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Dáil Éireann debate -
Wednesday, 10 Feb 1993

Vol. 425 No. 7

International Currency Crisis: Motion.

I move:

That Dáil Éireann

—supports the action of the Government in realigning the value of the Irish pound within the exchange rate mechanism of the European Monetary System and in remaining within the narrow band of the mechanism;

—calls on the Government to continue to press for reform of the EMS at ECOFIN and in other European Community bodies;

—supports the underpinning of the exchange rate policy by budgetary and other economic policies in order to provide a competitive trading environment for business, which is an essential basis for increasing employment.

I welcome this opportunity to put on record in Dáil Éireann the events of recent months and to outline the reasoning underlying Government policy throughout the currency crisis.

The upheaval in the European Monetary System last September was in retrospect not as sudden and unexpected as may have seemed at the time. It had been abundantly clear for a considerable time that there were serious tensions in the system that called for urgent attention. The persistent high interest rates in Germany and the underlying weakness of sterling and the lira created a very unstable situation. The tensions in the money markets were heightened by politcal uncertainty following the rejection in Denmark of the Maastricht Treaty. While a well-managed re-alignment within the system could have forestalled the subsequent chaos, the reality is that it did not take place.

Hindsight was not available in September, however, and the events of that month came as a huge shock. As a result, there was no co-ordinated response from Europe. The markets, and particularly the speculators, had a free run for a time. It was unprecedented that the foreign currency reserves of three of the most powerful industrialised countries in the world, and members of the G7 — France, Italy and the United Kingdom — should be seriously depleted in quick succession. The authorities did not have any plan to react to this demonstration of market power.

Even though the crisis was not of our making, it left us in a vulnerable position. Other currencies were caught in a similar dilemma and there had to be immediate responses. Our Government decided to hold the parity of the Irish pound and we were in no doubt about this. It was the proper course of action and there was a strong consensus at home, embracing employers and trade unions, in favour of this policy. It was also the considered view of our European partners that this was in the best interests of the Irish economy. We had one of the lowest inflation rates in the Community, a consistent balance of payments surplus and a good budget performance.

We were subjected to an immediate and severe attack by the markets but we demonstrated our capacity to resist and maintain our position. It was reported at the time that we introduced new exchange controls. This was not correct. We made more intensive use of existing controls and we acted in strict accord with our EC obligations. I am convinced that, if we had adopted a weaker currency line, we would have been subjected to a similar attack.

It is well to recall the mood in Europe at the time in relation to the crisis. After the initial shock, there was a confident expectation that the worst was definitely over and that the European Monetary System would quickly recover its equilibrium. After all, there were no good monetary reasons why other currencies should be subjected to further attack. It was expected that the lira would resume its place quickly in the exchange rate mechanism and that sterling would be in a position to return without undue delay. A Summit of Heads of State and Government was arranged for Birmingham to address the issue and there was a general belief that the German authorities would be in a position to reduce interest rates without delay. Following the initial attack the markets generally accepted that the Irish pound would hold its parity and the Irish market settled down. Unfortunately, higher bank retail rates and mortgage rates were unavoidable and increases of 2 per cent to 4 per cent were implemented. At the same time interest rates in some of the other member countries of the EMS also had to be increased.

The Government policy to maintain the parity of the Irish pound was based on a number of considerations. Since 1987 we had seen the benefit of a policy of stability built on low inflation. We have made substantial gains in competitiveness particularly against the United Kingdom. The disciplined approach to economic management has paid excellent dividends in terms of reduced budget deficits. Exchange rate stability within the narrow band of the exchange rate mechanism has been a key factor in this and we considered it vitally important to maintain our position, if this were possible. In any event we are committed to greater European integration. We believe that economic and monetary union can be achieved within a reasonable timetable and we want to be part of this.

Therefore, there was no good reason for us to change our position and, as I mentioned, there was a strong national consensus in favour of holding the line. It was necessary to provide some temporary relief for business badly affected by the sudden fall in the value of sterling and the Government introduced the market development scheme with a commitment of £50 million.

It is well to reflect on the options that were open to us in September. One commentator put it well when he said that we were caught between a rock and a hard place. If we had chosen not to hold the line the options were devaluation within the exchange rate mechanism, free-floating of the Irish pound, linking with sterling or linking to the ECU. Contrary to rumour, our European partners in all probability would have rejected a devaluation, if we sought their agreement, because at that stage it would not have been justified by reference to our economic position.

A variant of the devaluation option perhaps might have been to move on to the wider band of the exchange rate mechanism for a period. However, I see no real merit in this. It would probably be seen as evidence of weakness and would lead to greater volatility for our currency arising from a loss of confidence. It would bring no particular benefit. Certainly, it would not provide any protection against higher interest rates. I believe it would be interpreted by the markets as an effort by us to move closer to sterling.

Free-floating would effectively mean a fall in the value of the Irish pound because of the market perception of the influence of sterling. Therefore, free floating and linking with sterling in practice, are likely to amount to much the same thing, in the immediate future. Free-floating would be inadvisable for a number of reasons. As events have demonstrated, it would have meant great volatility for our currency. I do not believe that we could have followed the example of the United Kingdom in bringing down interest rates. On the contrary, there would have been a distinct risk of high interest rates on a long term basis to match the uncertainty about our currency policy. This approach would also result in strong inflationary tendencies. Inflation in Ireland would be likely to be stronger than in the United Kingdom because the Irish economy is operating at a higher capacity level than the United Kingdom economy, the Irish economy is much more open. The small size of its market means competition is less intense and increases in import prices are more likely to be passed quickly on to the consumer. Investors would become more wary of our position and the overall effect of free-floating would be that much of the achievement of the previous five years could be undone.

Linking to the ECU would not have eased our problems to any consequential extent. The fall in the ECU over the period of the crisis was 2.4 per cent only. The devaluation required to satisfy the markets obviously had to be much greater than this. Linking to the ECU outside the ERM would have reduced our ability to defend our position because of the absence of the ERM support mechanism. Therefore, our interest rates would have been higher rather than lower had we linked to the ECU. In short, we would have the problem of very high interest rates to protect us against speculative pressures, while not being in a position to avail of the ERM defence measures. I would remind the House that some Scandanavian countries followed this policy earlier and they discovered that it offered them no protection when they came under attack from the markets.

The Birmingham Summit was a disappointment and a signal that re-establishment of the EMS as a zone of stability could be a slow process. However, it did give a mandate to the monetary committee of the European Community and the Central Bank Governors to consider the lessons to be learned from the crisis and to report to the Council. This activity is still in progress. As I speak, the monetary committee is considering a report which, I understand, will soon be submitted to Ministers. I would hope that this will lead to substantial improvements in the working of the EMS. It is not evident that changes are required if the system is to be a force for stability in Europe and a staging post for economic and monetary union.

The continuing pressures in the EMS and on other European currencies throughout the autumn led to devaluation of the Portuguese escudo and a second devaluation of the Spanish peseta in November. I must repeat that there were no pressures from Europe for a change in the parity of the Irish pound. In retrospect, I believe that if our currency had been devalued in the early weeks, it is quite possible that we would have faced the same experience as the Spanish authorities. I say this because the clear market perception would have been that the Irish authorities were seeking to align their currency with sterling and also because at that stage our European partners would not have been willing to agree to anything approaching a 10 per cent devaluation.

The Irish pound was not the only currency under strain. There were also substantial pressures on the French franc and the Danish krone. I said on a number of occasions that we were ready to consider a realignment within the exchange rate mechanism and it did appear from time to time that such a realignment involving the Irish, French and Danes might take place. Despite widespread disappointment that the long awaited cut in German interest rates had not materialised, the French and Danes were unwilling to participate in a general realignment. A further disappointment was the failure of the Edinburgh Summit to address the continuing crisis adequately.

Our position deteriorated considerably in the new year. The removal of exchange controls on 31 December was not a significant factor in the context of defending the currency. Exchange controls had been useful for a short period when pressure emerged in September but, by November, it was necessary to push overnight interest rates up to 100 per cent despite the existence of controls. Similar interest rate levels were again required on two occasions in January. The main focus now was on wholesale interest rates which had risen to a point where further increases in retail rates generally and in mortgage rates were imminent. This was a reflection on intense market pressures and persistent rumour — sometimes originating from sources that had much to gain — that the Irish pound would be devalued.

The new Government launched an immediate and strong offensive to support the parity of the currency. The initial reaction from the markets was encouraging as they recognised the determination of the Irish authorities to hold the line. In a short time there was a significant improvement in our external reserves position and, while interest rates remained high, there were prospects that reductions might not be far off. In order to stave off immediate danger of an increase in retail rates the Government decided to provide exchange rate guarantees for borrowing in foreign currencies by industry, agriculture and the mortgage institutions.

A further and substantial fall in sterling, however, following a reduction in United Kingdom rates, put immediate pressure on a number of businesses and added to the pressures on Irish interest rates. The combination of these factors and the weakening of the national consensus created extraordinary difficulties and the Government decided reluctantly that the currency had to be devalued. There was no real prospect of reducing interest rates quickly even with the implemenation of the exchange rate guarantee schemes.

