British buyers of Irish exports or tourists from the UK holidaying here could have bought €100 worth of goods produced or services provided here for around £76.50 last Thursday. This morning it will cost them £83. That is the Brexit premium as the pound sinks against other major currencies and it is the clear and present danger for export-focussed Irish businesses.
Simon McKeever, chief executive of the Irish Exporters Association, said that the association was always of the view that in the event of Brexit, sterling would weaken by between 9% and 20%. "The risk is absolutely to a weaker sterling," he stated. He said the future risks are now political, adding that there is a lack of leadership in the UK and turmoil will persist the longer the leadership debate goes on. Germany and France are also facing elections next year and they must be thinking there of the Brexit consequences on their own political futures, he added.
The immediate impact of the Brexit vote for Irish exporters is on exchange rates. Mr McKeever said that the larger companies have hedged their currency requirements, but the smaller the company the less hedged they are. According to an IEA survey two years ago, 60% of its members were unhedged, that is about 70% at the moment. Companies are experiencing pain on currency issues at the moment, but Mr McKeever pointed out that they need to be aware that trade will continue with the UK as it is for the next two years. He said that companies need to assess the risks they have including a weaker currency as well as counterpart and country risks as well in case the UK economy does hit a recession.
The IEA chief said that companies do need to remain calm, adding that Ireland has always traded with the UK and will continue to do so but that trade is set to become more expensive and more cumbersome. It is incumbent on all businesses to talk to people who provide currency exchanges for them and to talk to companies who can help with them market risk, he urged. He said that the IEA will provide practical help and support for member companies, adding that it has just set up a regional council in Cork and Galway to make it easier to talk to businesses around the country.
Mr McKeever also said it was critical that the Taoiseach and Government Ministers highlight the special relationship Ireland has with the UK and its special relationship with us. "It is in both countries' interest to maintain what we have," he stated. On the forthcoming budget, he said that we need to urge restraint around wage claims and do whatever can be done to help the foreign exchange position.
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MORNING BRIEFS - After just two trading days on global markets since the Brexit vote $3 trillion has been lost. A third of that is represented by the value wiped off shares on the S&P 500 on Wall Street between Friday and last night. European stocks were hammered yesterday. The Eurofirst 300, an index comprising a basket of 300 European companies from a broad range of sectors, was down just over 3.5%. In London the FTSE 100 was down 2.6% but the FTSE 250, more exposed to the UK economy, fell 7%. In Asian trade this morning sterling did pick up from a 31 year low against the dollar hit yesterday. The pound also regained some ground against the euro. Having fallen to just below 84 pence to the euro at one point on Monday the pound is back to 82.9 pence this morning.
*** Reports says that car maker Volkswagen will spend $15 billion on the largest compensation scheme in US automotive history after agreeing a settlement with American authorities over the diesel emissions scandal. Volkswagen was found to have duped regulators and misled drivers over the level of toxic emissions from almost half a million vehicles sold in the US between 2009 and 2015. Reuters has details of the settlement citing two sources which it said were briefed on them. It says owners of 2 litre diesel VW cars between those dates will receive at least $5,100 compensation along with the estimated value of the vehicles as of September 2015 before the scandal erupted. Some owners will get as much as $10,000 in compensation depending on the value of the car.
*** John Power, chief executive of Irish company Aerogen - a specialist in aerosol drug delivery - has been named European Entrepreneur of the year the RSM Awards in Milan. Mr Power was chosen from among 32,000 companies across 33 countries.
