Private Members' Business. - Exchange Rate Policy: Motion (Resumed).

The following motion was moved by Deputy Noonan(Limerick East) on Tuesday, 20 October 1992.
That Dáil Éireann, mindful of the adverse effect on certain businesses which the devaluation of Sterling has caused and conscious of the heavy burden which recent interest rate increases have imposed on borrowers, particularly those with high mortgages, calls on the Government:—
—To reduce employers' PRSI payments in respect of those businesses most adversely affected,
—to cover the exchange rate risk of those firms which borrow abroad for the purposes of expansion and job creation,
—to moderate the distortions in cross-border trade with Northern Ireland by reducing the standard rate of VAT and the incidence of Excise Duty,
—to introduce measures to protect mortgage holders, both in respect of the tenure of their homes and the level of their repayments, either by adopting credible economic policies which will quickly reduce interest rates or by restoring full mortgage relief and
—to state its exchange rate policy and explain how all its recent actions are consistent with this policy.
Debate resumed on amendment No. 1:
To delete all words after "That" and substitute the following:—
"Dáil Éireann endorses the firm exchange rate policy of the Government and the response of the Government to the recent turbulence in financial markets and welcomes, in particular, the measures taken by the Government to alleviate the adverse effects on Irish businesses of the sharp and sudden depreciation of Sterling within a framework of continuing budgetary discipline".
—(Deputy O'Rourke.)

My colleague, Deputy Gerry O'Sullivan, suggested that there was a possibility — and, indeed, an opportunity — available to the Minister for Finance in this area as it related to the devastation caused to mortgage holders. He said that in the promised Finance Bill there is an opportunity to introduce a mini-budget, particularly relating to home owners, to protect them from massive increases in their mortgage payments. I am sure that not many Members are exempt from mortgage payments. Indeed, many Members are already involved with families who are suffering the hardship caused by increased mortgage repayments, particularly when there is such a high rate of unemployment. On a weekly basis Members must negotiate with and make representations to the housing section of the local authorities which deal with mortgages in varying degrees, from low rise mortgage repayments to ordinary secured loans, those who are not included in the fixed income schemes and other areas. We also have problems with banks and building societies on a regular basis, which is understandable, with 300,000 people out of work. These people have now been notified by the various agencies of the 3 per cent increase in mortgage repayments which puts an additional burden on them.

We suggested an instrument which the Minister could use to give 100 per cent relief to people in their taxation payments, up to a figure of £5,000, compared to the existing figure of 80 per cent on a maximum of £4,000. We suggested this because the Minister stated categorically that the crisis would be short term. If so, the solution will also be short term and will not cost the Exchequer much. However, it would be an indication that the Government are concerned about the area of mortgage repayments and interest increases.

The Government made another suggestion in relation to the market development fund and the sum of £50 million. In principle we would all welcome that and it is obvious, from reading the guidelines in this document — we are not yet sure how bureaucratic the allocation of the fund will be — that it could bring relief to certain areas of industry, particularly those involved in exporting. However, having looked at this and at the guidelines laid down in the document, it is clear that the agriculture and food industry in particular, for which I have responsibility in my party, are excluded to a large extent because of the concept of the 10 per cent corporation tax clause which is included as one of the conditions. The vast majority of that part of the industry in agriculture and food are exempt from corporation tax and are involved only directly in the payment of income tax. The same applies to the sheepmeat and pigmeat trade which are excluded because of the employment content of the clause of 15 per cent.

Because of that, the agricultural sector and the sheep farmers in particular found it necessary to come to the streets of the capital city yesterday to reinforce their case because of what happened to the payments for ewes and lambs, amounting to about £6 per head. Those people had much more important things to do than protesting in their thousands in Moles-worth Street. Their incomes have been depleted a week after the Minister said they would be increased. I met their leaders yesterday and I know that they do not want to be coming to Dublin to protest. However, they feel they have to because of the lethargic response from the Commissioner — who is about to retire — and the Minister for Agriculture and Food who keeps promising that he will attend the meeting of the Council of Ministers in Brussels to restate their case for the continuation of proper payments. I sincerely hope the Minister will do so and will be successful in this regard.

I do not know how the Deputy can relate all these matters to the exchange rate.

They are linked to the economy and the exchange rate and what happens in relation to the mechanism of payment of premiums as they relate to our farmers.

(Limerick East): Deputy Ferris is looking for votes.

I am a member of the Oireachtas Joint Committee on Legislation referred to by previous speakers.

That does not make it relevant.

The committee will be discussing in detail tomorrow morning the issues referred to, the implications for Ireland of the recent events in the financial markets, particularly as they relate to the exchange rate mechanism. I do not want to prejudge what the committee will come up with by way of findings, which I hope will be debated in the House but, having read some of the independent views which have been made available to us — and of which the committee are aware — it is clear that there are stark realities facing this country arising from the exchange rate control mechanism, the implications for sterling and the fall in its value.

A recent document in relation to the implications for Ireland of recent events in the financial markets states:

If one abstracts initially from the possible consequences for output and employment, sterling's fall has two effects on the Irish economy. Firstly, it reduces the Irish pound's equivalent price of Irish exports to the UK and, secondly, it reduces the Irish pound's equivalent price of imports from the UK.

It also says that both these effects create the potential for the profit margins of Irish firms who compete with UK producers, whether on the home market, the UK market or, indeed, in any other market, to be significantly reduced and in some cases for these profit margins to become losses. This, in turn, creates the potential for output to be cut back and for jobs to be lost.

The Minister, in his defence of the Government's efforts to ensure that the exchange rate mechanism — of which we are part and out of which Britain has opted — said he prided himself on the fact that this country has managed to weather the storm. It is quite obvious that an independent economist examining the situation in the market-place would know that the value of our exports to the UK and the mechanism which has affected sterling because of its removal from the ERM means that we will have much greater difficulty in trying to remain competitive in the UK and to survive in the other markets which we have been trying to support within the Community.

I should like to share my time with my Government colleague, the Minister for Finance, Deputy Ahern, and with my colleague, Deputy Máirín Quill.

Is that proposal agreed to? Agreed.

I am very pleased to have an opportunity to contribute to the debate. It is very obvious that due to the consistent attitude and outlook for the national economy of the Government since 1987, despite a world-ravaging recession and very unstable international currency conditions, we have made very solid decisions with which the markets, the investors and the public are pleased. Due to the solid and prudent management of the economy by us in Government since 1987 the punt has withstood international currency pressures and will continue to do so. Correspondingly, the Minister for Finance, on behalf of the Government and along with his colleagues, has put in place a series of remedial measures for exporting companies, measures which are designed to assist those companies in their efforts to maintain a competitive position in the international market-place.

The Minister for Industry and Commerce has already outlined to the House the steps taken by the Government to assist firms adversely affected by the currency turmoil. An Bord Tráchtála took several urgent actions with a view to helping firms assess their position and discussing options for further action. The report of the working group established by the Government to examine and make recommendations on the problems facing firms as a result of the currency fluctuations was considered by the Government with maximum speed and an announcement on the matter was made on 6 October last. The market development fund was established and was in operation within days. The fund was initially put together and announced on behalf of the Government by the Minister for Finance and is being implemented by the Minister of State at the Department of Industry and Commerce, Deputy Mary O'Rourke. The Supplementary Estimate for the provision of funds for the current year was, as Deputies know, passed by the House on Thursday, 5 October. The general financial and trading criteria being applied by the team have been designed to focus support on firms that have been most seriously affected by the recent currency turmoil. Firms must demonstrate an action plan that shows the way in which they propose to maintain and improve their competitiveness in ajusting to the significant changes that have taken place in the market-place.

Minister O'Malley thinks that he is responsible for it but the Minister has not mentioned him at all.

