Dáil Éireann debate -
Thursday, 19 Oct 1978

Vol. 308 No. 5

Written Answers. - European Monetary System: Motion (Resumed).

Debate resumed on the following motion:

That Dáil Éireann takes note of the Conclusions of the Presidency presented by the Taoiseach to the Dáil on 18 July 1978 following the meeting of the European Council in Bremen and, in particular, the conclusions on closer monetary co-operation.

—(The Taoiseach.)

Mr. Clinton

I am reluctant to enter this debate because of the complicated nature of the matter under discussion. I do not claim specific knowledge in this area. However, I would not wish to miss the opportunity of making a few brief observations.

I listened very carefully to what the Taoiseach and the Minister for Finance had to say on this question and I acknowledge that the House was given as much information as it was possible to give. I was glad to hear Deputy Tully say that in a matter of this kind, party politics should not come into play. The subject is much too serious for that sort of treatment. I am well aware that in a negotiating situation it would not be in the national interest for a government to put all their cards on the table. There is always held back a certain amount of negotiating power.

Nobody can say that the proposal for a new European Monetary System comes as a surprise because we have known for some time that such a move was bound to be made sooner or later. The matter was being actively pursued as far back as 1970 and had it not been for the oil crisis and the difficulties that arose from that, we should be much further along the road than we appear now to be travelling.

This move towards a new European Monetary System must have been well researched during the past years and there must be a pool of information on the likely effects of taking such a step. Such information should be reliable. There has been enough time in which to have had a serious examination of the whole matter. Monetary instability in Europe has been the cause of a good deal of trouble but there is a new determination to change this situation. It is my experience that in matters of this kind we gain most by letting our European partners know that we are prepared to co-operate in a Community way in settling Community problems but that while we agree to co-operate we are conscious that such a move would cost the country the sort of money that perhaps we do not have at our disposal. Because of the anxiety and the concern of the stronger member states in particular to bring about a uniform monetary system, we might do very well by indicating our agreement to co-operate provided that this would not cause us serious loss and would not put us in a situation with which we would not be able to cope.

Ireland's decision in relation to joining the EMS could have an important effect on the British decision in this regard because we are one of her best customers. In such circumstances Britain would have to be concerned as to our attitude to breaking the link with sterling. This leaves us in a fairly strong position and in a situation that we can use to our advantage.

If I am criticising the Government at all my main criticism is that both the Taoiseach and the Minister for Finance warned the House that in the event of Ireland joining this European Monetary system, certain disciplines would have to be followed here. However, nobody attempted to tell us how the Government proposed ensuring the attainment of these disciplines. My personal view is that this country is in a serious situation. If we are to solve the unemployment problem and to find jobs for the huge numbers of young people coming on to the work market, changes will have to be accepted regardless of whether those changes are occasioned by a decision to join the EMS. The country needs to be shocked into a realisation of the changes that are necessary if we are to achieve the employment targets that have been mentioned frequently here. No Government, let alone the incompetent one we have now, could possibly run a country in a situation in which strikes are the order of the day, in which the media day after day have news of yet different strikes. No country could be run successfully in such circumstances. As an example of what I have in mind, there should be some explanation from the Government as to how they intend tackling the situation. We should have some assurance from them that they will not allow this spate-of-strikes situation to continue. Because of these difficulties the country cannot develop her resources as they should be developed and as we are entitled to develop them. There has not been mention of any specific measure so far as the Government are concerned that would deal with this problem.

I fear that the real preparation necessary for a change to the EMS is not being made. Steps are not being taken to bring about the disciplines that have been referred to both by the Taoiseach and by the Minister for Finance. Let us consider the difference between this country and others in regard to productivity, exports and competitiveness. Since the close-down of the mill in Waterford we have been left without chipboard. During the past couple of weeks I found it necessary to place an order with Austria for this commodity and I got what I considered to be a very satisfactory deal. I told the gentleman with whom I was placing the order that I was a little unhappy about placing the full order with them because of the use to which this chipboard was being put. I said that if anything went wrong with his factory we would be left out on a limb. I asked him what labour relations were like and what was the strike position. He hesitated for a few moments and then said that he could understand my anxiety. He said that they had a strike in one industry last year for one-and-a-half hours. I asked him to tell me something about the system that begets this type of peace. He said that the workers in industry are well looked after but that that was not the main reason. He was convinced that the main reason was that in Austria the unions own some of the principal industries and the last thing they wanted was a strike position. Daily they are up against the problems of management, running an industry, keeping it competitive and ensuring that this kind of disruption does not occur.

I remember making this kind of suggestion in this House on one occasion. The then leader of the Labour Party was quite annoyed and said I knew that the charter did not allow them to produce money, start an industry or take over an existing industry. I told him to change the charter. I know that would require legislation, but we have had no indication about how the Government propose to solve the problem. They say that all these disciplines are necessary if we are to take this jump into the European market system, but they do not explain how they are going to bring this about. This is a very serious situation.

I have always been concerned about the development of the agricultural industry. The Minister for Agriculture spoke here this morning. Unfortunately I was not here at that time but I got a copy of his speech. No matter what the Government decision is, he cannot be wrong. In one paragraph he said it would have one effect and in the next paragraph he said it would be all right because we have a monetary system that takes care of this and therefore agriculture was not in a serious position. He said that we can wear this without any serious effect. When I read his speech in detail the overall impression I got is that it would put agriculture in some danger and we would not have the price increases of recent years that gave the agricultural industry the enormous boost he admits it got. That too is a serious situation.

What are we doing to change this? He said the answer is greater productivity and greater efficiency in agriculture. Again I ask him and the Government what they are doing to bring about this instant productivity and efficiency. When Fianna Fáil were in opposition they were howling across the floor at me about what they would do about the advisory services and the enormous number of extra people they were going to put into the West. I am glad Deputy Callanan is in the House because he was one of the people who was shouting at me and rightly so. There is scope there for development in the West. This is the type of preparation that is lacking. When will the Government make a serious decision of this kind. No indication is being given to the House as to the serious steps we are preparing to take to rectify this situation.

Scope for agriculture is enormous from many points of view, first, from the point of view of increased production; second, from the point of view that all that production is for export and that is a very serious consideration from the point of view of the balance of payments and third, the extent to which we are processing these raw materials is totally insufficient.

