European Monetary System: Statement by Taoiseach.

The Taoiseach

With your permission, a Cheann Comhairle, I would like to make a statement to the House about my recent meetings with the President of the French Republic, the British Prime Minister and the German Federal Chancellor.

The meetings were concerned mainly with the proposed establishment of a zone of monetary stability, designated a European Monetary System, primarily within the European Community. The Minister for Finance and I outlined in this House on 17 October last the main principles of the proposed system and the possible benefits and disadvantages for Ireland: and the House debated the issue over five days in all. While there have been developments and provisional agreements have been reached by the Council of Ministers in certain limited areas, the main features of the system remain as they were then outlined. However many important features remain to be considered by the meeting of the European Council in Brussels on Monday and Tuesday next, 4 and 5 December. These matters cannot be decided bilaterally. They can be dealt with definitively only by the Nine in a Community framework. The proposals have, therefore, not yet been finalised.

Some of the outstanding matters for discussion are of crucial importance in relation to a decision on this country's participation in the system. I refer, in particular, to the conclusions to be reached on the Government's case that significant Community action is needed to strengthen the Irish economy in a new monetary system. The position is that the final shape of the system is not decided and that the ultimate nature of the circumstances, by reference to which a decision on our participation would have to be taken, is known now in only marginally more detail than when the House debated the Conclusions of the European Council meeting here last October. Moreover, my recent meetings have made it clear that these ultimate circumstances could not be inferred with any degree of confidence from the confidential documentation available as a result of the work undertaken by the Community bodies—the Monetary Committee, the Economic Policy Committee and the Committee of the Central Bank Governors—nor from the discussions hitherto in the Economic and Finance Council. Accordingly, no purpose would be served by a further debate in the House before the meeting of the European Council nor by the publication of papers which could not advance knowledge on crucial issues beyond that given in the statements here by the Minister for Finance and myself on 17 October. In this connection, it is essential to bear in mind that the Government remain in a negotiating situation. No decision has been taken as yet, one way or the other, on participation in the system.

However, while it is not proposed to hold a further debate nor to publish a White Paper before the Brussels Council, I fully intend to honour my previous commitments to the House and, in particular, my indication that it would not be my intention that Ireland should enter the EMS until the Dáil had had an opportunity for a further substantive debate. The Bremen Conclusions contain the following statement:

Decisions can then be taken and commitments made at the European Council on 4 and 5 December.

That statement is, of course, an aspiration, indeed a commitment, but in the nature of things it cannot be a prophecy. I do not know if decisions will be taken or commitments entered into: neither does any other Head of Government. However, if agreed conclusions are being formulated and if, in my judgment of the emerging outcome of the meeting, the circumstances are right for Irish participation in an EMS likely to come into operation on 1 January, my commitment will be to recommend participation. If in these circumstances, the Government were to favour our membership, the matter would then be brought before the Dáil for approval before the Christmas Recess and thus before our entry into the system. As a basis for such a debate, it is, as I have said, proposed to publish a White Paper.

The Government have received various representations on this subject, some of which have sought to have any decision deferred until consultations with the bodies making the representations and other interests have taken place. I may say that the possible effects of membership on the economy and on its various sectors have been subjected to extensive examination since last July and that the results will be taken into account by the Government, against the background of the final circumstances of possible membership, in reaching their decision. While it might be helpful if the time-table were to provide the opportunity of further consulations—which, it seems, it will not—the decisions involved are, in the final analysis, a matter, in our democratic system, for the Government and the Oireachtas. All representations will of course be taken fully into account before final decisions are made. My recent meetings have helped considerably, I believe, to prepare the ground for those decisions.

At my meeting with President Giscard d'Estaing in Paris on 22 November, I told him that Ireland was anxious to join the new system because we had a deep commitment to the ideal of closer European integration within the Community and because of the potential economic advantages we saw in participation under the right circumstances. I stressed that our decision depended entirely on the circumstances being favourable. In this connection, I told him that the political commitment and psychological will were there but recalled the recognition by the European Council in Bremen that measures to strengthen the less prosperous economies within the Community would be essential for the success of the system and explained our case for financial assistance from the Community to offset the initial effects of the system, if we entered.

The President, for his part, exhibited a strong wish to have Ireland enter the system from its inception. He indicated his support and understanding of our position and recognised the merits of our case for assistance to ensure a favourable environment for growth and investment in our economy. He was not, of course, in a position to give any firm commitment to any particular level or form of aid. Such a decision is for the Community as a whole and cannot be pre-empted by the outcome of bilateral consultations.

We also discussed in a general way the President's proposal that "Three Wise Men" should be given the task of exploring the problems posed by enlargement in respect of institutions, mechanisms and procedures. This matter is to be further discussed at next week's meeting in Brussels.

At my meeting with Mr. Callaghan in London last Monday, we discussed the EMS, the "Three Wise Men" proposal, the forthcoming meeting of the European Council, the Common Agriculture Policy of the Community and fisheries. We also discussed Northern Ireland as part of the regular review of the situation there.

The Prime Minister told me that the British Government had not reached any decision on participation in EMS and I indicated that the Government here had likewise taken no decision as yet. We had a wide-ranging review of the options, and as a result of our very full and constructive discussion I think it is fair to say that both sides have a very much clearer understanding of our respective positions.

