EMU and Northern Ireland: Strategic Implications

The strength of sterling relative to the euro has placed the Northern Ireland economy at a competitive disadvantage. This paper explores how the North is likely to fare if the UK remains outside EMU and suggests that the Northern economy suffers from structural competitiveness problems that have not been adequately addressed in the recent Strategy 2010 policy review. In particular, the North-s industrial and labour market structure makes it less able to absorb sterling-related competitiveness shocks. Manufacturing is concentrated in low profit sectors and small firms which are least able to adjust to a strong sterling. The generosity of Northern industrial grants and subsidies has inhibited evolutionary change. The border risks becoming an EU policy fault line, making it more difficult to deepen North-South linkages and continuing to distort the vulnerable and underdeveloped economies of the immediate cross-border region. A wider policy dilemma for the North is that it needs a more effective degree of regional policy innovation to bring about faster and more sustainable private sector growth. The continued absence of the UK from EMU is likely to make this challenge even more daunting.