To some extent the House is in the dark in relation to the facts at the centre of this debate. The Opposition could not be said to be in possession of the factual data upon which the Government are basing their case. One suspects that the Government are in the dark in respect of the outcome of the negotiations. Not everyone in the Government accepts this to be the case. The Minister for Economic Planning and Development has said that the Government anticipated the possibility of the question being raised, that is, the question of the new monetary system, as early as the Copenhagen Summit in April. He maintains that the Government had already commenced work on the pros and cons from an Irish vantage point. He stated that he is satisfied that the implications for Ireland had been adequately put forward and attention drawn to the arrangements that would be necessary to give a satisfactory basis for our participation. That is the Minister for Economic Planning and Development and he, of course, is an especial instance. Nobody would suggest that he is the average in this Cabinet. It is not surprising to find him being foremost in succumbing to the temptation of suggesting the proposed European Monetary System as the scapegoat for actions that would fall necessary by the Government because of their past expenditure. It is interesting that the Minister for Economic Planning and Development, on the announcement of the recent credit restrictions by the Central Bank, said they were necessary because of impending arrangements for the monetary system. The Minister for Economic Planning and Development—and I am sorry he is not here to receive the compliment—could be fairly described as the "Platypus of public life". His role in public affairs could be likened to that Australian aquatic egg-laying mammal. The platypus is a creature known only on the Australian Continent which has a beak, lays eggs, is aquatic and has a tail like an ordinary mammal. It is neither one thing nor the other. The position of the Minister for Economic Planning and Development could be said to be neither politician nor economist. It is interesting that he is the one who, from now on, hangs all the unpleasant consequences of Government actions on the inevitability of the European Monetary System; that he is the one to maintain that the Government are not in the dark in relation to the proposals and have been diligently preparing for the possibility of its occurrence since the Copenhagen summit.
I propose to be brief in my contribution because we on this side of the House are not in full possession of the negotiating material. It is fair to say that there is a good deal of uncertainty in relation to the composition of the final monetary package. The communiqué issued after the Bremen meeting, which is the immediate material being discussed in this debate, provided the minimum of information. Nothing that has happened since the communiqué upsets the conclusion that there is a famine of reliable information on what is proposed, the implications of what is proposed, and what is being prepared. One could not make the same remark about the speculation on what may happen, but there is a paucity of reliable information.
Apparently everyone, even the British Premier and the Chancellor of the Exchequer after their recent meeting in Bonn, and the anxiety they had about the impact any new system might have on the British economy—that anxiety which drew them to Bonn—while they are as one in saying that a European monetary system of greater or lesser rigidity will come into existence by next January they are themselves uncertain about the composition of it, whether the final package will veer in the direction of a parity grid system or a basket of currencies. The only relevant question we may ask at this time here should relate to the kind of criteria that should govern the Irish estimate of the proposals before us. What criteria should govern the Irish approach on the proposals as we know them so far? What should be the general guideline directing the actions of our negotiations?
The first assurance that must be demanded must be that the finally agreed system shall not contain a deflationary bias which would undercut our commitment to faster economic growth. That is the most important assurance our negotiators must seek in the weeks ahead. The second assurance which must be reflected in whatever structure is finally agreed is that the weaker currencies must not be forced to fall out of the system as they fell out of the previous "Snake" arrangement. While a system may be devised in time for 1 January or in time for the European Council meeting in December, we must be convinced that arrangement will prove durable and that the weaker economies will not be forced out of the new monetary arrangement with adverse consequences for their economies in coming out at that time. We must avoid a recurrence of the events which led to the withdrawal of the weaker economies in the previous "Snake" experiment in 1973.
The third assurance required by our negotiators is that adequate action will be agreed on by way of resource transfers to assist the weaker economies such as our own which have long-term structural problems to be overcome. The long-term problems most commonly are associated with the high level of unemployment observable in the economy over many years. Those structural problems exist in our economy quite apart from additional problems associated with the recent recession.