The Minister spoke about anomalies and what effect our entering the European Monetary System would have on correcting these anomalies or reducing their effects but he did not say why they were not rectified at the last price-fixing review or what steps he is taking at present to have them corrected. He said that all these anomalies were not to our disadvantage. He is right, but before a price package had been agreed the serious anomalies which existed in relation to canned beef and further processing of beef and so on, should have been corrected. A great many employment opportunities have been lost as a result.

These may appear to be simple points, but they are extremely important points that the Government should be telling the House. They should not merely be making vague references to the difficulties that could or might arise and the disciplines that would have to be accepted by the people if we were to make this move.

For far too long we have been tied to the lame dogs of Europe. We need this shock but at the same time we must make the necessary preparations and be able to say to the people that if they do this and this, this will be the result. Apparently we are going in headlong knowing there will be very serious disturbances and very serious disruptions. A figure of £650 million has been put on this. We would not have arrived at that figure unless the cost had been calculated. In my view it was very foolish of the Government to mention that figure. I am not suggesting that it was taken off the top of somebody's head, but it would have been better if it had not been mentioned. That kind of information should be kept in the negotiator's pocket.

As I said, we are in a strong position because of the influence our decision will have on that of the British and because of the anxiety, particularly of the Germans, to bring this about. I cannot decide why the Germans are suddenly becoming concerned with this point but it could easily be that they know that whatever mistakes have been made in the UK they have managed to reduce inflation and to control wages and salaries. The Germans might not be in such an advantageous position in the future if the UK continue on the road they have been pursuing for the last couple of years. I remember when the Germans were not exporting a pound of butter to the British market. Now they are very heavy suppliers of that market and have been for the past few years. They have been very heavy suppliers because of the weakness of sterling that enabled them to do it and get enormous MCA subsidies.

I do not know all the reasons for the sudden concern about this. I am quite sure we have sufficient experts looking into these matters, understanding why certain moves are being made and how we can best deal with these moves. Nobody should imagine for a moment that we are in a weak position; we are not. As a small member state we have always been given quite an amount of consideration in Europe. One thing we will need to be able to prove in the future is that what we are getting from Europe we are using to the best possible advantage and not wasting. In the present year an immense amount is being wasted in a once-off effort that is not coming off. They will be very conscious of that in Europe and it might have an effect on their attitude to us in the future.

Those may be simple observations but they are not unimportant ones. As I see it the moves now being made resemble almost a return to the gold standard. We all know that there have been peculiar consequences of such a decision in the past and that a book was written about the folly of returning to the gold standard. It is difficult to know what would have happened had we stuck with the gold standard—when I say "we" I am talking about sterling—in 1932 rather than saying it was all a cod and listening to Keynes and his advice. Certainly the Germans have feared inflation and have always kept it at a very low point. They have succeeeded in making Germany the strongest member state in Europe. Bringing about a situation in which there would be stability in this whole area might be extremely important to us. Nobody wants to be guessing about this, particularly without sufficient knowledge in relation to it. If we get the sort of compensation that we estimate we need there is much to be said for this country entering a European Monetary System and appearing to want to do it in a Community way. If we indicate that we are prepared to co-operate, provided that we can be adequately compensated for any loss we are likely to incur or any disadvantage it will mean to this country we will get a very good deal in Europe, as always, because I believe we have come out of membership extremely well. I shudder to think what would happen this country had we not been in the EEC during the past few years. We have reaped immense advantages but we should have made better use of them. I hope whatever decision is made will be a sensible one, well assessed and that there will be a reliable pool of information available to the Taoiseach, the Minister for Finance and to whoever has any responsibility in this whole area. Otherwise we have not been doing the job we should have been doing since 1970.

Dr. FitzGerald

I do not know what effect thinking about the European economic and monetary system has on other Members of this House. I must admit the effect it has on me is to give me a headache which I trust will not prevent me from presenting my point of view with reasonable clarity.

Our party are generally in favour of the concept of a European Monetary System or European Monetary Union. Indeed some of the arguments put forward by the Taoiseach in his speech are ones with which I would concur as strong reasons for wishing that the system would come into existence on a basis that we could enter successfully, without risk to our economy, and for seeking to enter such a system on reasonable terms once it has been proposed.

What the Taoiseach said about the dangers to a common agricultural policy from monetary instability is, of course, right. For this country the importance of a common agricultural policy, of ensuring that it is not prejudiced either by attempts by member countries with divergent interests to undermine it or by monetary instability, is evident. The way in which events in the monetary field over the last few years have undermined the unity of the market and the clumsy and, in many cases, damaging way in which the monetary compensation amounts designed to remedy this have worked—damaging from our point of view—is something with which we must be concerned and anything that offers a prospect of solving this we must look at very seriously. The monetary compensation amounts system has quite serious defects. A number of Irish processing industries have been put at a serious competitive disadvantage in a way which seems to me to be non-communitaire. I must say that I have had difficulty in accepting that the system should operate with such limitations as to damage industries here when the whole basic principle of the operation of the Community is to prevent unfair competition arising.

The other more general point the Taoiseach made, with which, of course, I concur, is the general consideration that a successful European Monetary System—if it emerged—would have very significant effects for the further economic and political integration of Europe in which we have a very strong interest. I noted his remarks on this subject with considerable pleasure and the degree of commitment which he expressed to further integration, with all the consequences that would have.

I was concerned, as Minister for Foreign Affairs, to pursue what seemed to me to be the interests of this country in respect of European integration. I saw that interest as being—and our Government saw that interest as being—in a development of Europe towards economic and political integration in order to limit the extent to which, under the existing half-way house arrangements, certain large countries are able to dominate the Community, to operate and undertake activities and policies which are at times detrimental to other member states because our Community decision-making mechanism is one which is so incomplete and defective as to permit this to happen. I have always been convinced—and my frustration in the Council of Ministers for four and a quarter years reinforced my a priori conviction—that the preservation of the kind of degree of sovereignty at national level which exists at present in the Community in its particular form tends to help big countries to boss small ones but does not give small ones any great power to stop themselves being bossed.