There has been much criticism in recent days of the poor response from our European partners to requests for assistance. I would like to put this in perspective. At all times the rules of the exchange rate mechanism on intervention have been applied rigidly in our case but it has become evident in recent months that these rules are no longer adequate. It is common knowledge that on two occasions last year the German authorities went beyond their obligations in providing assistance for the French franc. This led to the understandable perception that the dominant partner in the European Monetary System was differentiating between currencies. It was for this reason that we, and others, protested that it undermined the solidarity of the system. On the other hand, if special assistance for the franc had not been provided on the occasions in question, it is possible that the system might have collapsed altogether.

The Government did take strong diplomatic initiatives to generate support for its policy of maintaining the parity of our currency. Contrary to rumour, there was no question at any time of a special deal for the Irish pound. This would have made little sense and would hardly be accepted by the markets. Our efforts were directed towards improvements in the operation of the exchange rate mechanism, with multilateral intervention, to secure greater stability and to demonstrate effectively to the markets that further speculation against the currencies in the mechanism were unwarranted and would not succeed. I know that we were not alone in seeking change and we were not alone in pointing to the need for reductions in German interest rates quickly. We also stressed the need for some disciplines on currencies which participate in the EMS but have suspended their obligations within the exchange rate mechanism. As participants they have commitments to ensure that their economic and monetary policies are not inconsistent with the overall obligations of EMS members and it is vitally important that these commitments be honoured. This is an issue that will be pursued further at European level by the Government.

In the days immediately prior to the devaluation of the Irish pound there were indications from our European partners that they were willing to consider intervention on a co-operative basis to support our position. This would have been an extension of the support given to us during the crisis; as we have seen, this support was provided later for the Danish krone. It represents a change in the operation of the intervention arrangements, which has yet to prove itself, and hopefully it is a sign that improved arrangements will emerge in the future. In the circumstances it was the view of the Irish authorities that this would have been too little too late and that it would be insufficient to achieve an immediate reduction in Irish inter-bank interest rates. This view is supported by the fact that some Danish official rates are very high despite the cut in German rates. Besides, we had no reason to assume then that the reduction in German rates would be implemented within days. It is regrettable that an offer of multilateral intervention from our European partners should have come so late in the day. We had proposed this repeatedly at earlier stages but it had not been possible to get universal support.

Following the devaluation of the Irish pound, it became evident last week that the whole system was under imminent threat once again. While the Danish krone was in the front line, there were pressures on other currencies and a co-ordinated initiative was needed immediately. When it reduced interest rates it was, according to the Bundesbank, responding to changes in domestic and global economic conditions and to pressure on the EMS.

The Government decided on a devaluation of 10 per cent because this was the figure required to bring our effective market exchange rate back broadly to its level of the first half of last year and to provide the best prospect of getting early reductions in interest rates. Our partners agreed to support this figure while reaffirming their viewpoint that an adjustment was not warranted by reference to convergence criteria. They welcomed the assurance that the Irish pound will continue as one of the core currencies of the exchange rate mechanism in the movement towards economic and monetary union.

The change in the parity of our currency has provided immediate reliefs. The threat of increases in retail interest rates generally and mortgage rates has receded. Interest rates continue, however, to be high and I must warn against expectations that rates can be brought down further in the immediate future. I am optimistic, however, that there can be further reductions and that interest rates will be down significantly later this year. This will obviously depend on external as well as internal factors. In particular the timing of further reductions in European interest rates generally will be an important factor in determining the timing of reductions in Irish interest rates.

The competitiveness of Irish industry measured on a trade weighted basis has been restored. The position of exporters and of those competing with goods produced abroad has been improved. There are also increases in farming incomes. These are the immediate benefits and they may beg the question as to why there was such opposition over a long period to devaluation. There has been opposition because of the clear attendant risks over the medium and long term.

I have always accepted that there are some short term gains from devaluation. However, devaluation has imposed significant costs on the State. It has added about £800 million to the national debt and the additional cost of servicing this debt in the current year will be about £50 million. The debt of the State-sponsored bodies has increased by about £160 million and the servicing of this will impose an extra charge of about £15 million on these bodies this year. Of much more significance are the inflationary pressures on the economy. Experience has shown that devaluation rarely secure a permanent improvement in competitiveness and instead tend to leave enduring interest rate disadvantages. It has to be a priority of Government to address these problems in the forthcoming budget and with other policy initiatives to ensure that on this occasion we make devaluation work. Unless costs are contained and, through responsible policies, we manage to contain price increases, our competitiveness could suffer. We must continue to improve our competitiveness to create additional employment.

Some critics have suggested that the devaluation would not have been necessary if the Government had introduced measures to reduce domestic costs and so restore the competitive position of the economy. There is no doubt but that adjustment of domestic costs would have eased pressures on business, but these critics have not spelled out clearly the scale of the adjustments which would have been needed and the implications for incomes and for the public finances.

An example of what might have been necessary was given by the director general of IBEC when he said that a freeze in wages would not be adequate — what was needed was an actual reduction in nominal wages. Reducing other industrial costs on the lines requested by the director general of IBEC would have required significant tax reductions or subsidies. This would have increased the budget deficit at a time when it is already under strain from the effects of recession and rising unemployment.

There has been much misinformed comment about the costs of defending the parity of the Irish pound over several months. There appears to be an impression in some quarters that big expenditures were involved through loss of external reserves. It is true that the reserves were depleted but reserves are intended for use in an emergency and the standard procedure is to use them to minimise the worst effects of a difficult situation. As long as we continue to manage the economy in a prudent way, the reserves can recover very quickly. For example, overseas investors sold substantial amounts of Irish gilts. This repayment of debt to non-residents was refinanced by borrowing from other non-residents denominated in foreign currency. The additional foreign currency debt increased by about 8 per cent in response to devaluation. On the positive side, the interest rate on this debt is currently well below the interest rate on Irish pound debt. Besides, my information is that there would have been substantially more disinvestment from Irish gilts, both in the short term and the longer term, if we had not demonstrated a strong commitment to currency stability. Following the easing of tensions in the markets generally our reserves have already improved very substantially. I am not in a position to mention any figures, as is the tradition, but I can assure the House that the authorities are satisfied with the situation.

In any difficult situation where a major decision has to be made there are attendant costs and benefits on both sides and many elements cannot be reduced to arithmetic. There were figures mentioned about job losses and potential job losses as a consequence of policy on the exchange rate. These figures were grossly exaggerated and there was a growing tendency in some quarters to attribute every redundancy to the currency crisis. There were obvious costs associated with excessively high interest rates but there can be no assurance that interest rates would be lower if we had devalued in September. On the contrary, devaluation then would probably have built a long term premium into Irish interest rates because of market doubts about the strength of our commitment to maintaining a stable currency both now and in the future. This reputation for stability could prove to be a very important factor in the longer term. On the downside, it is well to bear in mind that the devaluation of the currency can have a damaging impact on employment in the longer term and we must be very careful to ensure that this does not happen.

The currency crisis has generated much debate about speculation. There has been quite intense speculation against all currencies in the EMS which came under threat. I would define speculation as short term borrowing of a currency solely for the purpose of making a large profit from a subsequent devaluation. It is an accepted practice in the marketplace — involving the corporate sector and banks located overseas — and we have no choice but to learn to live with it, within whatever rules apply internationally. However, the experience of recent months will open up the debate about market regulation. The markets have become huge and very sophisticated and, working at international level, the monetary authorities must ask themselves whether existing regulations should be strengthened to counter undue speculation and to put reasonable limits on the powers of the markets. Exchange controls are now seen as a sign of weakness but, internationally, the classic response of higher interest rates may not be enough in the future to maintain proper balances. I believe that significent changes are likely but these are probably down the road. As regards the speculation against the Irish pound. I can say that it proved costly for many of the speculators who used the mechanism over many months and who hoped we would quickly devalue in September, but this was not to be so.

The most important consideration now is to plan well for the future. The Irish pound will remain within the narrow band of the exchange rate mechanism of the EMS. This is seen as the best guarantee of future stability. While there are still residual fears, I believe that the worst of the EMS crisis is over and the system can recover its equilibrium quickly. The process towards economic and monetary union is continuing. It is well to bear in mind that stage II is due to commence on 1 January 1994. I have no reason to believe this deadline will not be met.

I have heard the case being made for alternative policies, particularly that the Irish pound be free-floated as a means of achieving a dramatic reduction in interest rates in the short term. I have referred to this already. Superficially this may seem attractive and getting interest rates down as quickly as we can must be a priority. I must warn, however, that this kind of approach would amount to a high risk and dangerous strategy that could do serious damage to the economy down the road; for a small open economy this is much too dangerous. As a small currency we cannot free-float; the markets would in all probability attach us to some larger currency and, as I have said already, in our situation, we would be linked to sterling. We must adjust to the new realities in regard to sterling and we will not return to the exchange rate that applied in the first half of 1992. We will not adjust our exchange rate in response to changes in sterling. Irish business must recognise this as a fact of life and plan for the future on this basis.

