Dáil Éireann debate -
Wednesday, 10 Feb 1993

Vol. 425 No. 7

International Currency Crisis: Motion.

The following motion was moved by the Minister for Finance on Tuesday, 10 February 1993:

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.

Debate resumed on amendment No. 1:

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

"—deplores 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."

—(Deputy Rabbitte)

Minister of State at the Department of Agriculture, Food and Forestry (Mr. O'Shea)

Before lunch I had been dealing with the various factors which were central to the trade of the economy as the difficulties arising from the devaluation of sterling were having more effect on us. As Minister of State responsible for one of the most exposed of those industries, I believed that that sector was becoming more at risk. By mid-January it was increasingly clear that the economic cost of maintaining the value of the pound was becoming very high. These costs would be reflected in likely lower prices affecting farm incomes in the year ahead and in reduced employment in the food industry. These considerations about the real economy allied to the risk of increased interest rates, which would have affected businesses and householders alike, helped to tip the scales towards the decision to devalue.

I regret that we got to the point of being obliged to devalue. The case for European monetary stability and, eventually, a single currency remains very strong. Having a single currency would be the natural complement of the completion of the EC Single Market. The Single Market will bring benefits to Europe and to Ireland. The increase in Structural Funds to about £8 billion over the next five to six years has to be seen as an integral part of the overall project. I accept that the plans to move towards a single currency as part of that project have clearly taken a set-back in recent months.

We will now have to assess in a very clear way what were the problems associated with the ERM which meant that Ireland was obliged to devalue. That debate about the future working of the European Monetary System and how Ireland can best achieve its economic objectives within that system needs to be a full and open one. I look forward to participating in that debate in the months ahead.

I would like now to move on to assess what the impact of the devaluation of the pound on agriculture and food will be, now that the decision has been taken. The first and most obvious impact is that prices for agricultural produce should increase now the Green £ has been devalued by about 9 per cent, thus increasing support prices in Irish pounds by that percentage.

It is important to explain to the House why the green £ was not devalued to the full extent of the devaluation agreed within the ERM. As it is vital that the longer term development of the food industry is not inhibited, it is important to ensure that the new support prices do not unduly tilt the balance in favour of intervention as against sales to the market. For this reason a small proportion of the percentage devaluation is being held in order to improve our competitive position in the market. The position in this regard will be reviewed by the early summer.

I am glad to report that some of the direct benefits from the devaluation are already coming through. Factory prices for beef have risen by 5-6p per lb and prices for hoggets have risen by up to 6p per lb. There will also be an upward adjustment of the various premia which are paid to farmers, although in the case of cattle the 1993 premia have not been changed. The Minister, Deputy Joe Walsh, intends to press the EC Commission for some flexibility on this issue.

It is clear that some increases in costs will arise as a result of the devaluation. However, the net effect of increased prices and costs will be substantially positive in terms of farm income. It would not be unreasonable to expect that aggregate farm income in 1993 will increase by at least 5 per cent, thus building on the very positive outturn in 1992, when income grew by 18.5 per cent.

The devaluation should also have a positive effect on improving the competitiveness of our food products and on sustaining employment in the industry. This increased competitiveness should provide the platform for further development of the industry and for employment growth based on developing new markets and products.

In summary, I acknowledge that the past five months have been very difficult for the agri-food industry. The Government took the correct decision in the latter part of 1992 to hold the value of the pound. For a variety of reasons, the costs of that option became unsustainable in early 1993 and the correct decision at that point was to devalue the pound. This decision to devalue presents us with an opportunity for competitiveness which we must grasp in the months and years ahead.

Mr. Noonan

(Limerick East): A Leas-Cheann Comhairle, I would like, first, to congratulate you on your election and to welcome you to the Chair. In the year 351 BC, if we go back a long way, Demosthenes, in his first Philippic, took consolation at a further set-back in Athenian policy at the hands of Philip of Macedon in the following words:

First, then we should not be downhearted at the present situation however regrettable it seems. The worst feature of it in the past is the best hope for the future. What feature? The fact that it is plain dereliction of duty which has brought us to this position. If it followed a period of exemplary action there would be no hope for improvement.

That the quotation is apt because, as was the case 2,000 years ago in Athens, the only consolation we can hope for, after the recent ignominious and dismal collapse of Government policy, is that we can learn from the dereliction of duty and the lack of exemplary action so that we can never be so humiliated again.

The gross dereliction of duty to which I referred has principally been by the Taoiseach and the Minister for Finance, who throughout the period, in four different colours of Government, held the positions which they hold today. First, I intend briefly to catalogue the relevant events since the currency crisis commenced in September, then I will give an inventory of the losses suffered by the country. However, I will dedicate the major portion of my remarks to what I believe are the main policy considerations which must now be addressed to ensure that a débâcle like this never happens again. I believe there are three such policy considerations. First, there is the exchange rate policy itself. Second, there is the failure to recognise that we did not have the support of the German authorities in the course of the crisis. Third, there is the lack of accountability of the agencies and persons involved to the Houses of the Oireachtas and in particular the lack of accountability by the Central Bank to anybody, it seems for its activities.

I would like to go briefly through the sequence of events which is familiar to many people. In September, following an intense period of instability in international currency markets, sterling, the lire, the peseta and the escudo devalued. Without any policy decision being made by the Irish authorities, the punt increased in value and on a trade weighted basis this revaluation settled at about 5 per cent. There was nothing in the fundamentals of the Irish economy to justify this increase and over the succeeding five months the Government did nothing to justify the new value of the punt. They could have cut the cost base to industry to restore competitiveness. They did not. They decided to defend the punt by Central Bank intervention in the markets and by raising interest rates. Wholesale rates soared and retail rates, including mortgage rates, went up by 3 per cent.

The Government of the time was totally preoccupied by the tensions between Fianna Fáil and the Progressive Democrats. Deputy O'Malley had already given evidence at the Beef Tribunal and the Taoiseach, Deputy Reynolds, was rehearsing his rebuttal of Deputy O'Malley's charges. The participants in Government were so immersed in the internal powerplay that the vital interests of the country were neglected and no measures were taken which would permanently restore competitiveness and enable industry, particularly those sectors of it trading into the United Kingdom, to survive. This was the only strategy which would have worked. I consistently stated so since September and, in its absence, a devaluation was inevitable.

The Taoiseach's evidence at the Beef Tribunal blew the Government apart in early November and since then, I believe, Fianna Fáil's main concern was to avoid the political blame for a devaluation while at the same time being unwilling to risk unpopular action to defend the punt. This continued through the election campaign, after the election, when they operated as a caretaker Government, and during their negotiations with the Labour Party. Fianna Fáil were not prepared to act until they could share the blame with a new partner in Government. Consequently, right through the period from November until last week, policy was dictated by party political considerations rather than by considerations of the Government's duty and the national interest.

Towards the end of the election campaign some of the Baltic countries, led by Sweden, devalued and the punt came under pressure. As sterling weakened in December and January, the punt came under pressure on a number of occasions and the Minister for Finance announced to a press conference that we could not stagger along indefinitely. The punt again came under pressure. During all this period the only instruments of defence were direct intervention by the Central Bank and higher interest rates. The Government took no action at any time which would have indicated, both internationally and domestically, that it was prepared to take hard policy decisions to defend the punt. It would not fight and it could not run, so nothing was done. When the final collapse came, it was inevitable. It was as inevitable as it was humiliating, and the principal culprits were the Taoiseach and the Minister for Finance, who held those offices right through the five months in question.

I would like now to look briefly at the costs, which have been enormous. The Central Bank has used up all the nation's external reserves. It has used the swops arranged with the commercial banks, it has incurred significant liabilities to those central banks, who, under the terms of the ERM, came to the defence of the punt. The total effect on the Central Bank's balance sheet cannot be less than £300 million and could be considerably more by the time the reserves have been fully replaced.

The Treasury Management Agency has incurred very significant losses as a result of substituting D-mark borrowing for Irish pound borrowing. The national debt has gone up by £800 million, according to the Minister's figure. Interest rates are still at the higher level in Europe and at one of the highest levels since the foundation of this State, and these levels include the mortgage rates. They have soared as the economy has plunged into recession, businessess have closed down and thousands of jobs have been lost without hope of recovery. And all for what? To protect the reputation of Fianna Fáil and in particular to ensure the continuance in office of the Taoiseach and of the Minister for Finance.

I now turn to the implications for exchange rate policy. I believe the Government now has an absolute obligation to clarify Irish exchange rate policy. I do not think the Minister did so today in his speech which opened this debate. Claims such as have been made by the Government that Ireland is still on course to participate with the Benelux countries, Denmark, France and Germany in some kind of exclusive hard currency club and that the devaluation of the punt is merely a slight temporary setback in our steady progress towards a single European currency are quite clearly untrue. The fact that the Bundesbank was prepared to cut interest rates to protect the Danish krone within one week of failing to take action to protect the punt clearly illustrates that Germany does not see us as appropriate members of this hard currency club. The fact that the central banks of other EMS countries only intervened to protect the punt strictly in accordance with their ERM obligations, while they went well beyond their obligations to protect the krone, indicates that other hard currency countries also regards us as ineligible for membership.

We are now being pulled in two directions. Our exchange rate policy pulls us towards Germany, our export trade pulls us towards the United Kingdom, and as long as sterling floats outside the ERM this tension will continue. Some commentators have advocated that we establish a link with sterling; others argue that we should move from the narrow to the wider ERM band; others again suggest that we should allow the punt to float. I believe that to pursue any of these strategies would be extraordinarily difficult and would be no more than a shot in the dark, the outcome of which would be quite uncertain. The best course of action probably is to stay within the narrow band, but to approach our policy with a willingness to demand, and insist on, frequent realignments within the ERM if domestic or international circumstances warrant such realignments.

It is vital that we protect our national interest. The only strategy that will succeed in maintaining growth in the economy and in putting people back to work is one which enables Ireland to produce more goods and services and sell them competitively. Because our home market is so small, it is a prerequisite of this strategy to export competively. Unless our exporters can trade into the United Kingdom on competitive terms, with relatively stable exchange rates, businesses will close down and thousands of jobs will be put at risk.

We should remember that statistics frequently hide the true picture. We have been told, right through the five months in question, that 30 per cent of our exports go to the United Kingdom — and this is true — but 65 per cent of the exports from indigenous Irish industry go into the UK. That is the sector which is most at risk — two thirds of their product is dependent on sales in the UK market.

It is not possible to quantify the number of jobs lost through the dereliction of duty by this Government. It is, however, clear that if a devaluation had not taken place the country was possibly facing at least 30,000 redundancies in the export sector of the economy over the next 12 months or so. Policy failures always give one an opportunity to reflect on the future course which policy should follow.

I believe now is the appropriate time to question whether the present exchange rate value of the Irish pound is consistent with the level of unemployment of over 300,000. If the main strategy for job creation is to produce more goods and services and sell these goods and services abroad, then it surely follows that an undervalued pound rather than an over-valued pound would be much more appropriate to our employment needs. There is an increasing view among economists, and especially among younger economists, that the main reason our unemployment levels are double the European average is that our currency is overvalued and has been overvalued for most of the decade.

There is no absolute measure of the value of a currency. The Government claims that the value of the Irish pound is consistent with the fundamentals of the Irish economy. It is absolutely ridiculous to speak of the fundamentals of the Irish economy and ignore the fact that 23 per cent of our people who are looking for work cannot get a job. I am well aware of the many benefits which a hard currency bestows. I believe, however, that in the current crisis of policy, where the incoming Government have no idea how to respond to the unemployment catastrophe, this House has an obligation to examine all elements of policy, and there should be no sacred cows. If the price of prosperity for some is conditional on the poverty of others, then policy should change. If the exposed trade sector of the economy must wither to benefit the sheltered sector, such policy is only viable in the immediate short-term and will collapse in the medium-term, to the grief of both the exposed and the sheltered sectors. If employment is a Government priority, as it stated this week, then the Government had better examine its exchange rate policy, because that which it has pursued, if continued, will cost rather than create jobs.

I turn briefly to the question of accountability. In the course of the preliminary discussions on the formation of Government, the Leader of Fine Gael, Deputy John Bruton and I, in common with other party leaders and Finance spokesmen, were briefed on the budgetary situation by officials in the Department of Finance. In the course of this briefing the currency issue was briefly discussed. I have no doubt that those highly respected, reputable officials were intellectually convinced that the course of action which they were following was in the national interest. I presume that officials of the National Debt Management Agency and officials of the Central Bank were equally convinced. I do not know if they remain convinced of the rightness of the course that we were pursuing through December and January; but it is clear that in computing the losses incurred as a consequence of devaluation, the loss of reputation of those involved at official level must also be taken into account. I do not know whether the Department of Finance, the Central Bank and the NDMA succeeded in imposing their views on the Government, or whether they were simply carrying out political instructions. We presume the latter is the case and that the Minister for Finance will accept responsibility on behalf of everybody.

The Central Bank, however, is independent in the exercise of its functions. The losses incurred by the strategy it pursued would be enormous by any standards and I believe that there should be some level of direct accountability by the Central Bank to the Oireachtas. It is necessary, so that we avoid mistakes in the future, to establish what actually happened; and I believe that an appropriate committee of the Houses of the Oireachtas should be empowered to hear the views of the Governor of the Central Bank. The Governor of the Bank of England reports through a committee of the House of Commons to the members of the House. The head of the Federal Reserve in the United States is accountable to a committee of Congress. I understand there is a reporting mechanism between the Bundesbank and the Bundestag. If the Taoiseach is seriously interested in letting in the light, perhaps he might start with letting some light into the activities of the Central Bank and make some committee of this House responsible for the accountability of the bank for what they do. I do not believe that the Minister should be the fount of all wisdom and should be expected, whether he is to blame or not, to carry the responsibility for everybody who advised him on this occasion.

A number of public statements have been made recently by former employees of the Central Bank which are very critical of the bank. This is a matter of great concern, especially when charges have been made that appropriate economic advice has been ignored when policy has been formulated by the bank. I believe the Minister for Finance and the new Government have an obligation to consider the accountability of the Central Bank to the Houses of the Oireachtas and I would strongly recommend that they would set an appropriate structure in place. This is a very opportune time to consider this as the Government are in the course of setting up a series of committees of the House.

One of the most striking features of this whole affair is the lack of input by the Department of Foreign Affairs. Ireland's exchange rate policy, though primarily a matter for the Department of Finance, cannot be pursued with effect without a Department of Foreign Affairs which is in tune with the mood and aware of the views of decision makers and opinion makers in other EMS countries, especially in Germany. This is particularly so when one of the main weapons in the defence of the punt was supposed to be a diplomatic démarche to convince our EMS partners that our currency was appropriately valued and that they should come to its defence. I believe that the apparent absence of a Foreign Affairs view — if there was such a view it was not taken into account — is profoundly disturbing.

It is worth recording some of the facts. The "war cabinet", which made the day-to-day decisions on the defence of the punt, consisted of the Minister for Finance, the secretary of the Department of Finance, the Governor of the Central Bank and the chief executive of the NTMA. In circumstances where diplomacy was conceived as one of the main weapons of defence, it was surprising that the secretary of the Department of Foreign Affairs was not a member of this group. I had personal experience of the Department of Foreign Affairs during the negotiations which led to the signing of the Anglo-Irish agreement and again when, as Minister for Justice, I attended the early conferences with the then Minister for Foreign Affairs, Deputy Peter Barry. I learned very quickly to appreciate the effectiveness of the Department and in particular their capacity to establish and report the views of a wide range of significant people both in Northern Ireland and in the United Kingdom. I have no doubt that they had the capacity to do the same in respect of Germany and our principle EMS partners. I wish to ask why they failed to do so and, if they actually carried out the diplomatic work, why the information provided was not taken into account by the Government.

Public opinion in Germany has changed significantly since reunification. German views on a single currency and their views on obligations to weaker European countries such as Ireland, and indeed on Germany's role in the new Europe which is now emerging, have changed quite dramatically. The Fine Gael Party through its relationships with the German Christian Democrats is in a position to know the views of German decision-makers better than other parties in this House, and we are fortunate in that respect. Our party frequently sends delegations to Germany. I was a member of one such delegation last October to the former GDR and frankly it was a most profoundly depressing experience.

Unemployment in former East Germany is about 65 per cent. This is disguised in the official statistics by early retirement schemes and training schemes. But of a workforce of nine million approximately before the wall came down, there is now a workforce of slightly under three million. Those are the facts. The industrial base of whole towns has been closed down as former State companies can no longer compete in the free market. I was in one town on the German-Polish border where 12,000 industrial jobs in three industries had been lost and virtually nobody except a handful of public servants was at work. The confidence of ordinary people has been severely dented. Their morale is low. They are suspicious of foreigners, afraid of inflation and resentful of grandiose EC schemes for which, they believe, the German taxpayer will have to pick up the bill. In the former West Germany, Germans at all levels of society are deeply worried as they fear that the price of unity may be a long period of recession. With so many problems at home they are not really receptive to begging bowl approaches by other member states such as Ireland. They are becoming increasingly hostile to the idea of a single currency and they regard the Deutsche Mark as their principal badge of sovereignty, their ultimate symbol of unity, the basis of their wealth. They certainly do not want it contaminated by weaker currencies. This mood in Germany was quite apparent to my colleagues and me last October. I would be very surprised if it were not fully recorded in the diplomatic despatches from our embassy in Bonn to Iveagh House. I would be equally surprised if our diplomats in Germany had not clearly indicated that the Germans were in no mood to do any more that was strictly required by their obligations under the ERM to defend the pound.

There is a strong belief that the German authorities advised the Irish authorities in November that a negotiated realignment within the ERM was more appropriate than continuing to defend the punt and that this advice was rejected. Whatever the truth of this, it became blindingly obvious in the week after develuation that the Germans believed that the Irish pound was over-valued, when they did for the Danes what they would not do for the Irish. It was quite clear that the German authorities were not committed to the defence of the punt. Why was this not communicated by the Department of Foreign Affairs to the Department of Finance in good time and, if it was, why was the advice ignored?

One of the principle legacies of the former Taoiseach, Mr. Haughey, to public administration has been the diminution of the role of the Department of Foreign Affairs. Mr. Haughey was suspicious of Iveagh House, particularly with regard to Anglo-Irish relations and Northern Irish policy. He suspected them of revisionism and he suspected them also of too close a relationship with his rival of the day, Dr. Garret FitzGerald. He reduced the role of Foreign Affairs by transferring much of the real decision making of the Department to the Department of the Taoiseach. Its power has been further reduced by the dominance of the Department of Finance over all other Government Departments, especially since Fianna Fáil returned to office in 1987. I believe that the insignificant role played by the Department of Foreign Affairs in the defence of the currency was the principal reason the strategy was continued well beyond the point when it had lost credibility. If we are to learn anything from this sorry mess it is the absolute necessity to restore the Department of Foreign Affairs to its rightful role in the formation and execution of any policy involving relationships with other states.

Another lesson which we can learn from this entire tragic affair is that Government Departments operating entirely within rigid departmental boundaries, as if they lived in distinct universes, is an inadequate response to complex political and economic affairs. The fact is that the financial and diplomatic businesses of Government are interwoven threads in the fabric of our national interest. All Departments and agencies of State should be mobilised to serve the national interest and they should be accountable to the Houses of the Oireachtas for the decisions they make.

I will leave the Taoiseach with a mystery. In the course of his reply he may deal with it. How is it that the Belgians, where all the fundamentals of the economy seemed to be wrong, came under no pressure at any time in the course of the currency crisis? What magic formula did they use to defend the Belgian franc which was different from the strategies taken by everybody else whose economic fundamentals seemed far stronger?

The Taoiseach

Comhgáirdeachas leat, a Leas-Cheann Comhairle, agus go n-éirí an mbóthar leat.

The first thing I must tell Deputy Noonan is that the Belgians put up their interest rates today.

The course of conduct the Government adopted during the currency crisis since last September has been a sensible and honourable one, taking account of both our long and short term interests. Our eventual decision to realign was right in the circumstances and was widely welcomed. It creates positive opportunities, provided we can minimise the disadvantages.

I have always accepted that there are advantages and disadvantages to devaluation, depending where you are coming from. The chief opportunity is presented to our exporters for diversification towards our continental main European trading partners, to reduce what is still a very unhealthy dependence on the British market. In fact, when you take out agricultural produce, we are down to approximately 15 per cent exports to the British market. Thirty-five per cent of our exports in the first 11 months of 1992 went to the other six counties still in the ERM narrow band — Benelux, Denmark, France and Germany — a higher proportion of our trade than went to the United Kingdom. A 10 per cent devaluation will create a big opportunity for our exporters in these markets. In the meantime, we will have recovered competitiveness for our United Kingdom exporters.