Sovereignty is something which is not equal between States. A big country has much more sovereignty and much more power to enforce its will, to pursue its own policies regardless of the interests of others, while a small country, such as ours, can only very rarely exercise sovereignty within the present system by declaring something to be of vital national interest. The extent to which it can press this is limited, but I have never seen any limit being imposed through self-discipline by the larger countries on their abuse of the unanimity system in matters of the most minor importance in terms of their own interests, economic, financial or otherwise.

The more I have seen of the system the more concerned I have been to diminish the sovereignty of the larger countries which they continue to exercise because of the incomplete form of the Community, and which has enabled them to pursue policies inimical to our interests. While not convinced that we have yet reached the point where the mutual solidarity of member countries, or the independence of the Commission, is such that we can completely abandon the unanimity rule in cases where there is a genuine vital national interest, I hope we can move towards that fairly rapidly and, in the meantime, that we can improve the decision-making system so that abuses of the veto, which continue almost exclusively from the larger countries, can be minimised and the whole Community system made to work in a manner more equitable and fair to smaller countries.

It is because of my conviction of that that I am very happy the Taoiseach has stated his conviction so strongly because on a few occasions when we were in Government in debates on European affairs there were instances when spokesmen from the Opposition benches, particularly the present Minister for Foreign Affairs, seemed to demur somewhat at our Government's approach on this point and their alliance with the Gaullists in France in the European Progressive Democratic Party also tended to cast some doubts on the degree of their European commitment. However, since the change of Government, I have not detected any signs of incipient Gaullism. It seems to be a non-infectious disease in this particular respect, so far at least, and I am glad the Taoiseach's speech is one which will give M. Chirac the next best thing to heart failure, wishing no harm to M. Chirac, but certainly paragraph 13 of the text is one that the leader of the French wing of the European Progressive Democratic Party can hardly read with much pleasure. I am very glad the Taoiseach shares our view and does not share M. Chirac's view on this basic issue. Whatever reasons may have induced Fianna Fáil to join the European Progressive Democrats, they are in fact closer to us in their position as stated by the leader of that party than they are to their curious allies in that curious European grouping. Just how they will fight a European election saying the opposite things to their European associates, and what the effect of it will be, remains to be seen. I presume they are hoping their respective election campaigns will be mutually impenetrable and the Irish election campaign based upon the principles laid down by the Taoiseach here will not be heard of in France through the French papers and not too much of what M. Chirac says will penetrate here when the Taoiseach is saying the opposite. So much for that.

We are in agreement basically here and I am genuinely glad of that even though I cannot restrain myself from poking a little fun at the Fianna Fáil Party in their relationship with the Gaullist Party and the consequences of that. It is important for the country that the policies we pursued in Government are being maintained by the present Government and that on this issue, whatever apparent verbal differences there may have been at any time, there is now a basic unanimity.

Professor O'Donoghue

Good man. With regard to incipient differences in the Fianna Fáil Cabinet, at least these are different angles.

Dr. FitzGerald

I am taking it the Taoiseach is speaking for the Fianna Fáil Government. I cannot say if everybody agrees with the Taoiseach. Day by day he makes speeches much nearer to the truth of our economic position than are those of some other members of his Cabinet.

(Interruptions.)

An Leas-Cheann Comhairle

I think the Minister and the Deputy might fight the coming election elsewhere.

Dr. FitzGerald

I just want to repudiate immediately any suggestion that I am endorsing the idea that the party opposite are united.

(Interruptions.)

An Leas-Cheann Comhairle

Order. Deputy FitzGerald.

Dr. FitzGerald

I hope the Taoiseach will carry more weight in his economic speech, as reported in today's paper, which was so much at variance with the speeches of the Minister for Finance and the Minister for Economic Planning and Development.

I want to come now directly to the European Monetary System. I want to express one basic doubt or concern about the way it has emerged. When we joined the Community the old EMU was still hanging around the place and people were still taking the Werner Report seriously. It occasionally came up for discussion at the meeting of the Council of Ministers. At the first meeting I attended—my memory of those days is one of great pressure and I do not want to mislead the House but I think it was the first meeting I attended—this issue came up and I recall addressing my colleagues on the subject and asking them, in view of our individual difficulties about controlling inflation in individual member states, how did they propose to control inflation rates within the monetary system, without which it could not stick together. I thought some of my colleagues were beginning to share my scepticism and, indeed, that particular proposal about the EMU on a very simplistic basis evaporated very shortly afterwards. The idea was revived by the President of the Commission last year but it did not provoke any great echoes in the immediate aftermath among heads of Government here or elsewhere and it was only much more recently, in the flurry of activity of international summits that occurred earlier this summer, that it began to appear as if there was a genuine interest in and commitment to the establishment of a European economic and monetary system. This originated from a particular source, a meeting between two heads of State who committed themselves very strongly to the establishment of this system without explaining very clearly what had led them to this overnight conversion from the evident scepticism they had shown throughout the previous five years and, indeed, even after the President of the Commission had made his speech.

The impression, although we are not fully informed as to what was in their minds, exists that what led them to this sudden change of mind was the continuing fall of the dollar and concern for the effect it might have in different ways on their economies, the economies of Europe, and on the industrialised world as a whole. In so far as it is this factor which accounts for the suddeness of the conversion I am a little concerned that a proposal as fundamental, far-reaching and long-term as the one now being so actively canvassed and pressed should originate apparently out of an ad hoc situation, not necessarily of a continuing nature, and one that could at any moment be reversed, because in certain circumstances somebody somewhere might come to think the dollar is under-valued and it might rise again. If that happened would the enthusiasm be maintained? If that is not the explanation for the sudden change of heart what is it?

I would have hoped that the Taoiseach in his discussion with the French and German leaders and other leaders in the Community would have been able to establish more clearly the reasons for the sudden change and would have been able to inform the House what those reasons are. The first thing we need to know before we launch ourselves into the system is why it is being launched now with such urgency. The House is entitled to some idea of the reasons for this and I do not think—I hope I am not being unfair to the Taoiseach or the Minister for Finance—that in either of their speeches this aspect of the matter is either dwelt on or referred to. I am concerned that because this decision was taken so suddenly, and perhaps for a very ad hoc reason, it has not been fully prepared and is being pressed forward at a pace which does not leave time for adequate study of the full implications of this measure for the economies of member countries. All previous discussion, whether academic or political, of the European Monetary Union has taken place on a basis and at a pace which has allowed for the evolution of ideas, for some attempt to assess the consequences and some attempt to measure what steps would need to be taken to make the system work. On this occasion it is being rushed at at a speed which is worrying people not merely here on this side of the House but in many European countries, as I have found in the last couple of weeks in various contacts I have had.