I think Deputy Barry is being a little mischievous. It is important to recognise that the present Government are a Government of total collective responsibility and total collective commitment and of absolute confidence in our management of the economy and of the country. The Deputy can be sure that we will continue to do our job in a very committed way, with absolute collective consensus, for at least another two years. I hope that the Deputy will be able to relax, adopt a very positive attitude and assist the Government on behalf of the Irish people in redressing the serious circumstances that the international climate has foisted on us.

The Minister should give the man credit for what he did.

The Government are very committed——

(Limerick East): Minister Harney used the exact same words before tea.

The Minister of State should be heard without further interruption.

We are all very committed to the EMS, which has served this country well and which has been much to our benefit in past years. Obviously, the overall long term goal of Ireland, the Government and the member states of the Community must be to create a common currency. It is necessary for the Community and the member states to ensure that the mechanisms are put in place and that there will not be vast unnecessary movements of capital such as those experienced some weeks ago which created the international currency turmoil.

The management of the economy by our Government meant that we had low inflation, we were competitive, our interest rates were steady, our balance of payments position was right and our budget stability was assured. That achievement put us in the position in which, even though Ireland is a very small, open economy — a small island in a big trading group — we were able to sustain the pressure on currency. Tribute and credit must go to the present Government and the Government since 1987. The present Minister for Finance, saddled with addressing the current exchange rate fluctuations, has done an excellent job. Previous to him, the Taoiseach, then Minister for Finance, ensured that our economy, interest rates, inflation rate and competitiveness were in a proper state.

Last week the summit in Birmingham reassured us of the total commitment to the EMS. It is my opinion that that reassurance will help to stabilise the currency crisis. I am confident that the Government, with our careful management, will be able to secure and to support firms that are dependent on exports and are victims of the present conditions. The mechanism is in position, the commitment is there, the Government have the ability to deal with this matter and consensus political support is needed in the interests in those who are trying to create growth in our country, make a contribution to our balance of payments position and make a contribution to our economic development. In the interests of all those companies and everyone involved in them it is vital that the Government have unanimous support for the measures being taken in the overall interests of our country.

I reiterate that I am to share some of my time with Deputy Quill if she arrives in the Chamber.

First I should like to apologise to Deputy Noonan (Limerick East) for not being in the Chamber last night during his speech. I assure the Deputy that I was listening to him and saw his full contribution on the monitors. I would not like the Deputy to feel I was not taking heed of his statement. I disagree with Deputy Noonan on some of the comments he made last night but at the outset I should like to thank him for the responsible comments and statements he made during what was a particularly difficult ten days. Deputy Noonan's statements were in the national interest and they were extremely helpful and positive.

The Government's consistent policy in relation to our currency has been to maintain a firm exchange rate within the European Monetary System. That policy and the other domestic policies required to underpin it have yielded considerable benefits to us in terms of inflation, competitiveness, interest rates, balance of payments and budgetary stability. I do not propose to dwell on all these matters but I would like to emphasise our achievements as regards prices and interest rates. Our inflation is now one of the lowest in the Community and, in the period from March 1987 to the end of August this year, the differential between German and Irish interest rates fell from over nine percentage points to about one percentage point.

(Limerick East): What is it now?

The position is changing almost by the day. I think we would probably be back about three to four percentage points on last week's differential. Ten or 11 days ago it stood at about seven percentage points. The differential has fluctuated greatly.

The EMS has served us well, as it has served the Community well, in creating a zone of stability in Europe. Last month, however, the system was put under severe strain, so much so that we witnessed something that had never happened to it since its inception. That sobering experience was the decision by two members to suspend the participation of their currencies in the Exchange Rate Mechanism. Such drastic action was a reflection of the strength of the forces of speculation which assailed the system.

It is, to my mind, a matter of great regret that this action was taken, because I am convinced that it could have been avoided if the ERM had been used as flexibly as it had been in the 1980s. This, however, is no time for an analysis of what might have been. The fact is that these events have occurred and we all have to live with the consequences. For us, the most immediate of these consequences was the sharp and sudden depreciation of the pound sterling, the currency of our single largest trading partner in the Community. another, more insidious, result is the volatility of sterling since it was allowed to float. Hopefully, however, this factor will diminish in importance as the foreign exchange markets settle down after the recent bout of turbulence.

In this context I am glad that last week's special European Council endorsed the view of the ECOFIN Council that the recent financial turbulence called for reflection and analysis in the light of developments in the capital markets and in the European and world monetary systems. To this end, the ECOFIN Council this week formally requested the Monetary Committee and the Committee of Central Bank Governors to carry forward that work. I look forward to the results of these studies, which, I hope, will address the problem represented by daily volumes of foreign exchange transactions which exceed the combined reserves of industrialised countries. As we have seen such capital movements can threaten the stability of currencies which, on the basis of all accepted economic criteria, should be rock-solid. Means will have to be found to discourage such speculative excesses without, however, prejudicing the principle of freedom of capital movements.

The Government were, of course, faced with a cruel dilemma in the face of recent exchange rate disturbances. But, to us, the answer was abundantly clear, namely, that under no circumstances were we going to opt for a course of action which would endanger the longer term interests of the economy. Devaluation, either within or outside the ERM, would have been such a course.

If we had taken the devaluation option we would have been running enormous risks, a few of which deserve specific mention. One is the danger of reviving the inflationary psychology which did so much damage to our interests in the 1970s and early 1980s. Another is the fact that our hard won credibility as a prime location for foreign portfolio investment would be dashed and with it would go such benefits as the reduced interest rates which we enjoyed over the past few years. Moreover, such is the size and distribution of our foreign debt that a devaluation would seriously unbalance the public finances. If any of these risks materialised, it would put paid to any hopes we have of being a founder-member of economic and monetary union.

Some Deputies may contend that the higher interest rates we are now temporarily experiencing are too high a price to pay for our firm currency policy. To that, I would respond that the recent regrettable but necessary increase in Irish interest rates was not due to the fact that we have maintained our firm currency policy. It was, in fact, because investors and others are afraid that we will not do so. Devaluation of the Irish pound in the EMS would only confirm the worst fears of international investors — their perceptions of the value of investment in Irish pounds would be seriously undermined. As a result, Irish investments would need to offer a higher return so as to attract funds. Therefore, the effect of a devaluation would be to sharply increase the interest rate differential with Germany and other narrow-band ERM countries for many years to come, compared with what it was before the current period of turmoil.

Devaluation of the Irish pound has not been successful in bringing interest rates down in the past. We tried that route in August 1986 when the Irish pound was devalued by 8 per cent in the EMS. At that time, the improvement in the interest rate position which resulted from the weakening of the Irish pound vis á vis sterling, in so far as there was any, lasted only a matter of weeks. Wholesale interest rates soared in the last quarter of 1986. In October of that year there were increases in retail lending rates of between 2 and 4.5 percentage points, as a result. Building societies also announced increases of 3 percentage points in mortgage rates.

They will be announcing 3 per cent more.

The August 1986 devaluation of the Irish pound was also followed by sharply higher gilt yields — which meant higher Exchequer debt service costs. This was despite the fact that the Irish gilt market at that time was much less internationally oriented than is now the case, a fact evidenced by the range of capital controls which was in operation at the time.

These considerations are clinching arguments in favour of maintaining our firm exchange rate policy within the ERM and I am glad to note that the Government's position in this is endorsed by the two main Opposition parties and the overwhelming mass of business and academic opinion. In fact, that policy is the only one which will ensure that, when the present temporary period of market turbulence comes to an end, we can move back to interest rates close to those of Germany, and retail interest rates and mortgage rates can fall. In this, I am pleased to be able to inform this House that there are already signs of an easing in wholesale interest rates.

