I move:
That Dáil Éireann supports the decision of the Government to participate in the European Monetary System with a view to improving the prospects of economic development and greater price stability.
I am sure all of us are conscious of the importance of the decision we are debating today. The Government's attitude has been made manifest in the many opportunities afforded for discussion in this House. This is the seventh such occasion. We have had an initial debate extending over five days and a full day debate yesterday week; we have had statements on three occasions; the subject was also covered in the Adjournment Debate.
I would hope that the discussion to-day will be conducted on a plane appropriate to the occasion. Certainly, I do not intend to chase all the hares raised in the motion put down by the Leader of Fine Gael, which I note, is broadly similar to that put down by the Leader of the Labour Party for the debate last week. When in my opening speech on that occasion, I availed of the first opportunity I had to rebut the misstatements and criticisms of the Leaders of the Opposition Parties which were crystallised in the Labour Party motion, some Deputies sought to characterise my speech as defensive or even petulant.
But, I ask the House, who has been petulant and small-minded in their approach to this subject? We have had statements and criticisms decrying the Government's record. We have had statements that the negotiations have been mishandled and that we should have got more. This approach is again seen in the Fine Gael motion on the Order Paper today.
What sort of approach is this? In the ordinary course of affairs, criticism of this nature would be understandable as part of the ritual of opposition. But what we are discussing today is no ordinary or routine decision. It is a decision of major significance for the future of the country. As such, it should not be approached as if it were only the proposal of the Government or the party on this side of the House which is at stake. I think that Deputies in seeking to make party political points rather than dealing with the merits of the decision are detracting from the worth of these discussions and doing this country little good. Do they support Ireland's participation? Where Deputies are opposed to participation, I would hope they would address themselves to the question of alternative courses of action. I hope that the Fine Gael Party will enlighten us as to whether they are in favour or opposed to our participation in the system which, while protecting Ireland's interests, is a significant advance in the development of the European Community. Certainly their motion gives no hint whatever of their attitude. It hits at details but leaves the principle untouched.
Only within the last few days we have had further evidence of just how fragile is the economic balance of recent years. Oil prices are once again rising. Currency instabilities can again contribute to the combination of recession and inflation from which Europe is now hesitantly emerging. Does this House really think that our position in this world would be better outside the monetary system which the countries of the Community are putting together, with so much thought and so much effort?
Is the argument that we should wait until the United Kingdom is ready to join? The United Kingdom has its own position to consider. Their course is dictated, rightly, by what they see as their best advantage. We respect their decision. Similarly our decision is dictated by what we see as to our benefit and to the benefit of the Community of which we are a part. Have those Deputies who argue that we should have waited really considered the consequences—politically, socially, or economically—of what they are saying? This country is a sovereign State and a member of the European Community and will make its judgments accordingly.
Apart from getting the terms that might not be available later, I believe we have enhanced the status of our country within the Community by our decision. I believe as well that we have built up a new reserve of good will that will inure to our benefit in the future.
The purpose of EMS is to avoid the extreme monetary fluctuations which have been a major contributory factor in the economic instability of recent years. Economic growth requires a healthy investment climate. Monetary instability causes uncertainties which inhibit the development of investor and consumer confidence, and so damage growth prospects, both at the domestic and the international level. This has very clear implications for our ability as a small economy, largely dependent on exports, to pursue the goal of full employment. It is very much to our advantage if international arrangements are made which can stabilise monetary fluctuations and reduce uncertainty.
I described the nature and shape of the new system in my statement on 7 December. A description was also included in the White Paper published last week. I and other Ministers have elaborated on aspects of the system in previous speeches and statements here. As I said last week, I cannot, at this stage, supply a great deal in the way of fresh information.
The transfer of resources under both the Community measures agreed in Brussels and the bilateral arrangements to which I referred then, will come to about £70 million a year for two years, and £45 million a year for a further three years, or about £275 million in all, over a five-year period.
As I indicated, the principle and amount of the additional bilateral transfers have been agreed but details have still to be settled. I can say, however, that while the agreement will be worked out and managed by appropriate banks and development finance institutions in the countries concerned—all six more prosperous member states are involved—the magnitude of the resource transfer involved is assured because the arrangements in question have the full backing of the respective Governments at the highest level.
It is no harm for the House to bear in mind that the principle of these transfers was accepted at the Bremen Council last July on my proposal, and that a great deal of the argument for them has since been made by this country. The fact that the full case was not accepted at the Brussels Council earlier this month has nothing to do with the quality or force of the arguments advanced by us. It concerns the relationships between other countries in the Community and the balance of advantage as they saw it in the emerging arrangements.