I found the Prime Minister shared my view that greater monetary stability was very desirable and in the long-term interests of both our economies, of the Community and of the world. Mr. Callaghan showed the utmost goodwill and understanding of our position and expressed the wish that whatever happened and whoever joined or did not join in the EMS, the results would be in our interests.

Our discussions on the Common Agriculture Policy revealed, not surprisingly, of course, differences of view and of approach. Mr. Callaghan expressed well-known British views. I stressed that where problems could be shown to exist, the solution to them should not involve modifications of the basic principles and mechanisms of the policy.

In relation to Northern Ireland, I reiterated the approach I put forward when we met in September 1977, against the background of the proposed increase in the number of Northern Ireland members at Westminster, and indicated the Government's concern at the prospect of further integration. The Prime Minister reiterated his Government's policy to the effect that they were not moving towards integration. He also expressed satisfaction at the degree of security and economic co-operation. We also took note of North-South aspects of EMS.

At my talks with Chancellor Schmidt last Tuesday, the principal item that engaged our attention during our four-hour meeting was again the European Monetary System. We also discussed fisheries, institutional questions, the domestic scene in both countries and general world trends. I may say that our discussions were particularly cordial and constructive.

On the EMS, I again set out very fully our attitude. I was greatly encouraged by the Chancellor's very positive response. He made very clear his strong desire to have Ireland within the system and his special interest in our remaining in it, in the event of a decision to join. He expressed his understanding of our attitude and his willingness to support transfers of resources in the event of our entry. Indeed, his response indicated that he will be prepared to support transfers to Ireland to the fullest possible degree. Methods of effecting these transfers were discussed. Here again, I want to stress that there was no question—nor could there be—of settling in bilateral discussion matters on which the decision is for the Community, with the participation of all member states. However, the Chancellor indicated that the German Presidency would make the fullest possible use of the time between our meeting—between last Tuesday and next Monday—and the European Council to formulate proposals for transfers on the lines we had been discussing, in preparation for the Council in Brussels.

I maintained our position that grants should be the predominant element in transfers. Our discussions revealed, however, a variety of possibilities by which unsatisfactory features of some existing or possible new mechanisms to which I had drawn attention could be overcome.

Reference was also made to the possibility of increased German investment in Ireland in the more favourable circumstances that participation in a zone of monetary stability, with substantially lower rates of price and cost inflation, could bring about over the medium-term.

I may say that I came away from my discussion with Herr Schmidt much encouraged that it may prove possible to secure agreement in Brussels that will ensure the right circumstances in which to give effect to the Government's desire to join in this major new step on the way to closer European integration.

In general, I think my discussions with all three Heads of State or Government greatly advanced mutual understanding of our positions and enabled me to form a clearer view of the likely position of the three leaders when we meet in Brussels, in the Community framework, to take decisions on the nature and form of the system. On the basis of what happens at that meeting I would hope that the Government would be able to recommend to this House whether or not Ireland should participate in the system from the outset.

Dr. FitzGerald

Firstly, in relation to one aspect of the Taoiseach's speech, that part of his discussions with the British Prime Minister which concerned Northern Ireland and the British policy and tactics in relation to Northern Ireland, I trust that he expressed the depth of the concern that exists in all quarters here about the way in which British tactics in relation to Northern Ireland—perhaps it is too strong to say policy—have evolved. I am speaking in particular in relation to the increase in seats under pressure from Loyalist members of the British Parliament and the refusal to introduce PR as a method of election for this purpose. I trust the Taoiseach pointed out the phoney character of the so-called constitutional argument, that the method of election to the British Parliament must be uniform, in view of the fact that in the past different electoral systems were employed for university and other seats, and the equally evident phoney character of the argument in view of the fact that the European elections in Northern Ireland will be conducted on the basis of PR. It is important that the British Government should know that and I trust the Taoiseach conveyed the fact that the concern of everybody here is about the way in which the drift has set in in regard to British policy and tactics in relation to Northern Ireland and the adverse effects of this on the possibility of a solution being reached there in circumstances where otherwise the situation may be internally evolving somewhat more favourably with a view to some kind of a political solution.

Obviously, the main burden of the Taoiseach's statement today relates to the European Monetary System. During any negotiation of this kind the Opposition have to have regard to the importance of not prejudicing the national interest. The Government have in this case abused our forebearance. The Taoiseach led the House, and the country, to believe that before a decision would be taken a document setting out the issues would be published and we would have a further debate in the House. What he said at the time was clear. He referred to the possibility that there might not be a decision at the meeting of the European Council, but it is now evident that a decision is strongly possible and, from the tone of his remarks, very likely. In these circumstances the failure to publish the document and have a debate is a breach of what the House, and the country, clearly understood from what the Taoiseach said. What was particularly deplorable was that when the Leader of the Labour Party and myself pressed the Taoiseach for further clarification of any ambiguity in his statement he met that with a show of petulance designed to prevent further questioning and by that means to carry through this evasion. It is difficult to accept that type of approach to a matter as serious as this.