There is, on the one hand, among many people in the Community a genuine interest in the proposal and satisfaction that at last the matter is being looked at seriously, but there is concern at the speed with which it is being tackled and the lack of preparation and concern lest the whole aim which we seek to secure by moving into the EMS should be undermined by rushing at it and by a failure which could damage the whole concept for the future. On a small scale, we have seen this happen with the "snake". We have seen France in and out of the "snake" and we have seen Britain and ourselves in for seven weeks and then out again. While that is not quite the same thing, rather similar kinds of pressures will be operating in the EMS as operated in relation to the "snake" and without adequate preparation there is a clear danger that this whole experiment may fail. This I would deplore for the same reasons as the Taoiseach. He sees, as I do, the importance of it for Europe and for us as a part of Europe and for our national interests pursued within the European context.

Looking beyond this general concern at the way this matter is being approached and the general lack of preparation, I am particularly concerned because we have more problems and more potential problems with the EMS than most other countries, perhaps more than any other country, though I am less certain of this. We have, after all, the lowest GDP per head of any country in the Community. Though the disparities in levels of GDP between ourselves and the member states are often exaggerated when expressed in simple exchange rates terms, even adjusting for exchange rate distortion and even at purchasing power parities in so far as they can be measured—a lot of work has gone into reasonably accurate measurement of them recently—the disparities are great. Roughly speaking, as between ourselves, on the one hand, and France and Germany, on the other hand, it would appear that their national output per capita is, in real terms and discounting exchange rate distortions, almost twice ours. A recent study published in the Economic Journal in June of this year which gives estimates for 160 countries and more detailed figures for a number of individual countries suggests-and there has not been much change in the relative position since 1970-that our GDP per head is about 42 per cent of the 1970 figure and that the figure for France and Germany is about 76 or 78 per cent. Even if one discounts the exchange rate distortion, there is no doubt that there are very great disparities, almost of the order of 2:1, between ourselves and other member countries at the country level and it is greater at the regional level. We are by far the lowest by a clear margin in terms of income per head in the Community.

Arising from that and because this is a mark of the fact that we are at an earlier stage of economic development, we have a clear need for a far bigger input of capital to achieve growth and to narrow this gap. The Taoiseach said in his speech that this gap has widened in recent years, though he said his figures were not up to date and only to 1976. If one takes the 1977 figures, when our economy as a result of the policies we pursued grew at what now looks like finally being determined at about 6 per cent, as against no more than about 2 per cent for the rest of the Community, it seems that the four-point gap which the Taoiseach detected as having arisen by 1976 was probably closed by our efforts in 1977. At any rate, we certainly have not gained any ground vis-á-vis other member countries during these years and the narrowing of that gap, which, despite the many benefits of membership, has not been narrowed, must be a major objective. It clearly can only be achieved with a much bigger input of capital into our economy, much of which will have to come from outside, all of which cannot be generated internally.

If we are to catch up in terms of living standards and if we are at the same time to provide employment, as we all aim to do and as the Government plan to do in their programme, the growth rate which would be required to achieve these two objectives at once would be very high indeed, beyond any past experience.

Professor O'Donoghue

About 7 per cent a year.

Dr. FitzGerald

I think the figure would be even higher than 7 per cent if we are to catch up as well and that would require a volume of investment and an improvement in the return on our investment which would certainly constitute a very big increase. Investment must, in large part, come from outside because we could not generate that amount at home from our own savings, relatively high though these have been in recent years.

Because of our economic difficulties and because of our desire to catch up with other countries and provide more jobs, this country is liable to, and at present has, long-term balance of payments problems. Our deficit is relatively large compared to other countries and is rising at present. Our inflation rate is high. The figure given by the Taoiseach is three-and-a-half times the present German inflation rate and, as the Taoiseach said, it is rising and rising for domestic reasons and not for external reasons. We are worse placed than any other country, with the possible exception of the UK, to enter the EMS for reasons that are fundamental to our economy, quite apart from reasons that may derive from recent developments in our economic situation. Our underlying situation is less favourable. Even if our economy were now in good shape, we would still need very massive aid indeed to achieve the kind of convergence in our economies which would be necessary to enable us to remain within the system without very damaging economic effects.

The Taoiseach has mentioned some of the problems with which the system could present us. He mentioned the problem of the intensification of the pull of central areas in terms of the pull of resources from peripheral areas. That danger is certainly there. By comparison with our present situation where we are a big importer of capital, at best that importation of capital could be reduced; at worst it could even be reversed, although I hope that would not happen. The Taoiseach is right in saying that without adequate aid there would be an intensification of the pull to central areas from peripheral areas. He also gave as one of the problems which we would face in the EMS, pressures to reduce our balance of payments deficit, which, as I have said, is now rising very rapidly, pressures to reduce it more rapidly than at present envisaged, which would have a deflationary effect.

He also referred to the fact that in the initial period the parity of our currency might be higher than it would otherwise be. His phraseology on that point is a little obscure, though when dealing with parities politicians are probably wise to be a little obscure. I take it he meant that if we entered our currency would tend to be pulled upward by its closer association with the German Mark and other "snake" currencies and this could lead to an over-valuation of our currency which could make us uncompetitive in both the export and the domestic markets. Given that there is strong evidence that we have already become uncompetitive in both these markets in recent months, that we should be in danger of becoming more uncompetitive through joining is obviously a serious potential problem.

