THE most significant economic development in Ireland in recent years has been the free lunch on interest rates. The main reason the domestic economy is booming is that interest rates are as low as they've ever been.

Continental Europe, and Germany in particular, appears to be on the cusp on a mini recession, with retail sales flat, industrial production falling and unemployment on the up. These factors, which have been on the horizon now for some time, have prompted the Bundesbank to slash interest rates to the lowest levels for 20 years.

The Bundesbank hopes that these low interest rates will help breathe life into the moribund economy, averting recession and eventually resulting in a decent and sustainable recovery. Chancellor Kohl has accompanied the lower rates with a package aimed at creating two million jobs by the end of the century.

The reality of the situation and the panicky reaction from the usually unflappable Mr Kohl have yet again led to growing scepticism about whether the fiscal brace demanded by the Maastricht Treaty is worth the pain. Consequently, the bets are on that France, the country with the steepest immediate uphill battle, will stumble at the final hurdle rendering EMU a pipe dream for now.

The interesting thing is while France, Germany and others languish under the twin impediments of slow growth and fiscal rectitude, Ireland is booming. But more intriguingly, Ireland is booming precisely because Germany is so weak.

This statement may seem provocative, particularly in the light of the official view which contends that our economy is becoming more in sync with the European German one. But even a cursory glance at growth numbers suggests that this is not the case. If both economies moved in tandem, Ireland like Germany would be flirting with recession instead of growing at 6 to 7 per cent.

The key fact to appreciate is just how much both economies' performances can deviate from each other.

Back in 1992, German unification had pushed German interest rates to historical highs, precisely because the economy was roaring ahead. However, these exorbitant rates were exported, via the EMS, to the rest of Europe.

At the time, most of the other European countries were just coming to the end of a 12 year growth cycle and could have done with lower interest rates to cushion the impending cyclical slowdown.

But German monetary hegemony demanded that either we all accepted absurdly high rates or we devalued. The rest is history recession, rising unemployment, currency crises, followed by 100 per cent overnight interest rates and finally the devaluation ... and all because Germany, boomed, while others stagnated.

Now precisely the opposite holds for Ireland. We're booming and they're stagnating, and the fault lines which so undermined the EMS in 1992 are giving us a free lunch.

The demand for credit has collapsed in Germany so have interest rates which have been exported via the very same EMS to Ireland. But the demand for credit in Ireland is soaring, showing a 16 per cent year on year increase at last check, so we are getting all the cash we need at bargain basement prices. A free lunch if ever there was one.

Thus, Irish interest rates are falling at a time when arguably they would be rising under any other monetary system. Why? Because Ireland and Germany do not move in tandem.

On the contrary, they are more likely to be hurtling off in different directions than progressing in unison. We do 7.2 per cent of our trade with Germany, as opposed to 17 per cent with the US and 36 per cent with Britain. Meanwhile, investment flows are as likely to come from Asia as from Bavaria.

Put simply, the German economy does not have a huge amount of direct influence on the Irish economy.

However, because our exchange rate is tied to the deutschmark and consequently our interest rates are determined in Frankfurt, every word from Bundesbank council members is enough to send jitters through our mortgage market.

So there you have it Ireland and Germany are not one cogent economic unit. We should have acknowledged this policy inconsistency during the 1992 crisis. Instead, we were fed Orwellian nonsense by the authorities, overplaying Germany's role, in a "two legs good, four legs bad" type of mantra.

Perhaps the present free lunch is only poetic justice after the ludicrously high interest rates of three years ago. Ironically, as long as Germany remains on the verge of recession, our boom is almost copper fastened.

Finally, what happens if EMU is put on hold indefinitely? Our interest rates would then be permanently determined by Germany. Looking forward, there are many people who believe that because of the extra burden imposed by unification on the economy in terms of high taxes and social outgoing, Germany may be set for a prolonged period of sub normal growth. This implies a period of sub normal interest rates over there and, by definition, in Ireland.