I doubt if any proposals emanating from a European Council, or indeed affecting the vital interests of this country, have ever been as thoroughly prepared. After the Bremen Council and the detailed discussions at official level, the Tánaiste discussed the proposals with his counterparts in all other member states of the Community. I had meetings with the French President, the British Prime Minister and the German Chancellor before the Brussels meeting. During the two days of the meeting in Brussels, again, I had bilateral discussions and contacts with other Heads of Government including, I might add, the Italian Prime Minister. Contrary to what is implied in the Opposition motion, we had, and have, the support of all other countries of the Community—each with its own problems and its own difficulties. And this support has been shown in tangible ways for everyone to see.
On 7 December, after the Brussels Council—I want to place this on record—I took an initiative and I telephoned Chancellor Schmidt to discuss certain possibilities which emerged from the discussions at the Council. We agreed that these possibilities should be further explored and arrangements were made for a meeting in Luxembourg on 11 December. Officials from my Department, the Department of Finance and the Department of Economic Planning and Development—I might mention the names—Dermot Nally, Maurice Horgan and Brendan McDonald respectively—met with representatives of the German Government, acting for the Presidency, participated at that meeting in Luxembourg at which the framework was worked out for the arrangements which finally emerged.
On the following day the French President telephoned me to clarify certain aspects of what had been discussed and expressed again his goodwill towards Ireland. More details of the Brussels proposals and of the new arrangements were elicited by direct contacts with the Commission—that is, at the highest level; Mr. Ortoli was involved—and at a further meeting in Brussels on 14 December attended by representatives of the Departments of Finance and Economic Planning and Development—on this occasion, again, Mr. Horgan and Mr. McDonald—and of the other countries concerned. These meetings and other informal contacts resulted in the clarifications and arrangements of which I have given the House as much detail as I am free to disclose at this stage.
The resolution of the European Council requested the Council to consider and take a decision on 18 December on a number of Commission proposals. These matters were dealt with by the EcoFin and Agriculture Councils—that is the Economic and Finance Ministers and Agriculture Ministers Councils—on Monday and Tuesday last. The Tánaiste will deal with the outcome of the EcoFin Council.
In relation to the CAP, the Council of Agriculture Ministers agreed that the technical consequences of EMS should not affect agricultural price levels or the distribution of MCAs. Unfortunately, this issue got linked to some others which could not be resolved at this week's meeting and the whole question has been left over until the January Council meeting. In the meantime agricultural arrangements will remain unchanged.
The Tánaiste will also deal in so far as is necessary with the exchange controls under the new system, which are designed essentially to monitor capital movements with a view to preventing any large or abrupt outflows and inflows. Some commentators have described the controls as harsh; indeed, the Fine Gael motion characterises them as "excessively severe". I cannot accept these descriptions. The controls are in line with those operating in most other member countries. I might say here, in connection with headlines I saw in this morning's Cork Examiner, that there is no evidence available for the story that hundreds of millions of pounds had been taken out of the country last weekend. While figures are not yet available on the basis of which I could definitely refute the story, I can say that it is extremely unlikely to be true. The banks were open for an hour only after my statement last Friday—references to aircraft being used to indicate the unlikely nature of the story. If anybody wished to transfer funds they could have done so simply by writing a cheque on Friday last. I mention that particularly because of the scare headlines that appeared in today's Cork Examiner in this connection.
The British Treasury has said that the United Kingdom Government does not plan to introduce exchange controls on financial transactions with this country in the immediate future but will keep the situation under review. This decision, reached following discussions at official level, is welcomed and appreciated by the Government and by me.
Clearly there are difficulties in participating fully and effectively in the EMS. These stem basically from the structural problems our economy faces due to our low level of development relative to that of our Community partners. These are reflected in the imbalance in foreign trade. Financial support will be required, and has been obtained, in order to offset these problems. This support should enable the public sector borrowing requirement constraint on public investment to be relaxed and will facilitate an acceleration of investment, especially in infrastructure, over and above that envisaged in the White Paper known as "National Development 1977-1980", without adverse effects on our reserves. The effects of this acceleration may not be felt in 1979. It will however, underpin the targets for growth and employment in 1980 and, more important still, allow them to be maintained in 1981.
The public capital programme this year is at a level not far short of £800 million. Next year's will no doubt be higher. There are considerable amounts of debts coming up for rescheduling, as well as repayment. In relation to the total sums involved, the amount of borrowing for which the package provides—something of the order of £300 million in 1979—is not disproportionate. Part of the borrowing will finance extra works necessary to offset the possible effects of the new system. The remainder will be necessary to finance investment which would have taken place anyway. I am not at liberty yet, in advance of the finalisation of the details of the arrangements, to indicate what proportions of borrowing are additional and what are substitution for borrowing which would have taken place anyway. The essential point is that the total amount of loans to be raised under the package is not a net addition to our borrowing requirement.