In speaking of this necessary third assurance that our negotiators must seek the point must be made that the figure of £650 million, which is apparently the sum sought by the Government, appears to be inadequate if one takes into account the underdeveloped state of our economy by contrast with the levels of development reached by our more advanced continental neighbours. In any bargaining situation—and possibly very accurately it can be said of a bargaining situation in the EEC—what one demands initially and what one eventually settles for may not be closely related. It is a new experience for members of the present Government, but members of the previous administration who had EEC business relating to their departmental work will be aware that bargaining in the EEC context is usually downward from the initial figure. On the great question at the heart of these proposals which must be resolved one way or the other and which has great implications for good or ill for our economy, namely, the amount of resource transfers demanded, the point must be made in this debate that the Government, by setting down an initial outline figure have effectively tied the hands of our negotiators and limited the possibility of seeking a higher figure.
The Minister has referred to the practical realities which determined the Government's approach. One does not know whether he is referring to practical realities that have an EEC background or home realities. Perhaps he could not have been referring to home realities because obviously our development needs far exceed the figure sought of £650 million over a five-year period. The Minister has said that his request has met with, as he puts it, a heartening response, but there is no evidence from the Minister's lips that the heartening response has been translated into any even informal agreement at this stage even on the figure we maintain is inadequate of £650 million over five years.
It cannot be over-emphasised that if a deflationary bias for our economy, which could be implicit in these proposals, is to be avoided we need a capital resource to enable us to adjust in the initial period and thereafter to ensure that the capital side of our programme will not be diminished. We are not looking for loans or reasonable credit but a once-and-for-all transfer of resources to enable us to withstand what may be a very strong deflationary bias in these proposals.
I am not entering into the controversy about whether the Government declared before now for or against any event, whether members permitted the impression to go abroad that somehow the Government here were committed in principle, as they put it, to an EMS. There was no refutation of the many press stories to the effect that the Irish Government were extraordinarily enthusiastic about the introduction of the EMS.
I recall reading in one foreign financial paper a column to the effect that perhaps the Irish had weakened their negotiating hand for acquiring an adequate transfer of resources by declaring in advance their enthusiasm for the entire principle of the new monetary system. I am not entering the controversy as to whether that is true or false, but the impression went abroad that we were, and it was not officially denied. Before these events result in the setting up of a new monetary system, perhaps the sham stance of independence adopted by the Government will be shown up and their bluff will be called. Looking at the events of last week, it can be said that the prospect of British involvement at this stage does not appear as imminent as it appeared before that.
I do not take any satisfaction in referring to the Government's bluff of sham independence. I do not take any satisfaction in describing their actions in that fashion. We might have had greater independence of action if, facing the prospect of a new monetary system, the Government had not taken the easy way out of dealing with our economic difficulties, if they had not taken the manifesto way of dealing with our endemic economic difficulties. They took the manifesto way, the easy way, the primrose way, with the result that our negotiators are left with a weaker negotiating hand than they would have had if more sensible policies had been pursued by the Government.
I want to refer to an approach of the Government which I find hard to understand, that is, their apparent preference for what is known as the parity grid system and their apparent lack of enthusiasm for the basket of currencies approach advocated by Britain for some time. The question of resource transfers is central and most important because we will depend on the size of the resource transfers to countervail the deflationary bias which may reside at the heart of these proposals. We will depend on a large transfer of resources to counteract that deflationary element in the final package.
Related to the size of the resource transfers is the character of the monetary package which may be finally agreed upon. All along, the British have sought something under the general heading of a basket of currencies and an attempt is now being made to get a wedding or a compromise between the parity grid system and the basket of currencies approach. While this might appear to be a very technical question and one which, I suppose, can be understood in the end by only very few people, it is important that those taking part in this discussion should understand that quite fundamental differences of opinion exist about the machinery of the new system and that these polarities of opinion are represented by those who advocate a parity grid system and those who advocate a basket of currencies approach.
