On Saturday last in Brussels a number of truly historic decisions were taken. These concerned the countries participating in economic and monetary union, EMU, with effect from 1 January 1999; the presidency and board membership of the new European Central Bank; and the pre-announcement of the bilateral exchange rates of the currencies participating in the euro. Few people could be surprised by the decisions because for some time we have had available to us the recommendations from various reports — the European Commission's, the European Monetary Institute's and our own Central Bank's convergence reports. We have also had the statements made by the Governments of a number of member states as to their intentions. However, the lack of surprise should not detract from the real significance of the decisions.
It is important to be aware of the process involved in making these key decisions. Ministers of Finance met on Friday, 1 May in ECOFIN and made recommendations as to participating countries. The European Parliament met on the morning of Saturday, 2 May and voted overwhelmingly in favour of the ECOFIN recommendations.
It was at this point in the process that I and the other Heads of State or Government met, first informally and later in formal session, to consider the convergence reports of the European Commission and the European Monetary Institute (EMI), the recommendations of ECOFIN, the Parliament's opinion as to who should participate in the euro and the declaration on budgetary policy prepared by ECOFIN.
The informal discussions which began over lunch, as was widely reported, also dealt with the issue of the presidency and membership of the European Central Bank board. The key outcomes of both the informal and formal meetings by Heads of State or Government were: the approval of the ECOFIN recommendations that 11 member states should participate in the euro — Ireland, Austria, Belgium, Finland, France, Germany, Italy, Luxembourg, the Netherlands, Portugal and Spain; the endorsement of the declaration on budgetary policy prepared by ECOFIN; and the reaching of political agreement as to the European Central Bank presidency and board.
Perhaps it was the more predictable outcome as to participation and the content of the declaration that focused media attention on the only undecided area; that of the ECB board membership and the presidency in particular. This was unfortunate because it tended to distract from the very substantial areas where agreements had been reached. However, the scope of the agreements reached and the full involvement of all the key European institutions in them have ensured that last weekend will stand as an historic milestone on the road to a single currency.
I extend my congratulations to Mr. Wim Duisenberg, the Dutch candidate and current head of the Economic and Monetary Institute, on his selection. I wish him well in his new position. He has indicated he is unlikely to serve the full eight year term. I note also that it was decided that a French nominee should succeed Mr. Duisenberg and that the French Government has indicated its intention to nominate, at that stage, Mr. Jean-Claude Trichet for the position.
While no final decision on the ECB presidency was required last weekend, it was important that the matter should have been settled as soon as possible. I am glad it has been agreed and that Finland, a country with a population not much greater than our own, is amongst the countries represented on the board. Finland has secured a position and, I hope will provide a voice for smaller countries. While we will not be members of the first board, it is important that when the positions on the board fall to be filled in rotation early in the new millennium, Ireland will be in a position to nominate a suitably qualified candidate.
The sequence of rotation is as follows; the vice president has a four year term and each of the four remaining members has a five, six, seven and eight year term. These have been allocated to nominees from France, Finland, Spain, Italy and Germany, respectively.
The preparations for economic and monetary union have been under way since the Maastricht Treaty of 1992. Over the intervening years, substantial convergence in the planning and co-ordination of economic policy amongst member states has been achieved, with the rate of this convergence accelerating in recent years. This has provided a generally stable economic climate in much of Europe. Convergent and stable economic policies have allowed a relatively low inflation and low interest rate environment to prevail in many member states. There is a danger we may take for granted this very real achievement. We have all been encouraged at the rigorous approach adopted across the Union by those countries wishing to participate in the euro. The adoption of individual national programmes and budgetary policies designed to promote stability and sustainable growth must reassure those who have criticised the entire euro project, or questioned the ability or determination of member states to qualify for participation.
Ireland's performance in reducing debt is note-worthy, as are the performances of many of our fellow participant countries. It was a proud moment for me as Taoiseach and for the Minister for Finance, Deputy McCreevy, to see Ireland selected as one of the founder members of economic and monetary union. Qualifying for EMU was a significant national achievement and we comfortably met all the criteria. We all remember a time when the chances seemed very slim that Ireland could comfortably meet a deficit limit of 3 per cent of GDP. In 1989, we got our deficit down to below 3 per cent of GDP and we have kept it there ever since.
Similarly, our debt ratio was once almost double the 60 per cent limit. By the end of last year it was down to around 66 per cent and it will probably have fallen to around 60 per cent by the start of economic and monetary union on 1 January 1999.
From Ireland's point of view, last weekend provided a formal recognition of the economic progress that we have made and a recognition also of our determination to control inflation and put the public finances on a sounder footing. It is not enough for Ireland to qualify for the euro; we must continue to observe the criteria and requirements in the Maastricht Treaty, the stability and growth pact and the declaration approved at the weekend if we are to remain competitive and the economy is to continue its steady growth path.