Farm incomes which rose by 18.5 per cent in 1992, will get a further significant boost of about £150 million in 1993 alone with the recent green £ devaluation. Hard-pressed mortgage holders were spared an immediate further increase in home loans. With regard to inflation, we are back to the situation prior to last September. Inflation should stay around the 3 per cent mark or slightly lower.

There are two principal disadvantages. The downward trend in the debt/GNP ratio will be interrupted this year, as the realignment will mean an increase of the order of £800 million in the national debt. But this should be largely offset by an equivalent increase in Structural and Cohesion Funding from 1994 to the year 2000. The budgetary impact will be slightly negative. We must show our determination to maintain economic discipline. Siren voices that would now have us ignore the Maastricht criteria will be ignored.

The other negative aspect is that inevitably foreign investors will seek, in the short term at least, a higher interest rate premium on the Irish pound. Unfortunately, there is still much uncertainty around. We will have to work hard to rebuild confidence. The management of the currency is an important instrument of economic policy. Its value is vital to both jobs and living standards. But the currency is not the flag, and we should resist the temptation to treat it as such. My background has taught me to have a pragmatic view of the currency. My view since last September was that as long as there was a reasonable prospect of a return to stability in the short term, we would be right to hold out for the sake of the long term gains. If not, we would have to review the position. That view was broadly supported in the political and commercial world. To have put up no fight at all would have displayed a lack of seriousness and commitment on our part of the system and would have cost us dearly in the long term. It was incumbent on us, for our own sake and in solidarity with our European partners, to take every reasonable step to sustain our position. However, it should be remembered that qualified and nuanced statements made in other policy areas have to be avoided on the currency issue because of the sensitivity of the subject itself and the way that markets overreact.

When it became clear at the end of January that the costs and risks were escalating out of proportion, we had to seek a realignment. Ireland enjoys large numbers of hindsight decision makers. But the nature of markets is that the future course of a floating currency cannot be accurately predicted. While a country's economic fundamentals do influence how its currency is regarded, they do not wholly determine it. Speculation is capable of unsettling the most firmly-based currencies, as we have seen in recent months.

For nearly six years, from early 1987 till last autumn, we enjoyed the benefits of currency stability within the exchange rate mechanism. The value of our currency vis-à-vis the Deutsche Mark remained the same. This stability was the backdrop to a period of remarkable economic progress. Inflation remained in low single figures. Our economy gained rapidly in competitiveness, particularly vis-à-vis sterling. We had a growing balance of payments surplus. The interest rate gap with Germany, which had been 9 per cent was reduced to less than 1 per cent. We generated high economic growth averaging close to 5 per cent leading to 45,000 net new jobs. Potential instability was removed when Britain joined the ERM in 1990. Our experience, in short, was overwhelmingly positive.

There was also a strategic European dimension. Since 1990 the Community has embarked on the road to Economic and Monetary Union, on the basis now of the Maastricht Treaty. Ireland wishes to be part of that union and voted strongly for it. Most studies accept that it is strongly in our interests to participate. There is little future in being a peripheral economy, largely dependent on Britain, especialy if it remains outside the single currency. The structural problems of the British economy were the principal reason we decided to join the EMS in 1979. Those problems remain.

We have made some progress towards convergence. According to the EC's latest annual economic report, our GDP per capita has risen from 60 per cent of the EC's averge in 1986 to over 70 per cent to date. While our income per head was roughly half Britain's in 1973, today it is about three-quarters. Participation in Economic and Monetary Union has clear benefits for Ireland. The increased Structural and Cohesion Funds agreed at Edinburgh, worth about £8 billion in non-repayable grants — now significantly more — were to enable countries to converge and to participate in European Monetary Union.

These were powerful reasons to hold our nerve in the initial stages of the currency crisis. The relevant economic data were good. There were good reasons for believing that the situation, including the rise in interest rates, might last a few months only. The British at that time spoke of rejoining the ERM as soon as practicable. Large numbers of exporters secured their profits by financial cover up to November and December. We brought in a Market Development Fund to help the exporters worst affected. Farmers were protected by MCAs to the end of the year. The lending institutions softened the impact of increased interest rates on mortgage holders.

Last September there was a broad consensus that we should try to ride out the storm. This stance was supported by nearly all political parties, by the social partners and in the media. The Irish Press said on 18 and 19 September: “We must be in there with the best” and that “This State has benefited greatly from EMS membership, that membership is worth defending”. George Lee of The Sunday Business Post argued that we should seek a fixed link with the Deutsche Mark. Paul Tansey in The Sunday Tribune on 20 September said: “In fundamental financial terms, the Irish economy is robustly healthy . . . . It is impossible to argue that the Irish pound is overhauled”. The Irish Times, which opposed devaluation to the very end, stated on 29 September: “The Government and the Central Bank deserve every support in their efforts to defend the pound”.

I stated at that time my opposition to a two-tier approach or a two-speed Europe and my hope that interest rates would return to pre-crisis levels by the end of the year. The Irish Independent on 20 October said: “The Taoiseach has to be strong on this issue . . . The hope is that the present muddle in the markets will be sorted out in a couple of months”. Three days later they said devaluation was not an option. They went on to say: “Our future lies with the rest of the world”. But, as time went on, there was a perceptible shift.

During the course of last autumn we saw Britain and Italy leave the system, and there is now little prospect of an early return. We saw Spain forced to devalue twice with little relief in interest rates. If we had devalued last autumn it is more than likely that we would have had to do so again, at least once if not more.

The weaknesses in the system and the need to do something about them were constantly raised by me at the Birmingham and Edinburgh European Councils and in bilateral meetings that I had with Prime Minister Gonzales last October in Spain, with Chancellor Kohl in November — during the election campaign — and Prime Minister Major in December and also through normal diplomatic channels. I also wrote to Chancellor Kohl last month updating him on the position. The Minister for Finance attended all ECOFIN meetings during the election campaign and was succesful in obtaining valuable statements of support for our position. These were useful in helping to fend off speculative pressures and caused speculators to lose out on a number of occasions. We were in constant touch with President Delors and Ireland's EC Commissioner. There was no sparing of diplomatic effort.

Until the last week of January there was some prospect that sterling might settle down at a level just above parity. An expected fall in German interest rates would also have had a helpful effect. In those circumstances interest rates in the course of 1993 could gradually have begun to fall. We were ready to implement further measures to ease the combined pressure of high interest rates and a high exchange rate, such as guaranteed low interest European loans for industry, farmers and mortgage holders.

However, on 26 January the British authorities, having earlier decided to change policy, lowered interest rates by 1 per cent, with strong indications of further substantial interest rate cuts to come. Our currency rose rapidly to 110p against sterling. There was a prospect that this would now be a floor rather than a ceiling. The markets, believing that this would place great strains on the Irish economy, speculated heavily on a devaluation. Continued defence of the currency without strong multilateral support, which was not forthcoming, would have required a further substantial rise in interest rates. At that stage we decided in favour of the protection of jobs and mortgage holders by seeking realignment.

The currency instability has had a dampening effect on economic activity and investment confidence. Damage to employment was kept to a minimum. Our exporters, to their credit, were determined to hold on to their markets. While we had a gain in competitiveness of some 17 per cent vis-à-vis the British market in recent years, some of this margin had been used up by firms to increase their market share. Our indigenous industries are a vital source of employment. It would not have been right to have left them vulnerable.

What were the factors that made us opt for realignment in the end? In addition to the change of policy in the UK and the Bundesbank's continuous refusal to lower interest rates, speculation played a very significant role. There are some in this country who are inclined to doubt the existence of speculators and who argue how does one distinguish them from prudent forward traders and those who are looking after other people's money. The President of the Bundesbank, Helmut Schlesinger, is in no doubt about the existence of speculators. Last Thursday he said at a press conference that he could find no one who could give him good explanations of such dramatic attacks on European currencies, where the fundamentals were sound, such as the Irish pound, the Danish krone and the Belgian and the French francs, and he added "We hope that this somewhat unfriendly game of dominoes, whereby speculation picks off one currency after another, is at an end". Speculators believed that if the Irish pound fell, the Danish krone and the French franc would be next.

Some financial comment from across the water certainly did us no favours in recent weeks. The British authorities no longer seem concerned about sterling's future compatibility with the ERM, which some might prefer was no longer there. This creates difficulties for Europe and difficulties for us.

Attacks against EMS currencies were also fuelled by opposition to European Monetary Union by speculators, who, with the prospect of a single currency, saw very profitable business in currency exchanges being abolished. In the light of this experience I have already acknowledged that there is a strong case in terms of economic stability in Europe for accelerating the timetable for a single currency, which at one stoke would remove the present multiple exchange rate activity. But all our partners would need to be persuaded of this. The present long lead-in time unfortunately provides too much opportunity to try to derail the project.

The principal domestic factor was our very high level of unemployment, which, after Spain, is the second highest in the Community. Currency policy has to take account of the need to protect existing employment when there are 300,000 people out of work. It is far easier to lose existing jobs than to create new ones. A further large rise in interest rates would also have caused a slump in consumer spending with a resultant negative impact on jobs.

While we did receive valuable support from our European partners, there is insufficient solidarity in the system. In the early stages speculation about an early move to a two tier European Monetary Union which might exclude us was distinctly unhelpful. We killed that off for the moment at Birmingham. The interest rate policy of the Bundesbank, which I stress is independent of the German Government, is based on domestic criteria and does not normally take into account the need for stability within the ERM. But perhaps the concept of an anchor currency is flawed if it is unable to prevent much of the convoy floating off. I believe that our decision to realign the Irish pound brought home the realisation that the whole system could be in danger of collapse and that this was partly responsible for the half point cut in German interest rates, along with the conclusion of a public service pay agreement in Germany the same evening. A floating Danish currency could have led to a flood of German business going across the border and cheaper Danish products on the German market.

Countries in similar positions were not prepared to realign together, which certainly contributed to the domino effect. In that regard I would like to point out that Ireland in the narrow band was not in a similar position to Spain and Portugal, which operated within the broad band and which had twice to three times our inflation rates. It is no great secret that in the late autumn we would have participated in a more general realignment if certain other narrow band countries also under pressure had been willing to join in. But it is absolutely untrue to suggest that we were either asked or advised by the Germans to devalue last October.

The erosion of the domestic consensus in recent weeks also made the defence of the currency more difficult. Some of the more vocal commentators simply switched camp and were determined to be proved right. The opportunity was used to reopen ideological arguments about the value of the Programme for Economic and Social Progress. The scale of potential short term job losses was vastly exaggerated. Organisations that habitually preach tough medicine to others are often the first to seek the soft option for themselves. But I would like to thank those who supported the national interest throughout, in business, the banks, the trade unions and the members of some stockbroking firms, who were constantly on the airwaves with helpful explanations of the situation.

Our former partners in Government, the Progressive Democrats, shared our decisions up till early November, but recently seemed to need to ride both horses. But, in view of the barrage of criticism that has come from Fine Gael, I would like to remind them of their devaluations and realignments against the Deutsche Mark, which amounted to over 20 per cent between 1983 and 1987.

The first devaluation was described by the Minister for Finance of the day, Deputy Dukes, as "a technical adjustment" designed "to secure a correction of the unwarranted appreciation of the exchange rate against sterling". It took place as the Irish pound approached 90p against the pound sterling. In 1986, Deputy Bruton refused to take part in a general realignment in April and ended up unilaterally devaluing by 8 per cent four months later in August. That was followed by a 4 per cent rise in interest rates in October and a full scale crisis of confidence. In view of that accord, I am little disposed to pay much attention to claims by Deputy Bruton and Fine Gael that they would have managed the currency crisis better. They certainly did not the last time and there is no reason to believe that these same Deputies would have done any better this time. In the last few years Fine Gael claimed to be the most European party. On this issue it has shown itself to be the least European party. Since October the Fine Gael Party has tried to undermine the defence of our currency. Deputy Yates admitted recently——

Mr. Yates

The Taoiseach did not say that at the Cairde Fáil dinner.

The Taoiseach

——that Fine Gael had favoured devaluation all along, and indeed that showed through. Market doubts about the underlying Fine Gael attitude and the strong possibility that Fine Gael might be the largest party in the next Government certainly did nothing to improve sentiment towards the currency during and after the election.

The criticism that the Government was not doing enough to underpin the currency rarely turned into specific suggestions. One implication was that the Programme for Economic and Social Progress should have been repudiated. How industrial relations chaos would have assisted the defence of the currency is not explained. There was a proposal that the social insurance system should be dismantled in order to subsidise employers by abolishing or halving employers' PRSI, which is already virtually the lowest in Europe. There was never any explanation as to how this would be paid for and why all companies, including those which were unaffected by the crisis, should get the full benefits too. Finally, the Fine Gael leader's call to devalue on 25 January, when the situation was reasonably under control, was typically badly timed. I notice that one of this own front bench colleagues is quoted in a newspaper describing that action as “national sabotage”. Certainly, I do not think the Fine Gael Party, with its spineless attitude to the currency, comes out of this with any credit.

Mr. Yates

He has a lot more than the Taoiseach.

The Taoiseach

I am quite happy to stand over the actions we have taken since last September which we believed to be in the best interests of the Irish people. The decision to realign was taken almost at the beginning of the life of the new Government, the time such decisions should be taken if they have to be.

In regard to the empty calls from some Opposition speakers that devaluation should have taken place in December, are they seriously suggesting that foreign Governments or international financial markets would take any heed of a party in the middle of negotiations with other parties hoping to form a Government? They would be more concerned with what the policy of the incoming Government would be. The decision was taken within two weeks of being in Government — the right time and the earliest possible time.

We live in difficult and uncertain economic times. Our responsibility is to find ways to combine our response to pressing short term needs and situations while maintaining course in line with our long term interests and objectives. Efforts to create employment will be assisted by balanced comment and analysis. There is always a real danger of talking down the Irish economy, which so many people seem to enjoy these times. Of course, what flows from that is damage to investment and damage to consumer confidence. It in no way contributes to attacking the employment situation. It is incredible that, while outside observers continuously praise our performance through the worst recession throughout the world since the 1930s, in Ireland we seem to enjoy inflicting problems on ourselves by talking ourselves down. Yet others, as I say, see our performance in a totally different light. We do not do any service to this country or to confidence building here by a continuance of that type of defeatism. What we need is confidence and building for the future.

Mr. Noonan

(Limerick East): Tell that to the unemployed.

Mrs. Doyle

How are the Taoiseach's fundamentals?

Mr. Yates

I propose to share my time with my constituency colleague, Deputy Avril Doyle.

An Leas-Cheann Comhairle

Is that agreed? Agreed.

Mr. Yates

The Taoiseach deserves a special guest spot on The Paul Daniel's Show for the agility and magic he has shown by walking away from everything he has been saying for the last five or six months. We got lectures on the fundamentals, on this temporary crisis, that interest rates would abate — every prediction the Taoiseach made was wrong. Today in the Dáil he has had to swallow all that rhetoric because it is now seen to be reminiscent of the king with no clothes.

I would like to deal with the agricultural sector specifically and some general points in relation to the way this matter has been handled so poorly by the Government. First, I want to put on the record of this House that it has been alleged to me that in the second week of January there was a major rift between the Central Bank and the Department of Finance and the Government. I am advised that the Central Bank told the Government and the Department of Finance in no uncertain terms that they had been advised by the Bundesbank and other central banks in Europe that they would not be able to continue to support the overvalued Irish currency unless there were policy changes, unless tough decisions were taken in relation to pay restraint and other measures taken that would reduce costs in the economy to give credibility to a hard currency stance. I have been told that the Department of Finance and the Government flatly rejected the Central Bank's advice and in doing so sent a clear signal to those European central banks that there was no point in supporting the Government against the speculators or in supporting the Irish punt because the policy was no longer credible. The Minister for Finance must now clarify whether the Central Bank received this advice they gave from the Bundesbank and why the Government did not take decisive action if they wished to retain their hard currency stance.

I believe that the Government have tried to divert blame exclusively to European and German authorities to cover up for their own failure in policy measures to support the currency and to give it credibility. The real question that must be asked in this debate is where does the credibility of the Minister for Finance and the Taoiseach stand now. It is totally eroded. They have failed in their handling of this crisis. The question must now be asked: why did the Government not devalue after the general election and what is the cost of having failed to devalue then, the cost in terms of additional foreign borrowings? We got lectures of how certain the Government were about the value of the punt. We were told that they put more Exchequer and semi-State borrowings into the Deutsche Mark so sure were they that they were not going to devalue. That bill must now be paid, and what is it? Every prediction made by the Government has proved false. Our difficulties were not temporary. The rise in interest rates worsened instead of abated. Only last month publicans, small businesses and farmers all got bills from the ICC showing their monthly interest rate at 42 per cent. Historic new heights have been reached in unemployment. Business has incurred massive losses, particularly on export contracts and fixed price agreements. Throughout, even when this debacle was at its height, the Taoiseach and the Tánaiste did not give leadership, because they were not to be found. The only leadership the Tánaiste had to give amounted to media briefings of how he got up so early in the morning that the offices of his Department were not open. He could find time to review a Bob Dylan record, but when he was needed to give clear leadership to the country he was absent.

The Central Bank supported the Irish punt by selling external reserves and buying Irish punts to the extent of £4.5 billion. As the speculators made, the Central Bank lost. If you work out the devaluation at 8.5 per cent, in market terms £4.5 billion, you find that, unlike the speculators, there is a minimum loss to the Central Bank of something of the order of £380 million in replenishing those reserves. The political fact remains that not only our currency but this Government has been devalued. Their vain attempt to sustain an overvalued currency collapsed ignominiously. There must be political accountability. There has been none to date, not even a confession from the Government that their policy failed. They could not sustain their policy, because when the inter-bank rate was over 40 per cent and when jobs were being lost at over 9,000 a month, enough was enough. They had to come out because the bleeding was too heavy.

I would like to say a few words about agriculture because it suffered more than any other sector in the process of trying to sustain an overvalued punt. The ultimate devaluation ultimately benefited the agricultural sector more than any other through the green £ devaluation. The effect on farm incomes from September to the period of the devaluation was very harsh. Agricultural borrowings by farmers alone stand at £1,650 million. If you take the corporate food sector as well it stands at over £2 billion. High interest rates cost the sector over £50 million in a six month period. As 30 per cent of our food exports are to the UK, there was a crippling effect on these sales of horticultural products, most notably mushrooms, sheepmeat pigmeat and dairy products. The phased abolition of MCAs in December and January left a cruel exposure which resulted in a sharp price reduction and an income drop. For the first time in memory many lambs brought to the mart before Christmas could not be sold and had to be brought home because no bid was raised on them. Pigmeat and sheepmeat prices were reduced to their lowest level in 13 years. All of this for no gain whatsoever and for a policy which had subsequently to be abandoned.

The failure of the Government to listen to the agricultural sector was irresponsible. Agriculture and food is our single largest industry. It accounts for £3.5 billion of total exports and 40 per cent of net exports. There are aspects of the green £ devaluation that remain to be dealt with and I call on the Minister to come into this House to clarify them. Firstly, in relation to the male beef premium, the circular cow premium and the spring/winter beef slaughter premium, it seems that the increased rates of payment will only be paid in 1994 and not 1993 resulting in a loss of about £16 million this year to Irsh farmers. It is imperative that the effect of the green £ devaluation applies to all such direct income aids this year. The 8.93 per cent green £ devaluation falls somewhat short of the full punt devaluation of 10 per cent. While I accept the need to retain market prices at a premium over intervention prices, it must be remembered that farmers will have increased input costs due to higher prices for fertilisers and oil because of devaluation. The high cost of interest rates remains a severe cost penalty on Irish agriculture. The dry stock sectors of livestock, sheep and pigmeat should have access to foreign loans, as was intended, at 8½ per cent in Deutsche Marks or Swiss francs.

During the crisis, when the Market Development Fund was put in place, the first condition was that you had to be a 10 per cent corporation tax trading company. That excluded the entire agricultural sector. They got no benefits. It is estimated that of the £50 million only £5 million or £6 million went to the food industry itself. It is now time that the Government honoured its commitments to the agricultural sector. In the forthcoming budget the Government must deliver on the early farm retirement scheme, the extension of the disadvantaged areas and the increase in the threshold for inheritance tax. It is quite obvious, in relation to the Common Agricultural Policy and GATT negotiations, that the Government has filed to ensure the survival of family farms.