In adopting our strategy, we were acutely conscious of the immediate problems caused to some Irish businesses by the depreciation of sterling. We recognised that they would have difficulty in maintaining their positions in competition with UK firms and that a serious threat to jobs existed in that situation. With this prospect in view the Government on 6 October last announced the setting-up of a market development fund of £50 million for the period up to the end of March next. This will assist firms which have been seriously affected by recent exchange rate movements and will thus help to maintain the stability necessary to sustain Ireland's position in the ERM. My colleague, the Minister of State responsible for trade and marketing has already given the House details of the scheme and the other initiatives taken by the Government. I shall not elaborate further upon them.

I would now like to address the specific recommendations made by Deputy Noonan. The type of policy response to the current difficulties recommended by the Deputy would be a prescription for economic disaster and disorder. Deputy Noonan has been extremely constructive during the past number of weeks and I can only take issue with some of the points he made last night. He has taken a very strong and supportive line on this policy. I am not going to get into a shouting match across the floor.

Because it is our policy.

I am glad the Deputy is supporting me on it. To put forward, as a policy approach which would best serve the national interest, a wish-list of measures to alleviate every adverse aspect of the currency shock and its knock-on effect is disingenuous. Indeed, to suggest that the budget should be used in this way is simply irresponsible. The combined cost of all the measures sought would be such as to drive borrowing up sharply — reversing the whole thrust of policy in recent years. Moreover, the effect would merely be to put upward pressure on taxation over the next few years, thus reversing the process of tax reform on which so much progress has been made. At a time when we need to sharpen our competitiveness further, this is hardly a course that could be recommended.

Let me take, as a specific example, the proposal that mortgage interest relief should be fully restored. The fact is that mortgage interest tax relief already provides very significant assistance to borrowers. The estimated cost of the relief in terms of tax forgone, before the recent increase in interest rates, was put at £184 million in the 1992-1993 tax year, and the recent increase in interest rates will automatically push up this cost, even without any increase in the relief ceiling. The Revenue Commissioners calculate that restoration of the relief to 100 per cent of the present £4,000 ceiling would cost £50 million in the current tax year. If concessions of that magnitude were to be made in addition to existing costs of the scheme as it stands, they would have to be funded by either increased taxation, generally, expenditure cuts, over and above those already required, or increased borrowing, The first course would be totally against Government policy, the second would be very difficult to achieve and the third could affect investor confidence to the extent of delaying a return to lower interest rates which is the outcome most vital to borrowers at this stage. I do not see how any of these three possible consequences would serve the national interest.

I must, however, commend mortgage lenders for responding to the immediate problems created by the increase in mortgage rates by providing the option, to people who wish to avail of it, of deferring collection of the increase for a period of at least three months with the deferred payment being added on to the amount of the loan outstanding. This is a practical response which is consistent with the short term nature of the increase and the fact that it would be totally unacceptable to further increase the demands on the Exchequer.

The suggestion to reduce employer PRSI payments in respect of certain business betrays a misunderstanding of our PRSI system. That system is a universal one which is concerned with the contributions in respect of individual workers and the resulting eligibility for benefits. It is not suited to differentiation by reference to either individual firms or sectors. Besides being inequitable and inefficient, as a means of targeting relief, a sectoral differentiation would be extremely difficult to administer on any kind of a stable basis. Firm by firm differentiation would require the use of information and criteria which are entirely outside the scope of social welfare legislation and administration.

(Limerick East): The Minister of State at the Department of Industry and Commerce, Deputy O'Rourke, said last night the Minister would still consider it as an option and that he might do it if the crisis continued between now and Christmas.

Deputy O'Rourke said that if the crisis continued in the long term that would be considered but that is the Government position. The necessary legislative and administrative changes could not be brought in easily or quickly and the resultant system could only apply on an inflexible basis with no guarantee of effective targeting. Such differentiation would thus be an inappropriate use of the PRSI system. Moreover, even if it were easy to accomplish, any such differentiation would lead to demands for its extention to other sectors and an across the board reduction of 1 percentage point in employers' PRSI would cost no less than £85 million. Clearly, therefore, no responsible Government could go down the road suggested by the Deputy in this respect.

The question of covering the exchange risk of firms which borrow abroad does not arise because the rationale of our firm exchange rate policy is that there should be little or no exchange rate risk in commercial or financial dealings with countries which are members of the narrow-band of the ERM. The situation in relation to non-Community currencies, such as the US dollar, remains the same as it was before, that is there is and will be no cover for exchange risks.

With regard to any incentive to increased cross-Border shopping induced by the depreciation of sterling, it is essential to keep a sense of proportion. I certainly am not going to be forced into panic measures, such as costly VAT or excise duty reductions outside of the normal budgetary process, especially when there is no clear evidence that there has been anything more than a modest resumption of cross-Border shopping. Notwithstanding the strengthening of our currency in the intervening period, the scale of movement is a mere fraction of that experienced in the mid-eighties. I realise, of course, that this is a time of great uncertainty and I am aware of the potential damage to trade that large scale currency fluctuations can bring. For this reason, I shall be monitoring the situation carefully.

In sum, it would be all too easy in the short term to take soft options and compensate everybody for the costs of the recent currency shock. That was the approach taken to other crises in the past, particularly the oil-price shocks. With hindsight, it is now clear that choosing the soft option in response to these crises was a serious mistake.

We must also remember that considerable benefits will flow from the depreciation of sterling. Many inputs to industrial processes will be cheaper, as will finished goods imported from the UK. It is vital that all those involved in the production and distribution chains who benefit in this way should pass on these lower prices. By so doing, they will shorten the interval and ease the burden of adjustment of our economy to its new exchange situation in relation to sterling.

We are well geared to making that adjustment because our ability to maintain the macroeconomic and exchange rate policies which have laid the foundations for strong sutainable growth in the long term has been tested and proved. But we must continue to deepen these policies. A sustainable budgetary policy, responsible wage and cost developments, the enhancement of restructuring and growth potential in key sectors and the effective utilisation of assistance from the Community's Structual Funds are central elements to our continued success.

The factors have increased domestic and foreign confidence in Irish economic performance and, as I have already said, helped lower interest rates. This has underpinned the significent progress in investment, growth and relative incomes achieved since the mid-eighties. For example, between 1986 and 1990 fixed investment increased by 22 per cent in volume terms. At 6 per cent, our annual average growth in real GDP was well ahead of our EC competitors. Improved competitiveness meant that Irish exports increased their share of external markets leading to a trade surplus of over 10 per cent of GNP this year. Our rate of inflation of 2.8 per cent is one of the lowest in the EC and well below the current level in Germany. Most satisfying of all, is that total non-agricultural employment increased by 54,000 between 1986 and 1991.

Whiler recording these advances, we have, since 1988, consistently kept the Exchequer borrowing requirement to less than 2.5 per cent of GNP each year, and that will be the case again this year. As a consequence, the debt-GNP ratio fell to under 105 per cent by end-1991 and it will continue its decline this year.

These are commendable achievements which have been applauded by other member states. Indeed, as I have already informed this House on other occasions, the Council of Finance Ministers concluded in Feburary last that Ireland already complied with the objective criteria for the move to the third stage of economic and monetary union.

Despite external recession, our impressive economic progress is being maintained this year. My Department's Economic Review and Outlook 1992, published in the middle of August, forecast growth in real GDP of the order of 2½ per cent this year, compared with the EC Commission's forecast of 2¼ per cent. Recent forecast by other agencies have been more optimistic. In September, the Central Bank and the ESRI forecast GDP growth of 3½ per cent and 4 per cent respectively — well ahead of both the EC Commission's forecast of average growth in the Community of 1¾ per cent growth and the OECD's forecast of average growth of the same order in the OECD area. Clearly, we are continuing to perform better than our competitors.