The differences are fundamental and which mixture of either approach is adopted finally has grave implications for the weaker currencies and the weaker economies. It has grave implications for us. It is difficult to understand how our Government by their silence, if not by their support, appear to have left the entire argument for a basket of currencies approach to the British so far. The joint visit of the British Prime Minister and Chancellor to the German Chancellor in Bonn last week has not in any way removed these differences of opinion.
What is at issue is both these views. Both sides recognise that, in this imperfect world, there will be enough fluctuations in the underlying economic realities to make real economic stability difficult to obtain. Both accept it is desirable. The differences reside in the possibility of what will happen when the new system, once adopted, comes under pressure. Whichever approach is adopted, at the point when the new arrangement comes under pressure, different results will ensue.
Under the parity grid aspect of the deal, any two currencies which got out of line with one another would have to be bought and sold by their respective Governments or Central Banks to bring them back into line. Under the basket clause, one of those currencies could be identified as being more out of line than the other, when measured against all the rest, and the country concerned would be more responsible for taking corrective action. Let us take an example of how this would work out between the strong and the weak. Let us take the instance of the Deutschmark going up against the Italian lira and the lira going down against the Deutschmark and, measured in the new basket of currencies system, the Deutschmark has gone up more than the lira has gone down. In that case, it would be up to the Germans to change their economic policy to get back into line. Of course, the Germans would like to resist that type of obligation.
The point has been made in public by the German negotiators that they fear their currency would be the odd man out more often than not and, therefore, they would be forced to intervene repeatedly. Fundamentally, the German view of monetary co-operation is that the Deutschmark sets the standard of virtue and other people should align to the Deutschmark. If the others try and fail to maintain the standard of virtue set by the Deutschmark, and the Germans prove reluctant to meet them half way, nothing but trouble can ensue for the weaker partners.
The difference in implications between the two systems is such that one would have expected our Government before now to have given strong and consistent support to the British attempt to get an arrangement based on the basket of currencies approach which shares the obligation between the country in surplus and the country in deficit.
This is an instance of the Irish and British interests coinciding. That cannot be said of the two countries' attitudes on the common agricultural policy: there our views conflict. But the parity grid system would appear to lay the onus for corrective action—if the final system adopted veers in favour of the parity grid—on the weaker party, such as ourselves. It would seem to tend towards the serving of deflationary medicine to the weaker party, and therefore disadvantageous results for the future of our economy would flow from the adoption of the parity grid system as distinct from the currency basket approach. After Bremen it seemed that only the British were opting for the currency basket. Although there is no evidence for it. I hope our negotiators will come round strongly to the British position. The British interests seem to coincide with ours on this matter if not on others.
However, the impression created by our silence, by our agreement in principle in respect of which particular bias was involved in the final package, is that we favoured the parity grid. That impression needs to be corrected. There is a difference in the application of these two systems. The currency basket would appear to spread the burden of corrective action where necessary between the surplus countries and the weaker economies. The German idea of the parity grid, the more rigid system, would appear to leave the necessary deflationary action solely to the country in balance of payments problems. It does not take much imagination to conclude that the likelihood is that a country such as this would find itself in balance of payments difficulties, and the impression has gone abroad, irrespective of our final approach, that we have been indifferent as to which element should be uppermost in what will finally be agreed. The difference in application is vital for our economy.
The adequacy in resource transfer is central from our national viewpoint because without it, it has been argued and I agree with the argument, the result of the new monetary package for us could be deflationary. It could accentuate our present economic difficulties. The imposition on us now of a deflationary policy would not be appropriate in the light of current Irish economic circumstances, and from our domestic viewpoint the crucial question is whether the Irish Government can win sufficient European aid to offset the deflationary tide implicit in the proposal, without the aid of adequate resource transfer. The demand that is being made by our negotiators for £650 million in five years is not an adequate price for our participation in the system.
There are many unanswered questions about the final shape of this package. It is not my intention to prolong the discussion at this point, but I should like to point out that initially we sought too little by way of resource transfer. Our entry to the system is being sought on the cheap, and even in relation to the question of resource transfer the House is in the dark as to how the £650 million has been calculated. What were the criteria that went into the calculation of this sum in a five-year period?