Participation in the EMS could have a short-term deflationary impact. Any assessment of this potential deflationary impact must be highly tentative as it depends on such factors as the response in terms of incomes restraint and external confidence in an independent Irish punt. This is a serious argument which was given much consideration by the Government in settling our attitudes as the discussions progressed.
Currency depreciation will no longer offset the worst effects of increases in unit wage costs. In any event, the prospects of price stability and a lower rate of inflation requires in turn that incomes must not be allowed to move ahead at the same pace as we have experienced in recent years, and that income expectations must adjust rapidly to the lower rate of inflation. This is central to our overall approach to the European Monetary System.
The need to maintain, and, if possible, to improve, our competitive position does not necessarily imply that the rate of pay increases which we can afford must be precisely the same as that obtaining in our trading partners. The vital element is unit wage costs—that is the growth in pay rates adjusted for productivity gains. If we can achieve a faster rate of productivity growth than our partners, then it will be possible to award ourselves higher pay increases, without exacerbating inflationary pressures. Only if we can narrow the productivity gap will it be possible to close the income gap between ourselves and the rest of Europe. We can enjoy substantial gains in real income within EMS but only if these gains are the result of increased output.
This is not a new departure but participation in EMS will highlight the adverse consequences of any failure on our part to observe this discipline. The rate of pay increase which we can afford cannot be determined in advance because it depends, as I have said, on the growth in productivity which we can achieve. But it is clear that a repetition of the events of 1978 must be avoided. Pay rates will rise this year by about 16 per cent compared with an average of about 10 per cent for the main industrial economies. More important, the rates of pay increase in Germany and in the Benelux countries was in the 5½ per cent-8 per cent range while in the United Kingdom, vital to our export performance, pay rates rose by just 12½ per cent, significantly below our rate of 16 per cent.
It would be foolhardy to presume that we can sustain generally, or allow sectional interests to continue, the level of nominal or money income increase that has become customary over the past few years. This would undermine the benefits of the new monetary system for us. The whole of our community stand to benefit considerably from an orderly and moderate approach to incomes. The Government will be anxious to work on the basis of voluntary arrangements to achieve this. Otherwise, our ability to compete both domestically and in export markets will be lessened and existing jobs and new employment opportunities will be lost.
There is no point in trying to hide the disciplines which the adherence to the new system will impose. To the extent that workers and management in industries observe these disciplines they will be no more vulnerable under the new system than they are now. In fact, by being able, in time, to buy raw materials and other goods more cheaply than they would otherwise have been, their competitive position could improve. But whatever about these fears I want to repeat now what I said last week. If significant short-term difficulties arise from our joining the system the Government will help in a positive and significant way.
Another argument—connected I imagine with the previous objection—is that the system will affect our chances of achieving full employment. I would like to be clear on this. If there are those who believe full employment is helped by inflation, which even at 8 per cent a year cuts the value of money in half every eight years, then I think they need to have the logic of their argument examined. Inflation does not help employment: it destroys it. It diverts investment from manufacturing and agriculture and other work which creates employment. This is not the way of economic or social advance.
Inflation is a form of taxation which, if continued, can divert an ever-increasing proportion of the nation's resources away from the people into the public purse and this happens without any direct action of Government and without even public comment. It produces strains in the relations between labour and management, of the sort we are seeing now as workers try to preserve differentials which are being automatically destroyed simply by the inequities and distortions resulting from inflationary price rises and other pressures. It is hard to believe that anyone can readily argue that investment and employment can be helped by such ludicrous economics.
A further obvious concern for the Government here has been the effect which adherence to the system would have on our relations with Northern Ireland. In my statement last Friday, I said that the move would add a further dimension to partition but that the ultimate benefits of membership of the system could outweigh the problems.
As a consequence of the decision of the British Government, Northern Ireland will not be within the exchange rate arrangement from the commencement of the system. I want to stress this—any difficulties that arise do not flow from any decision by our Government to hold back from joining a Community system. Nevertheless, we gave the most careful consideration to the implications of Irish membership, in the circumstances as they exist, for relations with the North and for progress towards the national objective of the coming together of all the people of Ireland, by consent and under agreed structures. Our conclusion was that, on balance, our participation would help progressively to expand cross-border trade and economic co-operation and to promote progress towards the national objective. More generally, the fact and economic benefits of membership should heighten the perception among people in Northern Ireland of our comparable levels of economic development and living standards and of our independent political role in Europe. I think it is fair to say that this assessment was shared by the delegation from the SDLP which I met last Friday, in company with three other Ministers.
For practical purposes, there will be no restrictions on the importation, exportation and acceptance of currency in reasonable amounts for normal, social, shopping and tourism purposes in Border areas. It may, I believe, be expected that most traders in those areas and many others also will continue to accept the currency of the other area for normal trade purposes, despite some possible inconveniences.