Consumer spending is growing broadly in line with the rise in real disposable incomes allowed for in the 1992 budget. To date retail sales are about 3 per cent higher compared with the corresponding period of 1991. Car sales have been very weak in the early part of the year but have improved in recent months. Merchandise exports increased by about 12 per cent in the first seven months of the year and output in manufacturing is up by 10 per cent. These factors indicate the remarkable resilience of the Irish economy in the face of external turmoil.

The bottom line for most people is employment and here again we appear to be maintaining our position. The Economic Review and Outlook 1992 projected growth in non-agricultural employment of about 5,000. Leading indicators suggest employment is indeed continuing to rise. Training and employment levy receipts show a year-to-year rise of 7½ per cent up to September, which is a good indicator of rising employment.

In conclusion, I should like to emphasise that a strong currency must be based on strong economic fundamentals. Our fundamentals are strong. The conclusions of the February ECOFIN Council explicitly recognised this. Our ability to sustain our position in the EMS is widely and justifiably acknowledged. Our present prudent economic and budgetary policies, backed by a firm exchange rate policy, have proved sucsessful in sustaining our performance. We have consistently been able to adjust quickly and decisively where necessary to changing external developments. We have demonstrated that capacity again in response to the recent currency turbulence.

Deputy Yates raised the issue of the exchange rate formula used in determining the customs value of imported goods for the purpose of calculating VAT at the point of entry. He specifically asked if an approach had been made to the EC Commission to allow us to ignore the requirements of Community law which provides for a fixed monthly rate subject to a weekly review and to establish instead a system which would be based on daily exchange rates. There is no provision in the governing EC regulations whereby one member state can operate, or even apply to the Commission to operate, a unilateral derogation in relation to the exchange rate system which has been fixed. Any change to the existing system of calculation would have to be approved by all 12 member states. It was recently pointed out to this House that VAT at the point of entry is reclaimable by registered traders. Any disadvantage arising from this can only be a temporary cash flow problem. I also said that the formula was being used at the behest of the users of this system. I commend the Government's amendment to the House.

I regret to inform Deputy Quill that she has approximately three minutes.

I welcome this debate if for no other reason than I believe it is important for us to signal to members of the community — mortgage holders and consumers, those who are suffering as a result of the current financial crisis — that we are not immune to their problems and that as legislators we are doing our best to find ways and means of offsetting the worst effects of these problems on them at present. With regard to mortgage holders, I do not suppose there is ever a good time for a 3 per cent increase in mortgage repayments, but there could hardly have been a worse time to announce this increase than after the summer holidays when thousands of families were trying to put up the money to send their children back to school or fund third level college fees. This increase could not have hit mortgage holders at a worse time.

(Limerick East): Hear, hear.

An insensitive Minister.

The Minister did not cause this crisis. I am glad to say that the lending agencies and building societies have responded in a very responsible fashion by delaying and deferring the repayment time. I hope that by the time the three months period has expired this crisis will be over and done with and rates will be reduced to the level which applied before the ERM crisis.

(Limerick East): It is lucky the Progressive Democrats had not abolished mortgage interest relief.

It was crucial for the Government to take important measures to help industries, especially those dependent on the British market. Important and very welcome measures were taken by the Government to help those industries and save jobs. It is equally important that we monitor measures which will enable people to hold on to their homes: the two most important things to any family are the family home and jobs. I am satisfied that the Government have taken realistic measures to help industry. I say to the Minister that as matters stand householders expect interest rates to be reduced within the next three months. If this happens, mortgage holders will be able to cope as a result of the action taken by the building societies. I say to the Minister that this issue has been monitored very carefully on a month-to-month and week-to-week basis. If the building societies continue their present policy everything will be right. However, if this is not the case, the Minister will have to adopt a sensitive approach to these matters and keep the predicament of mortgage holders at the top of his agenda at all times.

In relation to the price reductions that ought to be passed on and about which the Minister of State at the Department of Industry and Commerce, Deputy O'Rourke, spoke last night, I want to draw attention to the fact that from my experience as a shopper and from the experience of a number of consumers I have met, these reductions have not been passed on. I ask the Minister to monitor that matter on a daily basis. If we have to pay the price at one level, surely in all justice we should reap the benefits at another level.

With your permission, A Cheann Comhairle, I wish to share my time with Deputies Harte and Hogan.

Is that agreed? Agreed.

The Taoiseach, Deputy Reynolds, appears yet again to be following the path adopted by his claimed friend the Prime Minister of the UK, John Major. Just as the British Government's economic policy has fallen apart, the Taoiseach and this Government have done likewise in an equally spectacular style.

We have heard this Government complain that everyone else is to blame for our economic crisis. The Taoiseach accuses businesses exporting to the UK of whining. Anonymous speculators are conjured up in the imagination as some great ogre to be tackled. The German Bundesbank, that convenient whipping boy, is accused of not taking sufficient account of Ireland's special problems.

In so doing the Taoiseach and the Minister for Finance are like Don Quixote and Sancho Panchez tilting at windmills. They fail to see what everyone knows — Ireland has no exchange rate policy and little direction left to its economic policy. The only policy operated by this Government is shallow and glib, rooted in narrow political terms and put into operation regardless of its impact on the country.

The country is in a serious economic crisis. Our main market and competitor, the United Kingdom, has effectively devalued its currency against the Irish pound. One third of our goods are exported to the UK and more than 40 per cent of manufactured exports from indigenous firms go to that country. It is also a supplier against whom businesses here must compete on the home and export markets.

The Government rushed to set up the market development fund. The Minister of State, Deputy Treacy, was somewhat petty tonight because, in fairness to the Minister for Industry and Commerce, Deputy O'Malley, it was he who was responsible for the setting up of this fund. He answered questions in the Dáil about a fortnight ago in that regard. It is indicative of the tension within the Government that the Minister of State, Deputy Treacy, could not bring himself to give credit to the Minister for that. What has been heard of that fund since the EC Commissioner was belatedly informed by the Government of their intention to implement the scheme? Did the Taoiseach raise the matter at the EC Summit in Birmingham to obtain EC clearance for the fund? Was clearance given to the Minister for Finance at the ECOFIN Council for this fund?

The first payments from the fund are due this week, but will the Minister say if these will be paid or are we dependent on EC imprimatur before the money can be paid? If payment is made prior to EC approval will the EC require repayment? The sad thing about this Government is that they are consumed by public relations and I hope the market development fund is not just another part of that exercise. The Government are only interested in announcing schemes and cares little whether the scheme gets off the ground and even less about whether it achieves its objectives. The market development fund is not a substitute for a clear statement of economic policy and a clear exchange rate policy. It is a sticking plaster approach which cannot hope to offset the full impact on the economy and on business of the fall in the value of sterling.

Many service firms supplying the United Kingdom or competing with firms there are not covered by the fund because the application form refers to the manufacture of goods. No definition is given of this. Does it refer to the tax definition of manufacturing? That must be clarified. In everything the Government have done in regard to the present job strategy or in relation to this fund over the past three months no mention is made of tourism, one of our major industries. Tourism is not catered for in this fund despite the disastrous prospects for the tourism industry next year.

Combined with high interest rates, depressed demand and higher business costs being imposed by the Government, the ability of many businesses, especially indigenous businesses, to survive is under severe threat. A survey of 2,000 businesses published earlier this week indicated that only 8 per cent of the respondents believed that the Government's job creation strategy was on the right track — an overwhelming 76 per cent believed it to be incorrect. This is in spite of the list read out by the Minister for Finance today. This is a massive thumbs down to the Government, their job creation strategy and their economic policy. It is time the policy and the Government were changed.