The system proposed, if implemented, can fairly be described as the first step towards eventual monetary union, the objective set down some time ago for the Community. Progress along the path to full monetary union without countervailing Community action by way of adequate resource transfer, without a properly functioning regional policy with adequate funds, will result for us in the movement of capital from here to more profitable sectors of investment in Europe. It is predictable that Irish capital would move to business sectors in Germany and France. We know the old economic law that labour follows capital. Therefore it is vital for this country to obtain adequate resource transfer because its absence will denude this country of capital and investment.
So far in our experience of Community membership we have had great difficulty in forcing the Community to agree to a transfer resource to weaker areas. We have had very little success. We know the regional policy has been inadequate. Indeed the only sector of our national life which has done well here has been agriculture. The industrial population have little to thank the Community for. They will have less to thank the Community for in the future unless our negotiators at this important point succeed in getting adequate resource transfer. The country which has done better than anyone else in terms of EEC membership is Germany. The enlarged market has been ideal for German industries. It has ensured that the major benefits have flowed to Germany.
Therefore, confining the debate to the advantages coming from the Community to us is to misunderstand the nature of the Community. At any rate, it is of vital national interest that the Government will mend their negotiating hand in respect of the resource transfer demand. The experience in Community bargaining has been that you bargain downwards from the initial bargaining figure, and this Government have not helped us by starting with a figure of £650 million. To be told by the Minister for Finance that that figure is based on practical realities makes one wonder which planet he now inhabits. The figure cannot relate to economic underdevelopment here, to the development needs that exist in our economy. We have been forced in the area of regional policy, because of a lack of commitment in the Community, to agree to an adequate resource transfer and to use the social fund in lieu of an adequate regional policy. That is an interesting comment and it is interesting to note that such has been the failure of the regional policy that we have been forced in our negotiations to rely on the social fund to do the job of the regional fund. It should be remembered that after agriculture the fund that has given us most money has been the social fund but, because of the way that fund is constituted, we have not been able to use the moneys from that fund in a more direct way to assist unemployment here.
The rules governing the fund limit its payment and, of course, it is a relatively small fund which must be spread over the Community. I was concerned with that fund for four years and during that time we quadrupled the moneys we received from it. In our initial demands our negotiators always started from a high position and we were always assisted by the level of need in our community. We did not have to rely on any mendacious claims because our underdevelopment was there for everybody to see. We sought the establishment of a new Community instrument to be called an employment fund. However, the limitations there are involved in the Treaty but for all its limitations we did well out of the social fund over the last four years because it is subject to so many limitations and the overall constraints imposed by the level of finances available in the fund.
It would be interesting if the Minister for Economic Planning and Development, or any other Government speaker, could tell us what relationship is implied in the request for the £650 million sought over a five-year period with the other amounts sought by us from such areas as the social fund, the regional fund and the agricultural fund. It should be remembered that even though we succeeded in quadrupling social fund resources from Brussels between 1973 and 1977 to be used in the retraining of unemployed that money was matched with a corresponding payment from our own resources. That is a condition of Community investment here.
In this necessary preliminary debate too much attention has been focused on British non-involvement in the proposed monetary system. I agree that that possibility is more likely this week than it was last week but even assuming British involvement in the new system the real difficulty would emerge for us subsequently if Britain found the going hard and decided to leave the EMS. Then there would be weeping and gnashing of teeth, a major dislocation in our economy and pretence as to our so-called independent position would be exposed.