We have seen here a debacle of historic proportions. There are different people to blame. We had a Fianna Fáil-Progressive Democrats Government, Fianna Fáil alone, a caretaker Government and now Fianna Fáil and Labour. But the consistent handlers through all of this were the Minister for Finance and the Taoiseach. They were the steady hand on the tiller that pulled in different directions from the start to the finish. They must now say who is going to pay the extra £85 million a year because of the additional foreign borrowing, who is going to pay for the Central Bank bill of £380 million for replenishing our reserves and who is going to pay in political terms for the jobs that were lost? The highest notifiable monthly redundancy increase in the history of this State took place during the middle of this crisis. The real question that must be asked and answered by the Minister for Finance is: who is going to pay the price.

Mrs. Doyle

Thank you, a Cheann Comhairle, for allowing me to share this slot with my colleague, Deputy Yates. The devaluation of our currency after the five months of crisis was a major defeat for this Government and indeed, the last two Governments, including the caretaker as a Government in that scenario. Not only was it a major defeat at home, it was a question of international humiliation for our country due to the inept handling of the crisis. The Government failed to put in place domestic policies that could have convinced the international markets that we were serious in our defence of the punt. It also failed diplomatically to convince our European colleagues to come to our aid and hence we faced devaluation, which, unfortunately, had appeared inevitable for some time as the defence of the punt was plainly inadequate. Above all, the situation called for a major initiative to improve our competitiveness, to cut payroll costs particularly to the vulnerable traded sector. Instead, the Government depended on a two-pronged policy of high interest rates and our national reserves, a policy that was doomed to failure. We now have the spectacle of our Minister for Finance looking for scapegoats, and not being too fussy where he lands the blame either — the Bundesbank, Delors, the European Community, Franco-German sweetheart deals, the United Kingdom and even the Leader of the Opposition.

Fine Gael uneqivocably supported the Government in the early weeks of the crisis and we fully accepted the merit of defending the punt. But, as it became clearer that the Government were more interested in talking about the defence of the punt rather than defending it, hard decisions had to be taken. But because they did not take the hard decisions to put in place a plan to achieve that defence, I am afraid the writing was on the wall and the futility of the Minister Finance's utterances were transparent to all.

Fine Gael cannot be criticised for calling for devaluation when we did, but perhaps we could have called for it earlier. Effectively, we have been squeezed in this country by two sets of problems, neither of our own making. On the one hand, we have the high cost of German reunification and, on the other, the economic difficulties that beset our main trading partner, the UK. Questions can be asked about the rapid response to the aid of the krone compared to our European colleague's, and particularly the Bundesbank's, defence of our currency. We might not have had to devalue if the Bundesbank had been in a position to cut its interest rates when the punt came under pressure. Then the krone would not have been next in line and we would have been spared what has been referred to as the domino effect on the currencies within the ERM.

The disposition of the Bundesbank towards the French franc has been obvious for some time and historically is easy to understand. There are, however, serious questions still to be answered by the different response of the Bundesbank, not least in relation to the state of political solidarity in the European Community or political union. Are some states, as has been asked, more equal than others and is this ultimately acceptable? Surely monetary union and a single currency presupposes at the very least political solidarity and equal treatment of all members in that union? In practice we now know that it does not. These conclusions must point up what has been called by commentators the blackest period in Irish foreign policy, apart altogether from the ineptness of the Minister for Finance's handling of our exchange rate policy.

We could also ask in relation to the Bundesbank whether it has another agenda not immediately obvious to all of us. Why should we assume that it is in the Bundesbank's interest to see a comfortable and relatively smooth ride towards European Monetary Union, towards the establishment of a single currency? Why should it be in the Bundesbank's interests for it no longer to be controlling the anchor currency in the ERM but effectively to hand over control to a European Central Bank that must predate the arrival of the ECU as the single currency? We need explanations from the Bundesbank, from the Bundestag. We understand their internal domestic problems and have no right to tell them how they should behave in relation to the problems brought on by German reunification. But I do think we have a right to an explanation if indeed there is a hidden agenda and if it is, as painfully obvious, not in the Bundesbank's interest to arrive at a European Central Bank before a European single currency has been reached.

I have mentioned that Irish foreign policy came under the microscope as much as our domestic economic policy during the debacle of the last five months. What has been the role of the Minister for Foreign Affairs during that period? Why was there no diplomatic offensive to ensure solidarity among all the Community states when one member was under attack and under pressure? I do not accept the Taoiseach's protestations that indeed there was a diplomatic offensive and I do not accept Minister Bertie Ahern's protestations this morning on this issue either.

The crisis, and its tragic consequences for the jobless, for mortgage holders and for our business and industrial and traded sectors generally, is as much an issue of foreign policy as it is a matter of financial mismanagement. Why has the Department of Foreign Affairs not had a role to play in the defence of our punt? Deputy David Andrews. when he was Minister for Foreign Affairs, showed he was competent at handling the issues of the day in Somalia and in the Bosnian crisis, to mention but two. His handling of those issues would indicate that he would have been equally competent, if allowed to conduct the necessary diplomatic offensive on this issue. He could have performed admirably and quite likely he would have been in a position to convince our European colleagues of the need for solidarity and perhaps save us from devaluation, thus preventing the domino effect that is affecting other currencies at the moment.

I put it to you, a Cheann Comhairle, that internal Fianna Fáil politics prevented the Minister, Deputy David Andrews, from having the role that he should have had in relation to the crisis, which was a matter of foreign policy. That was not to be. The Taoiseach and the Minister for Finance decided that they would control the direction of the negotiations. Look at what they have done to the country as a result. They were more interested in precipitating an unnecessary general election through the macho behaviour of our Taoiseach during his evidence to the Beef Tribunal than they were in resolving the national crisis caused by the speculative attacks on our punt from outside. That unnecessary general election has yet to be costed and analysed for what it has done to this country.

During the election the Minister for Finance missed the opportunity, on 21 November last, to realign with other currencies in the ERM. The Minister, Deputy Bertie Ahern, was displaying, as commentators have said during the week, the gut instinct of a latter day economic republican by acting and being seen to act independently of the British, whatever the cost to the real national interest. During the election anglophobia had to come to the fore and, as has been said, he behaved like a latter day economic republican with one eye on the ballot box at home.

Following the election, the Minister for Finance was more interested in negotiating for power than keeping his eye on the ball in relation to the pressures on our punt. I imagine there must have been many other equally qualified members of the Fianna Fáil Parliamentary Party who would have had more time on their hands to negotiate in relation to power, but no. The man perhaps most critical to the resolution of our economic crisis was used by the main Government party to negotiate and removed himself from the issue that was before him.

Exchange rate policy is not an end in itself. Economic rigour must be tempered by the interests of all our people. Even the Minister for Finance once he had devalued, despite his protestations, justified it on the basis that he "could not continue to make the ordinary people suffer". At least he must be commended for his honesty in admitting that he had made ordinary people suffer for over five months. He had driven people from their homes by the crippling mortgage rates and, indeed, he had added to the dole queues in thousands. It will be some time before we know the impact on the dole queues. Business closed, industries were in serious trouble, all because of unnecessary suffering beyond the time when it was patently obvious that the Government was not prepared to defend the currency as it should have.

Ultimately the Minister for Finance must take responsibility for those who advised him. As commentators have said over the weekend, the Eurozealots in the Department of Finance, the Central Bank and the National Treasury Management Agency unwittingly did more to damage the European ideal in the past five months than Ireland's most dedicated Eurosceptics have achieved in 20 years.

Minister of State at the Department of Finance (Mr. N. Teacy)

I am very pleased to have this opportunity to contribute to this important debate on the international currency situation. In my remarks I will concentrate on the areas which are the responsibility of my Government colleague, the Minister for Tourism and Trade, Deputy McCreevy, who is currently in the United States where he is leading a major tourism promotion drive.

The past four and a half months have been a turbulent and difficult period for many of those involved in exporting and in the tourism industry. In my remarks today I want to concentrate on what we can learn from recent events and focus on some future policies which we should pursue. The recent currency crisis was not precipitated by the Irish Government. The unprecedented turbulence in the currency markets has threatened much of the progress which we have achieved in recent years. For several years we have pursued a consistent line in regard to our exchange rate policy. We have sought to maintain a firm and stable exchange rate within the narrow band of the EMS. We have lent credibility to this approach by adopting a set of economic policies which are consistent with membership of a strong currency regime.

This approach has paid dividends. From 1987, wage and price inflation reduced sharply to facilitate the achievement of significant gains in the competitiveness of the traded sector of our economy. This improvement in competitiveness coincided with reasonably favourable increases in import demand from our main trading partners as economic growth achieved a modest acceleration. This gave a major boost to exports and sustained a record surplus on our balance of trade and balance of payments in recent years.

Free Trade is Ireland's life blood. The small size of the Irish domestic market means that employment and living standards in this country are highly dependent on our success in international trade. We already have one of the most open trading economies in Europe. Exports of our goods and services account for over 70 per cent of our GNP and Irish exports are now found in over 120 countries throughout the world. Our most important trading links are with our European Community partners. In 1992 over £12 billion of our total exports were to markets within the European Community.

It is instructive to look at our export portfolio before we joined the European Community. In 1972 the United Kingdom accounted for some 62 per cent of our exports, with other EC countries accounting for 17 per cent of our overseas sales. Twenty years later we have seen a dramatic shift in that balance. The UK now accounts for just 32 per cent of our exports, whereas other EC states take 42 per cent. To put it another way, exports to the UK since we joined the EC have increased by a factor of 12, whereas exports to other member states have increased by a factor of 56. These stark figures illustrate very convincingly just how reliant we are on markets within the European Community for our prosperity. The completion of the Single European Market means Irish firms can enjoy the fullest possible access to a market of 340 million people; and we can look forward to the members of EFTA and Eastern European countries joining also, to make that market even larger.

Notwithstanding this successful diversification of our exports, Ireland incorporated is still more than twice as dependent on the UK market as on any other overseas market. This reliance, together with the very flat performance of the UK economy in recent years, was at the root of the difficulties which our exporters, particularly small and medium sized firms, faced in recent months. The very difficult trading environment which faced many firms required a flexible and constructive response on behalf of all arms of the Government involved in industrial promotion and development. The response of the Government was swift and realistic and was widely supported by industry and the political parties.

Additional finance has been made available to the various marketing bodies to help firms with additional marketing costs to maintain existing business and to secure new orders. An Bord Tráchtála, established a special fund of £800,000 which helped 544 companies to visit their target markets in the UK and Europe before the end of 1992. A further £1 million has been allocated to this scheme for the first three months of this year, and I understand from An Bord Tráchtála that there is a very strong demand from industry for support. An Bord Tráchtála also initiated a number of support measures to help exporters. A 1-800 Freephone help line was established to give exporters advice on the new and intensified programmes available to them to assist with difficulties in the marketplace. Forty market specialists from An Bord Tráchtála offices in Europe, the UK and the US were recalled to Ireland to meet companies throughout the country and advise them on specific difficulties and opportunities and, where appropriate, to set up market visit programmes. An Bord Tráchtála accelerated its inward buyer missions programme, bringing overseas buyers to selected companies in the regions to discuss business opportunities.

The Government, however, recognised that in themselves a redirection of programmes by agencies would not be sufficient to meet the threat to employment as a result of a loss of margins, an immediate cash-flow deficiency and uncertainty as to whether contracts for future order should be undertaken at current sterling/Irish pound exchange rates.

On 29 September last our Government established a working group to look at the nature and content of the problems arising for firms as a result of the decline in the value of sterling and to make recommendations as soon as possible. The report of the working group was considered one week later by the Government, on 6 October, and an immediate decision was taken to allocate £50 million for the period up to the end of March 1993 to assist firms which had been seriously affected by the turmoil in exchange rates within the Exchange Rate Mechanism. By 9 October the team needed to manage the operation of the fund was in place, drawn from a total of seven State agencies and Government Departments. The market development fund received speedy approval from the European Commission, following a strong campaign involving the Taoiseach, Deputy Reynolds, and various senior Ministers.

Through the operation of the market development fund and through various schemes operated by the State agencies more than 800 companies, employing 53,000 people, will receive assistance to cope with currency pressures. I understand that a review of the scheme, which is nearly completed has indicated that the fund has been successful in helping companies to maintain employment during a very difficult time. Many companies have indicated that the support available to them has made the difference between shedding labour or maintaining employment, closing down or staying in business.

We must, of course, remember that the role of Government and its agencies must be to help firms to help themselves. A key criterion for companies seeking assistance from the market development fund was that they would initiate an action plan which would demonstrate how the firm was going about maintaining and improving its competitiveness and adjusting to the changes in the marketplace. The assistance provided is of a short-term nature and in no way relieves firms of the need to make the necessary adjustments to their operations to ensure long term survival.

The vulnerability of many of our firms has highlighted yet again some of the structural weaknesses in parts of our indigenous industry. It comes as no surprise that those sectors which suffer most from the devaluation of sterling are those where price is possibly the most important determinant of competition. The clothing and timber industries come immediately to mind in this analysis. The reality of our geographical location on the periphery of Europe and the small size of our domestic market mean that businesses which compete mainly on price will find it very difficult to achieve the necessary economies of scale to enable them to trade competitively.

The solution for such sectors and, indeed, for indigenous industry in general must be to seek our market segments where they can compete on the basis of a differentiated product which can give value to the customer in terms of higher quality, better service or some other non-price factor. An essential ingredient in this process is the building up of marketing skills within companies. This is the reason that under the industry operational programme, which is funded by the EC Structural Fund, the Government highlighted the need to improve the marketing capability of Irish industry. All the marketing programmes of An Bord Tráchtála are assisted by the European Regional Development Fund and attract the highest support rate available, i.e. 75 per cent of eligible expenditures. EC Structural Fund support underpins the ability of the Government to get behind and support the marketing efforts of Irish industry. Since 1989 Exchequer funding for marketing programmes has increased by over 60 per cent, a level of increase which would simply not be possible without EC Structural Fund support.

The focus of An Bord Tráchtála's activities in recent years has been firmly on the opportunities that the Single Market will present and it has particularly highlighted Germany as a priority market to which additional resources have been allocated. The realignment of the Irish pound, while unwelcome and not the Government's preferred policy option, has nonetheless provided many of our exporters with a significant competitiveness injection. There is now an onus on firms which are in a position to avail of this benefit to invest in the marketing effort necessary to penetrate these markets. For their part, the Department of Tourism and Trade and An Bord Tráchtála are actively examining ways in which new programmes can be devised and existing programmes adapted to support exporters.

The UK will always be the most attractive market for small and first time exporters, but we do have a good many quality firms that can make the breakthrough into European markets. A key factor will be their willingness to put people on the ground in the marketplace. The Programme for a Partnership Government has specifically identified the need to develop measures that will assist firms to place their sales people in export markets. The Minister for Tourism and Trade, Deputy McCreevy, has asked An Bord Tráchtála to come forward with proposals which will facilitate companies in making the necessary investment in this area. The Minister has also indicated his intention to give greater priority to An Bord Tráchtála's promotional efforts in new and expanding markets and this emphasis will be evident when he announces shortly the board's promotional programme for 1993.

Other priorities in the area of international trade on which the Minister for Tourism and Trade will be concentrating include making the Single Market work. We must be vigilant in ensuring that the open Single Market becomes a reality and that new invisible barriers are not erected against intra-Community trade. We must exploit the Single Market. The public sector purchasing within the EC, a market worth £400 billion a year, £5 billion of which arises on the Irish market, both North and South is now an open market and Irish companies are looking at a major new business opportunity. We must make sure that Irish companies can quickly and effectively access the opportunities arising.

We must develop service exports. Throughout the world various multilateral organisations, such as the UN, the World Bank and the EC, are involved in extensive development and assistance programmes which represent major opportunities for our exporters, in particular our service organisations. We should be looking at the lessons that can be learnt from our experiences in Central and Eastern Europe, where Irish companies have achieved some notable successes.

Members, will, no doubt, be aware that the Irish tourism industry has been one of the most successful sectors of the economy in recent years. Overseas visitor numbers have increased since 1988 by 33 per cent to over three million; foreign tourism revenue has increased by 45 per cent to over £1.2 billion; an extra 23,500 vitally needed new jobs have been created. The Government's commitment to tourism has been renewed and strengthened in the Programme for a Partnership Government. The aim in the programme is to increase foreign earnings in real terms by 50 per cent and to provide an additional 35,000 jobs over the next five years. The targets which we have set may be regarded as ambitious but are, we believe, realistic and we are confident that the industry itself will rise to the challenge with us. The new Department of Tourism and Trade will give tourism an enhanced international dimension and will be the focal point for the development of the sector.

Tourism, like other industries, does not exist in a vacuum and is of course subject to a number of factors, including the general state of the economies in our main markets, consumer spending levels, comparative inflation rates, etc. We were most fortunate that the peak of the tourism season in 1992 was almost over before the international money markets became turbulent. We are also most fortunate that the major source of growth in Irish tourism in recent years has been in mainland Europe outside the sterling area. While the IR£ has strengthened against the pound sterling, it has weakened against other major currencies, such as the French franc, the Deutschemark, the Dutch guilder and, of course the dollar all of which represent important markets for Irish tourism. Since 1987 tourist traffic from mainland Europe has increased by more than 116 per cent and revenue has almost trebled to come within 8 per cent of the British figure by the end of 1991. Our most recent tourism statistics for the third quarter of 1992 show that growth from continental Europe was again ahead of the United Kingdom. Market diversifications undoubtedly helped considerably to reduce the level of exposure of the tourism industry to individual currency fluctuations in any one market.

The recent realignment of the IR£ taking place at a very early stage in the 1993 tourist season will be of particular benefit to the industry as many Europeans have not yet decided on their summer holiday destinations. Already Bord Fáilte is alerting overseas travel agents to the benefits of increased spending power for our visitors arising from the realignment and is updating live brochures on central reservations systems used widely in the industry for booking holidays. The realignment will also play an important part in attracting visitors from Britain, and Bord Fáilte will be making a special effort to ensure that this very important market will be promoted efficiently and effectively in the coming season.

We are confident that all participants in the industry will do their best to enhance their competitive position arising from realignment and the resultant fall in interest rates. This effort will be accompanied by the Government's commitment to tourism, which in 1993 alone will manifest itself in a further £88 million investment in tourism around the country, including £47 million in European Community grants; a special £2 million European Community assisted marketing campaign to generate business during the off-peak and shoulder seasons; and a £10 million European Community assisted marketing package by the industry directed at selling a new range of quality Irish products in overseas markets. This combined effort should ensure that our tourism targets for 1993, and indeed for the next five years, are achieved. Finally, may I say that the establishment of a new ministry for Tourism and Trade now provides us with an opportunity to devise and implement focused policies which will lead to increased foreign earnings. Its actions and that of its agencies will be part of the Government's broad economic policies to provide a competitive trading environment for business and assist it by availing of the opportunities arising in the international marketplace.

Mr. Cox

I welcome this debate. Today, for the first time, the Minister for Finance, Deputy Ahern, had the opportunity to place on record the Government's view on the currency crisis and the recent forced devaluation. Given the momentous impact of this policy decision and the manner in which it was forced upon a reluctant Government, one expected that today at least the Government would use this opportunity to spell out with clarity the lessons it has drawn from the recent debacle — for Irish/European policy, on the one hand, and for Irish domestic economic policy, on the other. Regrettably, we got neither. There is no strategic sense of purpose indicated by the Minister's speech with regard to our continuing potential for vulnerability within the exchange rate mechanism. Indeed, the statement produced after a long pause for reflection on the part of all the relevant policy-makers, including the Minister, reeks of passivity.

As the crisis which began last September unfolded, the Minister draws our attention in his speech today to the assertion that "a well-managed realignment within the system could have forestalled the subsequent chaos . . . the reality is that it did not take place". The Minister's analysis is replete with subsequent references to the desirability of a general realignment. In particular, when the consequences of the permanent rather than the transitory nature of the crisis were clearly evident by mid-November last, the Minister again recalls:

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 . . . the French and Danes were unwilling to participate in a general realignment.

On 22 November last the Spanish peseta and the Portuguese escudo were both devalued by 6 per cent, with particular pressure still then continuing on the Irish pound. At the crucial meeting of the European Community's Monetary Committee that weekend, it is clear from what he now says today that our Minister and his advisers were anxious that we might participate in any realignment which could be described as "general". Following the logic of the dilemma which they then found themselves in on that occasion, the Spanish and the Portuguese took the obvious course of action of realising that their exchange rates were overvalued and were nothing more than a tool of economic policy and not an object of economic policy.

