The Economic and Social Research Institute (ESRI) calculated earlier this year that, were a US recession and a significant fall in the dollar to materialise, up to 90,000 Irish jobs could disappear. In a similar manner in its latest Financial Stability Review, the Central Bank underlined Ireland's dependence on the US economy. Against this background, the performance of the dollar - which fell to a 20-month low against the euro in recent days - is being watched closely.
In common with its Irish equivalent, the US economy is being driven by consumption and borrowing. Americans are saving less than they spend and their government is spending more than it takes in taxation. As a result, Asian banks are increasingly wary about the sustainability of the dollar and the size of their dollar holdings. A slow move away from the dollar in favour of the euro is under way and - however much they dislike it - the exchange rate is beyond the scope of European politicians. The European Central Bank has no mandate to control the value of the euro on currency markets and Europe's political leaders can only counter the impact of the dollar's performance by attending to the efficiency of their own economies.
According to the latest Economic Review and Outlook from the Organisation for Economic Co-operation and Development (OECD), most of them are failing in this task. In a commentary on the Irish economy, the OECD warned that the rate of inflation in Ireland would remain significantly above those prevailing in competing economies. It urged restraint in current spending growth and the introduction of more competition in the non-traded part of our economy, particularly energy markets.
A significant slide in the value of the dollar is not inevitable. But such an outcome would compound the deteriorating cost situation faced by our exporters, as well as by foreign companies operating here. So far the Government's response has been verbal in nature. In his Budget speech next Wednesday, Brian Cowen is likely to make frequent use of words like "competitiveness", "restraint" and "stability". Rather than drowning us in electoral soundbites, he might - with reference to recent work by the ESRI - aim instead to show that the Government has given serious thought to how a collapse in the dollar could affect our economy.
In preparing for such an event, it has some tools at its disposal. These include containing the growth in public expenditure within the 8 per cent target set out in the spending Estimates published last month, as well as pursuing greater efficiency and competition in the public sector.