Euro-Zone interest rates are going up, probably as soon as next week. They would have risen already if, ironically, the German members of the European Central Bank (ECB) had not asked for more time to "sell" the idea of a rate rise to their political masters in Berlin. Low interest rates and a weak currency have suited Germany well.
By contrast, the booming Republic could easily live with interest rates double their current level and an exchange rate that would allow us to travel to Britain and US in comfort.
Other smaller EU countries also would like higher rates. But when it comes to monetary policy, one size has to fit all and the Germans muster far more clout than their two votes (out of 17) on the ECB council would suggest.
With the ECB clearly signalling its intention to raise rates in the near future, does this mean that we can now look forward to significantly higher rates? And will higher rates burst the Irish economic bubble? The answer to both questions is no.
European interest rates are currently at crisis levels, set when policymakers were worried about the perceived threat of deflation arising out of the global consequences of the Asian economic crisis. Any forthcoming policy tightening should be seen as an attempt at normalising interest rates in the face of a threat that never materialised.
Far from slipping into recession, the world economy is booming, nowhere more so than in Asia. The US is about to experience the longest economic expansion in its history. Even Japan is joining the party. Europe is growing again, hence the need to normalise interest rates.
While global growth will mean an end to falling inflation it will not herald a take-off in prices that warrants a series of interest rate hikes in keeping with past cycles. This time it is different.
There are many reasons for this, two of which stand out in Europe. First, global competition - embracing e-commerce - means that producers of goods and services will continue to find it tough to pass on cost increases. Here, the experience of the US economy in recent years pays close attention. There, companies have responded to cost increases by squeezing ever more productivity out of workers and by indulging in an awesome bout of productivity enhancing investment in new technology.
Companies are going to have to do the same in Europe or simply be blown away by the competition. Part of the response to global competitive pressures is restructuring, something which is happening at the corporate level all across Europe. Investment bankers are minting money reshaping Europe's corporate map and there is much more to come.
And this is the second reason why Europe will not experience a take-off in inflation: restructuring means weak labour markets. People, in large companies in particular, will continue to be laid off. Again, this will mirror the US experience. Despite the jobs miracle of the 1990s in the US, where unemployment is at a generational low, the top 500 companies have actually shed labour through the last decade. This must be a sobering thought for Europe's policymakers facing the virtual absence of a dynamic small-company entrepreneurial culture to take up the slack of big-company restructuring. Without wholesale reform at the macro-level - largely absent so far, in contrast to what is happening to companies faced with a gale of global competition - European unemployment is going to stay at painfully high levels. But this has been true for decades.
Of course, high unemployment that holds back wage and price increases is hardly a feature of the Irish economy. Commentators who wring their hands over the likelihood of Ireland imploding because of an imminent wage explosion are living in the past. Sure, wages are going to go up but, provided the domestic labour market is allowed to operate flexibly, there is little to worry about.
Indeed, there will be a clear plus for the Republic: by paying ourselves more euros we increase our purchasing power overseas. The Republic has achieved full employment (from a 20 per cent unemployment rate) in around half a decade; the economy has doubled in size in the 1990s while the rest of the euro zone has grown by just more than 20 per cent.
And like the US and Britain, high economic growth has not been accompanied by increased inflation: the opposite is true. Lower inflation has little to do with social consensus - new-age speak for "incomes policy" - and more to do with global influences.
Two related themes - competition and restructuring - will prevent the usual European wage-price cycle. Hence, interest rates do not need to rise by much. Indeed, it is perfectly sensible to argue that Europe's labour market problems are going to be such that interest rates do not need to rise at all. The influential US economist, Paul Krugman, has made precisely this point. But such arguments cut no ice at the ECB, so we can look forward to a modest interest rate cycle. Will this be enough to burst the Irish bubble?
Actually, this is a loaded question: it presupposes that we have actually witnessed a bubble. As Alan Greenspan, chairman of the US Federal Reserve, has argued, financial and economic bubbles are something that we can only ever observe with hindsight. Who are we to say that the outcome of millions of decisions by well-informed sensible people is an irrational and unstable situation? Mr Greenspan made his remarks about the US equity market, which he used to think was displaying bubble characteristics but has now changed his mind. His remarks can be applied with equal force to the Irish economy.
By contrast, most commentators on the Irish economic situation, particularly those overseas, are convinced that they know a bubble when they see one and that it will inevitably burst. I wonder just who is being irrational?
The Republic will only look like a burst bubble if something happens to cause an outright recession and/or a collapse in property prices.
Globally, as I have suggested, there are no signs of a recession threat. The upshot of the likely very gentle rise in European interest rates is that there is no catalyst for bursting the bubble, even if we concede that one exists. Yes, things could slow down - but that would be welcome in some respects. But a slump? Not likely.
Chris Johns works in the fund management industry