This is in stark contrast to the public policy position of the Government and its advisers who by implication did not wish to suffer the ignominy of being classified as a division two player in the European monetary league, but chose instead to persist with a form of Micawber-style economics, hoping something would turn up on the European front; but, of course, it did not. Clearly the French and the Danes did not oblige Ireland by sharing our policy preference for a general realignment in whose slip-stream we could have drifted with no apparent loss of face in terms of our newfound monetary machoism.

A core truth is revealed in the Minister's speech today. In persistently, though passively, aspiring to a general realignment, he is clearly admitting that the Government and its advisers implicitly accepted throughout this critical period that fundamentlly the Irish pound was overvalued. This is the inescapable conclusion of the Minister's remarks; otherwise, why would we talk about realignment? This stance reeks of a misplaced pride and a hopeless passivity with regard to our currency policy options. We, through our Government, wanted to run in the fast track of the Exchange Rate Mechanism without being able to match the pace-setters. At the same time, we had no independent plan of action, should some of those pace-setters, such as France and Denmark, refuse to run at our speed.

Intriguingly, the Minister states that, "contrary to rumour, our European partners would, in all probability, have rejected a devaluation if we sought their agreement last September". Later, he stated: "There were no pressures from Europe for a change in the parity of the Irish pound".

However, this begs the question: did we ever choose to make an issue of our parity at any of the Monetary Committee Meetings; and, if not, why not, even if only to test the reaction? If it was our considered opinion, as reported in the Minister's speech today, that a general realignment was the preferred policy option held throughout that critical period, then surely that implies that the Minister, and his advisers, accepted that the currency was over-valued and that there was an onus on them to explore, with our European partners, a way to tackle the consequences of that problem.

Like the European Community, through its policy known as multilateral surveillance, we have concentrated in Ireland on framing our policy response on the so-called fundamentals of the Irish economy. These indicators of nominal economic convergence consist of, for example, our having one of the lowest inflation rates in the Community, a consistent balance of payments surplus and a good budget performance. In Irish terms these factors are good in comparison with our recent history, and in European terms they are very good compared with many member states, and better than most. However, in terms of real policy covergence, there is no escaping the fact that Ireland was defending a tough currency policy in the context of the highest measured rate of unemployment in the European Community. Inevitably, given our trading links with the UK, and the labour intensive nature of many of the Irish firms and sectors competing with UK equivalents, financial markets were bound to speculate that the strain of these bread and butter realities would ultimately prevail.

Economic dogma, a Cheann Comhairle, in the end is no substitute for dealing with economic reality. The only domestic policy response to emanate from the war bunker of the economic trinity, consisting of the Department of Finance, the National Treasury Management Agency and the Central Bank, was to manipulate Irish interest rates as the key means of controlling currency speculation at home or abroad. In practice what this did in policy terms was simply to add an enormous cost burden to Irish firms and households and still it left us vulnerable to the economic consequences of an overvalued exchange rate. While it was perfectly legitimate that the Minister and others should concentrate on the question of avoiding excessive increases in the interest rate, however, by relying solely on this policy focus and not examining in any great depth the cost implications of an over-valued currency we left ourselves constantly open to the problems we faced. The fundamental problem, the first cause, was the overvalued currency; and the consequences of that was the forced interest rate manipulation to try to protect it.

Today the Minister strikes a pose which, in my view, amounts simply to whistling past the graveyard. He also told us: "We will not adjust our exchange rate in response to changes in sterling". He is making a prediction for the future. Later on he added: "I believe we have gained much in credibility" God bless your innocence, Minister, if you expect us to read your lips and believe you on that one. Indeed, disturbing evidence emerged this morning in a line of thinking which may be shared by official circles in Ireland — and I would be interested to hear the Minister's comments on this — which was enunciated in Paris by the former European Community Commissioner, Mr. Peter Sutherland. He sought to establish that the Irish dependence on Britain, in terms of the pecentage of our exports destined for that country, is a good deal less in reality, when you take account of agriculture and oil flows, than most people think, taken from the general economic point of view.

There are serious flaws in this argument. First of all, the markets do not believe it. The Government did believe it and on 30 January the markets won. The key flaw arises from the fact that Irish manufacturers not only export to the United Kingdom but must also compete against competing UK imports for our home market and compete on third markets against other firms exporting out of the United Kingdom. All these factors combined, exert an influence considerably greater than that suggested by the former Commissioner in terms of the impact on Irish trade and jobs. Mr. Sutherland suggested that the cure to the current monetary crisis is for a core of seven countries, including Ireland, to proceed quickly towards a single currency. With the pound sterling floating freely outside the Exchange Rate Mechanism, and presumably outside such an arrangement were it to happen, there is one clear lesson that should have been learnt from recent weeks and from the recent currency trauma. It is this: that while in this country we should not be a slave to sterling — and that is clearly not the view of the Minister and his advisers from reading his speech today — we nonetheless would at our peril ignore the impact of sterling on our affairs.

This is not a time for Irish policy to become more Catholic than the Pope, or more European than the Europeans. Within days of our devaluation the Danish krone, then the subject of intense market speculation, was the beneficiary of a European response which in terms of its nature and scale was denied to the Irish over a prolonged period of time. I believe that denial to the Irish of such a response and the granting with an apparent equanimity to the Danes of such a response speaks volumes in terms of how we are perceived in the currency stakes at a European level. There is no point in us trying to naively defy that logic. There is no point in us in Ireland being naive Europeans, even if we still remain committed Europeans. The key benefit of Mr. Sutherland's intervention today is that at least it has the merit of focusing on what vision we Irish might bring to the wider European debate and the monetary crisis. I must say I was disappointed not to find any semblance of such vision in terms of Irish European policy in this matter in the Minister's considered response to the House here today. That is a major weakness in regard to where we stand now.

Last May, in launching the Progressive Democrats' campaign in favour of a "yes" vote in the Maastricht referendum campaign, I made the point that I thought it was high time that, after two decades of membership of the European community, we in this country should have a view of European policy that is more sophisticated than just milking a European cow for grants. The Minister's statement today sees us, after a very traumatic period of Irish public policy in a European context, falling very well short of that desirable aim.

The Minister also referred today to "the weakening of the national consensus", together with the most recent unpheaval in British interest rates, as the justification for the policy volte-face at the end of January. Deputy Ahern went on to upbraid critics of his Government's failure to reduce domestic costs by saying that these self same critics “have not spelt out clearly the scale of the adjustment which would have been needed and the implications for the public finances”. It is the duty of the Government to govern in this regard. Critics were perfectly correct to assume that a Government committed to a hard currency policy was equally committed to the ways and means of securing its success in market terms. As I have already remarked, on the European level in waiting for others to realign when it might suit us, we had a Micawber approach of hoping that something would turn up and these economics clearly failed. What the Minister has implicitly admitted here today amounts on the part of the Government and its advisers to a gross dereliction of duty. It is a bit like the Emperor in Hans Christian Andersen's tale. The Minister, by his own admission, stands naked in policy response terms other than interest rate manipulation. Then he has the brazen effrontery to come to this House and to criticise those who simply, in policy terms, observed his nakedness.

Clearly, the Government itself shrank from the prospect of bringing in policies on the scale of adjustment which would be needed. Yet it still clung vainly to the prospect of holding the line on the currency's value. The Government's failure to act in terms of cost reductions simply made devaluation inevitable and necessary. The Government did have choices, but it did not have the choice of doing nothing about domestic costs with an overvalued currency and, at the same time as doing nothing about that and being able to do nothing to influence our European partners effectively in our favour, to presume that nothing would give. Either jobs would be sacrificied — and plainly that would be a consequence — or, alternatively, costs would be cut. The Government chose not to cut the costs. The Government chose to wait for someone else to act in our interest in Europe — and it did not work. That made what happened on 30 January absolutely inevitable.

Today Deputy Ahern also told us that "on the budgetary front the effects this year of devaluation would only be slightly negative". This contrasts sharply in tone, whatever about content, with the text of a currency policy statement issued by the Minister's own Department on the night of 26 January last, four days before the devaluation, which focused only on the Exchequer costs of pursuing a policy of devaluation.

This, a Leas-Cheann Comhairle, leads me to observe that the debate which should have surrounded a grave and momentous national policy question such as this has been conducted in an extraordinary atmosphere, which was hostile to ideas, which was economic with the truth, not least in the manner I mentioned just a moment ago, which was vitriolic towards those who chose to deviate from conventional wisdom and, worst of all, which was virtually indifferent to the appalling social and economic costs suffered by so many Irish firms, so many Irish employees and so many Irish households. Verbal fat was issued against those who strayed from the official truth is no way to conduct important national debates and certainly that it is one lesson which we have all got to learn from this particular incident over the past several weeks.

Another lesson which we must apply, especially on the new Finance and General Affairs Committee proposed for the Dáil, is to ensure that senior policy makers, no less than Government Ministers, while respecting their independence from the political process should nonetheless be held publicly accountable for the policy advice they give. I am referring here to the necessary, desirable act of bringing these people — central bankers, senior officials from the Department of Finance, senior officials from the National Treasury Management Agency — before the relevant Dáil committees, as their counterparts in Europe come before the relevant European parliamentary committees, to answer for their conduct of public affairs and for the nature of the advice they give. It is not good enough that we have policy managed from economic bunkers when there is so much incoming fire from speculators and when we do not know the basis on which that advice is being given. Indeed, in that regard, having read some recent newspaper reports commenting on the attitudes of one economist who recently quit the Central Bank, it raises a central question about some of the economic policy formulation process within that institution. We should have a right to get public accountability, and that should be a lesson that is derived from this crisis.

On the wider front, in the absence of any early move to a single currency in the European stage or indeed, even if we went the Sutherland route of having seven currencies including Ireland move quickly towards a single currency, I am extremely disturbed about what the policy consequences would be if we in Ireland find ourselves still subject to the vagaries of a sterling area which is totally removed from the European realities. As long as that is the case we will have serious and fundamental problems in terms of our vulnerability. Surely the lesson in economic terms is that there is no point in kidding around in that in the future. Unfortunate and undesirable as it is, it is a plain fact of the matter.

A second area where we need more flexibility is at the European level itself. Six years of rigid inflexibility in the exchange rate mechanisms will have to be replaced by a more flexible attitude to currency parities in the future so that we do not get locked in to unnecessarily restrictive options.

Finally, referring back to the policy bunker I mentioned earlier, I wonder whether it is desirable that all of the agencies of policy making should be locked into the same process rather than having an arm's length independence from each other. We signed no at Maastricht for a central banking process in policy terms to be wholly removed from political interference or from political contact. I wonder whether it makes sense in Ireland, as we prepare for full European Monetary Union in the future — if Europe ever gets there — to compel ourselves to put all of our eggs in one basket and to find that various institutions are locked into the same policy focus. I certainly think it is something which needs looking at.

I not in the Taoiseach's remarks that he describes the Progressive Democrats, having left Government, as needing to ride both horses. I would remind the Taoiseach that he himself, in the course of his own address to the House, said that from his background — presumably he referes to his business background — he felt that as long as the prospect was reasonable for stability he would hold out, but otherwise would review the position. For my own party, I would expect no less a right in the matter of public policy debate.

Mr. Byrne

May I take this opportunity of congratulating you, a Leas-Cheann Comhairle and I wish you well in your position. May I have your permission and that of the House to share my time with my colleague, Deputy O'Keeffe?

An Leas-Cheann Comhairle

Is that agreed? Agreed.

Mr. Byrne

The sorry saga of events that led to the devaluation of the punt on Saturday, 30 January last has been endlessly repeated here and indeed elsewhere. I do not wish to take up the valuable time of the House by dwelling on the details of recent history. As far as I am concerned a far greater urgency and relevance is not the "how" but the "why" of that recent debacle. We must now accurately identify the root cause of our situation and agree by broad consensus on a programme for its resolution. If we fail to achieve this we will be giving two hostages to fortune. First, we will recklessly endanger the progress made in our economic affairs since 1987. We must remember the unprecedented political and social consensus that brought about our changed socio-economic environment. We must also recall the extreme fragility of such a widespread and valuable national resource, as that consensus is — a consensus, I might add, which was hard won. Second, if we fail to stabilise our currency in particular and the European Monetary System in general, we may as well abandon any pretence of economic or industrial planning. In the wake of devaluation some commentators churlishly crowed that you cannot buck the market. Certainly, it has been demonstrated that Ireland alone cannot buck the market; but if Europe as a whole slides by default into a posture of laissez faire vis-à-vis the markets, the unbridled capitalism of tomorrow may make the State socialism of yesterday seem like a fond memory.

Europe as a community is undoubtedly at a crossroads. Do we opt for a free enterprise culture within the framework of social and economic concern for individual citizens and small countries? The alternative is an ideological capitalism that will make the worst excesses of That-cherism and Reganomics look benign. In this recent crisis Europe, by default if not by design, has slipped somewhat down the latter slope. These are the dangers that will result from inaction, or incorrect action, and they must be avoided. In 1979, when breaking our 200 year link with sterling, we had the commendable ambition of reducing our dependence on a British economy that was increasingly unable to compete in the European market. On that occasion our currency policy was saved by the oil crisis. Sterling, with the North Sea oil behind it, rose rather than fell. Had sterling fallen, as it would surely otherwise have done, the punt would have been forced to leave the ERM within a year. However, I am not ungrateful for our luck then, neither am I insensitvie to the welcome changes the ERM membership has wrought in our economy and in our economic attitudes.

I would like to put on the record that I strongly support the drive towards a single European currency and the day when the possibility of a repetition of recent events will be firmly behind us. This poses the question of genuine European unity. How close are we to political union in Europe and how soon will the European Monetary Union become a reality? When you take a practical look at the individual countries, each with their individual problems, unity is as yet but an aspiration. The core of our problem is that since 1979 we have underestimated or underallowed for the continual crucial influence of sterling on our economy and our currency. In 1979 the Government borrowed at low interest rates in order to compensate for the problem of the ERM membership. That policy, in my opinion, was flawed. Even to the present day we are paying with interest for the unfounded optimism of those times.

The use of subsidies now, as then, is unsustainable in the face of global markets. A situation had been reached where the pain of the real economy was such that it prompted a review of our currency policy sooner rather than later. I accept that the Government was forced by circumstances outside its control to take a calculated risk in regard to the defending of the currency. I strongly question the validity of the formula by which historically and now this calculation is arrived at. An underestimation politically and economically of Britain and sterling is a flawed policy formulation process. We must note with concern the reduction in British interest rates from 7 per cent to 6 per cent. It is the view of the NatWest Bank that the Major Government has decided that the recession has become unbearable and is bent on stimulating its economy at almost any cost, including a cheap currency policy. Another 1 per cent interest cut before the March budget should not be unexpected, Where will the effect of this policy leave us? Within six months we conceivably will be back to the position we were in before devaluation. So our pain will have been without gain. It is urgently necessary that we guard against this appalling vista. The long-term solution lies in diminishing further our dependence on the UK economy. Since joining the ERM in 1979 we have reduced the percentage of our exports to the UK from one-half to one-third. We have made progress, but not nearly enough.

I have dealt with the facts as best I can. In this crisis it has never been true to say that there are lies, damn lies and then there are statistics. Nobody should be in any doubt that this crisis has as much to do with perception as with fact. One-third of our exports are to Britain. That is the official statistic. It is also a dangerous fiction. If our statistics were based more realistically on the currency in which the transactions were made it would be shown that Ireland's real dependence on the British market was 15 to 20 per cent. If the latter perception had been widespread would the currency crisis have bitten so deep? I doubt it. I have quoted from an article in The Irish Times of 2 February by a chief economist with NCB Stockbrokers. The bottom line is that, however unfairly and despite a gallant fight by the Minister for Finance, Deputy Ahern, by the Taoiseach, Deputy Reynolds and the Government, we did lose on the diplomatic front in Brussels and, indeed, on the propaganda front in the markets. I place the blame for this on the institutional incapacity of the Department of Finance to meet the situation. This is not news to anybody and has long escaped correction, only because of inexcusable political malaise from all sides for some considerable time. Unless the nut of institutional reform is cracked we will permanently lack the capacity that is imperative to surviving let alone prosper in an ever more complex world. Roll on reform.

The Minister for Finance, Deputy Ahern, has shown himself to be a brave and stalwart Minister for Finance. I invite him to be a great Minister. If he can succeed in broadening the thought base in his Department he will leave a legacy in the years to come which will be truly significant.

Mr. E. O'Keeffe

First, I congratulate you, Sir, on your appointment as Leas-Chathaoirleach. I have no doubt that you will fill the position with distinction and honour and that you will leave a mark in this House.

As one who favoured devaluation in the fall of last year when the crisis first arose on the advice of business people in my constituency who had been very dependent on the British market, I discussed the matter with the Minister for Finance and my views are well known. The debate here today is necessary but not before time. This debate should have taken place before Christmas. I would compare this with the debate which took place here some months ago on the Gulf War which was much less damaging to the national interest.

It is right to say that the British market is still very, very important to the Irish people. It is a market of 56 million people on our doorstep. Much of our foodstuffs in processed form goes to the British market. We are dependent for many thousands of jobs on that. The straw that broke the camel's back was the threat of Cadbury's to leave this country or close down their business because of their failure to trade as a result of the value of the punt versus the pound sterling.

We have lost a substantial amount of shelf space in our multiple stores because of the importation of foreign foodstuffs. Much of this space had been hard won by Irish manufacturers over a long number of years. The problem for many of our Irish food manufacturers now is to win back this shelf space. I refer mainly to the major multiples. The Dunnes and the Quinnsworths are the major participants in this country in that type of business. They have been quick off the mark and it is not right to criticise them as good business people. It is very important that at all times we be on our guard to protect our homemarket. We are the same type of people as the British; we speak the same language and for that reason it is a market that we can never ignore. The fact is that that market is of vital importance to us.

We have had a devaluation and we still have high interest rates. Our interest rate at 18 per cent is unreal and inflation is 2 per cent to 3 per cent. They both make little sense and I wonder when we will see a levelling off or a substantial reduction in interest rates to compete with inflation. Speculators were spoken about and regarded as reds under the bed, but the climate at the time favoured speculation. Let there be no doubt in anybody's mind about that because it was attractive for people in the money business who understood the market to speculate. If you create a certain climate people who know the business will work against you. A rate of 34 per cent has been quoted by one large banking group. For three months it was at about 32 per cent. I am very much aware of the numbers of business people who have been caught having agreed the three months and who will have high rates of interest to pay for the next number of months. They will have great difficulty in surviving.

We have mortgage rates at 18 per cent. If we had faced the challenge — I say this against all the odds because many people did not believe it — and had faced devaluation we would have low interest rates internally and much more favourable trading conditions. That is the reality. Our citizens would not have lost internally but of course it would have affected our national debt and others.

We are told then that we are going to borrow to the Maastricht guideline. It is not very encouraging for the Bundesbank to give us the support necessary because we should be pulling back from our borrowing rather than increasing it. While that is a guideline the message is that that is as far as you can go. Any increase in borrowings cannot be afforded by this country because the real problem is that the cost of our goods and services is much too high. As a country that wants to trade we will always have to be watchful and fearful of increased costs and to be aware if our goods are more expensive than our competitors. That is the reality as I see it.

We have a very difficult and uphill battle ahead of us because we are creating a climate in this country where the goods we manufacture and the services we trade abroad will be much too expensive because of high interest rates and other costs. It has been said quite often in this House on all sides and by all Governments that the cost of our internal services including telephone and postal services is too high. This makes the life of an Irish manufacturer very difficult on top of the problems that have now arisen. What has emerged is a fiasco. There has been the poor judgment of the advisers and the people who should know better, mainly the Central Bank and the National Treasury Management Agency. I have not followed the financial scene very closely but it would seem to me as if the National Treasury Management Agency had all its eggs in one basket rather than having a mix of borrowing. While we have a substantial trade in the UK it is right that we should have some mix of borrowing. We should have borrowing in sterling in view of the problems that arose. The reality is that the crisis is not yet over. The whole concept of the ERM and our alignment to Germany currency need a vision and growth in Europe. This year will be zero in contrast to a three per cent growth in America. The Danish krone will have to be devalued, as I read The Financial Times. Therefore, with the exception of Germany all other countries will have devalued.

Much has been said of the £8 billion and many of our citizens believe that the £8 billion is contingent on our stying in the ERM. That is not the case as I understand it. We should heed many of our very fine economists as they write in the papers. There are three that I can mention, Brian Welsh, Brendan Keenan and Seán Barrett. One of the finest economists is Brendan Keenan who writes in the Irish Independent and the Sunday Independent. He said at one stage that there is no easy way out of the ERM madhouse.

Mr. Dukes

I would like to share my time with my colleague, Deputy Flaherty.