Over the past five years we have invested heavily in a disciplined approach to economic management and this has paid excellent dividends up to now in terms of low inflation and reduced budget deficits. The stability of our currency has been a very signficiant factor and we must do our best to ensure that devaluation does not undo in any way the achievements of recent years. I am disappointed that devaluation was inevitable and reject the viewpoint that an earlier devaluation would have avoided much of the difficulty. On the contrary, I believe we have gained much in credibility in consequence of our determined opposition. It is regrettable that the national consensus against devaluation could not be sustained. As demonstrated in other countries, this consensus is necessary in order to successfully defend the parity of a currency. We must now adopt to the stiuation in which we find ourselves. There will the short term advantages but some long term cost.

On the positive side, there will be a stronger level of economic activity this year compared wit what would have been the case if we had not devalued. On the budgetary front the effects this year will be only slightly negative. The extra costs in debt servicing will be balanced by positive gains in other areas. In the longer term our foreign debt has increased and we will probably suffer a premium on our interest rates in the medium term. We need to reduce this premium. Even in the short term inflation this year will be higher than if we had not devalued. There has been a downward trend and this has been reversed but only to a limited extent.

The new situation presents us with a challenge. We have been given a competitive advantage in certain markets and we must seek to get the benefits in terms of jobs from this. In countries which we have devalued against, for example, Germany, France, the Benelux countries and the US, we have now a major competitive advantage in terms of our exports prices. In other areas where we compete with UK or Italian products we reduced the degree of adjustment required for firms in those markets. This should help support our current market share. Indeed, given low wage inflation in recent years here we should be expanding markets. In other areas, for example, tourism, the devaluation increases the attractiveness of Ireland for visitors from both the US and Europe. It will also help boost the growth of holidays domestically for Irish people.

We must as a nation now work together to take advantage offered by the devaluation. All sectors must work together, as we have done in the past, to turn devaluation into concrete achievement in employment. We must not seek to compensate ourselves in personal income terms for anything lost by devaluation. Rather it must be through increased productiviely that we earn back any losses.

As a strategic consideration we have worked to lessen dependence on the UK market. We must continue this process. Otherwise, we may be over-affected, at a future date, by sterling volatility. We need to break in the markets' minds this perceived link. Our economic performance over recent years has been far better in terms of pay rises and inflation than the UK. This must be reflected in our exchange rate.

There should be no doubt in Deputies' minds about our exchange rate policy. The main aim of the Irish exchange rate policy is the preservation of the Irish pound at existing bilateral rates within the narrow band of the exchange rate mechanism of the EMS. Until last September, the system had provided a stable regime for our currency and we now hope that, following the recent crisis, the system will return to its former stability.

I would like to take this opportunity to acknowledge the widespread support throughout a difficult period for the policy adopted by the Government. This support came from many quarters, and not least from people who were immediately affected by increased competition in business or by mortgage increases. It says much for the maturity of the Irish people that there was a general recognition of the merit of resisting the easier short term option in the interests of the longer term benefit of the economy. While we could not sustain this policy in the face of intense pressures, it is encouraging that there is such a strong appreciation here of the merits of a stable currency based on a low inflation policy.

A hard currency policy and soft option politics do not mix. Since last September Governments involving Deputies Reynolds and Ahern tried to defend a sudden and unsought increase in the value of the Irish pound on international markets without taking any of the measures at home that were needed to underpin and justify such an increased value. That increased value collapsed because the fundamentals of the Irish economy were not sound. A country with 300,000 people out of work —— 23 per cent unemployment — and from which 150,000 emigrated does not have a fundamentally sound economy. Balance of payments statistics artificially boosted by transfer pricing by multinationals are not the fundamentals of an economy. The fundamentals of an economy are the people who live in that economy. An economy where up to 30 per cent of people cannot find work at home is not fundamentally sound. The international markets could see that. Currency dealers who read the monthly Irish unemployment statistics could see that the Irish Government had not taken any convincing permanent steps to protect jobs in the exposed sectors of the economy at the increased value of the pound since last September. They knew that further job losses caused by the new exchange rates were inevitable and politically unsustainable.

The reason the Government's exchange rate policy collapsed was that its economic and social policy on jobs was unconvincing. Unfortunately, the Government thought that currency policy was something one could pursue in some sort of theoretical world, divorced from the reality of employment and unemployment, but it was wrong. Its mistake only underlines the unhealthy dual nature of the Irish economy identified in the Culliton report, the Telesis report and many other independent analyses of the Irish economy.

There are two sectors in the Irish economy; a foreign owned sector attracted here by grants and a 10 per cent profits tax, whose operations are international and whose costs are only slightly affected by the value of the Irish pound. This sector employes 95,000 people only. Frequently, its goods are priced in foreign currency and sold in captive markets controlled or developed by its foreign owners. In other words, they are unaffected by currency policy. Much more important there is a native manufacturing sector which employs far more people than does the foreign owned sector.

Its profits may not be as great but it is far more sensitive to the value on a day-to-day and month-to-month basis of the Irish currency. It is because of the activities of this Irish owned native sector that we are still in a position to export one-third of our products to Britain. The labour intensive, native Irish owned firms produce most of these exports. These firms, not the multinationals, were vulnerable to job losses as a result of the new exchange rate policy pursued by the Government since September. The currency policy of any country should be based on enlightened self-interest. The German currency policy is based on German self-interest and the French currency policy on French self-interest. Similarly, Irish policy should be based on Irish self-interest. Ireland's position is not similar to that in Germany. Germany's problem is how to cope with the restructuring of East Germany, internal migration and immigration. Excess demand is caused in Germany by Government spending which leads in turn to high interest rates. Ireland's problems are almost exactly the reverse as demand for labour here is too low. We do not have enough jobs for our existing population, let alone having a problem of immigration. There are 300,000 people unemployed and 150,000 recently emigrated. Germany's problem is immigration; our problem is emigration and unemployment.

Our currency policy must reflect reality in that context. We need an economic policy that reduces the marginal cost of creating and preserving a job. The Germans need an economic policy that maximises the rate of return on the massive savings of the German people. There may be occasions when the economic interests of Ireland and Germany will converge, but this will not always be the case. Until such time as there is a single European economic policy the Irish Government remains responsible for Irish economic and currency policy. Irish currency policy cannot be put on autopilot to operate on a computer programme designed for the needs of the German economy by the German Bundesbank.

Basically over the last five months there was no Irish economic policy. There were three Governments in rapid succession, but each effectively abdicated responsibility. There was more interest in Fianna Fáil in manoeuvring first to bring down a Government, then in-fighting and losing an election and finally in forming a Government in alliance with the Labour Party than in managing the Irish economy for the benefit of those who do not have jobs or who are likely to lose them. In a real sense those who lost their jobs in the last five months were the victims of politics mismanaged primarily by the Fianna Fáil Party. This brought about an unnecessary election, taking attention from economic policy for months on end. People are losing jobs and paying excessive interest rates, which it may take many years to reduce, due to lack of political direction. Those problems have arisen as a direct consequence of politics.

Let nobody say that politics does not matter. Politics does matter. The reason for high interest rates and record redundancies in recent months is political mismanagment by the Fianna Fáil Party who brought their own Government down, wasted time in an election and in forming a new Government, time which should have been used to manage the Irish currency and the economy in the interests of the Irish people.

Nothing has changed since the new Coalition came into being. The experience of the last five months shows that Irish policy-making at the highest level is gravely deficient. Not only are Fianna Fáil and Labour politicians unable to understand Ireland's true interests, it seems some of the senior officials of State are unable to do so either. There is no evidence of questioning of the exchange rate policy even by those most directly responsible for the preservation of jobs in the export sector — we compete with Britain, Italy, Spain and other countries against whom our currency has unwarrantedly appreciated since September.

Senior figures in the trade union movement pursued a policy that completely ignored the needs of their many members in the exposed sectors of the economy. We can agree to set up for a to discuss the problem of unemployment and we can produce papers and studies to beat the band, but the real test of people's concern about unemployment is whether they are prepared to take courageous decisions to protect jobs and help create them —— by courageous decisions I mean decisions that hurt somebody. I was prepared to say that the Irish pound should be realigned downwards and I said so publicly because I believe that jobs come first in Ireland. Those who criticised me for doing so and placed pride before jobs were grossly mistaken in terms of the national interest. There has been a conspiracy of censorship over the last number of months to prevent rational discussion of exchange rate policy. This conspiracy is based on the false view that the value a country freely decides to place on its currency at any time is something akin to the national territory which must be defended at all costs and that anybody who questions it is guilty of treason. It is no such thing. The value a country places on its currency is no more than a pragmatic, political decision taken from day to day on the basis of what should be an understanding of the national interest. The problem is that there have been three Governments in the last five months, none of whom has had any real understanding of the national interest in terms of jobs. In those circumstances it is reasonable for those in Opposition to advocate different policies from those being pursued by the Government of the day as was done on this occasion by my party.

During the general election in the televised debate I had with the Taoiseach I made it abundantly clear that if it came to a choice between maintaining the newly appreciated value of the Irish pound on the one hand or preserving jobs on the other, Fine Gael would choose to preserve jobs first. Like others who did not press this point at the time we in Fine Gael presumed the Government had some rational plan to preserve jobs at this newly appreciated exchange rate. As time went by it became increasingly obvious that the Government did not have a plan to preserve jobs at the new rate. The measures it produced only added to the vulnerability of the exchange rate policy. It proposed temporary —— I emphasise "temporary"—— measures to preserve jobs in various firms and to keep interest rates down for mortgage holders. By producing measures that were avowedly temporary the Government merely advertised that its own currency policy was temporary. This showed the depth of the Government's misunderstanding of what was happening and was an open invitation to sell the IR£ short.