The Taoiseach has alleged that a Green or White Paper could not be produced now, but when he was faced with the fact yesterday that the British Government had produced a Green Paper, and when I pointed out to him that there was no reason why we should not, he suggested that the British Green Paper was of little value. On reading through the British Green Paper one will see that it does not state what the British Government intend doing any more than the Taoiseach has formally announced his intentions in advance of the negotiations. However, the British Green Paper does a number of things which are useful and which would be extremely useful had something equivalent been done here. That Paper sets out the characteristics that the British Government think a European Monetary System should have. Our Government have not told us their view on this except —incidentally scrappily—in respect of one or two aspects. There was no overall statement of their view of where Irish interests lie. The British Green Paper also explains authoritatively the issues involved in the technical but potentially very important question of the "parity grid" approach as against the "basket approach" and the reasons for the British Government's preference for the latter. I recognise this as a technical matter but at the same time I recognise its potential importance. We should have had more discussion about Irish policy in this regard.

We had some explanation by the Minister for Economic Planning and Development on this point but his explanation did not cover the ground adequately. Nothing was said by him about the importance to us, in view of the desirability of avoiding an unnecessary break of sterling parity, of the desirability of supporting that system most likely to enable Britain to come into the EMS if we have not ourselves any significant interest in supporting the alternative. The Minister for Economic Planning and Development conveyed to the House that in our case there do not exist compelling arguments for our economic situation in favour of the "basket" as against the "parity grid" approach situations which affect Britain. However, we have an interest in the British situation, and if there is no net balance advantage to us between the two then we should have been told why we supported one which made it less likely that Britain would join when, in fact, it is in our interest that Britain and ourselves should join simultaneously.

The Green Paper published by the British Government refers also to issues that remain outstanding concerning the splitting of credit between the short-and medium-term. We have been told nothing about this matter. The House, informed financial opinion and general public opinion have had no guidance on these issues. We depend on the British Government and fragmentary newspaper reports for information.

Paragraph 28 of the Green Paper states that the Irish Government "support the British Government's argument in favour of a firm commitment to bring the pattern and scale of net resource transfers attributable to Community instruments into conformity with the Community's objective of bringing about convergence in economic performance of member States". We all know that is British gobbledygook for dismantling the Common Agricultural Policy, disguised in phrases that are meant to sound harmless. Why should we have to learn from the British Government what the Irish Government's attitude is, and do our Government realise the dangers of supporting Britain's policy in this area when this policy is directed primarily against the CAP? Is this statement in the British Green Paper regarding the Irish Government's position correct? We are entitled to know at least what is our Government's position. We should not have to read the British Government's Green Paper to find out. If it is correct, why are the Government supporting Britain on this issue where we have a contrary interest but apparently opposing Britain on the issue of the "Parity-grid" versus the "basket" where, according to the Minister for Economic Planning and Development, we have no particular local domestic interest and where we have an interest in Britain joining?

The Green Paper published by the British Government has a discussion of questions concerning the possible effects of joining the EMS on economic independence, on the battle against inflation, on price competitiveness and the balance of payments. We could do with some authoritative material from our Government on these issues but we are denied this and have to turn to a British document for it.

We are also denied what the British Parliament has been permitted, debate at the final stage of negotiations before commitments are entered into. As a result of the tactics pursued by the Taoiseach and his Government, while I am free to ask questions of legitimate concern to the Irish people, answers to which could not prejudice our negotiating position, the format of this discussion makes it impossible—and is deliberately designed to make it impossible—for me to receive answers before the fateful decision is taken. In this connection the Taoiseach's comment this morning that the Bremen communiqué simply meant that there was an aspiration to take decision and that in some way this means there will not be decisions, is an obvious evasion. The fact is that decisions are contemplated. In his speech the Taoiseach made clear the possibility of entering into commitments on behalf of the Government and the Dáil which once entered into are unlikely to be overturned, given the parliamentary situation here. He assured us that before decisions were taken there would be a debate and a document of some kind to set out the facts. We have not had that.

Although I cannot get answers today to the questions I shall put, nevertheless I intend to ask some of these questions. They are questions that relate to matters that do not affect our negotiating position. There are other questions I could ask but which I am deliberately refraining from asking because of the national interest. I am confining myself to questions the asking of which will either not affect our bargaining situation or, in some respects, will strengthen it. It certainly needs some strengthening after the events of the last few days.

My first question is, if it is the Government's view, as reported, that the sum of £650 million in transfers over five years is the sum required if the United Kingdom joins but that the transfers needed if Britain does not join would be much larger. This has been suggested on behalf of the Government if I understand it correctly. Is this the Government's view? How much larger would the transfer need to be and what kind of sums have been discussed and put forward? Given the strong likelihood that Britain will not join at the outset, has the Taoiseach in discussions with the other Heads of Government named and sought a higher figure or has he contented himself with discussing the £650 million, despite indications on behalf of his Government that the sum would be inadequate if Britain does not join? If it were possible to get a reply to that question—and it is not possible having regard to the nature of the debate—it could not damage our negotiating position. It could only strengthen it.

An Ceann Comhairle

We are not having a debate. We are only having statements. The Deputy referred to the debate.

Dr. FitzGerald

I regret if I made a technical error. I thought everything I said made it clear that it is not a debate—that is the whole problem. There is no reply or answer. I can only make a statement, and I have been saying that more or less for the past five minutes. To use the word "debate" was a technical error.

The reply to the question could not damage the Government's negotiating position. It could only strengthen it. Quite clearly the Government are avoiding giving it in order to protect themselves against criticism if they fail to attain the aim. The Government are sacrificing the national interest in order to ease public opinion to accept a failure in the negotiations, even though in doing so they are contributing to the failure of the negotiations. I regard that as grossly irresponsible.

