THE POUND AND THE PUNT REVISITED

Abstract

Whereas the pound has remained outside the EMS for the last ten years, the Irish punt has been a fully participating member since the inception of the EMS in March 1979. As such the punt experienced the depreciation of the EMS bloc against the pound in 1980‐1 and, largely because of this, it suffered from a higher rate of inflation in the first half of the 1980s. But against a background of greater intra‐EMS stability, Irish inflation has fallen steadily. It is now closer to German inflation than at any time in the last twenty years and in the nearly three years since the last EMS realignment, has been well below inflation in the UK. At the same time output in Ireland has advanced steadily and the trade balance has moved into surplus. The Irish experience has therefore paralleled that of the EMS as a whole. After a shaky start, the EMS has proved to be a powerful force for convergence and by switching from a fixed link to the pound to one against the DM, the Irish economy is being transformed into a relatively low inflation economy. The contrast with the pound panty period is marked. It is different not to conclude that the UK' recent economic performance, particularly on inflation, would have been significantly improved if it too had chosen the route of full EMS membership.