By the end of the year it was beginning to dawn on the Minister for Finance that the economy was running up a cul-de-sac. When briefing the press at the end of year budget returns the Minister for Finance said that devaluation was an option that would have to be considered by the incoming Government. There were no attacks on him for lack of patriotism by either Deputy Spring or the trade union movement. But he was promptly silenced and disowned by the Taoiseach.

The Government had inferred that it would be willing to see the currency devalued in the context of a general realignment. In other words, it was willing to have the Irish currency devalued but wanted other people to take political responsibility for initiating it, rather than the Irish Government itself. This concept of support for a general realignment policy was nothing more than an open invitation to speculators. It was a signal that one was willing to see the currency devalued, but did not know when one would do it. One was prepared for others to make the first move. Nothing could be more clear an advertisement of policy weakness than advocacy of a general realignment, combined with reluctance to take unilateral action. Obviously, if a Government decides that the currency value is wrong, it should act quickly rather than wait for others to make the first move. That ability to make a decision to manage one's own affairs, in one's own interest, and in a prompt fashion, is the esential mark of good government. This Government plainly does not have that capacity. It wanted to wait for others.

If the Government really wanted to maintain the new value of the currency that came about in an unsought fashion last September, it should have immediately introduced a permanent reduction in the cost of job creation and maintenance in Ireland. By making a permanent cut in job costs the Government would be emphasising that its new exchange rate policy was also permanent. Instead, what the Government did was simply introduce temporary measures which emphasised that the exchange rate policy, in turn, was merely temporary. The appropriate way of introducing permanent undepinning for the new exchange rate was the one advocated by Fine Gael last September. Fine Gael told the Government that it should introduce a permanent 6 per cent cut in employers' PRSI —— a permanent 6 per cent cut in the cost of creating and maintaining a job in Ireland would have shown that the Government was serious about preserving jobs at the new exchange rate. Yet that suggestion was dismissed with contempt.

Instead, the Government did nothing. It sat and waited, and hoped that the problem would go away. I cannot see how the Government could ever have expected the problem to go away. It was quite plain, once Britain had left the exchange rate mechanism, that it was not going to raise interest rates sufficiently to bring the British pound back up to its previous parity with the Deutsche Mark. It was also quite obvious as the weeks passed that Britain was pursuing a policy of competitive devaluation of the British pound in order to stimulate its economy. Anybody with eyes to see could realise that that was the case, yet it took the Irish Government five months to realise what was happening. In those five months, thousands of jobs were sacrificed, never to be returned; the indebtedness of many businesses and mortgage holders was needlessly increased by virtue of high interest rates in recent weeks; and the reserves of the Central Bank were run down in a vain and foolish attempt to defend what the Government itself by its actions demonstrated it believed to be indefensible, although it would not match its actions with words. Despite this monumental error, no one has offered to resign. The Minister has not offered to resign, despite being disowned by the Taoiseach when he tried to change policy, and then seeing the entire policy collapse. In effect, no one is willing to take responsibility. That is unaccountable government. Ministers, their advisers and supporters attempt to blame everyone else. They have attempted to blame the European Community, the Germans, the British and even the Opposition in the Dáil. The random nature of their attacks on others is no more than an indication of the desperation and humiliation suffered by the Government.

The real question that has to be addressed is how this Government actually works when it comes to employment creation and maintenance. Did the Ministers and Departments responsible for the preservation and creation of jobs have any say at all in exchange rate policy, or have they been just as culpable as the Minister for Finance? Why did the Taoiseach, having issued a stirring statement against devaluation at the Cairde Fáil dinner, entirely disappear from the public policy-making stage and leave the Minister for Finance alone to take responsibility? What advice did the Bundesbank offer the Irish Government on this matter? Did the Bundesbank, through the Central Bank, tell the Government that it would have to take certain unpalatable steps in regard to pay and public expenditure if it was to sustain the currency value. Was this advice ignored and was that the reason for the collapse?

This series of events shows that this Government is quintessentially the victim and not the master of events. When we elect a Government we elect it to be the master and not the victim of events, yet we have a Government that has allowed the affairs of this country to be carried like a cork bobbing along on the stream generated by events outside this country. We have a sovereign Government and have the capacity to manage our own exchange rate policy. Instead, this Government has allowed events outside to dictate the policy of a country which faces massive problems in terms of employment.

My concern centres not just on the approach of the Government on this matter but on the entire policy-making establishment that has been built up around the concept of social partnership. In the eyes of many of those involved, the unemployed do not really matter. Those who are about to lose their jobs in employment perhaps not as highly paid as that of some of those who are making policy do not really matter, either, in the eyes of the policy-making establishment. It seems that the important thing is to be able to hold one's head high when one goes to meetings in Brussels. I would like to remind the Government that the unemployed do matter. Too many people from all categories of employment have lost their jobs in recent months and others are likely, as a result of this failed policy, to lose their jobs in coming months for the problems of the unemployed and the problems of employment not to be at the very core of policy making in this State. My responsibility and that of my party is to ensure that in all policy issues, including the budget that is soon to be introduced, the problems of employment and unemployment take their place at the top of the national agenda, as most certainly they did not in the past five months' handling of the currency issue by this already discredited Government.

When the currency crisis which culminated in the costly and ignominious devaluation of Saturday, 30 January, erupted last September I was very concerned at the impact that the sterling devaluation of that time would have on our export competitiveness.

As Minister for Industry and Commerce then, I ensured that my Department carefully monitored the impact of the revaluation of our costs vis-à-vis our single most important market, which is still Britain. I was also aware that, whereas we had reduced our overall export dependence on that market to around one third, that figure masked levels of dependency of up to 60 per cent and more on the British market for certain companies and commodities. It also masked a very high level of dependency on the Irish domestic market for companies who were in direct competition with British suppliers.

The significance of this factor was particular in two ways. The companies concerned were mainly Irish owned, and they were also labour intensive, as opposed to capital intensive, the very kind of companies that we need more of, and which every expert analysis, including Telesis and Culliton, rightly insists must be nurtured and expanded if we are ever to effectively tackle the underlying unemployment crisis in Irish society.

Companies in sectors like food processing, precision engineering, clothing and textiles and furniture are the kind of export companies concerned, and they quickly began to hurt from last September onwards. Stated quite simply, the nub of the problem was that the price they were getting for their goods in Britain was slashed by up to 15 per cent, and they faced competition from British firms enjoying a similar 15 per cent advantage in price on other markets.

It was for those reasons that I, as the Minister responsible then, brought forward the Market Development Fund as an emergency measure to safeguard jobs from the impact of the currency crisis. I had this scheme speedily approved by Cabinet and by the EC Commission in Brussels, and I launched it on 6 October last, within three weeks of sterling's exit from the ERM. Under that scheme, which was, and is, scheduled to run to the end of March, support grants of up to £50 a week per employee were provided to sustain up to 30,000 jobs in Irish industry. It was a measure that met with universal approval, and there is little doubt that it has had a very positive impact in staving off the worst effects of the sterling devaluation and the drop in British interest rates. I want to take this opportunity to express my thanks for the efficiency of my then departmental staff and An Bord Tráchtála in particular —— since that was the agency directly administering the scheme —— for the innovation, efficiency and effectiveness brought to the task.

In the main, it was designed to give us the necessary respite to address the underlying problems of the loss of competitiveness vis-à-vis Britain and also to tackle the underlying defects so evident in the European Monetary System.

However, it is important to realise that this measure was generally regarded at the time as a temporary one, a respite to allow us to tackle the underlying problems both at EC level and here. As Minister for Industry and Commerce at the time, I was full aware that if sterling were to remain very weak and if the currency difficulties causing so much difficulty within the European Monetary System were to persist it would be essential that the emerging cost handicaps for Irish industry be tackled more directly.

Serious consideration, for instance, was given at the time by my Department to the burden of PRSI on industry. Clearly, if our hard currency stance within the exchange rate mechanism were to be maintained, further remedial measures would have to be adopted to redress the 15 per cent cost handicap we were facing in our main export market, which was clearly threatening many thousands of jobs.

It was also quite obvious that it was esential for this country to mount a major diplomatic offensive at EC level, with the Commission in Brussels and in the capitals of our Community partners, to seek to ensure that the underlying defects in the ERM were speedily and effectively tackled. This needed to be done last November and December —— not in the few days before the eventual devaluation of 30 January last.

It is also important to bear in mind that in the September-October period there was virtual unanimity, embracing all industrial sectors and their representative bodies, both employers and unions, and the financial institutions and market analysts alike, that it was preferable to maintain our hard currency status with the ERM. Nobody at that time seriously advocated devaluation.