In this regard, the high level policy objectives set out in chapter 2 of Partnership 2000 remain essential. These are: sufficient trust between the social partners to ensure an adequate information flow and burden sharing, and continuous efforts to strengthen the underlying competitiveness of the economy.
The continued successful implementation of Partnership 2000 by Government and the social partners, and the strict adherence to its terms, are critical to the sustainability of our recent economic performance.
The other key outcome of last weekend came from ECOFIN. As widely forecast, it was also announced that the bilateral exchange rates of the currencies participating in the economic and monetary union will be based on their current central rates in the Exchange Rate Mechanism (ERM). As the Minister for Finance made clear in his press statement at the weekend, the decision to use the ERM central rates is fully consistent with the economic fundamentals and convergence performance of the 11 member states involved.
As to the benefits of EMU, we know from the ESRI and NESC reports of July 1996 and March 1997, respectively, that participation in EMU is in Ireland's favour and will bring economic benefits. The balance of advantage is now even more strongly in favour of Ireland's participation. The statement issued by ECOFIN last Friday as to the benefits of the single currency said:
The move to the single currency enhances further the conditions for strong, sustained and non-inflationary growth conducive to more jobs and rising living standards. It eliminates the exchange rate risk among participating member states, reduces transaction costs, creates a broader and more efficient financial market and increases price transparency and competition. It thus provides the decisive step for a truly single market.
This extract captures succinctly the benefits to which we should look forward. The decisions of last weekend allow us now to focus our attention on the practical steps necessary for the changeover to the euro. This is an area which the Minister for Finance will address in detail in his response, but I commend him and his Department on the publication of the National Changeover Plan and on the establishment of the Euro Changeover Board of Ireland.
I also commend the Department of Enterprise, Trade and Employment, Forfás and the major banks and business organisations for their efforts to prepare the business community for the competitive and practical opportunities and challenges which the euro presents. With the decisions of last weekend behind us, the campaign to generate wider public and consumer awareness will gain momentum. While the euro notes and coins will not be available until 1 January 2002, the euro comes into effect from 1 January 1999.
It is sometimes suggested that the decisions by Government as to participation in EMU are taken without any reference, or very little reference, to the potential effects on cross-Border trade and on the island economy. The same was said when we joined the EMS in 1979. It was not true then and is certainly not true on this occasion. We would greatly prefer if the UK were to participate from the beginning. That would help to facilitate and underpin steps towards creating a single island economy. We are happy that the Prime Minister Mr. Blair's Government has given a firm positive orientation towards joining before too long. However, it would not help towards building a strong island economy if we were to hang back from involvement in the single currency from the outset.
The enhanced surveillance of the economic policies of all the member states and the agreed arrangements as to relations between the "ins" and "outs" will help to prevent competitive distortions between the member states of the Union sharing the single currency and those not yet participating in EMU.
So long as the situation persists as between ourselves and the United Kingdom it will simply mean, so far as the transactions costs aspects are concerned, that there will be two currencies, as now, and that the gains from cutting out exchange costs will not be realised. The trading relationship between North and South is becoming stronger all the time and I would not expect it to be affected adversely in any serious way during the few short years when we still have an exchange rate between us.
I met the Prime Minister Mr. Blair in the margins of the European Council meeting and we reviewed the reaction to the Agreement reached in the Multi-Party Negotiations. The Prime Minister and I welcomed the widespread support which the Agreement has received to date, both within political parties and, more widely, as expressed in opinion polls. We reaffirmed that there is now an unprecedented opportunity for real change for the better in relationships on and between the two islands. We called on everybody to focus on the prize of peace in the period ahead.
We asked those who have not yet made up their minds on the Agreement to view it positively in this light and we challenged the Agreement's opponents to spell out their alternatives, or their view of the future in the absence of peace and stability. We looked forward to a resounding "Yes" vote in the referendums, North and South, on 22 May and we pledged ourselves to doing everything necessary in this event to implement the Agreement as rapidly as possible and to realise its vision and full potential to the benefit of all the peoples of these islands.
There are those who are actively seeking to undermine the Agreement by violence. However, we cannot allow them to succeed. The recent violence underlines the need for an overwhelming "Yes" vote on 22 May to demonstrate beyond any doubt the people's support for peace and reconciliation and their total opposition to violence and intransigence.
We are in a period of accelerating change within the European Union. Simultaneous with the changeover to the euro, the negotiations under Agenda 2000 will take place. It will be important that Ireland secures adequate transitional arrangements in relation to Structural and Cohesion funding. We need to secure funding and to use it wisely. The outcome as regards the reform of the Common Agricultural Policy must fully protect our interests. In view of the challenges presented by both the Single Currency and Agenda 2000, it will be important that sound economic policies are pursued which augment our existing economic and social infrastructure. Government and social partner co-operation in the formulation and implementation of a new national development plan will be essential. Last weekend was a major success for Ireland.
It provided a recognition of our standing among our EU partners and secured our place at the core of the Union and our part in its future economic development.