Not alone does our basic long-term underlying economic situation make aid for our economy more important for us than for others, we also have to face the fact that our basic situation has been substantially worsened in recent times by unwise reflation of our economy of an essentially temporary character following the change of Government. The policy of our Government had achieved a 6 per cent growth rate. At the time it was thought to be in the region of 5 per cent or 5½ per cent, but it looks as if it will eventually be determined by economic experts at about 6 per cent This was achieved with inflation moving rapidly down towards the figure of 6 per cent, to which it fell in the 12 months ending in May, aided as to 0.5 per cent by the Government's removal of motor taxation. Otherwise the decline was the lagged effect of our policies and did not owe anything, as any economist would have been able to observe, to the new Government's policies, so that we can say that we achieved a 6 per cent growth rate with a decline in inflation down to something of the order of 6 or 7 per cent-possibly 7 or 7½ per cent might be the fairest figure to put it at-before the effects of the present Government's policies in terms of increasing inflation had begun to be felt. We achieved this with a very rapid export growth so that indeed in the first nine months of last year the value of manufactured exports rose by 50 per cent and their volume by something between 20 and 25 per cent. We achieved it with a very modest import growth and we achieved, immediately after our period of office with the lagged effect of our policies near balance of payments equilibrium. As far as I can judge the balance of payments deficit fell to about £60 million in the 12 months ended March last, which is about the last period for which we can claim any credit because the effects of the new Government's policies naturally begin to take effect after about nine months or so. We also achieved a downwards movement of unemployment which gave us a reasonable expectation at the time we left office of getting unemployment below 100,000 early this year, although this objective which we had set ourselves and which we believed we could achieve has not been achieved by the new Government and the seasonally adjusted unemployment rate has not fallen below 100,000.

I would like, in parenthesis, to ask the Taoiseach, and the Minister beside him, and other members of the Government if they would mind dropping this phrase "a few thousand short of target". If we could just stick to facts we would have more chance of getting our policies right. The figures are quite simply that when we left office the seasonally adjusted unemployment figure was 113,000 on the live register, which as a measure at least of trend is reasonably reliable, even if the level may not be precisely right as of now. In September the figure was 100,000. So within 15 months there was a reduction of 13,000. This clear commitment spelt out in the Government's policy document earlier this year was to a reduction in the numbers out of work of 5,000 in 1977, 20,000 in 1978, that is, in the first 18 months a reduction of 25,000 of which 13,000 has been achieved in the first 15 months with the strongest evidence that there will not be much more decline because between May and September the seasonally adjusted index fell only by 2,000, by 500 a month, and if that rate continues for the concluding three months of the year the reduction would be 14,500 of the reduction of 25,000 proposed. A shortfall of 10,000 is not a shortfall of a few thousand and it is not, and will be seen eventually not to be, accounted for by increased redundancies. And if it is accounted for by increased redundancies, what on earth have this Government done to increase redundancies? The answer to that of course is simple enough. Their policies have led to increased inflation, a return to the rising trend of increases in wages and salaries and loss of competitiveness, which probably has contributed to increased redundancies. But from a very careful study of the figures I find it very hard to see that the whole of this shortfall, or indeed more than between a half and two-thirds of it, could be conceivably accounted for by redundancies, never mind by increasing redundancies due to the new Government's policies.

Professor O'Donoghue

The point was to get more people to work.

Dr. FitzGerald

Forgive me for insisting. That is what the Government wrote down and attempts to explain it away afterwards does not increase the credibility of the Government.

Dr. FitzGerald

The Government's policy as stated was to reduce the numbers out of work by 25,000.

Professor O'Donoghue

The policy was to get more people to work.

An Leas-Cheann Comhairle

I am afraid, Deputy and Minister, we are getting into a domestic economic debate now. It is not so. It must be related to the EMS.

Dr. FitzGerald

What I am saying is, first of all, that our economy is probably, even under normal conditions in the long term and on a fundamental level, less well placed than almost any other to enter the EMS without aid and that these problems of a fundamental long-term character have been seriously aggravated by policies which have, since the change of Government, led to increased inflation and a worsening in the balance of payments. Therefore, the need for aid is not only basically very great in the case of this country but it has been made greater by the events of the past 15 months. That thesis is entirely directed towards the EMS and I would ask the Leas-Cheann Comhairle to permit me to state it in those terms.

The action taken by the new Government has been to stimulate consumer demand to an extraordinary degree with the injection of an additional £300 million into an already bouyant economy growing at 6 per cent. This £300 million pounds was not even for investment but for consumption. The situation has been aggravated by the total loss of control of credit in this period, with an increase of 45 per cent in personal loans in 12 months before any action was taken to check it and the loss of control of wages and salaries with the result that the reduction in wage inflation which had halved the rate of increase of hourly wages to 14 per cent by the end of last year over a period of two years—a remarkable achievement in the face of the inflationary pressures which faced the whole of the industrialised world in that period, which if maintained would have brought the hourly wage rate increase down to below 10 per cent this year—has been reversed and any economists whom I have heard speak on this subject are now talking of a level of earnings increase currently two-thirds higher than the figure of 10 per cent. They are talking of a figure of 16 or 17 per cent.

There has been a sharp reversal of the downturn in the trend of wage and salary increases with all their inflationary effects as a result of the policies of the Government and the impact they had on the wage earned, on expectations and on the kind of claims that people have made for increases as a result of and following the change of general economic posture following the change of Government. The Taoiseach in his speech yesterday dwelt on this failure very frankly. I must say that his speech, apart from the single reference to the few thousands, which I hope he will not be tempted to use again, gave a very frank and fair account of our economic situation. The Taoiseach said frankly that it was our own fault, that external factors were favourable, commodity prices were moving down and therefore, in so far as inflation was rising again and prices, having gone up from 6 to 8 per cent, were still rising, the fault is our own domestically. I have to agree with that. It is right that he should say that and I am glad he did so.

In this situation we are not well poised to cope with the economic and monetary system. We have been caught off balance because of totally inappropriate Government policies which have weakened the position which the National Coalition Government had consciously and conscientiously built up in recognition of the possibility that whether through this kind of development, which did not seem likely at the time, or because of the absence of progress towards the economic and monetary system sterling might fall sharply again, there was a possibility that we might have to face the revaluation of our currency vis-á-vis sterling and face having to enter into some kind of link with the other EEC countries. That was a large part of the rationale of our policies. The new Government dismissed all this, entered on a policy direction totally contrary to ours and consequently have now been caught on the wrong foot as they are asked to enter an economic and monetary system at a time when our economy is moving rapidly in the wrong direction. It is the country which will suffer from this and perhaps the Government also in the longer run.