One must deplore the way these major decisions in respect of the EMS were arrived at by Germany and France alone. In respect of this decision we can say that it was the two-tier Community of Germany and France that made the real decision and told their partners afterwards. I do not know if the Government made any protest about this way of reaching a decision in the Community. If they did the House was not told. I have already warned against the Government explaining their necessary actions on the domestic front in the light of a necessity that arises from the EMS option. The Government in their management of the economy are engaged in a classic stop-go phase. I was disappointed that the Minister for Economic Planning and Development used the recent control on credit by the Central Bank as an excuse for the Government ending their expansionist phase since the budget and hung that need on the requirement of EMS membership. I hope other members of the Government do not succumb to the use of the EMS as a scapegoat in the months ahead because the seeds of the Government's own stop-go policies lie in their previous expenditure actions.
The Government have had 18 months of experience of bargaining with their partners in the Community and an indication of their woeful over-estimation of the effect of certain Community instruments is contained in the recent remarks of the Taoiseach on youth unemployment. The Taoiseach told us of a pending agreement which might be reached at a meeting of Social and Labour Affairs Ministers, a group I am familiar with. I know a good deal of the background of social policy in the area of youth unemployment and that does not encourage me to think that anything sufficiently adequate is in prospect to deal with the problem. I agree with the Taoiseach that this is a major problem and that a recent survey showed that though people under 25 constitute 30 per cent of the workforce they number 40 per cent of the unemployed. He told us that he stressed at the Bremen meeting the need to speed up special measures to deal with this problem.
The Taoiseach also explained at the start of this debate that the European Council under the German presidency has asked the Council of Labour and Social Affairs for special measures to combat youth unemployment within the framework of the European Social Fund. At the June meeting of that council there was a deadlock on measures, but even if that deadlock were resolved the amount of money at the disposal of the Council of Labour and Social Affairs and of Labour Ministers to make a significant breakthrough by way of work schemes to combat youth unemployment is totally inadequate. It illustrates the mentality of overestimating the effects of certain Community aspirations. If that is the cast of mind of the Taoiseach, who presumably has good advisers in these matters one can only worry if that similar cast of mind, overestimating, exists among the other negotiators negotiating these matters. One wonders how much the habit of overestimating goes along with the estimate of £650 million as an adequate capital resource. The Minister for Finance in talking about the capital resource made the point that that figure anticipated that there would be a significant expansion of separate grant and loan mechanisms and instanced the regional fund, the FEOGA guidelines and the social fund. From my experience in dealing with the Community I would say that this confidence is probably misplaced.
In the event of a break with sterling it cannot be anticipated with any confidence that the Irish £ would be revalued. In the event of a break with sterling, either a change in the parity relationship in the event of Britain joining the EMS, or in the larger and more serious eventuality of a break with sterling in the event of Britain not joining the EMS or breaking away from the new arrangement soon afterwards, our home manufacturers would face severe difficulty in maintaining their export markets and an adverse effect on employment and output would follow. Our dependence on Britain has been lessening since our accession to the EEC, but our exports to Britain still accounted for £1.2 billion last year, because almost half of our exports go to Britain. The Minister is not facing up to the real difficulties involved in a break with sterling by saying that the bulk of our agricultural exports are to Britain and since they are determined by the CAP, ergo the problem goes away. That would be to oversimplify the repercussions on our economy.
There are a great many unknown factors which make it difficult to confront the real issues at this point in the negotiations. I hope that as soon as possible the Government will publish their assessment of the situation, the options they see before us and that they will attach to any such publication the kind of negotiation documents put forward by our officials on which apparently the £650 million is based. These documents will only show our economic situation. In publishing them the Government will not be showing their hand. Such information is necessary to facilitate enlightened national debate on this issue and such debate is in the interests of the people. It may be said that this debate need only concern a few central bankers, senior civil servants and the Government of the day, but the implications of EMS will affect wage and salary earners and every facet of life will be influenced by what may finally be decided in this EMS arrangement.