Pursuit of that currency policy, and staking our place within the hard-currency, narrow band of the ERM, had served us well. In particular, this policy had helped bring interest rates here down to within 0.75 per cent of German levels at one point; had led to a significant increase in overall employment in Ireland in the 1988-91 period, and had led to a fall in the level of Government borrowing. It marked a period of genuine confidence in the Irish economy. It had been hard won through shared and difficult sacrifices by all sectors of the Irish people particularly in the last quarter of the 1980s. Clearly, it was a policy very much worth defending, comprehensively and effectively.

Tragically, the essential action at EC and domestic level were not undertaken, and the disastrous slide culminating in the economic débacle of the enforced devaluation of 30 January last began early in November. The collapse of the Government then, caused by the enforced resignation of my party, and the subsequent three week election campaign, meant that no real Government attention was given to the deepening financial crisis here during the month of November. There was no offensive at EC Commission or EC capitals level, and the then minority Fianna Fáil Government, which had wilfully precipitated the political crisis here, threw the fate of our currency and the jobs of thousands of Irish workers to the wolves while they concentrated solely on retaining power. At that stage, too, the only domestic policy instrument being deployed to defend our currency was actually driving up Irish business costs. By raising interest rates to penal levels, in a bid to head off currency speculators, the cost of overdrafts and other borrowing for Irish business and industry became unbearable, and job losses began to grow.

Paradoxically, therefore, the longer the battle was going to be waged using only the policy instrument of hiking up interest rates the more it was compounding the problems of Irish industry vis-à-vis its main market, Britain. Not only that, the high level of interest rates was also clearly seen to be unsustainable by international investors, who thus viewed the Irish pound even more negatively, forcing interest rates ever higher in a vicious circle which was strangling Irish companies.

However, despite this, all we had was political paralysis and indifference from the then minority Fianna Fáil Government. This was underlined by its failure to seek any relief for our currency at EC level or to take any other step that might have been appropriate in the circumstances on the weekend of 21 November, when the Spanish and Portuguese currencies were both devalued — that weekend being the time of the second devaluation of the Spanish currency.

The options we could have actively pursued on that occasion were to devalue with the Spanish and the Portuguese, to seek to encourage the French and the Danes to devalue with us as part of a more general realignment or to do what the Danes succeeded in doing last week, namely, ensure that the Germans cut their interest rates or brought Irish pounds above the ERM floor level or did both.

In the wake of the general election on 25 November last, the political paralysis here at Government level simply persisted. At that stage it was simply unforgivable. Whatever understandable reluctance a Government facing an election three or four days later might show in the weekend before the election, there was no need for equal diffidence when the election was over. By the end of November there was no sign of a sterling recovery and no prospect of a general ERM realignment.

The problems of Irish industrialists were worsening by the day. And more and more of the country's foreign reserves were being spent to buy Irish pounds in the face of heavy selling from overseas.

By this stage, the Government was down to a very clear-cut choice. It had to take immediate and decisive action to tackle the cost imbalances that were crippling industry here. That too would have helped convince our EC partners that we really meant what we said. Or we should as a sovereign Government have taken the positive decision to devalue.

But neither of these courses were taken, nor was any intervention by our Community partners, and notably by the Bundesbank, secured. And so the agony simply piled on. Instead of firm actions to tackle the 15 per cent cost handicap of Irish industry exporting to the United Kingdom, or any sign of effective aid at Communiy level, a minority Government now intent on finding a new coalition partner, resorted to jingoistic rhetoric and xenophobia which fooled nobody abroad at least.

We need clear answers here today about what kind of diplomatic actions were pursued by the Department of Finance, and the then Government, in the aftermath of the election on 25 November at Community level. Did they not realise then that the only response from the EC Commission and the German Bundesbank would be mere words of encouragement?

If they did not know this, they should have known it. Armed with the reality there was a clear onus on the Government to take appropriate action here to stem the cost crisis facing large sectors of Irish industry. That action should have involved a special meeting of all the social partners, under the auspices of the Central Review Committee of the Programme for Economic and Social Progress.

The agenda for such a meeting should have been to agree the actions essential to drive down Irish costs and prices, and in the process bolster the confidence of the financial markets in our currency. But tragically that kind of positive political leadership did not materialise.

At Community level, last December's Edinburgh Summit afforded a further opportunity to seek some communitaire response to our difficulties in so far as the inherent defects of the EMS were concerned. But here our unfortunate and overriding mendicant attitude to Community membership again dominated our considerations.

With the Danish Government seeking special concessions for its further Maastricht Referendum, and the other member states equally concerned to restore faith in that process, here was a golden opportunity to insist on our currency crisis receiving real attention at Community level.

But our representatives were more obsessed with Structural Fund bonanzas that would win banner headlines at home and which might induce economic growth in the future rather than protecting existing and hard-won economic welfare in the form of thousands and thousands of jobs.

Faced with the continuing economic haemorrhage which still afflicted this country as 1992 gave way to the New Year, the leisurely pace of government-making indulged in by Labour and Fianna Fáil was simply unconscionable. All we got was more jingoistic rhetoric, with warnings to speculators, foreigners and unnamed financial institutions. But like the charge of the Light Brigade, it might have looked or sounded magnificent but it was not war.

Speaking in this House on 5 January and noting that six weeks had elapsed since the election, I pleaded for urgency in dealing with the monetary crisis, and I drew attention to the previous day's statement of the Irish Business and Employers' Confederation that a further 30,000 jobs in Irish firms were then at risk. Urging an immediate conclusion to the Government-making talks, I pointed to the need for a clear strategy for dealing with the monetary crisis and pointed out that, to be successful, it also required a Community-wide framework.

But even with the eventual formation of the new Government on 12 January last there was still no action just more rhetoric and renewed declarations of no surrender under any circumstances. The firm domestic actions that would have relieved the cost handicaps of industry here and would have reassured the financial markets were still funked. The last Government meeting I attended was at the end of October, and I recall one decision being made there clearly, unanimously and urgently by the Government — that was the Minister for Communications would take immediate steps to effect a reduction in the cost of overseas telephone calls from this country which, on average, are about 35 per cent higher than similar calls from other countries to here. It seemed to me and to the Government that was essential because it was one of the most significant and identifiable cost handicaps afflicting Irish industry and especially exporters. That was in October. We are now in February and we are still paying 35 per cent more on average than other countries and, of course, substantially 35 per cent more than some.

The new Government in mid-January simply renewed, mantra-like, its commitment to hold the exchange rate and when the ignominious climbdown was finally forced on them at the end of that month, they had inflicted on our economy, even longer-term damage by a massive loss of credibility. Moreover, they had now shown that they were either unable or unwilling to take the necessary domestic actions to give credibility and substance to their rhetoric.

While the fault for the eventual débacle of 30 January certainly lies in part with our ERM partners for their indifference and their non-communitaire attitude, the real fault lies with the two successive Fianna Fáil-led administrations, the minority one and the coalition with Labour, which were charged with the economic management of this country since last November. We are a sovereign people with a sovereign Government and the buck stops here at home.

These points are made, not because of any desire to score points or to seek any satisfaction in the ignominious defeat of this Government. It is not just this Government which has lost; it is we, the Irish people, who have lost and who will have to bear the costs of this devaluation in lost jobs and premium interest rates, perhaps for many years to come.

I now want to elaborate briefly on some of the harsh economic consequences of devaluation and what they mean for this country. The fact that, at Community level, the Germans came to the support of the Danish krone, but not the Irish punt has established certain financial and political realities. The political reality is that our Government simply did not make its case well enough to the German authorities, for the reasons that I have already outlined. We had to settle for rhetorical aid from them. And it is worth noting, too, that while the Bundesbank is noted for being independent this is not the case for currency intervention. That is decided by the German political authorities, although it is administered by the Bundesbank.

The financial reality of the devaluation has very serious implications for future interest rates here in Ireland, as well as for Government borrowing, and for exchange rate policy and, of course, for the question of our participation in a single currency and Economic and Monetary Union, assuming that it goes ahead as planned in either 1997 or 1999.

By supporting the Danish krone and the French franc but not the Irsh punt, the other European Central Banks have clearly put our currency outside the first tier, or division one, of the ERM dominated by Germany, France, the Benelux and Denmark. This means that Irish gilts may well now be valued relative to the division two ERM countries like Spain and Portugal. And whereas the Spanish ten-year bond yield has averaged 12.35 per cent over the last three months, its Irish equivalent was 10.05 per cent, a 2.3 per cent advantage for us. But now, if we are confined to the lower ERM division, it could mean an increase of up to 2.3 per cent in the cost of short term money to the Government. That is a very serious matter when we consider that over £13 billion raised on the Irish money markets by the Irish Government in gilts is outstanding at the moment.

I heard with interest reports of a speech made early this morning in Paris by Mr. Peter Sutherland and while I have not seen the text of his speech, and I am loathe to comment on it in any detail, I am glad that Mr. Sutherland has raised some of the points he did and has started the form of debate to which I hope his speech may lead. In the light of what I have just said, his hopes that seven of the 12 member states, including Ireland, would move almost immediately towards currency union and a single hard currency are probably unrealisable, for the simple reason that if it happens we will not be within it, and even if we were, Britain would be outside it. If sterling were to continue to fall against such a new European Community currency the difficulties we experienced in recent months would be suffered all over again. We would have no freedom of action being locked into a very hard currency where clearly the other six member states would not wish to pay any attention to further British devaluation. If these developments take place the problems that we face should be worked on actively by the Government. It is impossible for the Irish Government now not to play a leading part in trying to implement the changes that will have to be made within a matter of weeks. All member states, whether they were affected or not, realise that the chaos of recent months can never be revisited on the Community without causing serious difficulties for it in the future.

