Dáil Éireann debate -
Tuesday, 15 Dec 1992

Vol. 425 No. 2

Supplementary Estimates, 1992. - Financial Transfers Bill, 1992: Second and Subsequent Stages.

Minister for Finance (Mr. B. Ahern)

I move: "That the Bill be now read a Second Time."

The purpose of this Bill is to give reserve powers to the Minister for Finance to impose restrictions on financial transfers in certain circumstances, after 1 January 1993. These powers are required in order to apply financial sanctions against third countries on foot of European Community action or a United Nations resolution or to restrict financial transfers to all countries in conformity with Community law.

Traditionally, exchange controls have been one of the basic mechanisms for protection of currencies. These controls, however, have acted as a barrier to trade and commerce. In recent years the emphasis globally has shifted to liberalisation and the removal of controls.

Ireland operated exchange controls even when we were part of the sterling area. In 1954, the basic Act, the Exchange Control Act, was introduced and we have maintained the present exchange control legislative framework since then. The Exchange Control Act, 1954, has been amended on several occasions, most recently in 1990 when it was continued for a further two years until the end of 1992. Our controls impose various restrictions on the movements of capital out of Ireland, unless specific permission had been given by the Minister for Finance. The legislation has been implemented by the Central Bank to whom the Minister's powers have been delegated.

In 1988, together with our European Community partners, we adopted the directive on liberalising capital movements. This directive required member states to abolish all controls on capital movements with other members, except in limited specified conditions, before 1 July 1990. Certain countries, including ourselves, were allowed a derogation for a period. In Ireland's case we have until the end of this year to conform to the obligations of the directive. The great majority of the Community countries have now removed all restrictions. In addition to Ireland, the only countries retaining controls are Portugal and Greece, but only Greece will continue with some controls beyond the end of the year. I have already announced that it is our intention to remove our remaining controls at the end of the year. Unless there are unexpected and unforeseen developments in the meantime in the currency markets, this deadline will be met. I am aware that there is some concern that the elimination of controls may lead to further attacks on the Irish pound. On balance, however, I am satisfied that we have the capacity to withstand speculative attacks. Besides, as I have said already, we have to conform to the European Community obligations.

I envisage, therefore, that the new liberalised arrangements will apply from 1 January in conformity with European Community law. This does not mean that we will be at the mercy of speculators and will have no redress in the event that there is an assault on the Irish currency for purely speculative purposes. As in other countries, a combination of intervention to support the currency and the use of money market instruments can defuse speculation.

There is a realisation throughout the European Community that there must be no repeat of the events which temporarily destabilised the European Monetary System in recent months. There are no instant solutions and it would have been too much to have expected that the Summit meetings in Birmingham and Edinburgh should have come forward with consensus. There are lessons to be learned from the recent disturbances. The Birmingham Summit gave a mandate to the Finance Minister, Central Bank Governors and European Monetary Committee to examine what had happened and to come forward with proposals to improve the operation of the European monetary system. This process of examination is under way and I believe that proposals will emerge in due course which will provide a better guarantee of stability. This is vitally important for us. We were drawn into a crisis which was not of our making. As a small country we were left in a very vulnerable position and it is reasonable that we should expect that, in future, membership of the European monetary system will be a better assurance of stability. We have shown our commitment to accept the disciplines of the system and have a right to expect certain protections as a quid pro quo.

Since 1988, when the European Community Directive was first adopted, Ireland had been gradually liberalising capital movements. In 1990, when we renewed the existing legislation for another two years, it was specified that the Exchange Control Acts would lapse on 31 December 1992 at the latest. Further liberalisations were announced in 1990, twice in 1991 and most recently on 1 January this year. All that remain of exchange controls now are, principally, the restriction on residents holding or operating personal accounts abroad and lending Irish pounds for short periods to non-residents.

I would like to refer to the role of exchange controls in the present currency turmoil. Contrary to some media reports, we did not reimpose any exchange controls that had already been removed. Our existing controls, mainly the requirement which limits access by non-residents to borrowing in Irish pounds from residents, did allow us some breathing space at the time of greatest pressure in September. Under the existing rules residents are not allowed to make loans in Irish pounds to non-residents for periods of less than one year without the permission of the Central Bank.

On the other hand, the media and market perception that we were hiding behind capital controls did not help us. Indeed, according to some market commentators, our association with controls seriously damaged confidence among some investors and there can be little doubt about this. These investors had bought into the Irish market and, when they sought to hedge their investment through what they considered normal arrangements, they found themselves unable to do so. This created concern about the long term future of investment in Irish securities as long as exchange controls continue to be applied.