This Government do not realise how their actions are fuelling uncertainty and further undermining confidence. In the midst of this crisis the Taoiseach, with the narrow aim of wrongfooting other parties, chose to put forward an approach to the abortion issue which showed scant regard for the immediate economic problems facing people or for the sensitivity and complexity of the issue itself. Instead of seeking to distract people's attention from the economic crisis, it would have been better if the Taoiseach had concentrated his own focus on the economy. Is there no end to the damage the Taoiseach is prepared to risk on serious issues merely to avoid being caught in the public glare as the Government's economic policy crumbles?

The Minister for Finance is no better. He introduced a disastrous Finance Bill earlier this year — anyone involved in business will agree with that. I believe he has been informed on more than one occasion officially, by both individuals in business and organisations representing business, that it has damaged confidence in business. One would have thought that the Minister would have tried to undo the damage of that Finance Act; instead he appears to be more concerned about somebody taking over as Minister for Finance than about the effects of the Finance Act, 1992, on businesses here. How could any investor in this country draw comfort from this appalling mess? How could any business person feel confident that the Government understand the huge fears and concerns that stalk many firms? With respect to the Minister and his officials, I believe that I have more daily contact with business people than they and I am not exaggerating in what I am saying here tonight. There is great fear among business people in regard to the future.

How will people, with their mortgages rising so dramatically, taking the last of their remaining discretionary spending away, feel when they realise that the Taoiseach is more anxious about political scraps with opponents and supposed partners in Government than in coming to grips with the problems of our economy? The ability of businesses to survive is not as strong as the Government state. Quoting overall aggregates and macro economic forecasts is no comfort to people who look at their declining order books and their rising bank borrowing. This Government must be brought back to their senses. People are faced with real problems whether they own businesses, work in a business or have a mortgage. The Government are shelving these problems while they get on with the unedifying sight of tearing themselves asunder.

In looking at the soundbite rhetoric the Taoiseach chooses to use as he tried to smooth away people's problems rather than tackle them, one is reminded of Nero fiddling while Rome burnt. The Government must wake up and listen to the realistic proposals being put to them in order to solve these problems. People's livelihoods are being put at risk while Ministers blandly re-echo jargon they pick up from officials on fundamentals and so on. At the end of the day there is nothing more fundamental for a business than getting and fulfiling orders and providing employment. Rising interest rates and falling demand are putting jobs in those businesses at risk and the Government appear neither to notice nor to care.

As a Border Deputy, I am disappointed that the efforts being made by the Government do not take into consideration the traders in what Deputy Cotter described last night as the Border corridor. Many people there are living in fear, not knowing what will happen next week and dreading the coming of Christmas when they should be looking forward to it. I listened to the debates last night and this evening and my conclusion is that this is all about money and about currency. If sterling had remained at 90 pence to our punt we would not be in the trouble we are in today. Therefore, I call into question the decision to break with sterling in 1979. I do that because I was the only Deputy in the House to protest at the time, not taking into consideration future economic arguments — and I could only disprove them having experienced the future which would be very presumptuous of me listening to the learned Members on the Government benches in those days — but I argued that it was wrong to make Irish money a foreign currency in six Irish counties. If we made sterling a foreign currency in the Republic, we were making our money foreign currency in the six Northern counties. That was anathema to my thinking. As I asked Deputy Roche last night, how do you unscramble scrambled eggs? The answer is it cannot be done. However, there is no reason we should not look to the past to see where we are today.

That decision was wrong and I believe the present economic climate has been influenced very much by what has happened. The break with sterling influenced the austerity of the eighties and now for the opposite reason, having had a weaker currency during the eighties, we will now have a stronger currency in the nineties and we will go through the same morass again. The people who will suffer most are those living in Border areas and there is no account being taken of that fact by the present Government. The reason I argue so strongly is that enonomic policies have further reaching; implications than economics itself. Economics and politics are intertwined, and it is preposterous to talk about political unity in advance of economic unity and to talk about political unity without addressing the issue of economics.

Unless we create a society on this island where people on both sides of the Border can trade with each other without the interference of Governments we will never have a united Ireland, whatever form that unity may take. That is very basic and is so fundamental to achieving a United Ireland that it puzzles me why educated men cannot grasp it. If we cannot understand the meaning of the money in our pockets, how can we grasp the more difficult abstract issues? If we cannot understand the economic issues that affect Northern Ireland, that calls into question all the major decisions taken by parties in this House concerning our relationship with Northern Ireland.

I appeal to the Minister to consider the traders in Border areas. I would have discussed this privately with the Minister earlier this evening but for the fact that I had to speak in this House. I have spoken to a number of Border traders, one of whom told me that his turnover for the week ending last Saturday week dropped from £9,000 to a little over £1,000. What hope is there for a man who is relatively new in business to stand up against that situation? All his customers are going to Northern Ireland to buy goods, not because they are cheaper there but because their money will buy more. If we could believe that the end to our problems was in sight and we could now look towards our future, that would give hope but we are not convinced that that is the case. Our pound might be so strong that it would cost £1.10 sterling to buy it and in such a calamitous situation how can people in Border areas continue in business?

I want a decision on this from the Minister now; tomorrow will be too late for these people who have been in family businesses for generations. They battled through the eighties, used their life savings as reserves to bail them out of their troubles, and having survived that and adjusted to the value of their money against sterling — one can live with any change in exchange rates if one has time to adjust — something then happens that reverses the whole position, resulting in total despair. I am pleading on behalf of people in Border areas, the hoteliers, the owners of licensed premises, the grocers, the owners of filling stations, every person in business in Border areas but particularly those in my own constituency and my own home town, Lifford, the towns of Moville, Buncrana and Letterkenny, which is the fastest growing town in the country. There are people there who are in business for the first time who are wondering what will happen next week if the value of the punt is equal to £1.10 or £1.15 sterling. This is a frightening situation and I am sure those of them who are having difficulties with their bank managers cannot sleep at night.

The Government have ignored the land frontier between us and Great Britain, namely Northern Ireland. If the decisions taken in this House applied to the 32 countries I would not be as emotional as I am at the moment in pleading for the people who are in the frontline in relation to this issue and who are being ignored by the present Government. To be fair to the Minister, I do not know what he is going to do to resolve the problem but he must do something because we have to show these people that there is some light at the end of the tunnel.

I have been a member of this House for 30 years, 20 of those trying to understand the problems of Northern Ireland, the reasons for all the violence on the island of Ireland and why we cannot have better relations with Great Britain. I have argued time and again on this issue and I thought I had got my message through to my own party but for some reason or other there is always a blinkered approach to dealing with economic issues. When considering economic issues in this House we are independent and we think independently. When we discuss politics we are talking about unity. If we are sincere about Irish unity and if we want to make a contribution towards bringing peace and normality to Northern Ireland and creating a society there of which we can all be proud, then every item of legislation that comes into this House, particularly those dealing with the economics of the island of Ireland, will have to take account of our relationship with Northern Ireland. Otherwise, we are not thinking out our course towards Irish unity correctly.

The Minister has a problem and I do not envy him his task. Previous Ministers have made major mistakes. They convinced us that joining the EMS and breaking with sterling was the right way forward, and there are people today who will say that it has made no difference. I know it has made a difference and the people in the Border areas know this also. To the people who say we should not be linked to the British economy because it is a weak economy, let me ask this question. How many young people left this island, North and South, to find a job, build a home, marry and settle down in Great Britain and how many of them returned successful young people having availed of opportunities that this island could not give them during the past ten or 12 years since breaking the link with sterling? Surely that is the acid test in answering the question whether we should maintain the economic link with Britain or with Europe.