An Leas-Cheann Comhairle

Is that agreed. Agreed.

Mr. Dukes

I start by offering you, a Leas-Cheann Comhairle, my personal best wishes on the office that you have assumed today and to assure you that as long as you are reasonable you will not find me in conflict with you at all, Sir. That is known as getting your retaliation in first.

I have been a bit worried by this debate to the extent that there has not really been an awful lot of discussion of where the problem originated from or what the basic problem is that led to all of these events that we are talking about. There does not seem to be too much questioning as to how much progress has been made in actually resolving that problem. There are several parts of the problem and the origins of the turbulance that we have seen are to be found in a number of different places.

First of all, and without going into it in any great detail, we should look at what the main components are. First, there has been an ongoing problem of domestic economic policy in the Italian economy that has caused a lot of difficulty in that economy over quite some time. Second, there has been, again over a substantial period, a problem in economic and fiscal policy in the UK economy. There has been a great deal of uncertainty surrounding the principal elements in that policy and that uncertainty has given rise to varying views on sterling and there was until quite recently indeed a degree of uncertainty as to what the view of the UK authorities was on what we might loosely call exchange rate policy.

Then we had the whole question of German reunification which in fact the Chancellor decided to resolve first of all by telling his compatriots that it could all be done without any new taxation. He embarked on a programme of paying for the costs of reunification by borrowing thus driving interest rates up on the rest of us. Then he was obliged to introduce some elements of new taxation though not by any means enough and refused to give the European Community the kind of strong role in dealing with the consequences of reunification that it should have had. That has created enormous problems for the rest of us, not least being very substantial upward pressure on interest rates. Finally, another key element has been the French Government's policy of the strong franc. I think that most observers, analysts and commentators would believe that the strong part of that particular policy has been overstated a little compared to the inherent capacities in the French economy.

Those are the main components of the problem that gave rise to all of this turbulence and unless we focus on those and look at what the implications are and assess what has been done to solve them we are not actually going to get much that is worth while out of the work that we do. I say that to put the debate in context.

The Minister for Finance earlier today spoke a little bit ruefully about how wonderful it would have been at the end of last September to have the hindsight that we have today. I suppose we can all say things like that in the present situations. But Ministers are there and administrations exist in order to exert a bit of foresight, not to complain afterwards that hinsight would make wise men of us all and if we knew then what we knew now would we not have done the devil and all? They are there to exercise a bit of foresight, to look at the situation that faces them. All of those components of the problems that I have outlined were clearly known in the middle of September last year when all of this turmoil began.

The reason I insist that the Minister and, indeed, his advisers should have exercised a bit of foresight was really suggested to me by something that the Minister said. He said it could be argued and, indeed, not only could it be argued but it is sticking out a mile that a wellmanaged realignment at the right time would have avoided all of this problem. That is the central issue here. It would undoubtedly have done so and we have Ministers for Finance and we pay people in the Central Bank and in the Department of Finance and in their counterparts in the rest of Europe to have the kind of foresight that can see the necessity for a well-timed realignment of that kind.

The Minister himself pointed out that it was unprecedented last September that the currency reserves of three of the G7 countries should come under pressure at the same time. Indeed, yes, it was unprecedented. Why, in view of the fact that something unprecedented had happened, were the governments concerned and the EMS countries left floundering in the darkness? The Minister said that the authorities had no plan to react. There was no plan to react. If you are faced with an unprecedented situation you may not have a plan to react but you react in the best possible way on the basis of the problem that presents itself to you.

Until the devaluation we have seen nothing of any real substance done to deal with the problem. Three key opportunities were missed to deal with the problem. The Ministers for Finance solemnly had a meeting in Bath which everybody thought would address this problem. It did not. The Heads of State of the European Community member states solemnly went and had a summit in Birmingham and they were expected to look at this problem. They set up a working group. In the middle of the problem they set up a working group. The same Heads of State assembled again in Edinburgh in December and again failed to tackle the problem properly.

There were solutions available at the time. The Minister spoke rather mysteriously of what he called the unavailability of a special deal for Ireland and the punt. It is very significant that he spoke of that because we are led to believe that in September the UK authorities were told that they could have a realignment if they really wished and that in October the Irish authorities were informally told the same thing, but neither of them took that option. No action was taken until we had a statement from the ECOFIN Council a couple of weeks ago. By that time it was too late. It was with a certain degree of ruefulness that I heard the Tánaiste and Minister for Foreign Affairs at the beginning of last week addressing the General Council of the European Community lecturing to them, if you please, about the deficiencies of monetary policy and the system we have in the EMS and ERM after the events had happened, after three successive Governments have had done nothing at all about the problem and after the Minister had been totally silent on the issue from the middle of last September, right through the negotiations to set up the Government, until he was sent off with a prepared script by a Government that wanted to shift the blame to other people for what they had been obliged to do. That kind of treatment of the problem is not just insulting to us but it causes me grave worry about how the Government is going to deal with the consequences.

I will conclude with a few brief reflections on that. A devaluation means that we reduce the value of our currency in terms of other currencies in order to give us a competitive advantage on our exports. It means that we must necessarily accept that some imported products are going to be more expensive, both production goods and consumer goods. If we at home try to pay ourselves from our own internal resources more money to offset the extra cost of imported goods then we will rob the devaluation, we will rob the movement of any meaning. There is a lesson here. That is putting it as simply as I can. There is a lesson to be pondered by the ladies and gentlemen in the Club of 22 on the backbenches of the Labour Party who are building up positions on this and by officials of large trade unions in this country who seem to be saying that there is a way from our internal resources that we can get over this when in fact they should know there is not. The Minister has not given me any confidence at all today, in the few vacuous and vague statements he made about the consequences of devaluation, that the Government has any plan whatever. We are about to get the worst of every world on this issue.

Miss Flaherty

I join in offering congratulations and best wishes to you, a Leas-Cheann Comhairle, in your new post.

I would like to concentrate on being as positive and I can in that many of the valid criticisms of the handling of the debacle, the crisis, have been made by other speakers from all sides of the Opposition. I would like to vent my spleen because I did not have the opportunity of doing so the last occasion on which the Dáil met. One of the key and quite valid points of criticism that has been made is that the Government's eye was off the ball for so long because of the drawn out nature of the forming of a Government. I look back at the two to three weeks that the current Tánaiste, Deputy Spring, spent dealing with Democratic Left in what was a decoy activity to cover up for his long standing intention to do business with the Fianna Fáil Party on forming a Government. In the context of the severity of the crisis that was facing the country that piece of political shenanigans takes on a doubly and trebly unattractive face.

I am very concerned about the position of mortgage holders. Most of my speech will concentrate on their situation. It is inadequate to give a one day debate to an issue of this importance. The debate to date has attempted to analyse the course of the crisis, how we got into such difficulties, how it was managed or illmanaged. There has been insufficient analysis of content in relation to the lessons to be learned from this. That is probably the most important thing. Unlike the Minister, and in common with many people on this side of the House, I believe the complacency or sense of crisis over is not something that any responsible Government could adopt as a policy. It was very unclear from the Minister's contribution today that any lessons had been learned from the handling of that matter that would advise him more effectively if such a situation were to recur. I hope the debate will not end here. I welcome interventions such as that of Peter Sutherland simply because they broaden and develop the debate. The debate should be taking part with all the social partners; it should continue as soon as possible in a newly formed committee of this House. We have not come to terms with what happened. We have not learned all the lessons and we certainly are not clear on how to handle such circumstances should they arise again in the future.

Mortgage holders have been referred to in many speeches today, but generally very glancingly. I was struck by a vox pop conducted by RTE in the weeks in advance of devaluation when the prospect of a further 3 per cent interest rise was very much looming. Its significance only came to me as we finally devalued and I realised that the campaign we had all given a certain amount of hope and support to had failed and failed so dramatically. The RTE interviewer was talking to people on the street, mortgage holders, about the impact of the existing interest rates and the kind of repayments they were making. At one point he came across a very happy looking gentleman who said, "I have no problem, mine have just come down to 5 per cent". He was from Britain. That passed me by at the time. When I think about it now it raises a lot of questions. Specifically it led me to do a little sum. I may be wrong in my figures and in a way I hope I am. I hope the Minister will be able to tell me if I am wrong or perhaps confirm if I am right. In thinking about the position of mortgage holders in this country first, we have to be aware of the numbers that are involved. To get that number I contacted the Central Statistics Office and they informed me that there are 320,000 mortgage holders in receipt of mortgage interest relief. I can take it that that is a fairly sound figure. The average mortgage is indicated to be of the order of £40,000. On that basis and with an interest rate hike of the order of a minimum of 3 per cent, the increased figure being paid by the 320,000 mortgage holders is truly startling. I make it out to be of the order of £150 million to date.

If you look at the speeches here today most of them concentrated on the impact on industry. Certainly, mortgage holders were mentioned, but their situation was not analysed. Think of ordinary householders in this city and country carrying that kind of burden. The extraordinary thing is, it starts with them. The crisis for them is not over; it is still being carried by them. That figure will increase, if my figures are correct, at the rate of £32 million a month until the interest rate drops back to its original level and/or significant immediate measures are taken for these people. I would like to think that in my consideration of this matter those figures will be kept in mind.

I have heard the figure trotted out today here for the increase in the repayment demand of the national debt which is in the order of £50 million. Indeed, these mortgage holders will be paying that in the future with the effect on our reserves and on industry. Nobody has mentioned the figure for the kind of burden that is being carried on the shoulders of ordinary Irish citizens. In my case I shall have it added to the end of my mortgage. Some people are paying it already, but all of them owe it now. That was their contribution to the Government's policy of maintaining a hard currency.

I would like to get confirmation from the Minister, first, in the context of the forthcoming budget, that the plight of those people will be taken into account and, second, that the level of contribution they have made should be acknowledged. The impossibility of their bearing more should also be kept in mind in the framing of any future policy should the situation deteriorate again.

I was very concerned at the conclusion of the Minister's speech where he said that, now that it is all over, things look pretty optimistic, that interest rates have not gone up, that they have settled down a little and that there will be greater opportunities for marketing in certain countries. I am sure the Minister of State will deal with all of that in her contribution. But there is no analysis here of economic and monetary policy for the future. Are we now back to where we were, hard currency being our objective from the new base, with the situation that interest rates are still at the extraordinary high of 13.5 per cent, with the situation that today our currency was valued as being in the order of £1.3p sterling? The structural factors mentioned by Deputy Dukes and the problems in the European economy still remain. The complacency that exists is not justified.

I am also very concerned that in the Minister's speech there is very little indication of any action or changes that have taken place. He does not make reference — and I hope we will see something coming from this — to some analysis of the role of the Central Bank and its advisers. In the context of criticisms publicly made recently and referred to many times by speakers here today, that will be an important and vital analysis that should be taken very seriously indeed.

There should be greater honesty with the public because if we come to face again the choices between floating and the hard currency option we must have the price tags of them firmly delineated to the Irish people so that mortgage holders do not find themselves six months on having paid so dearly for a policy which was ultimately to fail. We cannot be surprised if they look enviously at their brothers and sisters across the water who have had the opposite experience, who have had their mortgages slashed by as much as or a great deal more than we have had them increased by.

I hope the budget would look very seriously at the problems that have faced this sector and that in any future economic and monetary policy the price paid by the individual mortgage holder is fully acknowledged and a specific price tag put on it. Remember, it is going up every month still. This should be a central concern in any future policy.

Minister of State at the Department of Enterprise and Employment (Mrs. O'Rourke)

A Leas-Cheann Comhairle, I join other Members of the House in wishing you well in the years ahead in your role. I know you will not think it remiss of me if I on the same occasion, say "well done" to Deputy Mary Flaherty for putting her name forward. I have always felt that competition is good for the body politic.

I am very glad, a Leas-Cheann Comhairle, to have the opportunity this evening to speak in this debate. I followed most of it during the day and listened to the speakers since I came here this evening. Quite obviously the debate has developed, I am glad to say, in not too acrimonious a fashion and there has been an obvious attempt by most Members who have spoken to think through the issues and to be very aware of what has happened and what is now the best road to follow.

The great disappointment, certainly to me, of recent weeks has been the rising chorus of voices that actually advocated a shift of focus so that the benchmark for our currency that is, for our entire economic policy, would be sterling and the UK. What could such people have been thinking?

The recent NESC report, comparing Ireland to other small, late industrialising European countries, concludes that Ireland in this century "became a free rider on Britain's decline". We must overlook the fact that our efforts to keep competitive over the years, particularly since the War, did rely on a repeated pattern of currency devaluation. In 1970 there were 12 DM to the £. In January last there were 2.64. In 1980 there were 3.6 Swiss francs; in January last year there were 2.2. In essence, over the years we had been doing just what the UK had been doing, depreciating. It is only since 1986 that we made effective strides to move to a really firmer policy stance.

Remember that by floating and devaluing the UK sought over recent months to restore its wage and other costs and its inflation to something close to what we had achieved by policy and by restraint since 1986. It was that comparative loss of competitiveness that forced them down. Our comparative competitiveness did not require the same adjustment of us. It should be a cause of some disappointment to all here that, encouraged by idle and unfounded talk about our competitiveness and by exaggeration of our exposure to sterling, the markets — that is, the speculators — were uneasy and unsupportive.

There has been much comment in all of the media—print, radio and television —about the seemingly behaviour of the speculators. Then there was a strong attempt to turn that to one side. I am most uneasy about the behaviour of the speculators at that time and comments I made during those days I do not regret.

I would like to speak briefly in more detail on comparative measures of costs. In terms of comparative measures of costs, of efficiency and in prices, Irish performance since 1986 has been in line with that of France and Germany. We diverged from the UK post war trend, a trend that we had tended to mirror until the early 1980s. Hourly earnings in Ireland rose by about 31 per cent between 1986 and 1992. This compares to an increase of 33 per cent in Germany and of 26 per cent in France. Our 31 per cent contrast with the UK where over the same period, 1986 to 1992, the increase was 59 per cent. That is a staggering fact and figure. From my present post in labour affairs I contrast that figure from 1986-1992 with those in other countries. Unit wage costs measure both the tendency for wages to rise and, in addition, increasing efficiency, productivity and other improvements. On a measure of unit wage costs Ireland has made the most startling improvement in competitiveness since 1986. Ours actually decreased by 26 per cent between 1986 and 1992 compared with increases of 16 per cent in Germany, 6 per cent in France but 26 per cent in the UK. Those two measures of competitiveness tend to be reflected in another measure of how a nation is performing internally that is the level of its prices, or its inflation. Between 1986 and 1992 our consumer prices increased by 21 per cent. This performance has to be compared with 21 per cent in France, 15 per cent in Germany but again 45 per cent in the UK.

Clearly, there had been a fundamental adjustment in the Irish economy, in fact a fundamental divergence from the United Kingdom trend. The performance here was in line with what France and Germany had been able to attain. Indeed, as I have shown, we did better in some respects. We constantly do ourselves down as a nation and say we do not quite measure up in this respect or that respect. We do not give ourselves credit for much of our competitiveness or our standards raised. The facts I have shown have been quite startling. We are not saying it was any Government or Parliament that did it. It was the citizens who did it. We all did our bit. We worked to transform our economic systems and we worked well, because we did manage to make our economy perform better. I hope that no one will minimise the role which our ERM membership played in that effort. We did well because we had a standard to maintain; there was a yardstick, a benchmark. The benchmark was not the UK, it was the DM, the FF and the other foreign currencies. We had to achieve better economic performance and we did. It showed up as greater competitiveness and better exports.

Of course, there were winners and losers as a result of sterling devaluation. The process of adaptation to that devaluation involved evening out the gains and losses between the winners — who were basically importers of sterling goods and services — and the losers — basically those who sold for sterling or against sterling competition. But, there was more gain than loss. That is evident and can be measured by the excess of £500 million of our sterling imports over our exports sold for sterling. The adjustment of the economy to the devaluation of sterling required time. It required mechanisms like the Market Development Fund that was assisting that type of adaptation in firms that lost out from the change. That adjustment was taking place and still is.

My colleague, Deputy Treacy, spoke about the Market Development Fund. I had intended to speak on it, so I will not read it into the record again. Suffice to say that when I introduced it in the House in October it received a welcome from all sides of the House. I left that area of responsibility knowing that the very firm policy, that market devaluation, was well received, well executed and administered and very well delivered and the firms who got in touch with the group running it found it most valuable. They found the administration of it a most valuable exercise.

Our currency is still a strong currency even after the recent ERM adjustment. That 10 per cent devaluation of our currency in the ERM may tend to put pressure on prices but policy can and must take care of that. There must be no sense of easing the sort of disciplines that managed to keep us competitive.

It was always envisaged that in the movement towards full European Monetary Union, which must still be our goal, countries would make the structural adjustments to ensure that their cost structures and general efficiency levels were appropriate. Ours were appropriate. As I have said our economy had made the adjustments. As a result a devaluation to go down part of the way with sterling was not called for until the interest rate shocks of two weeks ago. But the discipline needed now is even more critical. It is critical because we must revert to being competitive on quality, on standards and on moderate cost growth, rather than following the low price strategies that following a devaluation course tends to inculcate. Low price strategies are for low quality commodity markets. We want to steer a course into higher quality, higher value markets, with prospects of higher margins.

That means that we must push forward with extra vigour to address the sort of structural impediments in our economy and country that militate against winning market share in the prime and affluent markets in Europe and elsewhere. It will not be enough to go with the same products or to sell them in the same old way.

We have been deft entrepreneurs when it came to finding out new and better products abroad that could be imported and sold here. We need to be at least as enterprising in finding out new and better products and services that we can make and supply to markets abroad.

Transaction costs for our trade, such as our ports, our telephone costs, must be got into line. We cannot go on with our past, easy tolerance of costs here that are higher than those faced by our competitors in other EC countries. We have been too easy about accepting a facile argument; an argument that because our distribution system is different, we must accept higher costs. It will not do; it never should have done and it certainly will not do for the future.

Utilities, public services, the ports must develop a marked-led approach. The tariff or imposition on business must be in line with norms elsewhere, with best practice elsewhere. Efficiency levels must be at least as good here as in the best comparator. Prices, charges and impositions here, higher than those in competitor ERM countries, must be brought down.

Take our ports, for example. The objective must be to get those ports like Dublin where port charges were several times those in Northern Ireland or in Waterford, to be become as competitive as the most competitive. We need to force greater competitiveness out of all our systems.

We must look at training. The capability level of a country's workforce is the key to its competitiveness. It is the determinant of what it can do. In Germany and Denmark where training and education for work are best developed, the quality, value and range of output tends to be highest. Countries that devote less attention to training and to the preparation of their workforce tend to have lower productivity, lower value, lower margins. It is not by accident that Belgian patés are available in all our EC markets: Belgian meat factories have workers who got training in meat preparation.

I am pleased that we are moving towards a better, more broadly-based apprenticeship and training system. Standards of attainment in training and education will be critical. We must seek to achieve best practice here rather than anything lower. This is important because what those at work are capable of doing constitutes the real underpinning of competitiveness. It is the fundamental constraint of the "real economy" because it is that capability level which determines how, what and how well we can produce. The capability levels of those at work are important determinants of competitiveness. A well trained, well educated, thoroughly capable and versatile workforce in an economy that has got its costs in order is a basis for prosperity. Of course, investment is needed to set it in train.

There is no question but that the savings within the Irish economy, plus investments in Ireland from overseas, could set far more people to work if invested in productive assets here.

The prospects of a good or a secure return on investment is not helped by a threat of fluctuation in exchange rates or by a risk of further devaluation. That is why idle chatter about the possibility of alternative scenarios involving a stance, other than a firm currency one, can damage our prospects of attracting Irish or overseas productive investment. We must not even postulate a variable exchange policy or a link with sterling. Instead, we must move towards removing the excess transaction cost that trading in different national currencies imposes. Our interests as a trading nation are best served by moving sooner, rather than later, to a single currency for Europe.

The best result of this debate for Ireland's interest would be to confirm the approach we have taken in the past of wishing to make European Monetary Union a reality. It is in our interest that as soon as possible the concerted movement towards this objective is put back on the rails. The last six months have been a bad dream for Europe, and indeed, difficult for Ireland.

This House, this country, this Government have a role to play in helping the constructive forces in Europe to get the momentum behind the grand design of European Union. We have seen the destructive, the critical, the cynical forces do their worst. They are not in our interest and we must not help them by joining in their destructive speculations.

Mr. Deenihan

With your permission, I wish to share my time with Deputy Harte.

An Ceann Comhairle

Is that satisfactory? Agreed.