In any event, it is clear that exchange controls provide only temporary relief. Holders of Irish pound investments are able to move out of Irish pounds over time and indeed they must be able to do so if the Irish market is to remain an attractive market for foreign investors.

In view of general trends and market expectations, we really have no option but to dismantle the remaining controls and there would be no merit in seeking a further EC derogation. In any event, it is likely that a request for a further derogation would be refused unless we could demonstrate that there were exceptional circumstances which might warrant an extension of the existing arrangements for a short period.

We cannot continue to be seen to hide behind the controls to protect our currency. We must display adequate confidence in our currency which is backed by a sound economy. If we wish to play a full role in the Single Market and the lead up to Economic and Monetary Union, we must bring ourselves into line with the rest of the Community without further delay.

Until the relevant provisions of the Treaty on European Union take effect in 1994, the governing Community legislation in this area is the directive dating from 1988. Our derogation to continue controls until the end of this year was provided under this directive. During 1993 member states, may, under Article 3, take action to impose restrictions on capital movements within Community and non-Community countries where there is severe disruption to the markets. However, I wish to assure the House, and investors, that I do not foresee any circumstances at present which would require me to use this power to defend against an attack on the currency.

The new reality will be that investors will have the freedom to hedge Irish currency risk if they so wish. This is the normal and accepted practice elsewhere and we can no longer afford to be out of line. What we are proposing is a very positive step. I am confident that this will, in time, help considerably to underwrite support for our currency.

The disturbance in the currency markets has created severe difficulties for us. Our main problem now is to create the conditions required to bring down retail interest rates to acceptable levels. This, in turn, is dependent on reductions in the wholesale markets. Because of the continuing unease in the markets we have been unable to reduce rates before now. An added factor in our case were the persistent doubts about our ability and determination to remove capital controls. I am confident that as we demonstrate this ability and the European Monetary System settles down again we will be in a position before long to lower interest rates generally. I would advise Deputies, however, that reductions in interest rates can only be gradual and that there is no magic formula whereby we can achieve big reductions at short notice. I have seen the view expressed that if we had devalued our currency and followed sterling our interest rates would be much lower. This is facile and misleading. Our situation is quite different and we do not have the opportunity to move interest rates down very quickly and on a unilateral basis.

A Minister for Finance needs a reserve power to allow the imposition of financial sanctions where our foreign obligations require us to take action, for example on foot of United Nations resolutions.

Up to now the exchange control Acts have been our only vehicle to impose restrictions on capital movements for sanction purposes. Consequently, when we have had to impose economic and financial sanctions against other countries, we have depended on these Acts to enable us to carry out our international obligations. This was done by way of Ministerial orders, prohibiting any transactions with these countries or their residents without the express permission of the authorities here.

Obviously, with the end of exchange controls we will need new powers to enable us to continue to impose restrictions in such cases. Indeed, when the present exchange control legislation expires, we cannot enforce our existing financial sanctions against Iraq or parts of the former Yugoslavia without new legislation. We are obliged, by reason of our membershipp of the UN, to enforce Security Council resolutions. Consequently, it is necessary to have authority by way of the reserve powers conferred on the Minister for Finance to restrict capital movements

I should mention at this point that certain provisions of the Maastricht Treaty will take effect from 1 January 1994. These provisions deal with capital movements and commit the Community to an open policy. However, the Community can take action to restrict capital movements, for example, if the Community wished to impose sanctions on a third country. Alternatively, the Community may wish to take retaliatory action for discrimination against Community firms by another country. Such action is provided for in certain existing directives. The Community may also take action to protect the Community's financial markets against turbulence. In all these instances, the emphasis in the Treaty is on the Community as a group taking action together. While provision is made for a member state to take unilateral action for serious political reasons, for example, in the sanctions area, this must be subsequently approved by the Community.

The Treaty provisions are yet another reason for this Bill. We must be in a position to implement any Community decisions fully. While the Community may well act by way of a regulation in these areas, which is binding directly on us, to fulfil our obligations we must be in a position to enforce Community decisions. Because of the large capital sums that may be involved, there may be a temptation for people to break any EC regulations and we must be in a position domestically to punish these breaches, if necessary by making them indictable offences.

Since the Community does not prescribe what the punishments for offences should be, enforcement is left to the member state. Consequently, the power must rest in domestic legislation if we are to be able to take adequate steps to enforce our obligations under the Treaty. Regardless of the Treaty, however, it is still necessary to give this reserve power to the Minister to be in a position to continue existing financial sanctions and to impose any new sanctions arising from our international obligations, as I have outlined above.