Secondly, I should like to know if the Government accept, as would appear to be the case from what the newspapers reported on the Taoiseach's remarks after Bonn, that any form of loan, even if there were a moratorium for some years on repayment and even if interest rates were subsidised, could be a substitute for a transfer given that the loan has to be repaid and will be in addition to our already very high national debt figure. Do the Government not accept that the value of a loan of the kind suggested could be no more than the annual difference between interest payable on it and the interest at which it could otherwise borrow? In the EMS we could borrow in Deutsche Marks presumably at interest rates similar to the German Government when we were in the system, namely 6½-7 per cent at present, and the benefit on a loan of, for example, £100 million would be only £6,500,000-£7 million for the years of the moratorium and perhaps half that thereafter if the interest rate could be in the order of 3 per cent. Of what value would be £6,500,000-£7 million, reducing after three years to half that sum, by comparison with the £130 million which the Government said was needed and the £600 million on the basis of what the Minister for Economic Planning and Development said in the MacDougall Report would be required in relation to economic union?

In relation to this point the Taoiseach's statement this morning is disturbing. Yesterday he told journalists—I presume with a straight face—and I shall quote from one of the newspapers, that "the attractiveness of loans could match that of grants depending on the terms on which they were made available". Surely the Taoiseach knows, as well as every Member of this House and most, if not all, of the electorate that a loan can only be as attractive as a grant if it is interest-free and non-repayable, which means it is a grant. How did the Taoiseach conceive that in making such a statement to the press—it was reported in various forms in different papers—he was maintaining the strength of our hand for the final negotiations, as he has claimed to be doing? How did the Taoiseach talk to this House this morning about transfers in the terms he used as though loans were transfers? He said that Chancellor Schmidt supported transfers to the fullest possible degree but it was evident from what he said subsequently and from what is reported in the newspapers that what the Chancellor has been offering are loans. The Taoiseach is starting now to describe these as transfers which Chancellor Schmidt was said to be supporting in the fullest possible way. A loan is not a transfer. There should be no attempt to pretend it is. A loan has to be repaid. Perhaps there may be some slight delay in the interest payment, or a slight reduction. It may be worth £3 million or £6 million a year but, in the end, it has to be repaid. There is no transfer. The Taoiseach should not seek to mislead the House on a matter of this kind.

I should like to contrast the weakkneed approach of our Government with the tougher attitude of the Italian Government who, as reported in this morning's paper, have laid down a negotiating brief which involves insisting on firm commitments. These are the kind of commitments the Taoiseach says he did not give us about a document and a debate on the European Monetary System. The Italian Government are insisting on firm commitments and on a transfer of resources from strong to weak EEC countries as well as assurances that sterling will gradually be brought into the scheme, which I would think is much more important to our economy than to the Italian economy. Yet, there is no evidence that the Taoiseach is taking any similar tough line to that of the Italians. On the contrary, we seem to be giving away a large part of our negotiating hand before the negotiation actually takes place in its final form.

Does the Taoiseach accept that the Regional Fund does not provide a satisfactory vehicle for transfers? There have been suggestions that any grants we would get, which might be a minority of the total, would come under the Regional Fund. The Taoiseach must be aware that approvals of grants under the Regional Fund lag several years behind commitments of money by the Community and payments lag several years behind approvals. He must be aware that such moneys can be spent only on a narrow range of projects which do not include many of the sectors of the economy which will need aid to enable them to adjust to the disciplines and rigours of the European Monetary System, or many of the purposes for which we will need to provide aid within our own economy.

I should also like to ask the Taoiseach—but I will not get an answer at this point—what will the position be with regard to exchange control and the dollar premium. What, if anything, have the Government negotiated on this subject? Now that the Exchange Control Bill is law, the Government could clarify these issues quickly and should do so before uncertainty about them begins to affect us adversely. What steps—and this a crucial question on which I intend to dwell for a few minutes—have the Government taken to prepare Irish industry, or other sectors likely to be affected adversely, for the impact of the European Monetary System?

The Government have had six months notice of this, as we all have had. I should like to remind the Taoiseach that when a previous Fianna Fáil Government were in office under the Taoiseach, Sean Lemass, after the breakdown of the Western European Free Trade Area negotiations in 1958, the then Taoiseach saw that this meant we would have to join the EEC. He approached the predecessor organisation of the Confederation of Irish Industries and he proposed a study of the effects on industry. With Professor Quinn I had the honour of undertaking the pilot study of the woollen and worsted industry arising from this initiative, and our recommendations led to the establishment of CIO which studied in co-operation with the trade unions the 85 per cent of Irish industry which could be and in significant measure was affected by free trade.

What have this Government done faced with what must be seen in the short term as a new threat to the very sectors of our industry which have already suffered most from the combination of the freeing of trade under the Free Trade Area Agreement with the United Kingdom, the freeing of trade in the EEC, and the world recession? Have they been in touch with industry? Have they been carrying out studies of vulnerable sectors? If they have, there has been a remarkable silence about it. Have they consulted with industry as to what kind of aid will be needed and how it might be given? I see no sign that any of this has been done. As far as one can judge, industry has been kept as much in the dark as this House. It has not been prepared for the problems.