Mr. Deenihan

This debate should have taken place long before now. Indeed, it is farcical that the Dáil was not recalled earlier to discuss a crisis of such magnitude. It demonstrates how irrelevant this House is in the eyes of the Government. When the British and Italians withdrew from the ERM and the Spanish and Portugeese devalued their currencies the signals were clear for the Government to act and they did not.

The immediate appreciation of the Irish pound resulted in a loss of competitiveness of our exports especially in the UK market which still accounts for over 30 per cent of our exports. The currency crisis, as was pointed out here today, also resulted in higher interest rates resulting in a devastating increase in house mortgate for many families and penal increases in bank interest for industrialists, business people, farmers and, indeed, for people in all sections of our community. The real effects of the crisis are only emerging now. We hear daily reports of business closures, factories shedding large numbers of their work force et cetera. If the Government had acted in time and carried out corrective measures it would have minimised the devastating effects of the currency crisis.

The fact that the Government refused to recall the Dáil to allow full and wide ranging debate on the crisis meant that a very one-sided argument was being put forward to the public. The Government continuously stressed the high cost of devaluation. It was made into an issue of national pride, a war between the financial speculators and the Minister for Finance. While the Government were indulging in this lunacy and pursuing a totally inflexible line, they squandered our external reserves of somewhere in the region of £3 billion; they contributed to the loss of a considerable number of jobs by making it impossible for many businesses and manufacturing industries to sustain their workforce at the 1992 levels and inflicted major hardship on already hard-pressed mortgage holders and, indeed, the cynicism displayed by a number of the Government Ministers especially following the devaluation announcement was indeed despicable.

Both Deputies Spring and Ahern accused the Fine Gale Leader, John Bruton, of forcing them to devalue following a statement he made criticising, and rightly so, the Government's handling of the crisis. Indeed, they looked for scapegoats elsewhere including the EC, the Bundesbank, the German Parliament, the British and the speculators. The simple fact is that the Taoiseach and the Minister for Finance did not grasp the opportunity presented to them on 21 November of being involved in a realignment with the Spanish and Portugeese. By failing to do so they left the punt open to wholesale speculation. The blame rests on their own ineptitude to deal with the crisis at that time. I would like to quote here from The Sunday Tribune of 7 February 1993 from and article by Paul Tansey which sums it all up:

The conduct of economic policy in Ireland over the past six months has been an unmitigated disaster. The combination of political ineptitude, policy paralysis, the suppression of free debate and the bad judgments produced the humiliation of last weekend's enforced and ignominious devaluation of the Irish Pound.

It poses the question which many people are asking at the moment, has the Cabinet the capacity and the expertise and, indeed, the experience to tackle the continuing currency crisis or, indeed, any crisis of similar magnitude in the future. Time will certainly tell but from the experience of the handling of this crisis I certainly doubt it.

Mr. Harte

I am not sure that I can deal with the currency crisis as I perceive it — being a Border Deputy faced with this for the last 12 years — in the minutes allocated to me but I will attempt to do so. Fianna Fáil are guilty of having made Irish money foreign currency in Ireland when we joined the EMS in 1979 and grouped with sterling making sterling foreign currency here. Nothing wrong with that in the eyes of the nationalistic first class republicans in Fianna Fáil but what they failed to see is that Irish money is foreign currency in six north-eastern counties.

I doubt if you could get a parallel with that in any democratic country throughout the world, that native currency is foreign currency in that land. Fianna Fáil do not realise the blindless of talking economic independence without referring in any way to our relationship with Northern Ireland or Britain because Northern Ireland as we know it is de facto part of Britain although we do not accept that and we try to alter that. But, de facto, economically, it is the same economic unit as Britain. Fianna Fáil when they start talking about economics deal as independents, blind to the relationship we have with Northern Ireland and ten minutes later in a separate committee room in a separate speech they talk about political co-operation. How can you have political co-operation and political unity in the island of Ireland if you do not strive to get economic unity? It is not possible; it is a total contradiction. It is not normal or natural for any country in the world that is trying to unite with a neighbour or to have unity within itself.

I want to get this message across to the Fianna Fáil Party: until Fianna Fáil realise that when the price of butter, or a gallon of petrol, a motor car, bread and everything else is the same on both sides of the Border then and only then can you talk seriously about political unity. While we are saying that economically we will act independently and while we condemn violence and promise to do everything in our power to secure peaceful solutions, we will not coerce, we will do everything in our power to stop the violence in Northern Ireland, by not realising that we must have economic unity before political unity and by not doing anything about it, we are contributing to the status quo and the status quo, as far as I am concerned, means murder and violence in the North of Ireland. I am emotionally against that. That is total anathema to everything I think about in politics, I cannot understand how experienced politicians serving years in Government cannot grasp this fundamental issue that separates both sides of our community.

I listened to the Minister for Finance, the day after he broke with sterling, talking about our being too tied to the British market and that was what was causing us problems, sterling, that if we moved away from the British market we would not have to be so dependent on sterling. Does that mean that we move away from Northern Ireland as well? No, no. The Minister for Finance never thought of that.

The following night the Taoiseach addressed Cáirde Fáil in Dublin and told his audience oh, yes — with his republican cap on him — that we should not be dependent on the British economy indefinitely, but towards the end of his speech he went on to say that he is going to strive with everything in his command, every power that he has, to bring about peace and unity in this island. There are two examples of total blindness on the part of the Taoiseach and the Minister for Finance. I want to say that if we are serious about trying to bring about peace and normality on the island of Ireland we must look at first, the economics involved. When the question of whether they will be better off or worse off if they join a united Ireland is no longer an issue in the minds of the protestant people of Northern Ireland, we can talk about the politics which separate us. However, we cannot talk about the politics which separate us as long as people in Belfast, Derry, Newry or elsewhere in the North of Ireland, who are not inclined to listen to us at the moment, say they might not be better off south of the Border and therefore the devil they know is better than the one they do not know.

The currency crisis started when we broke with sterling and that crisis will continue until, as equal partners in the European Community, we negotiate a new agreement with Great Britain on stability of currency. That is fundamental. We do not have to go back on our knees to Britain to have an equality or stability of currency with them. As equal partners in Europe we must recognise that our two countries are interdependent economically and we must work out a solution to the currency crisis.

The currency crisis we have experienced stems from our break with sterling. On the three occasions on which we devalued, this was done not because of our currency differences in Europe or because we were trading with Europe, but because it was costing us too much to trade with Great Britain. Deputy John Bruton devalued and Deputy Alan Dukes devalued. The difference between the devaluations by Deputy Bruton and Deputy Dukes, as Minister for Finance, and this Minister's devaluation is that they did it before the damage was done. I remember having a conversation with the Taoiseach at the time, the then Deputy Garret FitzGerald. He knew my feelings on the difference of value between sterling and the punt and he explained to me that if we waited too long we would be creating a situation of which speculators would take advantage. What did this Government do? They waited and waited and waited again, week after week after week, for five months and then blamed the speculators for taking advantage of the position which they themselves had built for them.

I do not know how blind a Government can be, but they created the situation for the speculators. I know it was like having a choice between being hanged or shot when it came to devaluing. I said privately to the Taoiseach before Christmas that at the end of the day he would have to devalue. However reluctant we might be and though it might be anathema to us, it was the only safe choice. Industry, the farmers, the tourist trade and the business people along the Border were telling us we had to devalue. Everybody was telling us we had to devalue, except the economists in the Department of the Taoiseach and the Department of Finance. I do not blame them; I blame the political heads for taking this chance. What were we doing? We were behaving as empty pocket swanks, on the fast track in Europe, making people believe that we had more money than we have, talking about the strength of our economy, living up with the Jones'. But who was paying the price? The factories exporting to Britain and the people who have lost their jobs are paying the price. I hope that, when this has been sorted out in the next few weeks, the workers whom the unions called to vote for the Labour Party will recognise that by going into Government the Labour Party have been forced to swallow the monetarist politics of Fianna Fáil.

Mr. Broughan

We have not swallowed anything.

Mr. Durkan

Yet.

Mr. Harte

They can tell that to their supporters when they meet them and I hope they can convince them.

Mr. Broughan

We have only been in Government for three weeks.

Mr. Durkan

They have swallowed enough during that time.

Mr. Harte

To hear the Taoiseach talk about the strength of the currency and how we could battle against the falling value of sterling made me ask myself if he was in wonderland. He is in wonderland. He is wondering how long he can go on. He is wondering how long it will be until he has to devalue. He is wondering how many factories are going to close before the crisis is over. He is wondering how long the Labour Party will continue to back him. The Labour Party is also in wonderland, wondering for how long their supporters will continue to support them while they swallow the monetarist politics of Fianna Fáil.

To listen to the Minister for Finance telling us we should almost abandon our markets with Britain so that we would not be dependent on sterling indicates a blindness I fail to understand. I live along the Border and I have said many times in this House. A party which follows policies which interfere with the normal natural trading between neighbours on both sides of the Border is not following policies conducive to Irish unity. This Government is guilty of that.

The Fianna Fáil Government has always been guilty of this. I have tried to emphasise this time and time again, but apparently no one listens. We have hard economic and monetarist theories put forward here today. I have listened to them in the House or in my office, but the key to our problem lies with sterling. The prospects for the future value of our currency depends on sterling. You can say what you like about returning to sterling, but if sterling devalues again or weakens again we will have to devalue again, and if sterling weakens further we will have to devalue further.

I heard it said in my party, after we broke with sterling and had to devalue, that whatever about having an association with sterling or being part of sterling, we would have to have control over our currency. That is a very strong argument, but do we have control of our currency? Whenever sterling weakens we go with them; whenever sterling strengthens we are in trouble. During the transition period between weakness and strength our industries go through economic convulsions, not knowing what is happening, and our financiers do not know what is happening.

One hundred and seventy years ago Grattan negotiated parity with Britain. It lasted for 150 years. Grattan argued that there were three or four basic positions for Ireland to obtain in relation to Great Britain — economic co-operation or union, as in what we now call the Common Market; political separation, common currency and one other. Common currency is the main one and that which lasts longest. We have to get back to common currency or we will be in trouble. It was done by Grattan 160 or so years ago and it must be done again.

Having spent many years in this House and having experienced the difficulties in Border areas that many people south of the Border do not know exist, where currencies fluctuate and where businesses from one day to another are being threatened, where business people are not too sure what next week will be like, I have come to the conclusion that we must look afresh at our relationship with sterling. If we have a stable relationship with sterling we will not have the economic convulsions which have destroyed our businesses over the last four or five months and which have threatened us since we broke with sterling.

Minister of State at the Department of Finance (Ms E. Fitzgerald)

I wish to share my time with Deputies Broughan and Derek McDowell.

An Ceann Comhairle

Is that satisfactory? Agreed.

Ms E. Fitzgerald

Deputy Harte spoke glowingly of the link with sterling and the economic and monetary union we had with sterling from 1800-1979, but I believe that those of us acquainted with history do not look back on that as a glorious period in Ireland's economic history and it did not do great things for Ireland's economic development. Senator Joe Lee, in his book on Ireland since independence, has charted how we slavishly followed British economic policy. We were in effective economic union with Britain for much of the period since independence. We were tied to that country and while its people may have spoken the same language as we did, that was not the language of economic growth and development and economic innovation over that period.

Mr. Harte

I do not want to interrupt the Minister but we were not full partners with Europe then.

An Ceann Comhairle

Deputy Harte realises, I am sure, that there is a strict time limit on this debate and interruptions of this kind are out of order and totally unwelcome.

Mr. Harte

The difference is we are now equal partners with Europe.

Ms E. Fitzgerald

By tying our economy in the past to that of Britain, which was not the most forward looking, progressive and growth economy, we were not achieving a great deal in terms of our potential economic growth. I would hope that out of the difficult experiences of the last number of months we do not take it as a lesson that we should re-hitch ourselves to the sick man of Europe in terms of economic policy. We must realise the reason that the currency markets have been in turmoil since Black Monday in September 1992 has been because Britain's economic policy has been in free fall, sterling has been up and down like a yo-yo, and generally down on the foreign exchanges.

That has caused difficulties for us because 30 per cent of our trade is with Britain. We must also realise that 70 per cent of our trade is with non-British markets. We face the economic choice of hitching our star to a market of 60 million people which is in decline, and which at the moment shows no clear economic policy, or a growing market of 350 million people. We need to adopt our own psychological, cultural and economic thinking to markets which, while they may not be conducted in the same language, are where our economic future will lie, the markets in Europe.

The fundamental problems underlying the currency crisis have been the lack of a UK economic policy and the continuing high German interest rates, as Germany sought to fund its economic and monetary union with East Germany through high interest rates rather than through a tax regime. We have been the victims of that.

A very fundamental problem also arises in relation to the whole planned transition to economic and monetary union. The Delors report envisaged a progressive tightening of convergence which would occur to the point where the final stage of economic and monetary union would take place with hardly any noticeable change in expectations. European currencies would gradually move to a point where there would be an almost imperceptible move to a single currency. It is quite clear that has not happened and is not going to happen. As we approach monetary union there will be a temptation for speculators to take a one way bet on the difficult currencies in the system. The lesson we have learned from our experience over the last five months is that we need to step up our diplomatic offensive and our efforts to ensure that the transition to economic and monetary union in Europe takes place sooner rather than later.

If Britain is not ready for that, let us go ahead without Britain. Otherwise we run the risk of economic union, we have virtual unity in capital markets, particularly from the freeing of the capital markets from 1 January 1993 and there cannot be economic union and monetary divergence, it simply does not work. It is absolutely essential that we would step up our diplomatic efforts and work flat out within Europe to ensure that we begin to achieve that kind of commitment to economic union.

When Britain held the Presidency of the EC, there was no particular commitment to tackle the monetary problems. The Danes have had a change of Government and they have had their own problems. Only late in the day, with the Danes finding in the Presidency that their own currency is under attack, there is a belated realisation in the Councils in Europe that we need to move hard on the monetary issue. We need to accelerate the steps to be taken towards monetary union if we are not to offer hostages to fortune in terms of a very long planned run into 1999 for monetary union. We should aim towards monetary union over the next year.

In the historic experience of other countries in introducing a single currency the adoption of a new currency, where it has been successful, has generally been a fairly rapid transition rather than this long, gradual transition. Indeed, if one were to wait for the Delors convergence, it might not come. We should give much more active consideration to a fast track approach to European Monetary Union and to maintaining Ireland's position in the narrow band of the currency and in the fast track towards a single currency.

We are a trading nation. We export 70 per cent of our products. We import 60 per cent of our consumer goods. We have a greater interest than other countries in having a single European currency because of the stability that offers for trade and because of cutting down on the whole transaction costs of moving goods around and moving into different currencies.

Because we have such an open economy we have that very strong vested interest in moving to a single currency. The fact that so much of our gross national product is made up of foreign flows in or out of balances of money and of trade, it is very easy not for anonymous speculators, but for ordinary Irish business, through timing of their payments in sterling or through timing of the movement of their goods, through leads and lags, to shift around quite a lot of money and to add to and exacerbate speculative pressures on the Irish currency.

Those speculative pressures have not been helped in the past by the fact that economists and the different economic interests were very much divided at home on the merits of whether we went for a total hard currency policy, resisting devaluations, or looked at the merits of devaluation. There are lessons to be learned from the experience of the last number of months and we must take appropriate action at European level to put monetary policy centre stage to ensure that we achieve a stable exchange rate.

Out of that stable exchange rate we can expect lower interest rates. That is the absolute key issue in terms of economic development. If business people can leave their money in the bank and earn a real return of 15 per cent, why are they going to go out and invest in a risky venture? It is absolutely important for economic growth here that we get interest rates down. They have come down very significantly from the speculative level they reached during the currency crisis and the run up to devaluation. Two weeks ago we were seeing interest rates of the order of 40 per cent. Now we have the key one month rate down to 15 per cent and the threat to mortgage rates has eased.

It is absolutely essential that we continue our pressure to tackle the fundamental problems that lie in the European Monetary System and to ensure that sooner rather than later we move to that particular economic convergence.

Mr. D. McDowell

I believe the Government was right in the decision it took last Saturday week. In reality, we had no other choice. Had we continued the "no devaluation" line, we would have suffered untold damage to our economy with all that that would entail in terms of job losses and potential house repossessions. When mortgage rates reached 18 per cent or higher, as they did in the case of Irish Life Home Loans, and long established companies, such as Cadbury's in my own constituency, started to let people go, the Government had no choice but to act. In my view there were two major elements which ultimately made devaluation inevitable. First, the collapse of sterling and, second, the overwhelming might of speculative pressure. Neither factor has gone away. We would do well to give some thought as to how we might act in the future.

Whatever we believed, or wanted to believe, two weeks ago it is now painfully clear that the IR£ cannot sustain a significant revaluation against sterling. There are simply too many companies too close to the edge, too much of our trade is denominated in sterling. Despite all the progress of the last two decades we still export over a third of all our exports to Britain and the sterling area. That being so, we simply cannot live with a 15 or 20 per cent differential between the British currency and ours. Returning to a point made by Deputy Harte earlier, if we swallow the British currency inevitably we have to swallow the monetary policy of the British Conservative Government, something which I would certainly not be prepared to advocate.

Mr. Harte

Not necessarily.

Mr. D. McDowell

They have been in power for 14 years.

I would like to reflect for a few moments on Economic and Monetary Union. I supported the Maastricht Treaty and I still support Economic and Monetary Union. I am committed to European Union and I hope it can be achieved sooner rather than later. European Union means a great deal more than Economic and Monetary Union and particularly European Monetary Union as it is usually defined and understood in this country. It is a remarkable fact that four of our Community partners met what is loosely called the Maastricht convergence criteria in 1990. In 1993 it is unlikely that any of the 12 member states will meet the criteria. Even countries such as Belgium and Germany, so called core economies, have levels of borrowings higher than ours. Countries like Italy are so far from obtaining the criteria that it is scarcely realistic to expect that they would be in the first batch in the single currency in 1997.

In this context it is unrealistic and unwise to take money out of the economy in this time of recession. Certainly, it is possible to improve efficiency and to cut out waste. However, it would be wrong to cut essential services, or sacrifice jobs which would otherwise be sustainable, simply to stay within the Maastricht criteria. Those criteria have not been handed down on tablets of stone from some economic guru in the skies. They are being ignored daily by all our Community partners. It would be a profound mistake for us to engage in an accelerated programme of cuts simply in order to participate in the first phase of the single currency in 1997.

The events of last week have shown, ultimately and painfully, that our richer partners are not too bothered whether we make it into the core club in 1997 or not. Economic fundamentals notwithstanding we are clearly considered as part of the second tier. This is hardly surprising since our most successful diplomatic effort of recent years was to persuade our partners that we were underdeveloped and needed help.

I am not of course suggesting large scale borrowing. I am certainly not suggesting a return to the profligacy of 1977 and thereafter, nor am I suggesting that we abandon the Maastricht criteria altogether. I am saying that we should invest prudently for economic growth and social stability and treat the Maastricht criteria as a medium term benchmark.

I have read the Maastricht Treaty and I am not at all clear as to how these criteria are meant to be interpreted. The Treaty requires that the budgetary policies of the participating countries converge between now and 1997. This convergence is to be judged on the basis of the criteria as set out. It is certainly not clear that we must meet the 3 per cent ceiling on Exchequer borrowing in each of the intervening years. This could hardly be the case since none of the 12 member states could possibly meet that stringent requirement. We should join our partners in taking a flexible and sensible approach to the Maastricht criteria. If we make it into the core club in four years time, well and good, but we should not take undue risks with jobs and living standards in the meantime. Any further substantial loss in jobs and living standards will render us unable to partake in monetary union anyway.

Mr. Broughan

First, I congratulate my colleague, Deputy McDowell, on his maiden speech in this Chamber. This is actually my second.

Looking back on the history of the EMS, it seems a long time since Roy Jenkins, as President of the Commission, pointed us in the direction of Economic and Monetary Union, which at the time we thought was going to take four or five years. It took until 1987 for any appreciable benefits to accrue to us. The events of the past two years, the way in which the British Government joined the ERM — perhaps too late and on the wrong conditions — the enormous historic change in Eastern Europe, and in particular the incorporation so speedily, and against all the traditions of the EC, of East Germany, a major state of 20 million people into the EC, all these factors produced the climate which has been so hard to manage since September. With hindsight it is easy to be critical of our Central Bank and also of the famous mandarins in the Department of Finance; but, conditions since September have been fairly unique and we have found ourselves faced with the emergence of a totally different situation.

