Economic forecasts for both the United States and Britain have been edging upwards these last few months. The consensus is that both economies will expand by at least 2%, or possibly as much as 3%, in 2014. This would signal a real escape from the recession. Government revenue is improving and the unemployment figures are already coming down.

In the eurozone there is still no sign of a broad recovery. Output is expected to grow just 1% next year, on average, but is still falling in some of the more troubled members, where unemployment continues to rise. How come the eurozone is doing poorly in relation to Britain and America?

Economic performance across the eurozone is now remarkably uneven; some countries have ended up in official bail-out programmes and are suffering higher interest rates and a credit famine. The banking system remains largely unrepaired, five years into the crisis. Both the British and the Americans have done a far more effective job in fixing their banking systems.

In Europe, there were no proper mechanisms in place to deal with the systemic banking crises that emerged, since the eurozone was designed for fair-weather sailing. In addition, there is no centralised macroeconomic policy. Several countries have been forced to cut their budget deficits sharply, while others, which did not need to do so, have also chosen to retrench. The result has been tight fiscal policy at eurozone level in the middle of a slump, not quite the textbook procedure.

The eurozone as a whole is running a large surplus on its balance of payments with the rest of the world, another indicator that tight policy is not appropriate.

There is a further factor explaining the differential performance which has passed almost unnoticed: both the US and Britain have been quietly managing their exchange rates downwards.

The figures in Table 1 (from the Bank for International Settlements) show the average exchange rate for Ireland, Britain and the USA against their (suitably weighted) trading partners, taking January 2007 as a base. Ireland’s average exchange rate against its trading partners (allowing for the fact that it did not change at all against those in the Euro) is up 3% over the period. The average of the US dollar is down a handy 6.5%, while sterling is down over 20%, most of which had happened by the end of 2009.

It takes time for exchange rate depreciation to work through, but the weakening of the sterling is beginning to pay dividends.

The British government has tightened budgetary policy since 2010, but this has been offset by an easy monetary policy from the Bank of England and also by the softer exchange rate.

In the USA monetary policy has also been expansionary. So in both countries the overall stance of macroeconomic policy has been better attuned to recession conditions than it has been the case in the eurozone. It is therefore not a surprise that they seem to be exiting recession sooner.

Ireland has found itself in a zone with tight budgetary policy rules, a strong exchange rate and, at European level, an unwillingness to fix the banking mess.

The European Central Bank has been timid, by comparison with its British and American counterparts, in seeking to offset these sources of weakness through monetary policy. The ECB’s defenders will claim that, particularly since Mario Draghi took over in mid-2011, it has been more pro-active.

However, it has failed entirely so far to transmit its lower interest rates through to business firms in the distressed peripheral countries.

The ECB is expected to pursue a monetary policy which suits the average requirements of its members. It can only pursue one policy at a time. The problem is that some ‘core’ members, notably Germany, are less concerned about stimulatory action than countries such as Spain or Italy.

The requirements of the different member states have begun to differ quite alarmingly and the resulting tensions are putting serious strain on the political cohesion of the European Union.

The good news is that Ireland is as much an Atlantic country as it is a European one. Britain and America are major trading partners for Ireland and our exporting companies will welcome the improvements expected in these countries in 2014.