In conclusion, I always believed that Irish unity was a very high priority in Fianna Fáil but since we began to discuss the European Economic Community, the unity of Europe has become a higher priority, an absolute obsession. The unity of Europe is to them paramount and of far more importance than the unity of Ireland, but I believe the Government have got that in reverse and that should be the other way around. We will have to pay a certain price, our pride, but the sooner we discuss economics with Westminster and find a solution so that we can establish a common trade, free market, equality of currency and political separation, which Grattan talked about 200 years ago, and which remains the answer to our problems on this island.

I realise the Minister has to deal with this difficult problem and I wish him well but I think he will have to acknowledge that Deputy Noonan and the Fine Gael Party have been more than responsible in regard to this issue. I ask the Minister to think very seriously about my plea on behalf of the Border traders.

I welcome this motion, which certainly has much more relevance to people in the real world than the issue which has taken up so much time in the House recently. Ordinary people will be looking to the response of the Minister to this motion rather than to the other issues debated today.

Every householder is facing financial problems as a result of interest rate rises which could have been avoided if the Government had accepted the Fine Gael strategy. Two days before interest rates were increased by 3 per cent, Deputy John Bruton made three solid proposals to avoid the increase in interest rates and to save jobs. These proposals were rejected by the Government even before they were read.

Despite the fact that thousands of householders are facing a 3 per cent increase in mortgage repayments, the Government have not reacted in a positive way to their plight. The hard-pressed houseowner is effectively paying £80 a month extra on a £40,000 mortgage as a result of these increases. If the Government are prepared to assist exporters by providing £50 million in market development grants, in breach of EC rules, I cannot see any reason why a similar Government commitment cannot be given to the financial institutions to protect the livelihood of exposed mortgage-holders.

I was surprised at the contribution of Deputy Quill. One would think that her party were not in Government. She castigated the behaviour of building societies and financial institutions on behalf of mortgage-holders. She spoke about the ineffectiveness of the Government in reducing prices as a result of the turbulence in the money market. This is the type of double think people have to listen to from the Progressive Democrats. It will be exposed between now and the general election.

Mortgage-holders and small businesses bear testimony to the fundamentals that are wrong in the economy. Even before the current turbulence in the currency markets there was effectively a huge strain on personal finances due to the attitude of financial institutions who were squeezing scarce resurces out of businesses and reducing their credit terms, particularly to larger companies. This percolated down to constitute a credit squeeze on smaller business and all other sectors of the economy. The only Government response was to wait and see, hoping that a rising tide would lift all boats.

The only response from the Minister for the Environment in respect of the problems of mortgage-holders was to meet the building societies and plead with them to do the best they could. Decisive action is now required and I support the call by Deputy Noonan, who has detailed the necessary measures to assist small businesses and mortgage-holders by reducing interest rates. I have not heard anybody contradict the line of action proposed in this motion. There has been some talk about events in the past but people are concerned about what is happening in the present and what will happen in the future. They are worried about their repayments schedule and whether they will have a job after Christmas if the present economic decline continues.

I hope the Minister for Finance will be in a position in the forthcoming Finance Bill to reverse many of the disturbing provisions introduced in the Finance Act earlier this year. Serious anti-employment measures are contained in that Act. The Minister had to engage in a considerable whispering campaign, even within his own party, to withstand some of the pressure from business people on Fianna Fáil Deputies. He had to take on an extra employee, a public relations consultant, to withstand the pressure from the media and his own backbenchers in respect of the anti-employment measures in the 1992 Finance Act.

We have been lectured day after day by the Minister of Finance that this turbulence is temporary. If he accepts that this is true, he should have no difficulty in putting the money where his mouth is and supporting home owners and small businesses on the same temporary basis in overcoming these so called temporary problems.

As a member of the South Eastern Health Board I can vouch for the huge increase in mortgage subsidies paid to mortgage-holders. The Minister for Social Welfare is tightening the noose around those people by restricting the payments which can be made on subsidies. That is not a helpful sign when people are hard pressed to make ends meet. The failure by the Government to take action immediately will result in deterioration in the financial problems of many people. This will put further strain on local authorities to rehouse people and on health boards to pay mortgage subsidies. The Department of Social Welfare will have to make further payments of supplementary welfare allowance to enable people to cope with financial hardships.

I call on the Government to stop talking about the problems of ordinary people and to take decisive action to assist the many people who are falling into the category of the new poor. Fine Gael are not prepared to allow a situation to continue whereby people whose income is just over the ceiling for a third level grant or for health care under the GMS system get nothing at all. Mortgage-holders are basically in the same category. They are largely PAYE workers who are unable to qualify for many benefits due to the sharpness of the income criteria assigned to the various schemes. It is time to give those people a chance to live in decency. They have not been a burden on the State. They have been the creators of employment opportunities for thousands of people and they have been the engine of economic development.

It is a typical Fianna Fáil response that they are prepared to grant £50 million to shelter our exporters from the winds of currency turbulence and totally dismiss the financial hardships being encountered by home owners. I appeal to the Minister to be mindful of the adverse effects on businesses and home owners. He will give a dissertation on what he is trying to achieve, but the reality in the wider world is that people are very worried. We have an opportunity and an obligation to put many of their worries to rest and to give clear and concise indication about how temporary is temporary in the currency market. The Minister will not be able to give a satisfactory answer. This is what motivates Deputy Noonan and the Fine Gael Party to table this motion and to spell out our philosophy on how these matters should be dealt with.

I hope in coming weeks in deliberations on the Estimates and the forthcoming Finance Bill that we will be able to find the resources to assist the various categories of people who find themselves under pressure.

I support the amendment to this motion. It is regrettable that the devaluation of sterling should come at a time when the Government had achieved a reduction in borrowing and low inflation. There was a general air of confidence in the country and abroad and our EC rating was at the highest possible level.

I am grateful for the Government's positive approach in setting up the market development fund and providing £50 million. They acted quickly and positively. They brought in the development agencies in order to get the best possible advice.

I represent one of the worst hit constituencies. We depend on food processing, on poultry and dairy products, on mushrooms, furniture, textiles and so on. In all those areas a large part of the product goes directly to our nearest neighbour, England. The development fund will help but there was a doubt last week about how it would apply to the mushroom growers. The criteria is being re-examined. I understand the committee are deliberating on it this week. I hope the criteria used will be the labour content, in order to ensure tht mushroom growers get the allowance to which they are entitled. The mushroom industry is very important to my region. It is worth £50 million nationally, mainly in exports, and in my county it is worth well in excess of £30 million. One large company in my area manufactures compost and processes and exports mushrooms. They have a turnover of over £30 million, a wage bill of £4 million to £5 million, a workforce of 400 with 200 satellite growers and 900 part-time growers. Now that the Dutch and Danes are pulling out of the British market we have an opportunity to expand into that market.

The motion before us calls on the Government to reduce employers' PRSI payments in respect of those businesses most adversely affected. Employers along Border areas if asked, will tell us that that is not the answer. The motion also calls on the Government to moderate distortions in cross-Border trade with Northern Ireland by reducing the standard rate of VAT and the incidence of excise duty. When Deputy Noonan was composing that, his tongue must have been in his cheek. The Deputy should have reflected back on 1983 when the Deputy's party devastated that area with their 1983 budget and with subsequent budgets. The Government then, would not give any assistance to that area although we spent years pleading with the Government. The Government devastated that area and closed down many businesses. I agree with Deputy Harte in what he said about Border traders now, but because of Fine Gael actions at that time we had the golden mile of supermarkets set up a couple of hundred yards from the Border. They have been only ticking over in the last year or two due to the actions of the then Deputy, Ray MacSharry, in 1982 and our present Taoiseach in 1989, when they took remedial action to bring trade back from across the Border. Those supermarkets are in a great position to avail of that trade again and it is regrettable. The contribution of the former Taoiseach, Deputy Garret FitzGerald, when he stood at the Diamond in Clones, when the people pleaded with him and told him that their businesses were being devastated, was that they should go over the Border and buy the cheap goods.