Moreover, because of this failure, our negotiating position has been drastically and perhaps fatally weakened. In the absence of such studies, the Government have not been able to convey any convincing reason to our EEC partners for the proposed transfers. They have been content to go with the begging bowl looking for transfers without being able to explain why they need the money, or what they propose to do with it. All we have heard from the Government so far—and we have heard it only very indirectly as far as I can recall—is that the money would be for investment purposes, apparently mainly for infrastructural investment. This is not where the immediate need will be if we enter the European Monetary System and the United Kingdom remains outside. The need will be in industries like textiles, clothing, footwear and furniture, and others which are vulnerable, industries which from the moment our currency starts to appreciate through its link with the Deutsche Mark and the Dutch guilder will begin to suffer an erosion of their competitive position in the home market and in most export markets. This problem will be many times more acute if the United Kingdom remains outside and our pound depreciates vis-à-vis sterling as well as non-EEC currencies.

Have the Government even sought to ensure that the form of aid we receive would be such that they could use it to aid these and other vulnerable sectors? Have they sought agreement that these sectors can be specially aided and an assurance that aid to them, whether deriving from Community transfers or loans or from domestic sources, will not be treated by the Community as a distortion of competition? Have they considered what form aid to these sectors might take? Will it not be necessary that this aid should in significant measure help the current accounts of affected firms rather than consist of capital injections? What type of current aid is proposed? In addition to current aid, will there be a new scheme of adaptation grants for industry? These are questions industry is asking and is deeply concerned about and to which there have been not only no answers but apparently no questions by the Government to industry as to what its need are likely to be.

I have identified particular sectors I believe may be adversely affected. Do the Government agree with this diagnosis, or do they think there are other sectors which will suffer? Surely we should be discussing these matters now in time, rather than when it may be too late to do so because the terms negotiated may not provide the right type of aid or permit us to use that aid in the manner necessary to safeguard the sectors which will be hurt in the initial stages of membership. These are the kinds of issues which should have been dealt with in a Green Paper or White Paper before now. These are the issues we should be debating but are not debating. These are the issues the Government should have briefed themselves on before entering these negotiations.

I have a sense of frustration at watching the Government fumbling, failing to diagnose or tackle the real problems and losing opportunities in the negotiation. Not merely have the Government failed in these ways, but they have positively exacerbated the problems we will face in the European Monetary System. They have done so by raising expectations they cannot meet. They have made our industrial relations situation which is vital for success in the European Monetary System worse rather than better. Now, having got themselves into difficulties by the manner in which they have raised expectations, encouraging a consumer boom of unprecedented dimensions, largely met by imports, they have started to threaten tax increases or cuts in subsidies, thereby inciting new pay claims outside the national agreement framework.

The present atmosphere of our industrial relations would be profoundly worrying even if we were not going into the European Monetary System. Inside that system where, as the ESRI have suggested, there might be a 5 per cent maximum on pay claims if we are to avoid further massive unemployment, the atmosphere created by the Government is little short of disastrous. Instead of thrift they have encouraged conspicuous expenditure, above all on motor vehicles where the main boom has been and the import content of which is huge. Instead of moderation in pay claims they have encouraged extravagance.

This intensely worrying situation which we must all face together in the national interest has not been helped by Ministers like the Minister for Industry, Commerce and Energy and the Minister for Economic Planning and Development making optimistic speeches, so described in a report in The Irish Times yesterday, about how the European Monetary System will boost foreign investment and foreign trade. Those Ministers know as well as the Taoiseach, and as well as we all know, that the benefits of the European Monetary System will be hard won, and won over a long period of time, and will be secured only if we fight successfully instead of encouraging inflation at home.

In this connection we should note the view of the EEC Commission, reported this morning, that the success of revaluation against sterling such as is likely to emerge if we join and the United Kingdom remains outside, or is loosely associated with the new move without joining it, "would depend on Ireland's ability to impose a greater measure of discipline on the economy from the point of view of monetary, fiscal and incomes policies". It is not necessary to ask whether we are nearer to or further away from any such discipline after 18 months of this profligate Government.

There will, of course, be short run gains for some people from membership. The group I can best identify in this respect are the importers of German cars to this country, who will certainly gain in the short run. That is a very limited class who have not done too badly recently despite the rise in the Deutsche Mark. For the rest, the immediate effect will be to create difficulties for various sectors, which we have to overcome successfully if we are to secure the benefits, and the undoubted considerable potential benefits, in the longer run of membership of a system which could help us to maintain a reduction in the inflation rate, if we can secure it. If we fail to secure it in the early stages then membership could aggravate rather than help our situation.

This debate is inherently unsatisfactory. The Government have contrived a situation in which they can evade their responsibility, accepted by the United Kingdom Government, to inform Parliament and the people of what the European Monetary System issues are and how the problems it will create might be tackled. The Government's approach has visibly weakened the confidence of employers, of trade unions and even of farmers who require, and I am inclined to think could be given, reassurance that reference prices will not be reduced, hitting their income. They have not even been given reassurance on that point nor has it been mentioned or referred to at any stage by the Government. The result of weakened confidence in the different sectors of the economy through the Government's handling of this problem is that if we enter we shall do so in poor shape not only economically as a result of the Government's profligate behaviour over the past 18 months, but also in poor shape psychologically.