But moving from this short-term aspect to the longer-term more fundamental considerations, what I want to make the main theme of my speech is the question of what kind of aid an economy like ours would need and what kind of community budget would be required to sustain a monetary union as now proposed. There is nothing whatever in the Taoiseach's speech about this, which indeed reads rather more like an economist's speech—"on the one hand", "on the other hand"—than as a statement of facts and figures of what the situation is and exactly what policies are required and the precise terms. However, there was one reference in his speech that worried me and perhaps the Minister for Economic Planning and Development could deal with the point in case I have misunderstood it.

The Taoiseach referred to his insistence at the Bremen meeting on the inclusion of a reference to "other less favoured regions". He went on to say that this reference was "intended to cover further Community action to improve the structure of agriculture in the west of Ireland". All of us are concerned to improve the structure of agriculture in the west of Ireland. We are very concerned to secure faster growth for the west than for the rest of the country so that people there can catch up, just as we wish to catch up with the Community. However, the Taoiseach would appear from his words to have conceded something to his colleagues in the Council that we never conceded, namely, that the word "region" in relation to Ireland can legitimately be used for EEC purposes as referring to one part of the country. The whole of our policy with regard to the regional fund was to insist that the whole of Ireland was a less developed region and, therefore, that the whole of Ireland and the whole population should be taken into account in measuring how much aid we should get. When in government we never permitted for EEC purposes any distinction to be made. We never used the word "region" for EEC purposes or in an EEC context to mean anything other than the whole of Ireland.

If the Taoiseach in Bremen specifically raised the question of other less favoured regions of the Community and referred to the west of Ireland, that was breaking with a point on which we had been insistent. It was a dangerous break because once that happens there is a danger that some countries would try to make a distinction between parts of Ireland such as Dublin where the GNP per head is higher and would try to claim that such parts did not need aid. If that should happen the basis of our claim for aid is reduced in terms of population, area and the total amount of aid required. I should like clarification on this matter. I hope the Minister may be able to reassure us that what seems to be intended by the Taoiseach's words is not the case and that perhaps his wording has misled me on this point.

While the Taoiseach does not refer to the question of what aid we would need, the Minister for Finance does refer to it almost halfway through his speech. In his contribution he confirmed reports that the Government had sought aid of the order of £650 million for five years, an average sum of £130 million a year, terminating after five years. We have not yet had the document on which this is based. I trust it will be published with the White Paper or whatever the new document will be called before the next debate.

I noticed that the Minister for Finance was extremely defensive on this point. Before anyone had even the chance to suggest that the figure was too low he went on to admit that it could be argued that the figure should be very much greater. If that was the case why did he not argue that point? He said "It is necessary to have regard to and take a view on the balance of political and tactical realities." That is a nice phrase but what does it mean? Does it mean that the Government having unwisely committed themselves "in principle", in a rush of initial enthusiasm at the thought of—however unpreparedly—breaking the link with sterling, with all the connotations that has for some people, as Deputy Kelly pointed out this morning, consider that against this background they cannot convincingly ask for the scale of aid that we need? It sounds very much as if this is the explanation.

The Minister for Finance went on to describe this figure of an average £130 million a year terminating after five years as "the additional investment required in the immediate and narrow context of entry to the system". That is fair enough. If he is making the point that even if we do not join the EMS we will still need more aid from the Community than we get now and that this figure is related just to the question of entry—I take the distinction, but I would ask how reliable is the figure of £130 million a year? How accurate is it as an assessment of our needs in order to cope with entry to the EMS? Have we any expert advice on this?

Some people in this House might say "no" because no such expert advice has been furnished to us here. The Government have not published any document and nothing has been said about it in any speech by any Minister. However, I have to tell the House that we have expert advice on the subject, advice for which I have the highest respect and which I should like to present to the House as fully as possible so that we may see how much aid experts think a country like Ireland would need. I apologise to the House if this analysis has to be a little long and complex and if it involves rather more figures than I should like to use in presenting a case on what is a major issue to Parliament and to the country. However, we must get to the nub of the matter. Can we assess how much is needed in order to enable a country like this in good condition, as it was 18 months ago, to enter the EMS? Perhaps we may need more now after the past 18 months but let us forget that part for the moment. Basically, what is the sum required?

We have expert advice and we have it from what the Government must see as an unimpeachable source—the Minister for Economic Planning and Development. Prior to being in Government the Minister was honoured—and the country was honoured and I say that genuinely—by his appointment as a member of the Study Group on the Role of Public Finance in European Integration. That was the group that produced what was known as the "MacDougall Report". This report includes annexes prepared by individuals, including one by the Minister to which I need not refer. It dealt with a specialised aspect to do with Parliament. Volume I of the General Report is the joint product of the whole group for which he shares responsibility. In fact, to quote from the preface to the report "the General Report, including the introduction and summary, have been unanimously agreed by members of the Study Group". There was no question of minority reports. This is the view of the Minister for Economic Planning and Development of what kind of aid is needed in the circumstances we face for a country like Ireland in the kind of economic condition the country was in 18 months ago. Let us forget about what has happened since.

What does this report, the considered view of the Minister as a distinguished economist, tell us about transfer needs in the economic and monetary union? First of all, the inside cover page explains the unanimous position of the study group. It says that pre-federal integration, which would not include economic and monetary union, would require a number of new Community policies which "would lead to a rise in the Community budget from its present 0.7 per cent to around 2-2½ per cent of Community GDP". In other words, to move to a stage prior to monetary union would require trebling the Community's present budget. What about economic and monetary union? It is not dealt with in detail in the report. At the time the study group completed their work 18 months ago they did not see this as a realistic possibility. However, it is dealt with briefly with some relevant figures.

The inside cover section goes on to say:

For more ambitious plans, the Community budget would have to be extended by far more to provide sufficient geographical equalisation of productivity and living standards together with a cushioning of temporary fluctuations, in the absence of which monetary union in particular would be unattainable.

It was the clear view of the Minister that what is required in the way of a Community budget and transfers in the circumstances of economic and monetary union is far more than a trebling of the budget. The words are explicit, clear and unambiguous and they are followed with more precise calculations.