He never said that and you know it.

That was his answer.

He did not say that.

Despite the downturn in furniture sales in England over the last number of years we were placed to substantially increase our exports.

How about going back to 1977 and having a good broad look at it? You are an awful disturber.

I am not. I will not waste my time on that type of thing.

It is a pity you are not wearing a hat, Jimmy. You would be talking through it.

There are problems in the textile business as well, and among people who source their materials from within the State. If these people were importing raw materials from the sterling areas they would have the benefit of at least half of the cost.

I have to tell Deputy Leonard that he has now crossed the border into Deputy Noonan's time.

I do not intend to, as I want to give him an opportunity to reply to the debate.

You have nothing to say anyway.

(Limerick East): I would like to cede the first five minutes of my time to Deputy Rabbitte, whose party got no opportunity to contribute to this debate.

The House agrees to that? Agreed.

I thank Deputy Noonan. I know history is very difficult along the Border and that not all Deputies remember it as it happened. I have sympathy for what Deputy Leonard said about the immediate impact of the exchange rate with the pound sterling. Deputy Harte earlier referred to it at some length. However, I cannot draw the same conclusion as Deputy Harte. This economy does not have a future in seeking to restore the link with the pound sterling. The British economy is inherently in decline. In the immediate future it is likely to worsen. That is not the kind of economy to which we should hitch our economic fortunes.

The alternative of seeking to maintain the link with the Deutschmark is probably the only realistic alternative open to the Government but it will probably inescapably result in a negotiated realignment within the ERM. My major criticism of the Government is that they have not sought to bring sufficient influence to bear over the markets in the recent turmoil. That can be done at European level only and through Governments acting in concert. If we are to maintain that link there is a price to be paid in the short term vis-à-vis those people who are trading into Britain. That task is an exceptionally difficult one because whereas the package of subsidies announced are worthwhile, they are by definition only a temporary solution.

My colleagues and I have an amendment to Deputy Noonan's motion on the Order Paper and its main purpose is to underline the difference I have with Deputy Noonan on one aspect, that is his proposition that a reduction in employers' PRSI should be part of the solution to the problems undoubtedly faced by companies selling into the UK. The Irish version of the welfare state, such as it is, would be undermined if we started to tamper with the PRSI system which, unfortunately, the Government have done to some extent. The claims that our PRSI rates are exceptionally high and put Irish employers at a competitive disadvantage are not borne out by the evidence. Official figures given by the Minister for Social Welfare to a Dáil question ten days ago show that the level of employers' PRSI is not excessive compared to many of our competitors and it is well below the levels within many OECD countries. It is 12.2 per cent here, 15.4 per cent in Norway, 17.8 per cent in Germany, 30.3 per cent in Spain, 33.2 per cent in Sweden and 38 per cent in France. Whereas I accept that companies in the vulnerable sector face difficulties, the package of subsidies announced by the Government are far more generous than any reduction in or abolition of the PRSI system, if we accept that the average wage is quite low in many of these companies. I do not agree with tampering with the PRSI system and I do not accept that it is exceptionally high.

On the question of the impact of the interest rates on mortgage holders, especially the severe impact these interest rates will have on recent mortgage holders in particular, who also happen to be people with young families, it is worth pointing out that these increases will more than wipe out the full benefit of the increases under the Programme for Economic and Social Progress over the past two years. A worker on the average industrial wage would have benefited by about £16.70 per week from the combined 7 per cent Programme for Economic and Social Progress increase over the past two years, but if the same worker has a mortgage of about £40,000 he or she will see the income drop by £21 a week. Any reduction in the price of some goods arising from exchange rate fluctuations are unlikely to go any way towards compensating people for that also.

I would like to mention a number of other points but I do not wish to encroach unduly on Deputy Noonan's generosity.

(Limerick East): First, I would like to thank all Deputies who contributed to the debate and also the Ministers, particularly the Minister for Finance.

I notice that the Minister did not read out the full script supplied by his civil servants and that was very wise because it is common practice at this time of year for civil servants to arrange "offside traps" for Ministers to get them to make commitments on the record of the House so that policy options which the civil servants do not agree with are taken off the pitch before budgetary discussions take place. I noticed that the Minister for Finance avoided any reference to what he is going to do about mortgage interest rates in the budget and I am glad of that. At least that option remains open.

One would have to keep an eye on more than the civil servants.

(Limerick East): We know now that the Progressive Democrats are fully in favour of the mortgage-holders after Deputy Quill's contribution tonight and it is the big bad wolf, Fianna Fáil, that is trying to devour the mortgage-holders of Ireland and not the Progressive Democrats' tax policy. We must accept the bona fides of the Progressive Democrats. We have seen them on three occasions today standing up in an anguished fashion, in a crisis of emotion and conscience, explaining the principles on which they stand and then reluctantly informing the House that they have to vote against those principles. One has to be impressed by that and we have had another example of it this evening.

They put two questions to the Minister last night and he really did not answer either. One was specific and the other general. I asked him why in the last days of August this year the Government and the Central Bank which had maintained an exchange rate policy for almost five and a half years of keeping the value of the IR£1 within a whisker of 2.68DM allowed it to drift back by five pfennigs before the currency crisis. Certainly that was the wrong signal to send to the markets with £4.5 billion invested here. German individuals, German fund managers and German businesses got their fingers burnt and I suspect that it was a bit of sharp practice by the people in charge of exchange rate policy who were sending a signal to German investors that if they were to move money out of the Irish economy, as they were tending to do at the end of August, they were going to be burnt on the exchange rate risk, so the exchange rate was allowed drift back by five pfennigs. That was a disastrous decision expecially when it took place just three weeks before the great currency crisis. It has caused many problems for the Government.

The Minister spoke about uncertainty being engendered. He said that capital movements can threaten the stability of currencies and that it is fear of an exchange rate risk that causes foreign individuals and institutions to move money out. I suggest to the Minister — and I put the question to him last night — that in the absence of any other explanation we must accept that it was a disastrous mistake by the Central Bank and the Department of Finance which they are embarrassed even to talk about at the moment.

The second question I put to the Minister was phrased differently. The effect of the overall devaluation across Europe, of sterling and the lire and the peseta and so on is that the punt has, in effect, been revalued by 4½ per cent. Those of us with secure jobs — if our jobs are secure here or anywhere else in the economy — or indeed people on social welfare, on average and speaking in general terms, now find that the value of the punt in their pocket is worth 4½ per cent more than it was a couple of weeks ago.

I would like to ask the Minister for Finance what there is in the fundamentals of the Irish economy to justify our paying ourselves a 4½ per cent increase right across the economy at this time. I do not believe there is anything. I agree with the Minister that the fundamentals of the Irish economy justified the exchange rate as it was but the Minister has to take steps now to change the fundamentals to justify the new revalued rate. The Minister knows precisely what I am talking about because the fundamentals are changing under the stress of the policy now. The differential between ourselves and Germany now must be somewhere between four and five points on interest rates. The Minister was very careful tonight to talk about the differential dropping from seven points five years ago to less than one point at the end of August but this is not the end of August, this is the end of October and the differential has gone up again. There is a matrix of interest rates but certainly at different points on the scale there must be a differential again of up against five points now. That is very disturbing, and that is one of the fundamentals.