I now turn to the Bill itself. The Bill, of its nature is short and tries to achieve its ends simply. I will, as normal, go into more detail on Committee Stage. However, I feel I should explain to Deputies the main provisions.

Section 1 is the normal short title of the Bill. Sections 2 and 3 are the usual definitions sections and define, in particular, the transactions to be covered. Section 4 is the substance of the Bill. This allows the Minister to make an order to restrict financial transfers with other countries. The Bill must give the Minister some flexibility to meet different situations. Therefore, the Minister may decide the terms of each order depending on the situation being faced. Normally, sanctions have to be imposed quickly to be effective.

Section 4 also allows the Minister to delegate his powers. This is similar to what happened under the Exchange Control Acts. What is envisaged is that the Minister may delegate day-to-day procedures to an agent. Experience has shown that the delegation of day-to-day operational control to the Central Bank works well. In this instance, I envisage the Central Bank continuing to act as the agent. Under section 4 the Minister may vary or repeal any orders. This is a normal provision.

Section 5 deals with offences and includes a normal provision to cater for breaches by corporate bodies. This is a feature of other Acts, such as the Central Bank Act, 1989.

Section 6 sets out the penalties for breaches of orders. The fine for conviction on indictment is high, £10 million or twice the capital involved but, given the very large sums that can be involved, especially in the area of sanctions, the potential punishment should match the potential gain to any person who is tempted to commit an offence.

Section 7 provides for sanctions or other restrictions which may need to be imposed at a time when the Dáil and Seanad are not sitting. For this reason section 4 provides for the order to be presented to the Dáil and Seanad within 21 sitting days. This provision is in no way meant to lessen the input of the Houses of the Oireachtas but is simply a measure needed to ensure speed of response.

I commend the Bill to the House. It is most desirable that it be enacted without delay; otherwise, we face a vacuum from January and there will be no legal authority to fulfil our existing international obligations.

Mr. Noonan

(Limerick East): We are taking the Minister at his word that the provisions of this Bill are necessary, that it must be passed through the House this week and must be in place by 1 January 1993. In those circumstances and because of the way the Minister put his case we are accepting it on trust rather than examining every line.

The Minister made a good case; exchange controls have been removed by most of our partners in the EC whereas we obtained a derogation. It is not a question of removing exchange controls, it is just a question of the clock ticking away until midnight on 31 December when exchange controls will be gone. It is quite clear the Minister needs some regulation to give him control over the situation when exchange controls are removed on 31 December.

I was interested in the Minister's remarks in regard to interest rates. There is no doubt our present level of interest rates is not consistent with any kind of buoyant economy. If interest rates remain at their present level — as the world seems to be going into recession in 1993 — the Irish economy will wither. I have no doubt there will be a major reduction in activity in the first quarter of the year which will be principally due to the combined effects of the strong IR£ against sterling on the one hand and on the other hand the penal interest rates affecting every household and business in the country. It is not possible to borrow to invest in any profitable activity at the present level of interest rates and those who have borrowed — and who have to turn over their borrowings — are doing so at extraordinarily penal rates. For example, people in the building industry, those in property development and any industry which requires a very large amount of capital on a cash flow continuing basis, are in extreme difficulty and will not be able to hold on. Of course, they have the option of borrowing in hard currency loans abroad at lower interest rates but then they are taking an exchange rate risk, which they are not prepared to do.

It was disingenuous of the Minister in the course of his speech to pass so lightly over the interest rates problem. We know it is not possible for a country the size of ours to bring international interest rates down. We know there is no action we can take to reduce international interest rates. The Government, the Department of Finance and the Central Bank have been putting the case in that simplistic fashion for several months past. The bottom line of their case is that there is nothing we can do until the Germans decide to reduce interest rates. That is part of the story only.

The big problem is not the level of German interest rates but rather that the differential between Irish and German interest rates has risen again — the Minister can correct me if I am wrong — in excess of 4 per cent. Last May there was a differential of approximately 0.5 per cent. It was not that German interest rates rose during the currency crisis — they did not — but Irish interest rates went up in the course of that crisis. The high interest rates now prevailing here are the price we are paying for the present value of our punt. Why has this differential between Irish and German interest rates risen by 4 per cent? Very bluntly the answer is that it is the penalty we must pay to convince the international community that we are serious about the exchange rate. We would not need this differential if the international community was convinced about our exchange rate policy, which is the difficulty will continue. I predict that in the long term we will continue to pay interest rates in excess of what is feasible in an economy like ours confronting the problems of lack of growth and of unemployment.