How much more will be needed? Can we derive any helpful information on this from the report? I think we can. Having referred to an ultimate federation of Europe which the group said would occur presumably at some distant date, one in which the federal public expenditure would be around 20 per cent to 25 per cent of the federation's GDP—that is 30 times the present Community budget—it goes on to deal with the intermediate stage of monetary union which is something between the pre-federal stage about which the report is mainly concerned and the Federation of Europe stage which is referred to here. It goes on to deal with the intermediate stage of monetary union. It says: "This intermediate stage would involve federal expenditure of the order of 5 to 7 per cent of gross product if defence is excluded". For the purpose of this debate we can exclude defence. It goes on to say: "Such an arrangement could provide sufficient geographic utilisation of productivity, living standards and cushioning of temporary fluctuations to support a monetary union". We know from the Minister for Economic Planning and Development that he believes, with a whole body of other expert opinion coinciding with him, that monetary union is unattainable with the trebling of the Community budget but that it could be supported if the budget were increased to ten times its present level. Without having done the kind of work that the Minister has done on it but with a certain feel for these kinds of figures derived from having worked with them for a long time, they seem to me to be of the right order of magnitude. If one examines them closely one could argue that they could be a little higher or lower but I endorse them as being reasonable.

Can we compare this with what the Government have proposed to the European Commission in respect of transfers to this country in one of three papers which we have not yet been allowed to see? In today's paper I notice the contents of what appears to be another of these papers summarised by the well-informed Brussels correspondent of The Irish Times who is privileged beyond what Members of this House are in having access now to these papers, which privilege I hope at some stage will be extended from The Irish Times correspondent to this House.

Professor O'Donoghue

They appear to have leaked out and not in Ireland.

Dr. FitzGerald

I am not accusing the Minister of any leak from here. We all know what a leaky place Brussels is. Given that it is a leaky place, what is the point of sending documents out there while refusing them to be published in this House until after the leak out there a week or two later? We have to be realistic about this in view of our, at times, rather bitter experience of leaks which were sometimes embarrassing to us and to the national interest. Anything sent to Brussels it is assumed will leak out, at least anything written and often things that are said. The House should be given the benefit in full form of what is now appearing in the papers.

Before pursuing this calculation in more detail, we have to ask ourselves, in order to reach an answer to this question, how big the transfers would need to be to this country. We have established how big the Community budget would need to be to support EMU, but that does not tell us directly what the transfer to this country should be. It cannot be concluded from that by any arithmetical process that the transfers should be ten times what they are now. That would be a false and simplistic approach. We have to look at the report in more detail to find out what the Minister thinks and what conclusion he has reached as to the scale of transfers needed to this country. To do this we have to look at what the report tells us about the disparities between levels of GNP or income per head within the Community within its regions, and within various federations of states within provinces or regions of those countries. A table on page 27 of the report shows our gross domestic product in purchasing power parity terms—which is the correct way to measure it, corrected for exchange rate distortions—as being 54 per cent of the Community average in 1975. It also shows that in 1970 the richest region in the Community was 177 per cent of the Community average. Even if we make no allowance for the widening of disparities between regions and countries to which the Taoiseach referred—because that was corrected in 1977, but assuming that in 1975 the same ratio existed between regions in the Community as in 1970—then the ratio we get between the richest region, Hamburg, and Ireland taken as a region, as it must be, is 3.2:1.

How does that variation in living standards in the Community between regions compare with other federations of states? The table gives figures for quite a number of such federations of states. The highest figure for any such federation of states is for the USA, a variation of 2.9 between Alaska and Mississippi. Most federations of states mentioned in the table have variations in a range of 1.6:2.5. Therefore, within the Community the disparity between Ireland and the richest regions is between 50 and 100 per cent greater than the disparity that exists within any of these federations of states.

What is the purpose of this calculation? It is to make comparison with what these federations do in terms of transfers. The report goes on to deal with this. It tells us that: "In countries studied some relatively poor regions enjoy net inflows up to around 30 per cent of the regional product". But there are in those countries no regions as relatively poor vis-à-vis the rich regions as we are vis-à-vis the rich regions of the Community. Therefore, if in these states the scale of net inflows into the poorest regions runs up to 30 per cent, even though the disparity is less in the Community, logically in a full federation the net scale of transfers needed to this country would be somewhere in excess of 30 per cent of our GNP. I hope the House is with me in the logic of that and I hope in the arithmetic of it.

But, as the Minister and his colleagues on this committee have pointed out, monetary union falls short of this full federation and they have assessed the needs of a monetary union at ten times the present Community budget and the needs of a full federation at 30 times that. We can conclude from this, as is clear from what they say about other federations of states and about the disparities within them and within the Community between us and other countries, that the kind of net transfers we would need in a full federation would be in excess of 30 per cent of our national product. One can conclude that in a monetary union the figure would be about one-third of that, just as the total Community budget is about one-third. One arrives then at a figure of net transfer of 10 per cent of our GNP as needed in the EMU situation. This is clearly the view of the Minister for Economic Planning and Development as set out in this report. Given that our GNP next year will be of the order of £6,000 million, what we need in order to make monetary union attainable is a net transfer of the order of £600 million a year permanently, not £130 million a year on a five-year basis.

I apologise for all these figures. I have produced them because the Government have not done so. Had the Government done the homework that the Minister has done in other contexts or if they had had the courtesy to present us with the Minister's homework or to make reference to the Minister in the speeches made giving him credit for the homework, I would not have had to drag the House through all these figures. In the absence of any reference to the excellent work of the Minister and his study group and of any of the figures that he produced I felt I had to bring to the attention of the Members of the House who are entitled to know the Minister's view on this even if we have not heard this from the members of the Government who have spoken so far.

We can see now how dangerously inadequate the Government's approach to this problem has been. First they knocked our economy off course with a massive increase in public spending, a massive increase of 45 per cent in consumer credit in terms of personal bank loans leading to wage and salary increases now running at three times the German level, to an inflation rate at three and a half times the German level and still rising even at that point, according to the Taoiseach yesterday. Having done so much damage to our possible position in relation to an economic and monetary system or indeed our possible position in relation to a break in the link with sterling, when the economic and monetary system was announced they were so taken with the idea of bringing the Government to break the link that they rushed in to announce their commitment in principle to the new system with an enthusiasm that has drastically reduced their bargaining power, as the Minister for Finance admitted effectively, unlike the UK.