Another fundamental is the fact that there are 300,000 or more people unemployed. The stress the Border county Deputies are talking about is going to increase that figure because, despite the sticking plaster proposal brought in last week which will give some comfort in the short term, in the longer term the competitive position of industries here exporting to the UK has been eroded and, in the absence of any change in the fundamentals of the competitive position, jobs will be lost. Everybody knows that from their own constituencies. It is seen more clearly in the Border counties but it is true right around the country. That is another fundamental of the economy and the Minister should have dealt with these questions tonight.

On the question of cross-Border trade I want to put a simple concept to the Minister. Deputies on all sides have, for years, extolled, the value of the Single Market for 360 million people. I have yet to hear anybody getting up and spelling out the advantages of an all-Ireland market for the five million people that live on this island. There are huge inhibitions to trading across the Border; there are huge distortions. Why not make it a principle of economic policy that apart from whatever talks are going on in Dublin Castle, in Stormont or in London that on the economic side we would have an all-Ireland single economy and we would take the necessary steps to make sure that it is an integrated market. It is not at the moment; it is subject to gross distortions especially on VAT, excise and, indeed, things like the treatment of residences for income tax purposes. I am sure many Deputies do not know that if one lives south of the Border and works north of the Border one cannot get the PRSI allowance or the PAYE allowance. If one lives in Dundalk and works in Newry one cannot get the PAYE or the PRSI allowances — and we are talking about a United Ireland. I could enumerate, if I had the time, a series of things that distort the situation between the Six Counties and the Twenty-six. Yet we take up exaggerated positions about the unity of Europe and we make no attempt to create a single all-Ireland economic zone on this island.

The Minister of State, Deputy O'Rourke, has responsibility for trade and marketing and her only contribution last night was to lay great emphasis on her new scheme. I hope it works and it will give a temporary cushion to certain exporters. However, it will not change the competitive position and when the scheme runs out if the competitive position means trading at a loss at the new relative values then they will close down. The competitive position will have to be changed. The Minister knows precisely what I am talking about because I am sure he is running the numbers already for next year.

I was astounded at Minister of State, Deputy O'Rourke. First, she did not seem to be four square behind what the Minister is saying tonight. She said the Government had considered the PRSI proposal, that they took it seriously, that they throught it was a possible way forward and that if her pet scheme does not work they will come back to the PRSI proposal again.

She rejected it last night.

(Limerick East): What she said was that she rejected it for the moment. The Minister tonight — and I think he has more credibility — rejected it out of hand. The Minister of State, Deputy O'Rourke, has taken to scolding the importers who are not passing on the benefits of a strong punt to businessmen and householders. However, there is no point in lecturing people. There are importers who are profiteering from the weakness of sterling at the moment. The Minister has a duty to act. She has the powers in her Department. Actions speak louder than words. What really gets to me is Ministers going on radio and television lecturing the people when they have the powers and will not implement them. We must get the full benefits of the weaker sterling in terms of imports. Of course we are losing on the swings but we must gain on the roundabouts. Otherwise it is a disaster.

I would love to continue, a Leas-Cheann Comhairle, and I know you would love to give in to me but I see you are giving the eyebrow signal so I will rest my case.

The Deputy appreciates that if the question is not put at 8.30 p.m. the Chair could be in very serious trouble with other Deputies.

Amendment put.
The Dáil divided: Tá, 71; Níl, 61.

  • Ahern, Bertie.
  • Ahern, Dermot.
  • Aylward, Liam.
  • Barrett, Michael.
  • Brady, Vincent.
  • Brennan, Mattie.
  • Connolly, Ger.
  • Coughlan, Mary Theresa.
  • Cowen, Brian.
  • Cullimore, Séamus.
  • Davern, Noel.
  • Dempsey, Noel.
  • Dennehy, John.
  • de Valera, Síle.
  • Ellis, John.
  • Fahey, Frank.
  • Fahey, Jackie.
  • Fitzgerald, Liam Joseph.
  • Fitzpatrick, Dermot.
  • Flood, Chris.
  • Flynn, Pádraig.
  • Gallagher, Pat the Cope.
  • Geoghegan-Quinn, Máire.
  • Harney, Mary.
  • Hillery, Brian.
  • Hilliard, Colm.
  • Hyland, Liam.
  • Jacob, Joe.
  • Kelly, Laurence.
  • Kenneally, Brendan.
  • Kirk, Séamus.
  • Kitt, Michael P.
  • Kitt, Tom.
  • Lawlor, Liam.
  • Lenihan, Brian.
  • Leonard, Jimmy.
  • Brennan, Séamus.
  • Briscoe, Ben.
  • Burke, Raphael P.
  • Calleary, Seán.
  • Callely, Ivor.
  • Clohessy, Peadar.
  • Leyden, Terry.
  • Lyons, Denis.
  • Martin, Micheál.
  • McDaid, Jim.
  • McEllistrim, Tom.
  • Morley, P.J.
  • Nolan, M.J.
  • Noonan, Michael J.
  • (Limerick West).
  • O'Connell, John.
  • O'Dea, Willie.
  • O'Donoghue, John.
  • O'Hanlon, Rory.
  • O'Keeffe, Ned.
  • O'Kennedy, Michael.
  • O'Leary, John.
  • O'Malley, Desmond J.
  • O'Rourke, Mary.
  • O'Toole, Martin Joe.
  • Power, Seán.
  • Quill, Máirín.
  • Roche, Dick.
  • Stafford, John.
  • Treacy, Noel.
  • Tunney, Jim.
  • Wallace, Dan.
  • Walsh, Joe.
  • Wilson, John P.
  • Woods, Michael.
  • Wyse, Pearse.


  • Ahearn, Therese.
  • Barnes, Monica.
  • Barrett, Seán.
  • Bell, Michael.
  • Belton, Louis J.
  • Boylan, Andrew.
  • Bradford, Paul.
  • Bruton, Richard.
  • Byrne, Eric.
  • Carey, Donal.
  • Connaughton, Paul.
  • Connor, John.
  • Cosgrave, Michael Joe.
  • Cotter, Bill.
  • Crowley, Frank.
  • Currie, Austin.
  • Deasy, Austin.
  • Deenihan, Jimmy.
  • De Rossa, Proinsias.
  • Dukes, Alan.
  • Durkan, Bernard.
  • Enright, Thomas W.
  • Fennell, Nuala.
  • Ferris, Michael.
  • Finucane, Michael.
  • Flanagan, Charles.
  • Gilmore, Eamon.
  • Gregory, Tony.
  • Harte, Paddy.
  • Higgins, Jim.
  • Hogan, Philip.
  • Howlin, Brendan.
  • Kavanagh, Liam.
  • Kemmy, Jim.
  • Kenny, Enda.
  • Lee, Pat.
  • McCartan, Pat.
  • McCormack, Pádraic.
  • McGahon, Brendan.
  • McGinley, Dinny.
  • McGrath, Paul.
  • Mitchell, Jim.
  • Moynihan, Michael.
  • Nealon, Ted.
  • Noonan, Michael.
  • (Limerick East).
  • O'Keeffe, Jim.
  • O'Shea, Brian.
  • O'Sullivan, Gerry.
  • O'Sullivan, Toddy.
  • Owen, Nora.
  • Pattison, Séamus.
  • Quinn, Ruairí.
  • Rabbitte, Pat.
  • Ryan, Seán.
  • Shatter, Alan.
  • Sherlock, Joe.
  • Spring, Dick.
  • Stagg, Emmet.
  • Taylor, Mervyn.
  • Taylor-Quinn, Madeleine.
  • Timmins, Godfrey.
Tellers: Tá, Deputies Dempsey and Clohessy; Níl, Deputies Kenny and Boylan.
Amendment declared carried.
Motion, as amended, agreed to.
Sitting suspended at 8.45 p.m. and resumed at 9 p.m.