When we meet to have our debate on this subject after the European Council meeting, I shall expect the Government to answer the questions I have raised. I know it will be too late then for these answers to affect beneficially the outcome of negotiations, in some cases a discussion could help, and the answers will come very late to reassure worried people who have been quite unnecessarily left in the dark about many aspects of a decision which will affect their lives profoundly. Even late in the day I trust we will get answers to these questions and that the White Paper when it is published after the decision has been taken will at least give us the kind of basic information and guidance which the House, the people and the different sectors of interests need, if we are to approach, in the four weeks that remain, this new situation in any kind of shape to come through it successfully. We are all equally concerned that we do so.

The effects of membership would be beneficial in the longer run but the immediate impact is unknowable and carries dangers, some of which we can identify and some of which may be difficult to identify. I hope we can approach those problems constructively when the time comes. It is my function in this House to raise issues and questions the Government ought to answer. It is my function to critice deficiencies in the Government's handling of matters affecting the economy, negotiating tactics and techniques. Having done that, and when the decision has been taken, we will have to evaluate whether that decision was a wise one for the country. It will not be an easy thing for any of us to evaluate. We will have to make our best judgment in the national interest and, having made that judgment, whatever it may be, we will have to try to make the best of the outcome of a situation which has been brought about through this initiative.

As I said, if we can make progress towards European Monetary Union this would be of great value and importance to us and to the other countries of the Community, but we have a hurdle to overcome. The hurdle for us is bigger than for any other country, not merely because of our basic economic situation of underdevelopment or because our economic and psychological situation at this moment is bad because of the evidence of the last 18 months—and these are important factors—but in our case because the special problem of a change in the currency relationship with our vitally important trading neighbour is also at issue. That is something no other country has to face and it creates problems no other country will have to tackle. We will need very considerable solidarity if we are successfully to tackle the three aspects of the problem if and when a decision is taken to join this EMS.

Mr. Cluskey

It is regrettable that this morning we have this procedure of a statement, if one could call it such, by the Taoiseach, by the Leader of Fine Gael and myself on our possible entry into the EMS. I find it hard to envisage in what circumstances the Taoiseach made the decision to treat this House and the Opposition with the contempt which is obvious in his statement on his visit to the three Heads of State. Listening to him was like listening to a female relative describing a social visit to some very cordial and nice people and telling in very general terms the subject matter which had been discussed. There is nothing in this statement which clarifies to any degree the situation with regard to the possible repercussions on all sectors of our community of our entry into the EMS.

The Taoiseach and the Government claimed that because we are in what is described as a negotiating position, it is not possible to have a full debate in this House prior to the summit meeting next week. That reflects a total lack of trust by the Taoiseach in elected Members on the Opposition benches. He should have more faith and trust in the integrity and sense of responsibility of Members in the national interest. Although we have been provoked by his attitude in the last number of weeks, we have displayed a high degree of responsibility and concern for the national interest.

It would be no harm to put on record that the question of the EMS was discussed by the parliamentary Labour Party. We had, and have, very definite observations to make regarding the Government decision and the possible effects of our entry under the terms which appear to be emerging, but we refrained from publishing anything of that nature because the Taoiseach was abroad negotiating on behalf of this country. As I said, he should show more trust in elected Members of this House.

Although much has been written and there has been a lot of talk in general terms about our possible entry into EMS, very few legitimate questions have been answered. Throughout the country, in business, commerce, the trade union movement and the farming community there is very considerable unease and disquiet as to what the possible effects of our entry into EMS might be. We can only look back at the initiative for EMS and try to trace it to the present point, to pose legitimate questions and hope that even at this late stage those legitimate questions will be answered by the Taoiseach on behalf of the Government.

The initiative was taken not by the Community but by the Heads of State of Germany and France. They met prior to the Bremen meeting, initiated the concept of EMS and launched it at the Bremen meeting. It might be a good thing for this country to join the EMS but at the moment no one on this side of the House is in a position to say if this is true because we have not been given legitimate information on vital matters concerning our possible entry by the Government.

Therefore, it is not possible to make a value judgment on the merits or demerits of joining, but from the French and German point of view there is no doubt that they wish the EMS to operate. It has very definite advantages for their economies. Anyone who during the past number of years has had an opportunity of attending any meeting at which Chancellor Schmidt has been present will know that he has a certain approach to Europe's economic problems and that he has advocated that approach on every occasion possible. However, it may not be the approach that is suited necessarily to Irish conditions. I wonder if proper comparisons have been made by the Government between conditions prevailing in the stronger economies of France and Germany and conditions prevailing here, taking into account the various stages of development in both economic and social terms that exist in the various European countries.

At Bremen the Taoiseach gave an enthusiastic reception to the whole idea of the EMS. That was a very serious mistake on the part of one who was going into a very difficult negotiating period. The next development we can trace is that Ireland is seeking a transfer of resources to the extent of £650 million, but the Government have not given any indication of how this figure was arrived at or of what was the origin of it. They have not told us the basis for the figure. If they are seeking a transfer of resources of this extent in order to cushion us against the initial impact of entry surely they made an in depth analysis of what the effects of entry would be on the various sectors of our economy, agriculture, industry and so on. It is only by way of an in depth study that this definite figure spread over a five-year period could be arrived at. Conversely, in the absence of any such study the figure is nonsensical. But if the study has been undertaken and the figure arrived at on that basis it cannot be claimed legitimately to be a negotiating secret. One way or the other the House is not being given the information to which it is entitled on a matter of this nature. The people generally are entitled to know the possible effects of membership of the EMS. So far we have been denied the relevant information in this whole discussion.