While the recent slight reduction in German interest rates has eased the immediate pressure within the ERM, tensions could return to the system. At home, despite devaluation, interest rates are still at an unaffordable level for many businesses and are crippling any chances of significant new investment prospects. The economy is severely depressed and we need a clear statement on the Government's economic strategy in the wake of the enforced devaluation. Our prevailing interest rates underline the fact that the currency problems are still with us. One of the most disturbing aspects of the last few days is that, after this enforced devaluation, our pound was up yesterday to 103.2 pence sterling and is at 102.9 pence sterling at the moment. It is also very ominous that manufacturing inflation in Britain was described yesterday in official figures as having risen in the past 12 months to 7.2 per cent. In a short time that underlying price rise will percolate the British equivalent of our CPI and cause significant inflation in Britain. Our inflation outlook for this year must cause concern and disappointment. Whereas prior to devaluation we were looking at the distinct possibiliby of an inflation rate of 1 per cent or less for this year, it now seems unlikely that our inflation rate will be below 4 per cent.

The crisis of the past five months has wrought a terrible attrition on Irish industry. The extent of the damage is still not fully apparent. Therefore, it is essential for the Government to effectively tackle the problem, however belatedly, in the forthcoming budget. If it is to relieve the interest rate pressures on our economy it must effectively relieve the overall costs now facing Irish industry and the growing debt problem. The Government should be aware that increases in taxation to fund increases in expenditure will simple compound the problem by reducing consumption, driving out investment and renewing the economic haermorrhage caused by cross-Border shopping which is likely to be far more extensive from now on with the advent of the single market and the abolition of customs controls. Therefore, prior to the budget and the publication of the Estimates, the Minister for Finance has strict duty to impress on his colleagues that if there were ever a time and need for control of and reduction in expenditure this is it because of the events of recent months and, in particular, those of 30 January.

I move amendment No. 1:

To delete all words after "Dáil Éireann" and substitute the following:

"—deplore the mismanagement of the currency crisis by the Government;

—regrets the decision of our European partners not to come to our assistance in any concerted effort to resist speculation against the punt;

—deplores the failure of the Government to mount the necessary political and diplomatic offensive to reinforce the position of the punt in the ERM;

—calls for the introduction of a European-wide penal tax aimed at discouraging currency transactions carried out for purely speculative purposes, and

—urges the Government to press for the reform of the EMS at ECOFIN and other Community bodies in order to avoid a disastrous repetition of the threat to jobs and the difficulties for mortgage holders."

The currency crisis has raised the most profound questions about the future direction of the European Community. Given the dramatic lack of solidarity shown by other powerful EC states when this country was battling to defend its currency, there is an urgent need to reopen the debate on the Maastricht Treaty process. The experience of the past six months shows that there is a very big gap between the generous expressions of European solidarity and assurances of common interest given when the Maastricht Treaty was signed and the selfish "every man for himself" response, of most EC member states to the currency crisis.

Democratic Left remains committed to the principle of European union but the painful experience of the past six months has shown that the reservations we expressed about the Maastricht Treaty were very well founded. When pointed out that the agreement was incomplete in some areas and badly flawed in others, we were accused of being negative, destructive, isolationist and anti-European. Unfortunately, there was little real debate in Ireland about the Maastricht Treaty. The abortion Protocol was a vitally important issue but, unfortunately, it diverted attention from the political and economic implications of the Maastricht Treaty. There was an unprecedented pro-Maastricht Treaty alliance of the political, business, farming and trade union establishments which resulted in whatever debate there was being very lopsided.

The Irish people have every right to ask some of those who advocated an unquestioning and uncritical endorsement of the Maastricht Treaty to account for some of their statements. They have every right to believe that they were not given the full picture by their political leaders and were, in fact, misled. We all remember how, in a move virtually unprecedented in my memory, Deputies Reynolds, Bruton, Spring and O'Malley posed for the cameras on Leinster Lawn in a show of political unity and assured the people that if they voted "Yes" it would be all European blue skies while a "no" vote would condemn us to a life under permanently grey skies. It is interesting to examine what these four champions of the Maastricht Treaty said in their joint statement of 9 June and I quote:

It would run the risk of causing a flow of investment funds out of the country, an increase in interest rates, still higher unemployment and lower living standards. It would also relegate us to the margins with a greatly reduced ability to influence the major decisions being made internationally which directly affect our interests one way or the other.

I emphasise that statement is not about devaluation but one made by the leaders of the other parties on 9 June on the implications of voting "no". Of course, the party leaders concerned were doing no more than reflecting the establishment consensus that was so intolerant of any alternative view that pointed out deficiencies in the Treaty. Democratic Left was denounced at the time as European lepers for doing no more than highlighting some of these deficiencies. It was not until the outcome of the Danish referendum that the other parties condescended to join the real debate. Fianna Fáil, Fine Gael, Labour and the Progressive Democrats forecast ruin for the country if we voted "no". The country voted "yes" by a margin of two to one and the ruinous scenario predicted above has come to pass with a vengence.

It seems that the Government parties were so mesmerised by the promise of additional EC grant aid, the much vaunted £6 billion, that they saw nothing else, were interested in nothing else, and abandoned any pretence to critically assess the terms of the Treaty. Fine Gael and Labour were so anxious to be part of the Euro-consensus that they abdicated their role as Opposition parties and allowed the Treaty and the legislation to go through the Dáil in the minimum of time and with the minimum of examination. The craven unquestioning posture at the time of the Maastricht debate betrays a political culture that is accustomed to the begging-bowl mentality and lacks confidence in our own capacity to earn a living as a people.

Democratic Left was virtually a lone voice in pointing out the deficiencies of the Maastricht Treaty. As a strongly pro-European party, we demanded that we should not sign such a binding treaty without a full debate and without changes. More important we pointed out the major flaws in the Treaty. The Fianna Fáil Progressive Democrats Government signed this Treaty without studying it. Their eyes lit up with dollar signs when they saw the "promise" of £6 billion. They saw nothing else. Any decent trade union negotiator would have had great qualms about bringing such a deal to his-her members for approval.

In essence, the flaws were that, while it established a huge single market, it failed, and failed substantially, to address the wider issues of who should regulate this massive market and how this should be done. We were to get the cruelest demonstration of what this unregulated market for capital would mean sooner than any one dreamt.

It was a gift to big corporations and to capital, but with only nominal social control. Democratic Left asked who would gain and who would lose. Spokes-persons for the other parties told us that we would all gain. The Government did not debate it prior to signing. Apparently the Progressive Democrats only discovered that Mr. Haughey had contrived the inclusion of Protocol 17 after signing. They dangled the promised £6 billion in front of the media. The media loved it. The people were urged to believe in their leader writers and in their political leaders.

No one would have believed that there could be such a destructive demonstration of what an untrammelled Single Market would mean until we saw the currency crisis. This Single Market, with free flow of capital, was totally without regulation. The authorities in 12 nation states, including four of the most powerful economies in the world, Germany, United Kingdom, France and Italy did not even know what was going on. They sat idly by as the sharks made killing after untaxed killing. Amazingly, EC Summits at Birmingham and again at Edinburgh seemed not to even attempt to tackle the crisis. I notice the Minister today admitted as much. He pointed to the fact that the Summits at Edinburgh and Birmingham were failures. It is a disturbing feature of the way we do our parliamentary business that when the Taoiseach, and Minister, returned from those Summits they were praised in this House for having made an important contribution to the advancement of European integration. The public press reported that the Taoiseach failed in Birmingham and again at the Edinburgh Summit to persuade other EC leaders to attempt to bring order to the capital markets and it appears that he did not even try.

Surely if there is any lesson to be learned from these disastrous events it is that central bankers alone cannot create European union. It must also be clear that unless the elected politicians seize the initiative back from the bankers and speculators, then the prospects for monetary union, let alone full political union, are very remote indeed. The non-elected, non-accountable Bundesbank has shown itself to be far more powerful in regard to monetary policy than any elected government. The constitutional and statutory role of the Bundesbank is to preserve the value of the Deutsche Mark; it does not have an EC-wide role. Yet decisions which the Bundesbank were making were determining whether Irish people would have jobs and whether they could afford to meet their mortgage repayments. That is not democracy.

First, however, this House must deal with the question of accountability for the disastrous mismanagement of the ERM crisis as it impacted on Ireland. It is all too typically Irish to set up a committee or a so-called war cabinet to handle the crisis. Sometimes one is tempted to the view that the only reason we set up a committee in so many areas of Irish life is in order that nobody can be held accountable.

This was a disaster whether one was for devaluation or against it. The Minister for Finance, Deputy Ahern, has rhymed off the reasons on many occasions as to why devaluation would be disastrous: a 10 per cent devaluation would add £150 million to debt service costs. I notice that since we devalued the figure has gone down to £80 million which is a great deal of money no matter which way one looks at it. The same devaluation would lead to a 4 per cent deterioration in the debt-GNP ratio; interest rates would not necessarily come down. Inflationary pressures would triumph and speculators who tasted blood may come back for more. That is a fair account of the Minister's arguments at the time.