One can have any exchange rates one likes; one can even revert to the gold standard provided one is prepared to pay the penalty. That penalty is high interest rates, resulting in reduced growth in the economy and redundancies, which will certainly result in very few opportunities for the creation of jobs. Therefore, it is not stating the full case for the Minister to argue that we have no control over interest rates. There is a serious problem, which has not been addressed, about the connection between our exchange rate policy and our interest rates. This House is being deprived of adequate information by the Department of Finance and the Central Bank to allow it debate the issue in full.

The Minister contends that the exchange controls were not very effective in protecting our currency. We all know that in September last were it not for exchange controls our currency could not have been protected, in particular the one the Minister mentioned which limits access by non-residents to borrowing in Irish punts from residents. That was the mainstay underpinning the Irish punt in that currency crisis. We thought we had friends who would intervene to help us but our friends in the ERM walked away from us, leaving us to our exchange controls and other devices to protect our currency. The same recurred recently. I cannot understand circumstances in which the Bundesbank can come in heavily and protect the French franc within the narrow ERM band but the same Bundesbank stands back, leaving a small country like ours — doing its best to protect its currency — with its hands hanging beside its sides.

I repeat, I am not endeavouring to undermine the Government's position on the exchange rate issue. Indeed, my party has given great support to the Government stance but I am extremely worried that we are being led down a blind alley, that we are not being given the full information by the Department of Finance or the Central Bank, leaving us with no choices. If the Minister could explain to us what macro-economic strategy he or any other Government could follow in the New Year so that interest rates could be brought down, so that the new level of the Irish punt could be justified, I would be happy. However, it appears there is a policy which pins the Irish punt to a particular level within the ERM without any policy to maintain it in that position other than emergency action whenever there is a run on that currency. There is no policy to change the fundamentals of the Irish economy to justify the new circumstances prevailing.

At our present level of development, bearing in mind our extraordinary levels of unemployment, also the predictions that unemployment will rise further next year — best economists are talking in terms of making provision for another 25,000 to 30,000 on the live register in 1993 — it is not possible to continue in that fashion, with interest rates at the highest real level within Europe, or Irish businesses having to pay that kind of penalty. It does not work. I predict that the Irish economy will wither away unless interest rates are reduced.

I know this is a repetition of what I said this morning. The Minister, and the Government, must be more forthcoming about the problems confronting our economy due to high interest rates. They must do better than say simply that if German interest rates are reduced by 1 percentage point we will reduce ours 1 percentage point also. That is not the real issue. The real issue now is that the differential between our interest rates and those of Germany are back up again above 4 per cent, perhaps nearer 5 per cent; I am not sure what is the most up-to-date figure but I am sure the Minister's officials have it at their fingertips.

Business people approach me every day of the week about what they have to do vis-à-vis their businesses. For example, a businessman who approached me last week would need to achieve 150 per cent of full capacity in his business, which is an impossibility, to break even on the basis of rolling over £3 million on a particular venture. These are extraordinarily high interest rates. In the new year our economy will wither away and this will be unfortunate for whoever may be in Government but particularly unfortunate for people who will receive redundancy notices in the first week of January. We all know of businesses holding the line to carry their workforce through Christmas. But, once Christmas has passed, they will be given redundancy notices and will be out. Such redundancies will be related directly to the high interest rates and exchange rate policy, leading to perhaps 7,000 or 8,000 redundancies in January with a similar price being paid throughout 1993.

I agreed with the Minister's scheme, when introduced, and know it is working reasonably well in the case of those exporting to the United Kingdom. I forget the name——

Mr. B. Ahern

The Market Development Fund.

Mr. Rabbitte

Yes, the Market Development Fund.

Mr. Noonan

(Limerick East): I understand that scheme is progressing reasonably well. However, I understand that the per capita amount has been reduced because the estimate of 45,000 jobs being at risk now appears to be running closer to 60,000 with the per capita amount appearing to be reduced from £50 to £35. Will the Minister confirm that that is correct?

Will the Minister indicate also when the money will expire, or say what are the possibilities within the EC that we can renew that scheme? I presume the money will not last much beyond January. As the problem continues will the Minister say whether we will be in a position to repeat that exercise? I understand the EC Commission agreed on the basis that this would be a temporary measure. How temporary is temporary? Can we continue this until the summer, until firms' competitive positions improve and they can make their internal adjustments to allow them cope with the circumstances prevailing?