In discussions in progress now in Bonn the UK have a very strong position because, although this was not perhaps the purpose of the exercise, at the Labour Party Conference they got a very strong vote against economic and monetary union. While they may not have welcomed that domestically in view of their domestic situation, I am certain that in Bonn in the last 48 hours the Prime Minister of the UK has been saying to Chancellor Schmidt, "If we are to join the economic and monetary system in face of the fact that I have this massive vote of my party conference against, you have got to give us some major concession to enable us to join". His bargaining power is strong.

From the beginning the British Government showed hesitation. They have been able to produce evidence, not entirely intentionally perhaps, that they are under great pressure in their own party and in Parliament on this issue. The Prime Minister has gone to Bonn in a very strong position to seek from Chancellor Schmidt concessions, of a kind which Chancellor Schmidt has, on previous occasions, accorded to the United Kingdom and to which he obviously attaches importance. We can recall his speech at the Labour Party Conference at the time of the referendum, its impact and how well judged it was. We can recall the aid he gave to the £ sterling at the end of 1976. I wait with interest to see what he will do today. I only hope that whatever he proposes by way of assisting the United Kingdom will not touch the common agricultural policy, about which both Chancellor Schmidt and Prime Minister Callaghan have distressingly similar views. I hope that Britain will be accorded the assistance she needs but that it will be of a character which will not adversely affect our interests.

We are not in the position to go along with a strong bargaining position. On the contrary the Minister for Finance admitted that we could have looked for a very much greater amount of aid. He admits that this is arguably necessary without defining the need as precisely as his colleague, the Minister for Economic Planning and Development, did 18 months ago. He says that this means that the Government had to have regard to the balance of political and tactical realities, which means they could only look for about one-fifth of the sum which the study group of the Minister for Economic Planning and Development 18 months ago suggested would be necessary for a country in our position, stronger as our economy was at that time than it is today.

The Government will scarcely be surprised, against this background of bungling and weakness, that the Opposition should be critical and should be concerned that we may be on the point of walking into the economic and monetary system on a basis that will prove too much for our economy. The Taoiseach has warned about an overvalued currency in the early stages. This is at a time, as the Taoiseach said yesterday, when wages and salaries are rising much faster than is economically desirable and prices consequently have moved from 6 per cent to 8 per cent, and, according to him, are still rising.

This is only a preliminary debate but it is important to clear all those issues. I have outlined the brief which the Government should have brought to Brussels, which they can even now, belatedly, bring to Brussels. It has the backing of the MacDougall Report. I do not suppose that if they went along and said that it was the view of the Minister for Economic Planning and Development as an economist that this was all they had, it would be much use to them. I am referring to his role in the report because in this House we respect his economic judgment because the Government, presumably, must have regard to it. But, of course, he had other distinguished colleagues with him, including the chairman of the group. I thought at the time that the importance of their report was underestimated. I regret it did not get more publicity and had I been at a different stage of my career I would have written extensively about it in The Irish Times to ensure it got this publicity because I believe it is of major importance.

I was stuck in Rome on Monday at a conference on the Italian economy, at which I was asked to speak on the state of the European economy, including the European Monetary System, when one of the following speakers, Lord Thompson, who had been a member of the European Commission, made such frequent references to the MacDougall Report and attached great weight to it. It was he who reminded me of something which I had not forgotten—although I did not recall the precise figure until I came back to the report—that, as he said, a community budget of the order of 8 per cent of GDP would be needed to sustain an economic monetary union. He said 8 per cent but the figure is actually 5 per cent to 7 per cent. He mistook the average of it but it was his reminding me of that figure which made me go back to re-read the report, which I would have done in any event. I had forgotten that that was actually the figure which the Minister and his colleagues had felt was necessary, a ten-fold increase in the Community budget.

The case which the Government can make in Brussels is a very strong one. The factual basis is there. I am not aware that any Government or any economists have attempted to refute those figures. If they have I may have missed it but I certainly have not noted any serious critical comment suggesting that the order of magnitude of transfers or the order of magnitude of the size of the Community budget required to sustain a monetary union are incorrect. I have found it astonishing that, apart from myself and Lord Thompson, in the other countries of the EEC this report has not come up for much attention in the context of the European Monetary System. It is an absolutely vital document, totally relevant and pretty precise in its assessment of what is required to sustain this view.

I fear that what is happening is that for reasons which are extraneous to our immediate interests, for reasons very specifically relating to the interests of Germany, in particular, and also France, this proposal has been suddenly taken out of a drawer, into which it was put after the speech of the President of the Commission in Florence last year, has been resurrected and pushed, because, particularly of the concern of Germany but also France, about the fall of the dollar, with vigour and determination, by the political leaders of those countries who have clearly briefed their Press that they are determined to go ahead regardless, and the others can take it or leave it; if they do not want to come in they need not and they are trying to force this issue.

We should, in concert with other countries, where our interests coincide, but while making our own specific case relating to our own problems, make it quite clear that if the European Monetary System is to work and be successful for the very purpose that the German Chancellor and the French President want, it must be adequately backed, not simply by reserves, which they are willing to consider quite seriously, although with a two-year time lag, but adequately backed in terms of transfers on the scale set out and specified in the MacDougall Report.

This is the line we should be taking. In taking this general line, as distinct from pursuing our own specific interests in regard to a particular figure, we would have very considerable support from the United Kingdom and Italian Governments, for example. Indeed, it was evident from what was said, publicly and privately, at the conference in Rome that there are very close contacts at present between the UK and Italian Governments on this issue, as they see, it a measure of common interest. While I have always been very careful—a lot more careful than the Minister for Fisheries—not to tie us in with Britain's interests except to the extent that they coincide, and while I recognise that in the Community, in the case of fish and to some degree in the case of this also, there may be a case for keeping our interests separate because it is possible for us to secure concessions which would not be given on the same scale to a large country like Britain, nonetheless, there is a common basic interest here which we should pursue. We need support for the general principles adumbrated in this excellent report. We can get this from the Italian and UK Governments but we will have to pursue our own particular claim on our own, calculating our figures on the excellent basis set out here.

Debate adjourned.