Like my colleagues on the other side of the House, I also felt that the Government's decision to devalue within the narrow band was correct, for the reasons that have been outlined by other speakers. It became particularly difficult for us to carry on this policy because of the unsustainable level of interest rates and the fact that at least one sixth of our exports go directly to the British market. These were deeply affected by the strength of our currency so that, in effect, up to a few weeks ago, we were putting an 18 per cent tax on those exports to Britain.

On the second part of the motion, I would like to see that in the reform of the ERM a major priority would be the protection of jobs. When you look at the way in which the Nordic countries in particular — other small, peripheral, perhaps open economies — have managed their currency situations, it is fair to say that they have always placed foremost what they see as their central fundamental interests, and particularly jobs. Finland, which has a current unemployment rate worse than ours, and other Nordic countries have followed that type of development.

In my own constituency there was concern about job losses in Cadbury's. It looked at one stage as if one quarter of the workforce of one of the biggest factories in Dublin would be devastated unless we made adjustments and looked for reform of the system as it now exists. There was also another major closure in Dublin North-East, that of a clothing company which is moving to Eastern Europe and which seems to be saying that labour costs in the very hard currency situation are difficult to sustain.

Reference was made by speakers on the other side of the House to the situation in Britain. It was a great tragedy, we all acknowledge, that the Labour Party, our sister party in Britain, did not make it back to power last April. If they had won the election it would have led to fundamental changes in their fiscal exchange rates and indeed other management. As the situation emerged, however, it presented us with a very difficult climate. The one thing that stays in my mind from Black Wednesday is the sight of 22 year old money managers moving perhaps £60 million worth of currency a day around the exchange and perhaps the equivalent of Britain's GNP flowing through it. In recent weeks we have had the spectacle of a candidate for the Seanad from an Opposition party making the case, on the front page of the Irish Independent, that there was no speculation involved in the last couple of months in relation to our currency. That was a very naïve judgement. I fully support the position Deputies in Democratic Left may be taking in asking for some movement, through our Ministers, from ECOFIN to have an EC-wide regime of taxation on pure currency speculation as we move into the interim period.

I fully support the second part of the motion. Through the Council of Finance Ministers we should immediately try to embark on a programme which will bring the Economic and Monetary Institute, which starts next year, into full working order as soon as possible. I support the comments of the Minister of State at the Department of Finance in that regard. We have a choice of either having our interest rates and our monetary and economic policy determined by a non-elected, undemocratic out-of-control Bundesbank, run by Helmut Schlesinger, or in the next three years on the road to monetary union, of developing democratic institutions through ECOFIN, through the Council of Ministers and with a European Monetary Institute with real teeth. That must be the way to proceed.

I support the motion but, like my colleague, I have some reservations regarding the third part of it. With a projected growth rate of less than 2 per cent this year, I do not feel we should engage in any more deflationary policies but we should concentrate on reforming the exchange rate and working with similarly interested countries, such as Spain, which, under Felipe Gonzalez, the Labour Party Prime Minister, did so brilliantly in helping to get so much structural funding for the peripheral regions for the next few years.

An Ceann Comhairle

I advise the Deputy that his time is exhausted.

Mr. Broughan

We have worked very hard, and endured much in the past four or five years. When Members now on the other side of the House were supporting the Government during that time, we took a realistic view of the ERM and looked for its reform. I commend the motion.

Mr. Durkan

I wish to share my time with Deputy Jim O'Keeffe.

An Ceann Comhairle

Is that proposal satisfactory? Agreed.

Mr. Durkan

I congratulate new Members of the House on their interesting speeches and I wish them many long happy and fruitful days here. Noticeably there was no reference in any of the speeches from the other side of the House to the question of confidence, the most important factor in financial markets or in any business. We had to devalue for a number of reasons but the first of these was a lack of confidence.

Let us look at the lead up to the situation. Many people mentioned September as the starting date for the sudden slide. That was not the case. The first rumblings were felt around the time of the Danish decision on Maastricht when a question mark was placed as to whether European integration was to continue at the same pace as previously envisaged. Another factor, too, has been left out of the argument. We have heard about economic and monetary union, but nothing has been said about political commitment, and that is the other important factor. Without the political commitment to European union and European monetary union, there will not be integration.

Next in the sequence of events was a long discussion in France in relation to Maastricht, a discussion that did nothing in terms of confidence in a single unit of currency. Subsequently, among our neighbours in the UK there was debate in the House of Commons on the whole question as to whether the British were fully committed to European union. Then there were the undignified exchanges across Europe relating to the Bundesbank and the German Chancellor, as to who was right and who was wrong and to the direction in which we were going. All of that seriously undermined public confidence and the confidence of the markets in what was happening in Europe. That is generally accepted now but it is too late. All of what happened should have been foreseen and the Government should have recognised very early in the day that there was likely to be a slide at some later stage. Instead of taking steps to deal with the situation they decided to call a general election. That had the effect of confidence in the economy being eroded seriously. There followed protracted debates about who was going to form a Government. That delay did not help to restore confidence. There was nothing to reassure markets. Eventually we had a Government. Then, 6 p.m. on the day devaluation occurred one senior Government Minister spoke on the TV news and said there would be no devaluation. Two hours later, another senior Government Minister, the Minister for Finance, announced devaluation. What did that do for confidence? What must the international markets have thought of us? They can only come to the conclusion that our Government does not know where it is going, with whom it is going or what direction it intends to take.

Speculators are easy targets. I do not have friends who are in that area. If I had I might not be here but I want to point out that the proposal to resolve the problem by way of introducing penalties to discourage speculation will also have a peculiar effect on confidence in the currencies of the countries that introduce it. Members on the other side of the House have not recognised that yet. When such penalties were introduced in other countries they did not have the impact people on the other side of the House would like to pretend they had. The introduction of such penalties creates a doubt about the value of the currency or about confidence in that currency and, consequently, creates a serious problem.

What degree of commitment is there in Europe now to a single currency? What commitment is there to the total integration of Europe as was envisaged three or four years ago? If that integration does not come about the problem will recur. Early in the campaign the Government should have gone to our European colleagues, impressed on them the seriousness of the situation, and implored them to take action which would clearly indicate to the financial markets worldwide that Europe was serious about its intentions, and intended to proceed towards integration.

In the heat of the crisis Ministers went over to Europe, met the Bundesbank people, met Helmut Kohl and came home and reiterated that they were not going to devalue and had the approval of their colleagues in Europe in that regard. But there was no backup. No means were put forward whereby they could have avoided devaluation. All they said was that there would be no devaluation. That was analogous to a first division goalkeeper going out to play a match and saying there would be no goal scored against him while secretly, he was nursing a hamstring injury. Sadly, that is the way the Government has behaved.

What worries me most is how this Government is going to respond to a similar situation which is sure to unfold in the future unless the political problems relating to European integration are addressed quickly. The actions of speculators, those who express their confidence in currencies by way of speculation, will be determined by the confidence, according to their markets, in a particular currency at a particular time. As long as two, three or four countries in Europe go their own way, or divert from the main course, there will always be a threat of a currency crisis. I would ask the Minister to get his act together the next time to respond quickly, not to mislead us, not to allow business go to the wall and not to allow mortgage holders to be placed in fear of losing their homes.

Mr. J. O'Keeffe

I understand that I am winding up for the Opposition at this stage, being the final speaker from this side of the House. I will attempt to put together a few thoughts arising out of the debate.

It is very clear at this stage that three people bear the political responsibility for what began as a currency crisis and ended as a devaluation débâcle. I refer to the Taoiseach, and the Minister for Finance who presided over a foolish and misguided policy from September last and who were joined at a later stage by the Tánaiste. The Tánaiste has ample opportunity to bring a fresh and objective view to bear but immediately on going into office, he lost no time in committing himself and his party 100 per cent to support for a continuation of the political madness which was based on a totally misguided assumption that hard nosed currency merchants could be taken in by strong talk which was not underpinned by strong action. That was the essential mistake made by Irish Governments since last September. What is now clear is that the inevitable consequence of that approach was devaluation. It was only a question of when.

I was rather amused by the effort at one stage to blame my colleague and party leader Deputy John Bruton for the devaluation. I have never heard such nonsense in my life. It reminded me of the blame being cast on the chap in the crowd, who pointed out that the emperor had no clothes, and actually being blamed for the fact that he had no clothes. We had members of the Government believing their own foolish rhetoric. We had the Tánaiste, Deputy Spring, like King Canute thinking that strong words were going to keep back the tide. Then, at the time when he was making some contribution to the debate, presiding over it all was the Taoiseach, Albert Reynolds, the emperor without any clothes. He was making the same strong noises but he was not putting into effect the necessary policy measures which would underpin those strong words and which would convince those who deal in currency that we were serious and meant what we said.

This morning I was in the House for the Minister for Finance's speech. He did not even have the good grace to apologise to those who have lost their jobs or who have gone out of business or who have been put out of their family homes as a result in his misjudgment and the misjudgment of his colleagues. What is now very clear is that the same Minister for Finance was totally unprepared for dealing with the currency crisis when it erupted last September. He said it was not as sudden or as unexpected as it may have seemed at the time. Furthermore, he now admits that it had been abundantly clear for a considerable time that there were serious tensions in the system that called for urgent action. In that context, I cannot quite understand the contradiction in his own speech where he, or whoever drafted the speech, tells us, that it was not as sudden and unexpected as it may have seemed at the time, but yet it came as a huge shock when it did come. It seems to be as contradictory as the other actions of the same Minister in recent times. The question has to be asked, why were the Minister for Finance and the then Fianna Fáil-Progressive Democrats Government led by the Taoiseach, Albert Reynolds, not prepared for the crisis when it erupted? That is just one of the many questions that have not been addressed by the Government in their attempt to justify what has been an appalling period of mismanagement as far as the economy is concerned.

There are other questions to which satisfactory answers have not been given. Whatever about September and I accept that at the time they had two ways to go, they decided to go one way and in hindsight they probably should not have done so, but that is the case. But, why did we not devalue in November? On 21 November there was an ideal opportunity. We could have been spared a lot of the agony and the hardship resulting from the failed battle to defend the value of the £IR. Was it because an attempt had been made during the election campaign to make political capital by way of criticism of John Bruton for the decision made by him in 1986, when he was Minister for Finance, when he acted decisively and devalued quickly when faced with a similar crisis at that time? Was that the reason why the then Fianna Fáil Government refused to act, when perhaps their advisers may have been telling them to act? I do not know, I can only say that it was rather ironic that one of the main criticisms they had of my colleague, Deputy John Bruton, the Leader of the Opposition, was that he devalued in 1986. Is it not a bit of a sick joke now?

Another question has not been answered. We have not been given any figure for the additional cost of the foreign borrowing which occurred since last September. What is this figure? There are costs involved from the point of view of the Exchequer, there are costs involved from the point of view of the Central Bank. Do not tell me that is not a cost to the taxpayer, any surplus to the Central Bank goes into the Exchequer. There is also the famous national debt management agency which, of course, is another arm of the Exchequer. Hundreds of millions of pounds of additional money were borrowed in Deutsche Marks, in particular, in the failed battle to defend the £IR and that will cost much more to repay now. What is that cost?

The next question that has not been addressed arises from the fact that exchange controls were not reintroduced in January. Surely if the Government were serious about the absolute necessity of not devaluing they should have used that instrument. Why was it not done? I appreciate that exchange controls went out of business, as it were, on 31 December but there was and is a facility to reintroduce them on a temporary basis. Why was it not done?

Another question which has not been fully addressed is why the Government failed to convince the other member states of the Community, after five months of pleading, to come to their support. It is openly admitted that the French were able to get special concessions from the Germans. Is it that the Irish Government has so little clout on the European stage that they were unable to obtain the relatively small amount of support that would have been necessary to underpin their policy? No explanation has been given for that political and diplomatic failure on the European stage.

Even yet the Government has failed to appreciate fully the enormity of the damage that has been inflicted on the country. Many jobs have been lost and, quite frankly, will never be retrieved. I am particularly interested in the tourism industry but it has not been referred to in this debate so far to any great extent. This is the time of the year when bookings would have been made. Many bookings have been lost, huge damage has been inflicted on our tourism industry and, even worse, I am told that there has been an enormous increase in the past two or three months in the number of summer holidays booked abroad by Irish people who would otherwise have been holidaying at home. They could not afford to book at home. That is an aspect that has been overlooked to a great degree in this whole débâcle.

What confidence can we have in this Government if we are faced with a similar situation in the future? Already there are indications of further sterling weakness leading to a creeping up of exchange rates and continuing high interest rates. There is no indication of serious thought on the part of the Government or an examination of the policy options in the event of this trend continuing. The Minister for Finance states that what ended up as an involuntary devaluation leaves the market in no doubt "about the strength of our commitment to maintaining a stable currency". This clearly stands logic on its head because, in fact, what occurred did not happen by free choice, it was an enforced devaluation. It is absolutely ridiculous for the Minister to be making statements of this kind. The Minister's statement that there should be no doubt about our exchange rate policy sounds very hollow in the context of earlier statements over the past three or four months which turned out to be totally inaccurate.

Neither has there been any constructive view offered by the Government as to the desirability of accelerating the pace towards the single European currency. It does seem that while we are in a halfway house on the road towards a single currency we are in a very exposed and vulnerable position. Surely, therefore, since we are already committed to a single currency it is very much in our interest to make every step possible to ensure that this occurs as soon as possible. Again, this is an option that does not appear to have been given serious consideration by the Government or, at least, it has not been pushed by the Government. Our friend, Peter Sutherland was talking about this in Paris today but where are the statements of Government Ministers on this very issue or, indeed, even indicating that that option has been considered or, indeed, is even feasible?

My worry, therefore, is that the recent record of bad judgment and misguided policy would be compounded by continuing inability to cope with the currency storm clouds that clearly still lie ahead. There is no point whatever in blaming Europe, or the man in the moon, for our problems. The responsibility lies with the Government of the day to use good judgement and to apply the best policies to deal with situations such as the currency crisis. On their record to date I have no confidence whatever in the ability of the Taoiseach, the Tánaiste or the Minister for Finance to discharge their responsibility in the best interests of the Irish people.

Mr. Durkan

The Government has not blamed the man in the moon yet.

Mr. Foley

The currency crisis began last September when, despite persistent denials from Norman Lamont, sterling left the ERM system and floated against the other currencies. Speculators began to move against the IR£; interest rates were jacked up to unprecedented levels and the feeling expressed in Government and Civil Service circles was that this was a temporary problem which we would resolve with the support of our European partners. Sterling continued to fall during the next few months and the situation deteriorated further at election time in November. Interest rates were again pushed up to 100 per cent overnight levels by the Central Bank. At that time also, a realignment of some currencies in the ERM occurred but Ireland abstained on that occasion.

About that time, certain large Dublin financial institutions and market commentators argued that the IR£ would be devalued, that it was no longer a question of "if" but "when". The argument was advanced that we could no longer sustain a 10 per cent differential between our currency and sterling at a time when there had been a 22 per cent fall in the exchange rates since September 1992.

Thirty per cent of our exports go to the United Kingdom. The figure has fallen from 40 per cent at the time of our entry to the EC. These exports provide jobs for up to 40 per cent of our manufacturing workforce. Any loss of sterling earnings or fall in our exports to the United Kingdom would be seen as detrimental for our employment figures. This was subsequently confirmed two months later. Manufacturing industry in Ireland was paying exorbitant interest rates for borrowing compared to British manufacturers who were paying considerably lower rates and thus enjoying a considerable competitive advantage.

The United Kingdom is still our most important tourism earner and tourism interests feared a considerable fall-off in UK visitors in 1993 if the exchange rates with sterling remained unfavourable.

In early January, as the new Government was being formed various statements were made. Despite these statements, speculators continued to descend on the IR£. Interest rates were pushed up to the 100 per cent overnight levels yet again and, at this stage, leaders of Irish industry and the manufacturers proclaimed that the exchange rate was unsustainable in the medium to longer term. The growing chorus in Ireland for devaluation was matched by a statement from the ICTU that various financial institutions in Ireland had actively been encouraging the devaluation momentum and this set yet another debate in train within the media. Sterling began to fall yet again and finally on Friday of the devaluation weekend leading employers and exporters predicted massive lay-offs and falling exports as a result of our noncompetitiveness with sterling.

Devaluation was not the preferred option of the Government but it had no choice but to seek this adjustment. It is important to understand why this devaluation became essential. The devaluation of several currencies, both within the system and associated with it, in recent months, together with the devaluation and withdrawal of others, in particular sterling, led to a revaluation of the IR£. However, the markets were reluctant to accept this and in turn this forced Irish interest rates upwards, imposing a very heavy burden on Irish businesses and on mortgage holders. In order to alleviate this burden and prevent further hardship the Government, with the agreement of our EC partners, obtained a 10 per cent devaluation of the IR£ within the exchange rate mechanism. Despite devaluation however, the IR£ will continue to be one of the core currencies of the ERM in a movement towards economic and monetary union.

Devaluation will help in the short to medium term. The adjustment in the value of the IR£ will immediately restore the average competitiveness of Irish industry on a trade-weighted basis. It will improve the position of exporters and those competing with goods produced abroad. It is also expected that wholesale interest rates will ease back. This will be sufficient to avoid a general increase in retail interest and mortgage rates which, despite the best efforts of the Government, would have been inevitable if wholesale rates had remained at the very high levels of recent times. It is preferable to be cautious in expecting retail and mortgage rates to move down quickly to pre-September 1992 levels, but it seems clear that the early reductions in the European interest rates and the improving stability of the ERM will enable Irish interest rates to fall further in the months ahead.

There has been some criticism of the Government commitment to maintaining the value of the IR£ in recent months. It is important to defend this policy. There was a confident expectation among Community member states that stability could be restored quickly by the end of 1992 at the latest. In the event, this was not achieved. The adjustment in the value of the IR£ will provide some immediate relief but there will be a cost to the economy that cannot be avoided.

I have no doubt the Government is determined to take all the essential steps, through the budget and other policies, to minimise these costs. To those who say that the Government should have sought the devaluation at an earlier stage, I would say it is quite possible that we would have had to devalue more than once in the last five months. This would have had a particularly negative impact on the Irish economy. The Government was right in its judgment and in resisting devaluation for as long as possible.

There are important lessons to be learned from the devaluation of the IR£. Irish policy cannot be dictated by movements in sterling as this would lead to persistent volatility and increase the risk of inflationary pressures and a permanent premium on interest rates. The Irish economy must diversify and loosen its dependence on the British market. Irish business must recognise this as a fact of life and plan for the future on this basis.

Recent events have also left the ERM at a crossroads. It is clear that more effective mechanisms for mutual support and multilateral solidarity need to be urgently put in place. The Government will, hopefully, insist that these issues be addressed.

I have no doubt that the Government acknowledge the widespread support it received from various sectors for the policy of maintaining the value of the currency. That support will have been greatly appreciated by the Government. It is now up to all of us to maximise the advantages of the devaluation and minimise the disadvantages. The realignment of the IR£ should ease considerably the pressure on all sectors of the economy. There should be no increase in inflation over last year's level of 3 per cent. It is also important to stress that Ireland's currency remains within the narrow band of the exchange rate mechanism, unlike many others. The Government will continue to ensure this is the case and continue to develop and strengthen the economy. I, therefore, commend the motion to the House.

Minister for Enterprise and Employment (Mr. Quinn)

The debate has been on an issue of fundamental importance to the Irish economy. It is not an occasion for political point scoring and I am glad to note that this is a view which has been widely shared by most, if not all of the Deputies present and, indeed, those who have contributed to the debate.

The issue of devaluation centres very much on whether this country wishes to be part of the group of countries committed to stable, long term, low inflation, economic growth or if we want to be part of a more volatile exchange rate system which constrains trade and, ultimately, the creation of employment and improved living standards.

When the currency crisis broke, last September, there were considerable grounds for this country to decide to remain within the ERM and to align with the hard currency ERM countries. This was the clearly expressed view, not only of the Government but also of the representative bodies of Irish industry, the trade unions and many of our ERM partners.

There were many reasons for this. The Italian lira and sterling were forced involuntarily from the ERM because the economic policies they had followed in fiscal, budgetary and income determination terms were not consistent with ERM membership. This was not the case with Ireland where all the necessary fiscal, budgetary and income adjustments had been made with considerable success and benefit to the economy over the previous years. There was also a widespread recognition that a stable currency system greatly helps and facilitates trade over time, especially for a country as dependent on trade as is Ireland.

A stable Irish currency is easier to achieve within a stable ERM system than as part of a floating currency system, particularly if, in a floating system, the Irish currency is seen to be tied to weaker currencies, the value of which is likely to be volatile.