Mr. Ferris

A Cheann Comhairle, this is the first opportunity I have had of congratulating you on your re-election as Ceann Comhairle, a responsible position which you have held with distinction in the past. Although your automatic re-election in my constituency pushes the quota up to 10,000 votes, I managed to be re-elected and am pleased to congratulate you.

The Labour Party will be supporting this Bill. Indeed, I welcome the fact that all parties supported Government efforts to withstand demands for devaluation, the various pressures placed on us by money speculators worldwide in addition to those in parts of the European Community. It was essential that there be cross-party support on a matter as important as this when the fundamentals of our economy guided us in a manner which meant that if the punt was to be devalued, as was done in 1986, it would not necessarily mean any quick solution of the problem. Indeed, it took almost six years to eliminate the risk differential vis-á-vis Irish interest rates. Clearly another devaluation would not have been an answer and solidarity was called for on the part of all parties.

It is essential that we recognise that the exchange control mechanism and the exchange controls that have prevailed and been diluted at various times — as the Minister said — were of assistance to us when pressure was exerted on our currency from outside. It was because we had some safeguards in place that we withstood those pressures.

All who have been involved in the debate on the Single European Act which will come into force at the beginning of next year, realised that these control mechanisms would have to be removed and something would have to be put in their place, if the Minister acting on our behalf needed to take action to take account of special circumstances that may arise. Section 4 of the Bill will give this power to the Minister and the power to delegate responsibility in that area to the Central Bank who monitor our interest rates and pressures on our currency.

We must realise that the currency problem does not originate here and its ultimate solution will probably come from outside this country. The Labour Party believe that the solution lies in action at European level. During the election campaign various parties of the right said that we were on a spending spree. We indicated at all times that any borrowing proposed would come within the mechanism agreed in the Maastricht Treaty. That was a responsible attitude for a socialist party to adopt. We want to see the economy being regenerated to create jobs and to make the changes everybody wants.

It is essential for the long term credibility of the Irish punt to resist calls for unilateral devaluation. With our European partners we should consider the possibility of a relationship within the European monetary control mechanism that would not disturb the equilibrium of our currency so that we can retain our position within the money markets. We have retained credibility in Europe by what we have managed to do in difficult circumstances. Admittedly the GNP ratio and the rate of unemployment create an intolerable division in loyalties.

As a nation we must ensure that we maintain credibility in our economic performance. We have done well. We criticise those who are moving money around, creating pressures on various currencies and especially on those considered to be weak currencies, but it has strengthened our commitment to stick together when Ireland Limited is at stake. Our unity has stood to us over the last number of months despite the pressure on us. When the peseta was devalued there was not an automatic fall in Spanish interest rates. That demolished many of the arguments being made to the effect that devaluation would bring down interest rates.

Unlike what Deputy Noonan said, the Labour Party believes that the origin of many of our currency problems lies in the German economy and their economic policy. When they raised interest rates to fund the reconstruction of East Germany, they did so without increasing taxes. They tried to maintain a high level of interest rates while trying to unite the fatherland. Many of us have criticised them for doing this. Do we all expect Germans to make the sacrifice to protect the rest of Europe? There is a link between the problems in Germany and our currency problems. Every move the Germans make through the Bundesbank dictates the policy for all the other members. We have to look to our European partners for assistance within the ERM. It was unfortunate that Britain was forced to come out of that regime as that put a tremendous burden on Irish exporters to the English market, which accounts for almost 40 per cent of our trading. I note from the Minister's speech that he is taking account of some of the regimes that have been falling into place as a result of this extraordinary situation in which a country which holds the Presidency of the European Community leaves its monetary regime.

In the past we have had all sorts of problems maintaining the value of our currency. There is something to be said for borrowing abroad in hard currency. We set up the Treasury Management Agency which has monitored foreign currencies. Reservations have been expressed in my party about the need for an outside autonomous agency to manage our borrowing. The figures from the first year of operation of the Treasury Management Agency justify its establishment. The Treasury Management Agency performed well and we have international borrowings.

There have been political charges back and forth across the House with regard to the level of borrowings. All Governments have had either to borrow or to be responsible for the payment of a previous Government's debts. The only political group who could be excluded are the PD's who are new. All other Governments have resorted to a certain degree of borrowing for productive purposes and the borrowings have had to be repaid. If we borrowed in foreign currencies we had to pay high interest rates abroad. Anyone with access to figures from the Department of Finance would realise that over certain periods commitments were made to repay debts that had been incurred and at times borrowing repayments were higher not because spending was greater but because of previous commitments.