Those in favour of devaluation are at a complete loss to explain why so much pain was needlessly inflicted on mortgage holders and sections of business. Why were jobs lost, hundreds of millions of our reserves frittered away and mortgage holders uselessly penalised when it is now apparent that the concerted European action that might have staved off devaluation was never in prospect anyway? Why did the war cabinet persist if they knew that international troops were not going to fight? Who was advising the Minister to keep his finger in the dyke? What advice was the Minister given? Was the Minister available to be advised during the critical weeks between the general election and the election of a new Government? Was the currency crisis forced to play second fiddle to the partisan imperative of the Minister securing his party in Government for another term? How could the Government misread the unequivocal signals from the Bundesbank? Was the Minister, Deputy Ahern, more concerned to interpret the signs from Herr Quinn than from Herr Slesinger? In short, did the Government take its eye off the ball for reasons of political expediency and have the Irish people paid a heavy price for this dereliction of duty?

These questions deserve answers. Not only has our economy been debilitated and many of our citizens hurt but the credibility of the new Government has been damaged. What precisely was the role of the Central Bank in all of this debacle? What ought its role be and did it execute that role? What, in the context of a crisis of this magnitude, is the relationship of the Central Bank to the Department of Finance? Does not the primary, statutory and constitutional role rest with the Central Bank in such a crisis?

The traditional silence of the Central Bank is no longer good enough. The responsibility rests with the Governor, Mr. Maurice Doyle. He must publicly explain how he discharged his responsibilities in this affair. Unless he can show that his advice was spurned by the Minister or unless he can demonstrate that the extraordinary tardiness and inconsistencies are not of his making, then he must tender his resignation. However, if Mr. Doyle's account of the conduct of the Central Bank during the crisis is in conflict with public perception, then the Minister for Finance is honour bound to offer his own resignation. Public uncontradicted comment about the manner in which the Central Bank allegedly does its business requires a public response from the Central Bank. I was disappointed to receive a letter this morning from the Ceann Comhairle in response to a question I put down to the Minister for Finance on this matter pointing out:

The Minister has no official responsibility to the Dáil in relation to this matter and it is one for the Central Bank itself.

Apparently, we are not entitled to ask questions about the conduct of such a matter of important public policy in the House. Yet we know that a paper written recently by a former employee, an economist of the Central Bank, Mr. Cathal Guiomard, was exceptionally critical of the performance of the Central Bank in recent years. I have no reason to believe that these are the views of a disenchanted employee but rather the soundly held views of a public spirited professional whose experience in the Central Bank gave him good cause to be so disenchanted. His reported criticisms are profoundly disturbing and require urgent rebuttal if they are not justified.

Let me refer briefly to an item in The Sunday Tribune of 7 February 1993 where an attempt was made to summarise some of Mr. Guiomard's criticisms. It states:

That unlike its counterparts in other EC countries, the Central Bank's focus is not on the country's economic development or on the approaching economic and monetary union, but on "internal administrative issues".

That Ireland's representatives on the influential Committee of Governors in Basle rarely contribute and virtually never do so on issues that don't concern Ireland.

That "in general, staff are only recruited at the school-leaving stage." As a result, the level of qualifications is low . . . .

That almost £3bn of foreign reserves are invested with the advice of just one economist, acting part-time.

Hardly any resources are devoted to analysing what its policies should be and the bank "seals itself off from the outside world, due to its paranoia about media comment . . . ."

That "a strong air of inactivity prevails throughout much of the bank much of the time. We work fairly short hours fairly half-heartedly. A low level of performance is demanded by management and so a low level is offered . . . in fact, the bank is a very efficient machine for turning bright young active people into slow inactive ones . . . ."

That the bank "is a one-language" institution and is largely unable to understand material from other EC countries. That the bank's information technology is "lamentable".

That "we do not do any fundamental research on European Monetary Union, we have not seriously tried to apply existing analysis to the Irish case and we do not even monitor the work that others are doing."

On and on it continues. That litany is profoundly disturbing if it is true and, if it is not true, the Minister should reply in this debate and the Governor of the Central Bank should make his position clear publicly.

What of the role of the Department of Finance? Is it not time for this House, against a background of the limited available literature, to properly debate the role of the modern Department of Finance in our economy? Were the Department of Finance — assuming a subservient role by the Central Bank, a functional one by the NTMA and a passive or absent role by an otherwise preoccupied Minister — really calling the shots in this entire affair? If they were, is that the way this House wants it to be? I have every conviction that all public officials, and not just those in the Department of Finance, acted from the highest motives. However, one must be forgiven for inquiring whether these same officials manage to find time to talk to anyone outside in the real economy. Whether or not the Minister was otherwise preoccupied, it is puzzling, to say the least, why the Department of Finance persisted for so long in defending the indefensible.

I believe that the quality of public policy and not just the reputations of these institutions requires that those responsible for guiding these institutions have a suitable public forum to justify their actions. I am quite sure they acted properly at all times but whether they acted wisely is a legitimate matter of public interest. Either the Committee of Public Accounts or the proposed new Finance Committee — if it can be established sufficiently quickly — should provide such a forum immediately where these questions can be examined and where the people concerned can defend their actions.

It could, of course, be the case that there is an exclusively political explanation for a series of actions and omissions that otherwise seem incomprehensible. Certainly the behaviour of our political leaders almost defies understanding. After the disastrous Birmingham Summit we were told that the Taoiseach was in "a remarkably relaxed mood" throughout and that he ambled through the summit "with detached ease". If the Taoiseach was in a "relaxed mood" during the Birmingham Summit, he was either out of touch with reality or he is a remarkably good actor and I do not believe that actors make good heads of government. Indeed, one has formed the view from public comment that the Taoiseach was out of touch for much of the crisis including the ignominious climbdown. The history books will show that it was the misfortune of the Irish people that the currency crisis coincided with an unnecessary general election and its aftermath. The history books will also show that it was the Taoiseach who unnecessarily provoked that general election.

The Minister for Finance, Deputy Ahern, persisted in the aftermath of the election with the pre-election make-believe that we could resist devaluation because "the fundamentals of our economy are sound". Who are we kidding? More than 300,000 people — in reality almost 350,000 if one takes account of pre-retirement and small-holders not included on the register — are unemployed and we continue to repeat that "the fundamentals of the economy are sound". How can any economy be regarded as sound when more than 20 per cent of the workforce is idle; when two-thirds of our exports derive from companies who are tenants in our economy and when almost 90 per cent of our indigenous industry is trading into the UK? Persuading EC counterparts to sing our song as distinct from mounting a planned, political and diplomatic offensive to persuade them to come to our aid was a futile exercise. It did not fool the speculators and it did not cause the Bundesbank to do anything more than the minimum required by ERM rules. But the Minister persisted with the same song and after Christmas acquired a partner in the Labour Party who were more than willing to make it a duet.

Of all the incomprehensible actions of the Government surely the most bizarre was the hardline statement from the first new Cabinet meeting which added gratuitously that the Irish Government would not be seeking a negotiated realignment. I find it difficult to dispute Paul Tansey's summary of the consequences:

Domestic business have been debilitated for over four months by an over-valued exchange rate and penal interest rates. Their efforts to recover the ground and money lost will be hampered by continuing high interest rates. The authorities bet the bank against a devaluation of the Irish pound and lost. Now, we must all pay for their mistake with expensive money."

As early as the economic debate of 8 October, Deputy De Rossa, suggested that a renegotiated realignment was the best of difficult options. An unnecessary general election ended what might have been a period of productive questioning of the dominant view. On December 1 in a lengthy speech I again raised the question of a political offensive for a negotiated realignment and complained of the adverse impact of the consensus and suppression of debate that was intolerant of any view other than the official one; a view that was beginning to be presented in increasingly nationalistic colours by sections of the media.

At the first opportunity in the House, I again questioned the consensus on 15 December, when I commented:—

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 10 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.

Late and all as it is, it is not too late to start a real debate about Maastricht and European Union. The ratification process is not complete as both Britain and Denmark have to complete their procedures. There are some people who believe that the Irish people may well have to be asked to vote on the matter again, given the significant changes made to accommodate Danish objections after the Irish referendum was held.

Even if the ratification process is completed without further problem — and that is by no means certain — there is still a need for a full debate on the future direction of the European Community and especially on the implementation of the Maastricht Treaty. But it is important that it should be a real debate with due consideration given to both the positive and negative aspects of the Treaty and not the one-side affair which we had last summer.

There must be a far greater degree of accountability by the Government to the Oireachtas and to the people. Never again must we allow the situation to happen, as it did with Maastricht, where the Government entered into negotiations on the future of Europe in circumstances of virtual secrecy with the Dáil and the people then being presented with the outcome of the negotiations as a fait accompli.