Participation in the system will not give rise to any new formalities in the fields of customs and excise or agricultural trade in respect of goods or produce crossing the Border. Thus, the actual impact on the general run of businesses and on the ordinary person involved in cross-Border transactions should be a good deal less than may have been expected initially.
When I said last Friday that problems could be overcome, I had in mind the conditional element attaching to our benefiting from the system as we should. If our people respond to the challenge, the benefits for North-South relations and for realisation of our national aspiration can be immense.
I turn now to the factors which influenced the Government in reaching their decision to join the new system.
The system represents a major new step on the way to the objective set out in the Treaty of Rome, "the ever closer union of the European peoples". If the system is effective and especially if it proves to be durable, it will lead towards monetary union and the launching of a single European currency. This, in turn, would have the most profound implications for the political development of the Community in the direction of a European union.
I believe that the attainment of European union could have an immense influence for good in the world. Purged of any colonial vestiges in its external policies, the European Community can provide an example to the world of the benefits of democratic government, of respect for human rights, of social progress and of a common identity and citizenship grounded on respect for the cultural diversity of its constituent parts. It can play, I believe, a major role in promoting political stability, peace and justice throughout Europe and the world at large. It can play a major role in the war on want and in helping to raise living standards in the Third World.
Internally for us in Ireland, there can only be benefit in the development of a European political entity responsible, in parallel with its member states, for the welfare of all its citizens. Some Deputies seemed to find it incredible last week that I should seriously believe in the concept of a European federal society on the lines of the USA in which there would be a grouping together of a number of peoples broadly pursuing common objectives in the interest of all. I believe that the Community can evolve to an entity with a common concern for its component parts. It is premature to talk of federalism and certainly a European union will not be the same as the major continental States, for Europe's distinguishing characteristic is its historic diversity. Already we are seeing the gradual development of a common European consciousness among the peoples of the Community, a process that will be given a major fresh impetus by the direct elections to the European Parliament.
I have been talking of long-term objectives. But one cannot hope to reach such objectives if one turns back on the road towards them. To my mind, it would have been a matter of deep regret if Ireland and Italy had to stand aside from this historic step. Had both countries, or any one of them decided not to participate, we would be faced with the danger of providing a basis for the creation of a two-tier or two-speed Community, to the detriment of all the prospects to which I have referred and to the certain disadvantage, within the Community, of the countries in the lower tier.
In the more proximate future, we can gain, in the short and medium-term from the greater expansion of trade within Europe and indeed worldwide which monetary stability in Europe should promote. A large proportion of the trade of the member states is within the Community itself. The Community is, indeed, the largest trading bloc in the world. Yet it is the only major such bloc which suffers from currency instability within itself. As this has intensified in this decade, the inhibiting effects on trade have become correspondingly more severe. For this country, with commodity exports valued at just under 50 per cent of our GNP, anything which puts a brake on trade is detrimental to our development prospects. This is not to say that the more rapid expansion of trade which the EMS should promote will automatically entail benefits for Ireland. The potential for benefit is certainly there, but it can only be realised by adjusting our income expectations to the new realities.
With our lag in levels of development and income this country needs massive investment. Our participation in the EMS can greatly help to promote this investment. First, greater monetary stability will certainly give a fillip to investment across frontiers. Again, the extent to which we obtain a share of increased investment will depend on ourselves — on our costs, on the state of our industrial relations, on the attractiveness of our industrial incentives package. If we can provide a satisfactory environment in these respects, we can attract much more of the mobile investment which is seeking locations everywhere in the world today. The scheme announced yesterday by the Minister for Industry, Commerce and Energy, will certainly give impetus to the attraction of further industrial investment.
An important part of this environment is the infrastructure which supports and may crucially affect the return on industrial and other productive investment. The financial assistance being provided by the Community and bilaterally by the more prosperous member states will help us to accelerate our investment programme in this vital area. What we have been discussing will increase both our need and capability to provide better roads and telecommunications, better housing and better transport facilities: in short, if we manage our affairs properly, a better environment in which to live and work.
Our adherence to the new system will mean discipline and it will bring risks. I am not trying to hide that. It is the business of the Opposition to highlight the disadvantages. Let them do that, if they wish to approach a national issue in that way, it is their right, and perhaps even their duty. But it is the business of Government to seize the opportunities: and that is what we are doing. We see the new system as providing the basis for an expansion of world trade and investment and renewed economic growth in the European Community. As I said earlier, our decision to join the European Monetary System was taken after the most careful consideration, without pressure or dictation from any other Government. It was an independant decision by a sovereign country in our own interests. That decision can provide us with a chance to take a rightful part in the building of that Community in which we believe: and to advance the interests of the Irish people at home socially, economically and politically. In this enterprise, we have faith in their competence, good sense and ability.