It has been stated that a sum of £650 million is inadequate in terms of cushioning us against the effects of entry. When this question is probed by impartial people, by economists, for instance, who do not have any political axe to grind, it will be seen that there is a further obligation on the Government to state how the figure of £650 million was arrived at.

We do not even know whether this figure was based on the assumption that the UK will join this monetary system or whether it was based on the assumption of their staying out. If the figure is based on the assumption of their joining what, then, is the figure we should be seeking? Surely that is not a negotiating secret either. This lack of information is undermining the national interest. It is treating with the utmost contempt the Members of this House, and that contempt on the part of the Government can spring only from their having 84 seats.

The figure of £650 million has been referred to at all times by the Government in terms of a transfer of resources by way of grants. That was clearly the intention up to the time of the Taoiseach's meeting with the German Chancellor, but so far as we can glean from press reports, and there is some indication of this in the statement this morning, the Taoiseach came away from that meeting with a rather different view, the view that instead of sum of £650 million in the form of a transfer of resources by way of grant, it could be by way of a package made up of various components. These components would be some amount of grant and some of what are described as soft loans, with some being made up also by way of the possible channelling through the existing EEC machinery of the regional and social funds. This change occurred after the Taoiseach's meeting with the person who could be described accurately as the economic hard man of Europe. Surely the Taoiseach is not suggesting seriously to the House or to the Irish people that a loan, whether it be soft- or a hard-term loan, could be described as a transfer of resources. It is a transfer of resources, but with the transfer going in the opposite direction. We ultimately are transferring more of our resources into the centre of Europe.

Dr. FitzGerald

Hear, hear.

Mr. Cluskey

It is the same as if you were to suggest to any Irishman or Irishwoman with a bank account who comes in to see the bank manager, has a little chat with him and gets an overdraft, that that is a transfer of resources from the bank to you. I do not think you will find any Irish people prepared to accept that as a transfer of resources, but that is precisely what it is. That is what a loan is; it is the same as a bank overdraft. The bank will accommodate you under certain conditions, and when the time comes and the credit squeeze arrives the transfer of resources very definitely goes in the opposite direction.

We are now being told by the Government that there will be at least some element, and a fairly substantial element if I know my Herr Schmidt, of transfer of resources from this country into the richest part of the Community. Surely the Taoiseach is not trying to suggest of this country that we can take into consideration a loan, irrespective of the terms of that loan, as being a transfer from the richer to the poorer parts of the Community. If we are to have a package deal a considerable part of which will be comprised of a loan and irrespective of the terms of that loan, how do the Taoiseach and his Cabinet reconcile that with their comments and their policy with regard to foreign borrowing? Make no mistake, when you get a loan through the Community, from France, Germany or anywhere else, you are engaging in foreign borrowing. We have been told both before and since the last election that one of the major mistakes of the last Government and one of the major elements in our economic difficulties was the extent of our foreign borrowing. Our foreign borrowing at 13 per cent of GNP was described by Fianna Fáil, the Taoiseach, the Tánaiste, the Minister for Economic Planning and Development and other leading Fianna Fáil spokesmen as a potential economic disaster for this country. They said they were determined to rectify this; they were going to put us on the steady course. Initially they were bringing it down from 13 per cent of GNP to 10.5 per cent and from 10.5 per cent down to 8 per cent by 1980.

How can you reconcile that with going over to negotiate at the summit with the Chancellor of Germany, the President of France or anyone else to engage in further foreign borrowing? Is it disastrous only if someone other than Fianna Fáil does it, even though Fianna Fáil have maintained that it was a disastrous policy for a long time?

The figure of £650 million has been mentioned. That is approximately 10 per cent of our GNP, and spread over a five-year period it is 2 per cent added on to our foreign borrowing. How do you reconcile one with the other? I do not understand and I am sure it is confusing to the people as well.

These are legitimate questions to which we are entitled to answers. The Government cannot continue to hide behind this suggestion that "We are in a negotiating position and because of that we can give you no information; we will not answer legitimate questions, and if you ask them and press for them——", as the Tánaiste said to me, "——you are being un-Irish".

One of the conditions that may have affected the attitude of the Taoiseach after his meeting with the Chancellor of Germany was that there would be a package of loans and grants and possibly money in some other form channelled through either the Regional Fund or the Social Fund. There was another condition that any loan made available to this country as a soft term loan would not require repayment to commence for a period of three years. I sincerely hope that the Government's primary consideration is the national interest. This Government sat in Cabinet on two days last week and they are going to have several more two-day meetings with the purpose of trying to find money to maintain the services in this country. A very attractive carrot to be offered is hundreds of millions of pounds that you do not have to commence to repay for a three-year period. I hope that that would not be a factor in determining the Taoiseach's attitude to entry into the EMS.

Dr. FitzGerald

Hear, hear.