My party has pressed repeatedly for a strong Oireachtas committee to deal with European affairs. When the previous Fianna Fáil/Progessive Democrat administration proposed the establishment of an Oireachtas committee on foreign affairs, they wanted to exclude significant areas of EC business from the committee's remit. The new Programme for Government contains a commitment to establish an Oireachtas committee on foreign affairs, but unfortunately makes no reference to its role in European affairs.

The currency crisis of the past six months has been a painful and expensive lesson but it may not be an entirely wasted experience if it forces politicians in all member states to stand back and reassess the Maastricht Treaty. If they are now forced to accept that the political structures for the process of integration must be based on the sharing of democracy and sovereignty, on genuine equality of citizenship and on balanced economic and social development in all regions of the community, then it may turn out to have been of some value.

Apart from the loss of jobs, the most severe impact of the currency crisis on the lives of ordinary people has been felt through the huge jump in mortgage rates. Even if the further threatened 3 per cent increase has, for the moment, been avoided — I hope, permanently, but I doubt it — householders are now paying mortgage rates far higher than at this time last year. Many families are being beggared by crippling mortgage repayments.

I hope that the Minister will use the opportunity presented when replying to the debate to reassure householders that the Government intend to honour the commitment given during the election campaign — that if interest rates had not dropped before introducing the budget full mortgage relief would be restored and be backdated to 6 October.

While the commitment was given by the Minister at the height of the election campaign, I am concerned that nothing has been heard of it since. Ominously for householders, there was no mention of it in the Joint Programme for Government and there have been rumours in political and financial circles that the Government was looking for ways to try and extract itself from the promise. Any attempt to renege on the promise would be a cruel betrayal of householders who are the core of our taxpayers.

People on modest incomes, who have no choice but to buy their own homes because of the direction of national housing policy, have faced mortgage increases on a virtually unprecedented scale. The farming organisations, employers and conservative economists who have called for a wage freeze and even wage cuts seem to have forgotten that, in many cases, the full benefits of the Programme for Economic and Social Progress increase over the past two years have been wiped out by the mortgage spiral. 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 that same worker has a mortgage of £40,000, he or she has had to face a mortgage increase of about £21 per week.

People are simply terrified of further mortgage increases and, at the very least, the Minister should use the debate today to give them that assurance.

: Tá áthas orm an deis a fháil labhairt sa díospóireacht tábhachtach seo i dtaobh na dí-luachála, ceist atá anphráinneach do lucht talamhaíochta agus do lucht tionscail atá bunaithe ar an dtalamhaíocht.

I am glad to have the opportunity to contribute to this important motion. Since the currency crisis erupted last September, the Government has had to make many difficult decisions, based on its best estimate of the economic and financial circumstances which prevailed. The reasons certain decisions were taken have already been clearly spelled out by the Minister, Deputy Ahern. The Government's decision to sustain the value of the pound was the right one, given the consistent economic and monetary policy which had been followed in recent years. The circumstances had changed nearly two weeks ago, when the decision to devalue was taken.

I would like to explain to the House why I believe that the Government's policy in recent months was correct. In doing this, I will set out how the currency crisis has affected the agricultural and food sector and what devaluation will mean to the sector.

Farmers and their representatives have traditionally been among the foremost advocates of responsible fiscal and economic policies. They know from bitter experience that loose macroeconomic policies will lead to high interest and inflation rates and will erode farm incomes. Thus it was not surprising that farmers were very much in favour of the moves towards greater monetary stability within Europe with the eventual aim of achieving a single currency.

Irish farmers have clearly benefited from the low level of inflation in recent years. This has been an important factor in sustaining income. For example, in 1992, when aggregate farm income increased by 18.5 per cent the fact that the price of inputs rose by less than 1 per cent made an important contribution to that increase.

Thus it was not surprising that in the wake of sterling leaving the ERM last September, farmers and their organisations were part of a wide national consensus which agreed that Ireland should retain the value of the pound within the ERM. There was nothing surprising about such a consensus — it was also shared by other countries within Europe. Ireland had a low level of inflation, public finances which met the Maastricht convergence criteria and a very solid balance of payments surplus. To have done other than remain within the ERM at that time would have been a precipitate reaction. It would also have been inconsistent with the policies which had been followed since the end of the seventies when we took the strategic decision to join the European Monetary System and increasingly align our economic destiny with Europe and, in so doing, reduce our dependence on the UK.

While there was no objective reason why Ireland should have followed the UK out of the ERM last September, the fact that sterling devalued by such a large amount in such a short time obviously caused problems. Sterling falling from 92p to 108/109p to the pound in the space of two weeks was bound to have a significant impact. In the agricultural and food sector, the impact of the sterling devaluation was greater than for manufacturing industry as a whole. This was so for two essential reasons. Firstly, the agricultural and food sector is more dependent on the British market and is more exposed to competition from British produce on domestic and third country markets than is manufacturing industry in general. Secondly, the agri-food sector is much more dependent on indigenous inputs than almost all of the rest of manufacturing industry. This meant that while the industrial sector could gain, in certain cases substantially, from cheaper imported inputs from the UK, the gain to the agri-food sector was very limited.

These quite fundamental factors were, of course, of particular concern. However, there was on the other hand, the fact that the operation of the EC's system of monetary compensatory amounts shielded certain products from the effect of the devaluation of sterling.

The products to which full MCAs applied were cattle and beef, dairy products, cereals and sugar. MCAs applied to a more limited extent to pigmeat, poultrymeat and certain processed products.

There were also, of course, a number of products which MCAs did not apply to, such as sheepmeat, fruit and vegetables and a number of high value added processed foods. Many of these products were granted aid under the Market Development Fund, which the Government agreed to in October. The fund aimed to assist businesses which were under pressure as a result of the devaluation of sterling. Of the £50 million which was committed under the Market Development Fund, the food industry will have benefited to the tune of about £12 million by the end of March.

These were the facts in so far as they related to the agri-food sector in October-November of last year. Although the sterling devaluation meant that a number of food companies were hurting, the various reasons which I have given confirm me in my view that maintaining the value of the pound in the ERM was the right policy during the latter months of 1992.

To repeat, these reasons included: the long term commitment to and interest on the part of farmers in monetary stability; the operation of the MCA system; the existence of the Market Development Fund. In the last part of 1992 and into January 1993, the effects of the currency crisis became more damaging for the agri-food sector. The parts of the sector which were exposed to the full impact of the devaluation, and which had no protective cover from the MCA system, were clearly facing increased competitive difficulties. This was feeding back into weaker prices for farmers.

There was a particular concern about those parts of the food industry which were producing value added products. A number of these firms have grown substantially in recent years. The growth of Waterford Co-op is a prime example. They have large numbers of people employed. They were doing precisely what everyone agrees should be at the heart of a policy towards developing the food industry — engaging in product development and expanding into consumer markets. Yet it was these companies, not protected by MCAs and using a very high proportion of indigenous inputs, which were being put under severe pressure by the devaluation of sterling.

There were a number of other important factors which, as the weeks and months went by, began to change the judgment as to where the balance of advantage lay in relation to the value of the currency.

Firstly, the high interest rates were causing severe problems. The 3 per cent increase in September 1992 meant that the increased annual interest bill for the agri-food sector would be £60 million. Total borrowings of the sector are of the order of £2 billion.

Secondly, it has been an objective of the EC that MCAs would be abolished on 1 January 1993 in tandem with the introduction of the Single Market. In fact, the rates of MCAs were substantially reduced from mid-November onwards. The December Council of Agricultural Ministers confirmed the decision to abolish MCAs from 1 January, although some changes were secured in the Commission's proposal along the lines advocated by the Minister, Deputy Walsh.

Thirdly, there were changes in intervention arrangements for beef from 1 January 1993. There was a risk that these changes could have put downward pressure on beef prices. I am glad to report that this has not, in fact, happened due to the scale of the intervention tenders which have so far been obtained in 1993. But, that being said, if such tenders were not to be as effective in maintaining prices in the future, then the fact that MCAs were abolished could lead to severe competitive pressures on the UK market.

These various factors which I have been speaking of are all central to the "real economy", and the "traded sector", which are the subject of the motion before the House. From my point of view, as Minister responsible for one of the most exposed industries within the traded sector, it was crucial that our exchange rate policy should be consistent with the objective of maintaining and, indeed, expanding income and employment within the agri-food sector.

Since my appointment to the Department, a matter which gives me confidence in the future in relation to one of the provisions of the Programme for Economic and Social Progress is that an export group sitting in the Department are drawing up a blueprint for the food industry. Their report and recommendations should be with us in the not too distant future. There is still a great deal of potential for job creation in the food sector. Obviously, the niche markets can be exploited but quality, price and transport to markets is an important factor.

In relation to the other part of my portfolio, the horticulture sector, which has had its problems in recent times, the success story has been the development of the mushroom industry. This industry was affected by the devaluation of sterling. I believe that not alone will this industry regain its true market share but there is scope for expanding its market share, particularly in the UK. I was glad to see that in my own constituency last Monday there were discussions in relation to a planning application for a worth while production unit. The model set by the mushroom industry in terms of horticulture is one that should and will be followed by other sectors in terms of attacking those niche markets which are there to be exploited. However, it will require real professionalism and quality goods to exploit them to the full.

Sitting suspended at 1.30 p.m. and resumed at 2.30 p.m.
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