It is wrong to blame one another when there are serious needs to be met. Some of these needs were identified during the debates on the Estimates. No matter how difficult the financial climate, there are certain areas of priority which will not be met just by balancing the books. If we follow the monetarist policies followed in the UK we will demolish some of the infrastructure put in place to service the needs of the people on the margins of our society who do not understand why currency movements should affect them. Currency speculators do not create employment. They just make themselves wealthy and in the process can almost bankrupt some countries unless there is solidarity between Members of Parliament. We have major responsibilities here.

We support this legislation because we realise it is necessary. We are not just taking it at face value. Every person who watched what happened during the debate on the Single European Act realised that some of these changes would take place with the implementation of that Act. On 1 January next we will be faced with this dilemma. It is essential to put some regime in place so that the Minister can take action where necessary. Having announced the intention to move to a single European currency, there is a strong economic argument to move without delay. The interval between setting up the ERM and moving to a single currency is being exploited by speculators, as we predicted. We must halt that speculation in our currency.

Mr. M. McDowell

The Progressive Democrats do not oppose the passage of the Bill. It is accepted that it is necessary to have in place some powers of the kind described by the Minister to deal with some of the contingencies outlined in his speech. In that regard I fear there is a minor problem with the way in which the Bill is drafted, which I hope does not come back to haunt the Government.

The problem I recognise is that most legislation that delegates to a Minister the power to make an order prohibiting something, restricting something or taking action of one kind or another is required to set out in some form a policy framework within which the Minister is required to act. A volume of legal thinking at any rate suggests that an openended power with no policy provisions set out in the Long Title of the Bill and no preconditions such as the Minister having to be satisfied that something is in the common good or having to have regard to currency stability or whatever is not desirable. There does not seem to be any provision in the Bill for any criteria by reference to which an order may be adjudged by a court at a later stage in order to determine whether it is intra vires the Minister or ultra vires the Act. That is a peculiar aspect of the Bill.

It may be the Bill was drafted in very general terms deliberately. I warn the Minister in a very friendly fashion that the more an Act is stripped down to deprive it of any criteria by reference to which an order can be vetted in order to determine whether it is reasonable and the more one removes from an Act any policy consideration of any kind — and on examination of this legislation I can find none other than the negative policy consideration that anything done under the Act must conform with the EC treaties — the more vulnerable will be any order subsequently made under the Act.

For instance, a judge examining the legislation would not be able to say, after referring to the Act, what policy consideration was supposed to guide the Minister. Deputy O'Dea, sitting beside the Minister at present, will know that the principle of delegated legislation has, under several recent court decisions, been held to require that at least the Act delegating the power to the Minister must lay down some basis on which it may be later decided that a particular order does or does not conform to the spirit of the Act. This Bill is most unspiritual in the sense that there does not seem to be any spirit of the Act to be found inside it. Perhaps that it is another day's work and perhaps my fears are unfounded.

Twice in the House today Deputy Noonan has indicated that he feels that the Government, by not being forthcoming on exchange rate policy issues, made it difficult to receive and to engender support around the House. To a certain degree, I go along with the Deputy in that regard because at a time when businessmen, the CII and the FIE are complaining about the hurt experienced because of high interest rates it is difficult to be unequivocally supportive of the Government in circumstances in which there is a dearth of information as to precisely what is Government policy. On the other hand, in support of a very flexible approach to this matter, one that is not based on constantly informing the news media precisely what is or is not happening, if one sets targets for currency performance or lays down justifications for a particular exchange control policy, failure to meet those targets is of itself then turned into a reason for a possible run on the currency. Sometimes there is justification for having a silent exchange control policy that does not set out its targets or aims; speculators cannot then look to failures to meet those targets as grounds for starting movements on capital markets.

The question of the differential between Irish and German interest rates has been raised. Bearing in mind our fundamental economic well-being in terms of inflation, borrowing and so on, the 4 per cent differential that exists at the moment is undoubtedly a tax imposed on Irish borrowers by the uncertainties in relation to the future of currency exchange rates. In my view anything that can be done to reduce those uncertainties is conducive to reducing the differential between Irish and German interest rates. Whatever else is done in this House and elsewhere in the next few weeks, it is my hope that everybody will be aware of the importance of reducing uncertainties about Irish exchange rate policy.