No more than veiled references have been made in this debate to the kind of disciplines that may be required. The implications of joining the EMS should be analysed, as joining the EMS could possibly mean less flexibility in the management of home economic affairs, greater fiscal restraint on the Government and greater scrutiny of the cost component in national production. It could also mean the necessity of an incomes policy, whether voluntary or statutory. Although these implications are at the heart of these proposals they are not yet publicly acknowledged. It is high time that the Minister for Economic Planning and Development published these implications and explored the consequences of them with the employers and trade unions. In relation to the resources transfer, besides information on the extent of it we will require to understand its implications for our economy, information on how it will be applied, over what period and its relationship with the other funds. It is worrying that there is an assumption on the part of the Government that there will be a significant expansion of separate existing grant and loan mechanisms, as mentioned by the Minister for Finance. This a very much misplaced confidence on the part of the Government in view of our past experiences of Community membership. The Minister expects the Community's Economic Policy Committee to have on 20 November the final report of the body examining, under the heading of concurrent studies, how the work on the possible resource transfer is proceeding at Community level at present. He explained that oral reports have been submitted so far, but we all know that oral reports have very little status at Council of Minister's meetings. It is disquieting to learn that only reports of this kind have been submitted so far. We have been told that in the Irish papers submitted so far there is the conclusion that substantial additional transfers would be necessary for infrastructural and industrial development. In this regard the figure mentioned throughout the debate was £650 million. We have said that is inadequate, but it would be interesting to hear the basis on which the figure has been calculated. Apart from the categorising of the Minister for Finance of the effect of our request so far as one that indicated a heartening response, there is very little evidence from Community sources that the heartening response will be translated into reality.
There is a suggestion that in some German quarters in the Community there is the impression that the transfer resources which will come our way finally will be solely in the guise of credit transfer. Therefore, it must be emphasised that we are not looking for loans or for credit facilities in this matter but that literally what we are seeking is an adequate transfer of resources. We must ensure in our negotiations that the design of the final system will not entail an excessively deflationary bias in the conduct of present economic policy. It is essential that the system be such that there will not be the necessity of imposing measures to slow our rate of economic growth. We must ensure that the expansion of our economy will continue to be based on our own efforts and we must not agree on anything that would make investment here less attractive. Consequently, any system to be agreed must not be one that would interfere with the high level of expenditure and it must not rest too heavily on our balance of payments deficit. It is necessary in developing a country that the balance of payments deficit be utilised. That situation must be understood by our partners if we are to take part in any eventual scheme, because it is as important a condition of our membership as is the size of a transfer of resources.
Monetary union is the aim of this monetary system agreement. The EMS is a preliminary but a significant step in the direction of eventual monetary union, but if that monetary union is achieved without clearcut agreement on resource transfer to this economy, the result would be the flight of capital from here. Nobody should be under the illusion that because there has been an inflow of "hot" money from Britain in recent weeks, such a trend will continue. Speculators are never reluctant to make quick money and that consideration is what is represented in this recent inflow. The tide can turn as rapidly the other way.
Monetary union will entail a free capital movement between member states. Capital will go to attractive investment areas and labour will follow. Therefore, we need an adequate resource transfer, a regional fund instrument as a necessary counteracting power to the natural tendency in a monetary union situation towards capital movement. I trust that our negotiators will seek in their discussions to get early agreement at concurrent studies level. So far we have had oral reports, but the Government should require formal agreement in principle to such resource transfer. If they fail to get this agreement they cannot say in the conduct of the negotiations here that they are guided only by the net advantage that would accrue to us in the new system. We require a durable and effective scheme that will ensure that employment here will not suffer as a result of our participation in the monetary system. We must avoid a recurrence of what happened on the last occasion on which there was an experiment in the area of aligning currencies. To this extent we must ensure that there is a fair shouldering of the burden between countries in surplus and the weaker economies; but that fair distribution of obligation will not occur if the Germans, who are the chief exponents of this union, have their way. We have a common interest in this regard with our British friends. Corrective action will remain in the hands of countries that are in surplus rather than those who are experiencing balance-of-payments difficulties.
This debate concerns every citizen because implicit in all of these arrangements is the closest scrutiny of our economy plight. Today the Taoiseach indicated that the Government continue to support national wage agreements. Although during the past few days he had attacked what he referred to as excessive wage increases——
