IRELAND must become more competitive and taxes must be cut in a bid to save jobs, according to the country's exporters. The exporters are becoming increasingly vocal about the problems the strong pound is causing.

This week the pound traded over 104p against sterling for the first time since the currency crisis. Many exporters are worried that the pound could appreciate further against sterling, warning this could lead to job losses and perhaps company closures.

Mr Tony O'Brien, chief executive of drinks group Cantrell & Cochrane, said the biggest fear is that the Irish pound will rise to 105p or even 106p. "It looks as if it is going that way and that would be fairly serious for all of us," he warned. "Already we have a 10 or 11 per cent appreciation over a couple of years. There are very few companies which can weather that for long."

At the same time, the Small Firms Association has warned that a rate approaching 104p is already putting jobs at risk. It warns that unless action is taken to stem the pound's rise against sterling, some companies will be forced to relocate to Britain. The association has called for Government action on what it calls a "crisis" situation.

It says the Central Bank appears to be tracking the deutschmark at the expense of competitiveness against Britain, putting exporters under pressure. The dilemma is that a strong pound against the mark also means a stronger pound against sterling.

"I am sympathetic that the Government has to ride two horses," says Mr O'Brien, former chairman of IBEC. "Our only chance is to make the cost base more competitive. That is where the authorities come in. If the Government lowered employer's PRSI it would have a huge impact.

"The only alternative appears to be some kind of subvention from Brussels, but that always seems to be very problematic."

Mr Brian Geoghegan, IBEC's director of economic affairs, also says the currency problem underlines the "absolute priority" that needs to be given to improving competitiveness. "It underlines the urgency with which IBEC's overall tax strategy needs to be addressed," he says.

Mr O'Brien also points out that many companies are taking a double hit. "The strong pound makes our exports much more expensive, but it also makes imports less expensive. So we have a double hit."

Not only do companies like C & C suffer when they are exporting. British products also become cheaper, putting pressure on the company to reduce its Irish prices to compete with British imports. Smaller exporters, or companies which are even more exposed to the British market, must already be close to job losses, Mr O'Brien added.

Banking sources point out that many companies took advantage of the lower rate of 102.5p a few months ago to buy their sterling in advance. This may be cushioning many firms at the moment. However, forward buying cannot cover indefinitely, therefore the length of time for which the pound remains firm is important.

According to Dublin analysts part of the reason the pound is so high against sterling is that the Central Bank is worried that Ireland could fall at the last hurdle in its bid to enter the single currency.

Ireland has been very successful in meeting nearly all the EMU criteria. Annual borrowing is well below the 3 per cent of gross domestic product limit. The debt ratio has fallen dramatically, and although it is above the 60 per cent guideline level, it has fallen so quickly that it must meet any interpretation of the criterion that it must be falling at a "satisfactory pace".

Inflation and interest rates are also within the targets so the only possible problem is that the pound's volatility against the mark could rule it out. The Maastricht Treaty says that to qualify a currency must have been stable within the "normal" ERM bands. However, this rule was written when, the old 2.25 per cent band was in operation. After the currency crisis this band was abolished and a much wider 15 per cent band introduced, meaning it is not clear how the Maastricht rule will be interpreted.

Since 1993, the pound has been the most volatile of the serious EMU contenders. According to research done by Dr Dan McLaughlin at Riada, it has behaved more like the Spanish peseta than the Danish kroner or Belgian franc.

"Without doubt the only flaw in the pound's case for Euro membership is it clearly behaves in a different manner against the mark than its peer group in the ERM," Dr McLaughlin said.

As a result many analysts believe the Central Bank is pursuing a target of a 1 per cent band against the mark. And to prove that the currency is stable enough to enter the mark bloc without causing trouble the Central Bank has been intervening in the foreign exchange market. Buying pounds props up the Irish pound against the mark but it has also meant a rising exchange rate against sterling.

If that policy had been pursued rigorously since the currency crisis the pound would have reached a high of 111p against sterling with an average of 102p over the last three years, according to Dr McLaughlin.

The mere thought of 111p is enough to make many exporters think about throwing in the towel.