish property boom in the first instance. Indeed ROI money in search of a home helped fuel the Northern Irish propery boom as well which I am far from happy about.
Posted by on Dec 02, 2008 @ 01:19 PMI simply made the point that there are two competing economies on this island and what we have is all island trade as opposed to what people are trying to call an All Island Economy.
Actually, you claimed that “An all - island economy is about uniformisation of currency and taxes” and when I pointed out you were wrong you started weaselling.
You may call it “splitting hairs” but if you make factually incorrect statements you shouldn’t get upset when people correct you.
Also, the fact that there are (at least) two competing economies on the island does not mean that there is not also an all-island economy.
Nor did I say it was a mistake for the ROI to join the Euro
No you clearly suggested that the south would have been better off adopting sterling. That’s what was so amusing.
Posted by on Dec 02, 2008 @ 04:33 PMrunciter
“Also, the fact that there are (at least) two competing economies on the island does not mean that there is not also an all-island economy.”
dear oh dear oh dear
Posted by on Dec 02, 2008 @ 08:10 PMdear oh dear oh dear
Since you seem to be struggling, I shall illustrate my point with an analogy.
Just as there are competing economies within the European economy, so on the island of Ireland there are competing economies within the all-island economy.
The same principle applies to regional economies within nation states.
Posted by on Dec 02, 2008 @ 10:28 PMAn all-Ireland unified (though federal) state within the EU and within the Eurozone. Its the only solution, folks. You know it makes sense.
Posted by on Dec 02, 2008 @ 10:37 PMI can´t believe I left out the apostrophe in ´it´s´. Mea culpa…
Posted by on Dec 02, 2008 @ 10:40 PMrunciter
Why not talk about the world economy or maybe my household economy if you like.
However what I was responding to was Mack’s statement of
“Great stuff - this will build the all-island economy”
ie on every Republican’s wish list that greater trade throughout the island will somehow foster a view among northern unionism that they are missing something and really should abandon the UK and join up with the 26 counties.
ie Greater trade will foster Economic Unity and will lead to political unity.
However the opposite is true of course and not just among northern unnionists I bet as northern nationalism reaps the financial benefit of having a totally divergent economy 60 miles north of Dublin.
There is no economic convergence whatsoever and and that will lead to even less of a chance of political convergence. Indeed it has obviously touched a raw nerve with yourself.
The island of Ireland consists of two nation state economies competing with one another and for the time being one has gained an advantage via currency and indirect taxes. That will undoubtedly increase trade flows in favour of the North over the South but I remain at a loss as to how you think this will build the all island economy ??
Indeed what do you mean by the all island economy and how do you think that it is not adversely affected by differing Tax, interest and exchnage rates ???
Posted by on Dec 03, 2008 @ 12:19 AMJEB,
The island of Ireland consists of two nation state economies competing with one another and for the time being one has gained an advantage via currency and indirect taxes.Don’t over-egg the pudding there. The Northern Ireland economy has for the time being gained a limited advantage in a limited area of retail sales.
In my view, the Republic still has a huge advantage via currency and the indirect taxes talk is an irrelevance. Don’t buy the New Labour hype.
The VAT reduction was a meaningless sop. Monday’s sterling drop on its own was its equivalent for the southern shoppers in Newry.
As for the currency, you recall all the talk of Ireland’s (Republic of) 400 billion euro guarantee and how it affected The CDS Sovereign debt?
Ireland has now stabilised at around 120 points while the UK has now broken through the 100 barrier.
Watch that space in the next 2 months.
Posted by on Dec 03, 2008 @ 12:36 AM