In relation to matters such as borrowing and budgetary policy, I hope everybody who is involved in the formation of the new Government will agree that the uncertainties arising from what could be described — perhaps unfairly, as suggested by Deputy Ferris — as a more relaxed approach to borrowings contribute in an atmospheric way to creating the circumstances in which Irish interest rates are substantially higher than those in other countries. I suppose that to some extent every market is driven by uncertainties but if there were no uncertainty about our currency situation, there would be no good reason that Irish interest rates could not be, within a tiny fraction of a difference, the same as German interest rates.

Deputy Ferris raised the issue of borrowing. I welcome the comment made by the Deputy that it is the view of the Labour Party that the criteria of the Maastricht Treaty must be complied with. I welcome that view without reserve. It is my contention that that will have to be a cornerstone of a successful programme for Government between whoever negotiates the programme.

I agree with the Deputy that it is foolish to point the finger of blame and try to say who is to blame for the existing level of borrowing. Having said that, the important lesson is that we should never repeat the mistakes made in the past. Any relaxation in public expectations about the level of borrowing is fraught with danger. If something has to give, borrowing is very much the easiest way in political terms to massage income and expenditure so that they coincide. Borrowing is deferred taxation and if this country has not learnt that lesson at this stage I do not know when we ever will.

I also agree with Deputy Ferris that borrowing of itself is not an evil. However, borrowing by the community at large often carries with it the good intention at the time it is made that it will be sensible borrowing — unlike all other borrowing in the past which has been profligate. The real problem with that is that if borrowing will yield to the community a rate of return equivalent to its cost and if it, therefore, makes sense in the short run, why does it have to be undertaken by the State? Why is it that the State seems to be frequently more in error in gauging the rate of return on its borrowing than other institutions and other bodies in the economy? It seems it is easier for politicians to be more optimistic about the rate of return from any project than it is for those who have to carry the can on an individual basis if judgement in such matters is wrong. Applying that generalised thinking to individual projects we are now faced with, it seems there is a need for analysis.

Members from other parties have spoken about a construction programme and a road building programme. I should like to say — and this is not me being ideological or the Progressive Democrats offering an ideological view — that if there is a rate of return on many of the motorway construction projects, which there undoubtedly is in terms of benefit to the community at large, there should be an analysis carried out of whether that can be done by the use of privately raised capital on a toll road basis, especially in relation to larger motorway projects. If such a proposal is not practical the infrastructure will have to be put in place by the community at large, using more traditional methods.

An Ceann Comhairle

Before Deputy Rabbitte begins his contribution I should like to remind the House that at 5.30 p.m. I must put the question necessary to bring all Stages of this Bill to a conclusion. I say this so that the House might give consideration to allowing the Minister time to reply to a certain extent.

Mr. Rabbitte

I shall be as brief as I can. I thank Deputy McDowell for his co-operation.

My party did not demur from the general co-operation with the Minister on the passage of this Bill. When the legislation was discussed briefly with the Department of Finance I thought it rather strange — and I think it strange now — that the Bill is presented almost exclusively in terms of enabling us to meet our international obligations in the context of sanctions against, for example, Iraq or Yugoslavia. There is only one sentence I can find where reference is made to "the Minister would have to have no reserve powers to cope with any emergency situation that might arise in the currency markets." It seems to me that is more what this Bill is about than the observance of our international obligations in the context of sanctions. I hope the Minister will correct me if I am wrong because, as I understand the Maastricht Treaty, it allows an individual member country in extremis to resort to whatever measures are necessary to protect its currency. There are certain obligations to inform the Commission and so on. That is the essential power we are seeking to enshrine in domestic law. If I am correct, I should have thought that was a much more important power than the mere facilitation of our obligations in terms of sanctions. It may refer to Article 109 (i) of the Maastricht Treaty, which states that when a sudden crisis in the balance of payments occurs and a decision within the Article is not immediately taken the member state concerned, as a precaution, may take the necessary protective measures. I should like the Minister to say whether that is the main thrust of the Bill, because it is my opinion that is a great deal more important to our domestic economy than is the question of observing our obligations in terms of sanctions, although that is also of obvious importance.

The Minister's script itself does not make much comment on that. I note he states the Community may also take action to protect the Community's financial markets against turbulence. He states that in all these instances the emphasis in the Treaty is on the Community as a group taking action together. We know from our experience a couple of months ago, as Deputy Noonan pointed out, that the Community did not take action together to protect our situation. The Minister also states that while provision is made for a member state to take unilateral action for serious political reasons, for example, in the sanctions area, this must be subsequently approved by the Community members. There are references elsewhere in that regard in the Minister's script but I cannot find them now. As Deputy Noonan said, reliance on the Community to bail us out did not work then and we were relying on whether these much talked about fundamentals of the economy were sound or otherwise.