It was widely anticipated at the time that a European Community firmly committed to the objectives set out in the Maastricht Treaty would take the steps necessary to retain the credibility of the path to economic and monetary union set out in that Treaty. It was expected that with the help of such action currency stability could be regained across the ERM within a matter of months and that a downward adjustment of interest rates would therefore follow shortly. In the event, the resolute and co-ordinated action required did not take place. Speculative pressures against the Irish pound intensified. Short-term interest rates increased to, and remained at, penal levels with the prospects of further increases as large scale movements of capital continued from the Irish economy.

Additional short term interest rate cuts in sterling in late January, which gave rise to a further weakening of sterling, placed additional burdens on Irish firms competing against UK firms on domestic and overseas markets and gave a further impetus to speculative pressures against the Irish pound. These presaged further increases in interest rates here. An early and general realignment in conjunction with other narrow-band ERM currencies was and would have been the preferred option to this country but that option simply was not available. The exceptional support required from our ERM partners in the exceptional circumstances prevailing was not forthcoming and a unilateral devaluation of the Irish pound became necessary and inevitable in the interests of safeguarding employment and the survival of many Irish firms.

The debate here today has been a good and frank debate on an issue of utter importance to the development of the Irish economy. I was, therefore disappointed to hear Deputy Bruton refer to the "censorship" of debate in recent months on the currency issue and claim that any mention of devaluation was seen as treason. This misrepresents the case. It was always accepted that a decision in this area was a hard choice. There were no easy options. The Government made it clear that there could be short term benefits from devaluation but long term problems. These remain to be tackled. Based on the assessment of the situation the Government sought to maintain our exchange rate at its then level. Does the Deputy think that the Government should have been seen to waver on this issue by a weak defence of our position? The financial markets would have immediately sensed our lack of resolve on this issue and increased the pressure. When a Government decides a policy it must defend it resolutely and strongly. It has and had no other choice.

I would also remind Deputy Bruton that prior to January there were no calls for devaluation from the trade union movement, IBEC or indeed his own party. There was debate on the issue in the Dáil and extensively in the media. Both sides of the argument, for and against, were widely covered. In that context the Government defended its policy robustly as it should.

Deputy Bruton also suggested that employers' PRSI should have been cut by 6 per cent last autumn. A reduction in employers' PRSI is a costly, poorly targeted and probably ineffective approach to creating employment in the long run. The cost of a 6 per cent reduction would be approximately £500 million. The reduction would apply to all firms regardless of their financial position, ownership, labour costs and general tax position. For many sectors and firms, employers' PRSI is the only effective contribution to Government revenues. Recent research has indicated that, because the loss of yield has to be collected in some other way, the net employment gain from such a measure would be minimal.

A number of speakers referred to current interest rates. The reflows of funds from abroad since devaluation have been highly satisfactory. The Central Bank's lending rate to the market is 13.75 per cent and the marginal blip in interbank rates above that level today is part of the normal settling process following the devaluation. I expect the strong positive flows since devaluation will again bring rates back down to the level of official rates, which is 13.75 per cent.

As the positions built up prior to devaluation are more fully unwound interbank rates should ease further. As I have already said, this may take some time. The progress of Irish interest rates over the remainder of the year will also be strongly influenced by interest rate developments in other narrow band countries, particularly Germany. In this regard I will continue, as will my colleagues in Government, to press the case for lower rates at every suitable opportunity.

Deputy O'Malley referred to what he saw as the danger that the interest rates paid on Irish gilts would now increase to the levels prevailing in Spain. At present, Irish 10-year gilt yields are well below those prevailing in Spain, and since our devaluation, our yields have fallen significantly. There seems to be no reason, therefore, to expect that Irish gilt yields will now rise to Spanish levels.

A number of Deputies asked what policy the Government had over the past few months to underpin our exchange rate by lowering costs. It is alleged that the Government did nothing on this issue. This is not true.

Classically, in order to reduce the effect of the currency's appreciation it is necessary to reduce input costs to industry. In the main, these are interest rates and wages. The Government were fully conscious of this and sought to alleviate the burden by way of an excessively high guarantee scheme. This would have allowed industry, tourism, and the farming community to benefit from low interest rates on their working capital. However, by late January it became apparent that even with these schemes it might not be possible to avert a rise in retail interest rates which would probably have remained for some time and been slow to reduce.

One of the other major costs to industry is wages. The Government was prepared to examine with the social partners the need for pay moderation, but we needed a period of stability. This was not forthcoming. Perhaps the Deputies are suggesting that we should have tried to impose wage cuts. I think they should come clean on this issue if this is precisely what they mean.

Deputy Rabbitte and other Deputies made some suggestions that the official advice the Government received was wrong and came from a narrow set of advisers. This is not correct. Ministers consult widely with the business sector, the trade union movement and agricultural interests. These contacts are part of the normal consultative process of our political culture. In addition, a meeting of the Central Review Committee which formally represents the social partners was held to discuss the currency crisis. The Government had available to it advice from a wide variety of sources. In relation to the advice given to the Minister for Finance by the Department of Finance, the Central Bank and other Government agencies, this advice was based on the wide experience of the advisers and their assessment of the consequences of the options available. No question should be raised about the integrity of the people who offered that advice.

Some Deputies have suggested that we should have devalued earlier and that this would have brought lower interest rates and saved industry hardship. This ignores the fact that because of generalised instability in the foreign exchange markets an earlier devaluation might not have lowered interest rates. In the case of Spain, devaluation did not lead to significant lowering of interest rates there immediately after the first devaluation and they were obliged to devalue again. The Central Bank's key official interest rates have only now returned to the end September levels and it will still take time to bring them down further.

The devaluation has undoubtedly eased the unsustainable pressures on many Irish firms and on the management of our currency that developed in particular from the beginning of this year. In doing so it has improved the immediate prospects for employment retention and creation during the course of 1993 — a year which will be very difficult in any event because of the widespread economic recession across Europe, the US and Japan. It also entails certain other effects that I have earlier outlined and which have consequences for employment creation and economic policies in the years ahead.

There is clearly a number of lessons to be learnt from the experience of recent months. We should focus our attention upon this.

In the first place the timetable set for the achievement of economic and monetary union in the EC under the Maastricht Treaty looks somewhat less credible today than it did six months ago. It will take incisive action and effort at EC level to restore that credibility. The forthcoming Danish referendum on the Maastricht Treaty which will take place on 18 May; the results of the general election in France in March and the ability of Germany to cope more effectively than has been the case to date with the extensive costs of unification will have a major influence on whether the impetus towards greater European integration, which has certainly been retarded in recent months, can be regained.

From Ireland's perspective it is desirable and important that the vision and optimism for future economic growth and development, which progress towards great European integration promised less than 12 months ago, is regained. Any prolonging of the transitional period towards economic and monetary union will create greater uncertainty for the business sector in Ireland which would be unhelpful to our policies for employment creation and retention. That was the view expressed by Mr. Peter Sutherland in Paris today when he spoke about moving more quickly and effectively towards a single European currency.

A second lesson is that we also need to develop, to a greater extent, a capacity to analyse events from the perspective not only of our own national interests, where we have tended to concentrate our analytical efforts in EC affairs to date, but also from the perspective of the Community as a whole and from the perspective of the other member states. We need to have a much broader view of the direction in which the Community should go, from the Community's point of view and not just from our own narrow self national interest point of view. In doing so we need to take greater account of the impact of events on, and the likely response from, both the member states with whom we share certain characteristics of peripherality and under-development but also the leading member states whose actions largely determine the ultimate Community response to major economic events. By taking this wider analytical approach we can improve our own decision-making in relation to Community affairs and influence developments at Community level in a more effective way from Ireland's perspective.

In this regard the political parties in this House have an unique role to play. The three Opposition parties opposite are involved in major European political groupings and have the ability and the opportunity to influence the debate on the future direction of Europe and to learn from that debate of the concerns of other participating parties, the European People's Party, the Liberal group and the Democratic Left group in the European Parliament. The advice and knowledge that is available to the political domestic process at home from those European sources should inform all our debates more decisively than has been the case in the past.

Thirdly, we must seek to further diversify our pattern of overseas trade — I stress the word "overseas" because we need at the same time to strengthen trade between North and South on this island, which is far too weak at present. It is clear that a widespread perception of almost satellite dependence on the UK market by Irish exporters, particularly by more labour-intensive indigenous industry, was a major factor in the belief of the financial markets that the devaluation of the Irish pound was inevitable once sterling had devalued and a major interest rate gap opened up between the cost of short term money here and in the UK. This is in spite of the fact that exports of goods and services to the UK now account for less than one-third of our total exports compared with twice that level 20 years ago when we joined the European Community. In the case of a number of sectors, however, where indigenous firms predominate, the UK market still accounts for well over 50 per cent of exports. These tend to be more labour-intensive and financially less-stable sectors of Irish industry. They are particularly vulnerable to loss of market share on both the Irish domestic market and on overseas markets, in the UK and elsewhere, if UK firms against which they compete gain a competitive advantage of the type which the devaluation of sterling confers in the short term. I stress "the short term" because already there are many comments from various economic analysts which suggest that the UK will very rapidly import inflationary forces into its own economy. Therefore, the short-term benefit of the substantial 15 per cent devaluation of sterling is very soon going to be wiped out.

If Ireland's claim to membership of the band of hard-core ERM currencies which have the best chance of moving to economic and monetary union — ahead of other member states including the UK if necessary — is to have full credibility our dependence on the UK market must be further reduced. This is not to say that the UK market will not remain, perhaps, the most important overseas market for a great many Irish firms. It is the first natural overseas market for Irish firms and it would fly in the face of reality and market forces to ignore this. We have built strong trading links for industrial goods with the UK over the years to the mutual benefit of both countries. These links must be nurtured, and indeed strengthened, in the coming years. But, in addition to the further development of these important trading links with the UK, it is very much in the interests of Irish firms to diversify into other European markets and particularly into the markets of the hard-core ERM currencies. In doing so they will achieve greater stability of output, employment and income. It is intended that the State industrial promotion agencies will intensify their efforts in helping Irish firms to seek such wider diversification opportunities in future years.

A further lesson to be learned from the currency crisis is the absolute necessity to achieve major structural reforms in the Irish economy. The recent devaluation of the Irish pound will provide a short term competitive advantage. This will help safeguard output and jobs that would otherwise have undoubtedly been lost. These benefits will, however, prove short term and transient if the cost structure which Irish industrial firms face — from both internal and external factors — is allowed to worsen relative to that facing firms with which they compete on the domestic and overseas markets.

The primary responsibility for the adjustments now required to maintain and improve competitiveness rests with individual firms, both on the employer and employee sides. Taxation, income, competition and social partnership policies will also be major determinants of the cost-competitiveness of Irish industry in the difficult period which lies ahead.

The recommendations of the Culliton report provide a framework within which many of these issues can be tackled in a coherent way. The implementation of these recommendations is a priority objective under the partnership programme for Government. I am determined that major progress on this front will be achieved before the end of this year.

In that respect I suggest to the House that we have to learn from the lessons of past months, of the period of political uncertainty and instability in the general election and the subsequent formation of a Government. All the analyses in September indicated that the currency crisis would be of short duration but further analyses, comment and judgment indicated that the change in interest rates, and the consequential reduction of tensions in the currencies, would take longer than had been originally anticipated. It is very easy to be wise after the event and I know Opposition parties have a unique ability to monopolise that kind of wisdom.

Mr. Durkan

The Minister knows about that from his time in Opposition.

Mr. Sheehan

He was a fair operator.

Mr. Quinn

No, I learned much on that side of the House——

Mr. Durkan

I hope that is not an admission that the Minister has stopped learning since he was appointed.

Mr. Quinn

——and I intend to apply it. It is very easy to have 20-20 vision from that side of the House. The responsibility now for all sides of the House, is to learn from what has been a very expensive, difficult and traumatic experience for our society. How are we going to do that?

I suggest to the House that the way in which we proceed to do it is to implement successively the recommendations of the Culliton report over those sectors of the economy of which we have total and complete control. The Bundesbank may significantly control the interest rates that predominate within Europe but it does not determine work practices in Dublin port, it does not prevent the implementation of the roads programme for this country, it does not determine how we operate our training programmes or how we reduce costs across the board.

It is for that reason that the large number, 60 in total, of the recommendations that are contained in the Culliton report and the way in which the Moriarty task force has suggested that they should be implemented are the matters which in my view should be the focus of our attention over the next number of months.

I want to say to Deputies present in the House that this new Administration, this new Government, has taken on as a priority the implementation of the Culliton report in the following manner. The Moriarty task force has produced three reports which are now a matter for public comment. The Government, at its meeting last week, agreed to set up a special ministerial group consisting of the Minister for Finance, the Minister for Enterprise and Employment, the Minister for Agriculture, Food and Forestry and the Minister for Tourism and Trade to implement, on a successive basis, the various recommendations of the Culliton report and, from time to time, as would be required, to bring on to that committee the relevant Minister whose Department was affected by the recommendations such as, for example, the Minister for the Environment in respect of roads.

It will be our intention to bring into this House legislation to give effect to the agency restructuring associated with the recommendations of the Culliton report and to produce, on the one hand, IDA Ireland which will have a focus of attracting international investment into this country and on the other hand Forbairt which will have a very new and highly detailed focus on the fostering and development of indigenous industry within our economy.

One thing is very clear from the Culliton report. It is something we have learned to our cost and which we tended to ignore in the past, that is the need to develop strong, indigenous Irish companies in this country. Indeed, it is the vulnerability of some of the more traditional Irish indigenous companies that was exposed in a manner that took, perhaps, some of us by surprise during the course of the sterling currency crisis. While the statistics indicating our dependence on the UK market are undoubtedly accurate, the relative weighting of much of the indigenous Irish industry, in terms of its dependence on the UK market, was greater than many of us had fully appreciated. We should learn, therefore, and learn very quickly from what we discovered during the last three to four months and we should be prepared to apply that in a coherent and consistent manner.

Deputies will be aware that within the programme for this Government the commitment to implement Culliton is extensive and will be decisive. I will be looking forward to the co-operation and, indeed, to the critical participation of all Deputies in regard to how best that can be done.

One lesson that must finally and clearly be learned from the last four months is that this country at the end of the day has within its own hands the capacity and the ability to make its own way in the world. We must also realise that we are on our own and that we have a responsibility to make sure that we take the necessary steps ourselves and are not excessively dependent on external agencies or external forces to lead us to the kind of future we aspire to.

It is for that reason that this Government will be giving a renewed and deepened emphasis to developing indigenous industry in this country. In addition, because of the scale of the employment crisis we will also be moving to implement, in a fairly coherent manner, the county enterprise partnership boards. It would be my intention to come back to this House as soon as possible with detailed proposals as to how those county enterprise partnership boards will complement the work and the thrust of the Culliton report.

To return to the central theme of today's debate, what have we learned from the last four months and how can we apply the lessons that we have learned? I would suggest that it is too easy to have the wisdom of hindsight. Until very recently all the political parties were, on balance, recommending that the exchange rate policy pursued by the then administration of the Fianna Fáil Party, initially with the Progressive Democrats, and then on their own, was a policy that, if possible, should be pursued. It became obvious after Christmas that the period of time of instability, of extended high level of interest rates in Germany and elsewhere, was going to be of a duration far in excess of anything that had originally been anticipated. In the light of those pressures and of the totally unexpected virtual collapse in the value of sterling in early January, pressures were brought to bear on the Irish currency which simply could not be sustained.

A number of individuals and a number of groups changed their view in relation to what the correct exchange rate policy should be. One of the most prominent people to break ranks first, so to speak, was the leader of the Fine Gael Party. In that context the decision to devalue became inevitable and was, I believe, the correct decision in the light of the circumstances that prevailed at that time.

Mr. Sheehan

It took you long enough to realise it.

Mr. E. Kenny

Do not blame the Opposition.

Mr. Quinn

I am not blaming the Opposition. I am not blaming anybody. I am simply giving the context in which the decision was made and I am simply saying that it is clearly the decision and the intention of this side of the House to learn the lessons of the last four to five months, both in the context of how it affects European policy and how it affects domestic policy here. No doubt I can look forward to the co-operation of the Opposition parties in helping us to apply those lessons to our economy.

Mr. Durkan

Will the two Ministers opposite keep in contact with one another, on a Saturday, especially?

Mr. Noonan

(Limerick East): I want to congratulate the Minister——

An Ceann Comhairle

I am now required to put the following question in accordance with an order of An Dáil of this day: "That amendment No. 1 is hereby defeated and the motion is hereby agreed to."

The Dáil divided: Tá, 87; Níl, 49.

Tá

• Ahern, Bertie.
• Ahern, Dermot.
• Ahern, Michael.
• Aylward, Liam.
• Bell, Michael.
• Bhreathnach, Niamh.
• Bree, Declan.
• Brennan, Matt.
• Briscoe, Ben.
• Broughan, Tommy.
• Browne, John (Wexford).
• Burton, Joan.
• Byrne, Hugh.
• Callely, Ivor.
• Collins, Gerard.
• Connolly, Ger.
• Coughlan, Mary.
• Cowen, Brian.
• Davern, Noel.
• Dempsey, Noel.
• de Valera, Síle.
• Doherty, Seán.
• Ellis, John.
• Ferris, Michael.
• Fitzgerald, Brian.
• Fitzgerald, Eithne.
• Fitzgerald, Liam.
• Flood, Chris.
• Foley, Denis.
• Gallagher, Pat the Cope.
• Gallagher, Pat.
• Geoghegan-Quinn, Máire.
• Haughey, Seán.
• Higgins, Michael D.
• Hilliard, Colm M.
• Howlin, Brendan.
• Hughes, Séamus.
• Hyland, Liam.
• Kavanagh, Liam.
• Kemmy, Jim.
• Kenneally, Brendan.
• Kenny, Seán.
• Killeen, Tony.
• Kirk, Séamus.
• Kitt, Michael P.
• Kitt, Tom.
• Lawlor, Liam.
• Lenihan, Brian.
• Leonard, Jimmy.
• Martin, Micheál.
• McDaid, James.
• McDowell, Derek.
• Moffat, Tom.
• Moynihan, Donal.
• Moynihan-Cronin, Breeda.
• Mulvihill, John.
• Nolan, M.J.
• Noonan, Michael. (Limerick West).
• Ó Cuív, Éamon.
• O'Dea, Willie.
• O'Donoghue, John.
• O'Hanlon, Rory.
• O'Keeffe, Batt.
• O'Keeffe, Ned.
• O'Rourke, Mary.
• O'Shea, Brian.
• O'Sullivan, Gerry.
• O'Sullivan, Toddy.
• Pattison, Séamus.
• Power, Seán.
• Quinn, Ruairí.
• Reynolds, Albert.
• Ryan, Eoin.
• Ryan, John.
• Ryan, Seán.
• Shortall, Róisín.
• Smith, Brendan.
• Smith, Michael.
• Spring, Dick.
• Stagg, Emmet.
• Taylor, Mervyn.
• Treacy, Noel.
• Upton, Pat.
• Wallace, Dan.
• Wallace, Mary.
• Walsh, Eamon.
• Woods, Michael.

Níl

• Ahearn, Theresa.
• Barrett, Seán.
• Barry, Peter.
• Boylan, Andrew.
• Browne, John (Carlow-Kilkenny).
• Bruton, John.
• Bruton, Richard.
• Clohessy, Peadar.
• Connaughton, Paul.
• Cox, Pat.
• Crawford, Seymour.
• Creed, Michael.
• Crowley, Frank.
• Harney, Mary.
• Harte, Paddy.
• Higgins, Jim.
• Hogan, Philip.
• Kenny, Enda.
• Keogh, Helen.
• Lowry, Michael.
• McDowell, Michael.
• McGahon, Brendan.
• McManus, Liz.
• Mitchell, Jim.
• Molloy, Robert.
• Cullen, Martin.
• Currie, Austin.
• Deasy, Austin.
• Deenihan, Jimmy.
• De Rossa, Proinsias.
• Doyle, Avril.
• Durkan, Bernard J.
• Finucane, Michael.
• Fitzgerald, Frances.
• Flaherty, Mary.
• Foxe, Tom.
• Gilmore, Eamon.
• Gregory, Tony.
• Nealon, Ted.
• Noonan, Michael. (Limerick East).
• O'Donnell, Liz.
• O'Keeffe, Jim.
• O'Malley, Desmond J.
• Quill, Máirín.
• Rabbitte, Pat.
• Shatter, Alan.
• Sheehan, P.J.
• Timmins, Godfrey.
• Yates, Ivan.

Tellers: Tá, Deputies Dempsey and Ferris; Níl, Deputies E. Kenny and Rabbitte.

Question declared carried.