In contrast, our flexible exchange rate and non-intervention policy allow us to keep a much smaller level of reserves. Given that we intervene so rarely, why do we hold any reserves? And how do we gauge whether they are adequate for our needs?
I have already mentioned the decline in competitiveness that occurred prior to the crisis. In this respect Ireland certainly had a steep mountain to climb. In 2008, Irish unit labour costs, as an indicator of competitiveness, were more than 40% higher than at the launch of EMU.