That brings us to the question of the currency crisis itself and the views expressed by other colleagues in the House. It is unlikely now from the position of my party, that anything I would say would cause a run on the pound although comments made by economists did result in an extraordinary situation involving, apparently, one banking institution where certain decisions were made and certain instructions were given to the client base of that particular banking institution that involved many Irish pounds being sold in the hope that they could be bought back at a substantial killing. Quite properly the Minister expressed the view of all political parties in this House about that kind of action, especially by a major bank in this economy.

Nonetheless, there are serious questions that ought to be raised which have not been raised or debated. There is no doubt that large sections of industry are hurting. Whereas it may have been correct two months ago to take the unequivocal line that we all supported, it does not necessarily follow that it will continue to be correct for all time. The graph interacts at some stage and we have to look at the fact that it is not all pluses and that that is a debate we have not had. I am not so sure I agree with my colleague Deputy Ferris when he lays all the blame at the door of the Bundesbank and the German Government. It is true that a price was paid for unification. It is true there was a dispute between the Bundesbank and the German Government about the rate of exchange for the Ostmark at that time.

Since our fundamental problem relates to those companies trading into the United Kingdom, at least as much a factor is the inherent, fundamental weakness of the British economy. The gradual weakening of sterling and the inevitable breakaway from the ERM have put both at risk; it is inevitable that more than 30 per cent of our exports, to our nearest neighbour, will be affected enormously. It is now clear that the temporary revival last week of the pound sterling was precisely that — temporary and a mere puff. It is likely that the pound sterling will weaken further in January, thus creating very serious additional problems for us. I am not saying that in order to be controversial but about ten days ago I pointed to the fact that there seems to be an orchestrated agreement that, irrespective of what happens, we all stand by the existing policy and a criticism of what an Irish Times leader calls “special interests” within the economy. These special interests are none other than Irish businesses trying to confront the circumstances out there and who are threatened as a result with the possibility of making workers redundant. I have made the point in terms of the examples which the Minister has trotted out. For example, the Minister has said that a 10 per cent devaluation would add £150 million to our debt service costs. That is true but the present policy has already cost the Exchequer of the order of £50 million in terms of the Market Development Fund. How much extra will go on the social welfare budget as a result of additional unemployment which the current stance will inevitably generate?

I also refer to the Minister's point that a 10 per cent devaluation would lead to a 4 per cent deterioration in the debt-GNP ratio. The question has to be put to the Minister: on what assumption of growth would that situation come about? What will the current stance do to growth projections, and we have already seen that from the ESRI report published yesterday. I am simply raising these questions. I am not suggesting I have answers since large sections — and there will be larger sections — of Irish industry are being badly hurt. It is all very well for the Minister to say that they will have to learn to hedge. In his speech the Minister said:

The new reality will be that investors will have the freedom to hedge Irish currency risk if they so wish.

That is true but many Irish businessmen will say that their job is that of industrialists, not of financiers and they have not been hedging. I certainly know a good section of industry which has not been hedging ahead and which faces into the new year with considerable apprehension. I am not arguing for a cessation of the consensus on it. Deputy Noonan has been tantalising us all day and before today with his criticism of exchange rate policy without saying how far down the road he would go. He has been tantalising and teasing us about the difference between German interest rates and Irish interest rates, saying that the gap has widened from 0.5 per cent to 4 per cent and asking why we are doing this. He stops short of telling us where he is going. I do not know where he is going and it may be improper, having regard to the delicate transitional stage we are at, that I should try to elicit from him where he is going. This is a debate the House has not had and it is one we must have because we cannot distinguish between the monetary exchange interest rates policy and the real economy within which businessmen are trying to contribute to economic growth in a situation where our largest, nearest neighbour takes so much of our exports and where some of these jobs will inevitably be at risk.

Mr. M. McDowell

Can we give the Minister one minute?

An Ceann Comhairle

I am watching the clock. The Chair is obliged to put the question at 5.30 p.m.

Mr. Rabbitte

Would the House have the freedom to give the Minister one minute?

An Ceann Comhairle

No, the House is bound by the Order of An Dáil of this morning. As it is now 5.30 p.m. I am required to put the following question in accordance with an Order of An Dáil of this day: "That the Bill is hereby read a Second Time; that sections 1 to 8, inclusive, and the Title are hereby agreed to in Committee and the Bill is accordingly Reported to the House without amendment; that Fourth Stage is hereby completed and that the Bill is hereby passed."

Question put and agreed to.