Mr. Cluskey

The consequences of a decision being made on any basis other than the national interest could be disastrous for this country. The Taoiseach is being forced by the persistence of both the Fine Gale Party and my own Party to go through the motions of having a discussion in this House, belated though it may be, but he knows the outcome. If Fianna Fáil decide that we are going into the EMS they have 84 votes to ensure that we do go in. I wonder under what conditions we will go in. If the response from the German Chancellor, the President of France and the other Heads of State next week at the summit meeting is such that in the Taoiseach's view we should enter, what conditions will be attached to our entering?

Does the Taoiseach recall the conditions that were attached to the money that was given by way of soft loans to the Italian Government? Does the Taoiseach not accept that if we get a substantial loan or grant, but particularly a loan, from either one or a number of other governments or through the machinery of the EEC that they by virtue of the fact that they are giving us that loan will impose certain conditions and that they will have the right, to quite a considerable extent, to determine what way our economy is going to be run in the years to come? I wounder would the Taoiseach tell us, as far as foreign borrowing is concerned, if the Government will have to forfeit their sovereign right to determine that solely on their own. I wonder is there a likelihood of conditions being imposed in relation to the rate of wages, collective bargaining or the question of a statutory wage agreement? Could such conditions be imposed upon us as a condition for some of these loans?

There is also the question of our expenditure on the social services. They may say we must put our economy right, and they are judging it in the context of a German economy and what might be good for a German economy and saying that we might have to do the same things although we are in a totally different situation. They may tell us to cut back on expenditure in certain areas. They will be able to determine to a considerable degree, our budgetary strategy. These are legitimate questions and we are entitled to answers to those questions.

There are other aspects. Forty-seven per cent of our exports are to the United Kingdom, and they have now stated that for the moment they are not going in, they are going to hold their hand. Whether we like it or not and whether it offends the Irishness of the Tánaiste or not it happens to be an economic fact of life that we are very closely linked to the British economy. If we break from that economy, if we break our par with sterling, it will have other effects. What is going to be the effect on trade and commerce between the North and ourselves? We have been given no detailed analysis nor even an insight into what the Government's thinking is on what the possible developments or repercussions of that might be. That is a legitimate question. It would not in any way affect the negotiating position. But we are denied any answers whatever to these legitimate questions. Have the Government given serious consideration to the fact that maybe for the time being we might be better off to hold our hand and see how the thing develops, wait to see what Britain is going to do? If we did that it would not affect our trade with the United Kingdom and it would not affect our trade as it now is with the other European countries and the rest of the world as it now is. Surely we are entitled to the Government's thoughts on these things. We are entitled to know have the Government given any serious consideration to these things. But under the guise that we are in a negotiating position we are denied all information on legitimate questions which only a Government are in a position to properly analyse to come up with reasonable assessments.

One of the things that emerged in passing was the fact that when the Taoiseach met the British Prime Minister, Mr. Callaghan, he had some discussions on the common agricultural policy. We have had statements being made by leading members of farmers' organisations that they are extremely worried that on our entry into the EMS there would be a change in the unit of account and that that could result in a 20 per cent drop in farm incomes. I do not know whether that is true or not. I do not know whether it is possible or not. I do not know whether it is likely or not, but surely the Government must be in a position to have made an estimate of the legitimate concerns of farmers and to reassure them, or at least say it is possible, or say something. There is another aspect. We know the British policy towards the CAP is not the same as our own but that we agree to differ. I do not think that the British Prime Minister will just agree to differ and leave it at that. They are determined to break the present operation of the common agricultural policy, and they have made no secret of their determination to do that. I wonder has the Taoiseach any indication that not only is there a possibility that on our entry a change in the unit of account will be made a vehicle for having a drastic change in the operation of the common agricultural policy but that it is quite possible that one of the terms that would be negotiated by the British Government for their entry, when they consider fit to enter, would be that there would be a change in the operation of the common agricultural policy. These are all issues that can have very serious consequences for our people and there is an obligation on the Government to answer these questions. Without the type of information that we have legitimately asked for but which we have not got, there is not too much more we can say at this stage on the question of EMS.

There are six conditions that this party will have uppermost in their minds when the question of whether or not we support entry into the EMS comes before this House, and I will list them for the Taoiseach and the House: (1) that there is adequate transfer of resources in the form of grants to the minimum extent of £650 million over a five-year period, any loans to be in addition to this transfer of resources; (2) that the transfer be in the form of grants which are untied, without conditions and capable of being applied as the Government see fit in order to protect employment: for example, they should be capable of being used for either capital or current purposes; (3) that if agreed, the grants should be used by the Government as expenditure on new projects in addition to current schemes and not as a substitute for them; (4) that there is no alteration in the real value of the CAP income to the Irish economy; (5) that there is a clear commitment given by the Government that there will be no statutory incomes policy, that they will not introduce such a policy and then tell us that it is because of our membership of the EMS and that we have no option but to introduce a statutory incomes policy; (6) that the impact of the final scheme be properly evaluated by the Government and be presented by them to the Dáil showing employment effects in the short run, employment effects in the medium term, effect on our GNP in 1979, effect on the rate of inflation in 1979 and budgetary changes, particularly with regard to foreign borrowing policy. The answers we get to those six legitimate questions will determine our attitude towards our entry into the EMS when the Government finally get around to answering them.

Mr. Blaney

A Leas-Cheann Comhairle——

European Monetary System: Statement by Taoiseach.

Dáil Éireann debate -
Thursday, 30 Nov 1978