FROM 1928 until 1992 the value of the Irish Pound was always one pound Sterling. During that time the level of prices was much the same in Ireland and Britain. The one-toone link of the Irish Pound to Sterling was broken in 1992 and some years later we joined the Euro.

If we take it that Irish prices and British prices were roughly in line in 1992 then we can look at what has happened to prices in Britain and Ireland over the last 18 years and find out the degree to which we have moved out of line in terms of the cost of living.

The UK Consumer Price Index shows that British prices have risen by 38 per cent between 1992 and 2009. The Irish Consumer Price Index shows that Irish prices have risen by 55 per cent between 1992 and 2009.

There is an additional complexity in that we replaced the Irish Pound with the Euro. The rate at which we converted our money into Euros was €1 = 79 pence Irish. ( The actual figure was €1 = 78.7564 Irish pence but 79 pence will do). This means that IRL£79 was equal to €100.

We can take an Irish basket of goods and services that would have cost IRL£79 in 1992 and find out what that basket would cost today. Consumer prices in Ireland have risen by 55 per cent over that period. That basket of goods and services would now cost €155.

The same basket would have cost £79 to purchase in Britain in 1992. Consumer prices in Britain have risen by 38 per cent over that period. That basket of goods would today cost about £109.

We can take an example of a Brit who has bought this basket of goods and services at £109 at home and then arrives in Ireland. The same basket will cost her €155 in Ireland. At the present exchange rate (€1 = 82 pence Sterling), our British visitor will have to pay £127 to buy this basket of goods in Ireland.

The basket of goods and services that she bought at home for £109 will cost her £127 in Ireland. She will consider Ireland to be 17 per cent too expensive.

When the businessmen and commentators talk about a lack of competitiveness that is what they mean. We allowed the cost of everything to get out of line with Britain and the rest of the world during the boom. This includes wages, welfare, professional fees, pensions, energy cost, waste disposal costs and the cost of government services.

If we are to be competitive all these costs should be in line with Britain. The focus is very often on such easy comparisons as the minimum wage where it is easy to show that costs are out of line in Ireland but the area that we should focus on is the cost of the Public Sector and the services that the Public Sector provides.

A simple example of identical goods provided by the Public Sector in Britain and Ireland is the range of maps provided by the Ordnance Surveys in the UK and Ireland.

The Discovery Series is a set of maps with a Scale of 1 to 50,000. The Belfast Price is £6.20 and the Dublin price is €8.60 Euro. The Belfast price is the equivalent of €7.17. The Dublin Ordnance Survey maps therefore cost 15 per cent more than the Belfast ones.

When we joined the Euro each of us got €1 for 79 pence Irish. The Euro is now worth 82 pence Sterling. When you see information about the exchange rate between the Euro and Sterling it may be helpful to focus on 79 pence. When you gave up your Irish Pounds and got Euro you paid 79 pence Irish for your Euro. The Irish Pound was based on Sterling so you would expect to get 79 pence Sterling for your Euro. Today you are getting 82 pence Sterling for a Euro. Based on this analysis the Euro is worth at least 4 per cent too much.

A change of 4 per cent in the exchange rate would help but it would still leave us uncompetitive. During the run-up to the Euro in the mid 1990s the Irish Pound traded at around 90 pence Sterling. If we could get back to an equivalent position it would mean that the Euro was worth only 71 pence Sterling.

It seems to me that Ireland would be reasonably competitive with Britain if the value of the Euro dropped to 71 pence. At an exchange rate of €1 = 71 pence Sterling the basket of goods and services that we talked about earlier would not seem too expensive for our visitor. She would have to pay €155 for the basket. At €1 equal to 71 pence Sterling this would cost her £110 or almost exactly what it cost her at home.

A drop of that type in the value of the Euro relative to Sterling will not happen because the value of the Euro is determined largely by the German economy. This means that we will remain uncompetitive with Britain and Northern Ireland and continue to lose business and jobs unless we cut costs substantially. This is the challenge that the government has run away from.

- FELIM O'ROURKE