Vol. 459 No. 1
6 Mr. McCreevy asked the Minister for Finance the plans or proposals, if any, being considered to safeguard Irish jobs in view of the fact that Irish firms employing in the region of 45,000 persons could be devastated if the United Kingdom stayed out of the Economic and Monetary Union while Ireland joined; and if he will make a statement on the matter. [17905/95]
I understand that the figure of 45,000 jobs mentioned by the Deputy refers to the numbers employed in the sectors of Irish manufacturing industry with the highest dependence on the UK market. I deny the Deputy's suggestion that such firms could be devastated if the UK stayed out of stage 3 of Economic and Monetary Union and Ireland joined. The future prospects of these firms will, of course, depend on a much wider range of factors. These include, in addition to the UK decision on Economic and Monetary Union, the overall strength of the Irish economy including, in particular, our competitive position relative to the UK when stage 3 of Economic and Monetary Union comes into being, the level of interest rates here as compared with the UK, the performance of sterling in the meantime, the extent of diversification of these firms to other markets and the arrangements to be put in place at EU level to regulate the relationship between the single currency and the currencies of member states not participating in the third stage of Economic and Monetary Union.
I would also point out that the UK Government has never said it will not participate in Economic and Monetary Union. Rather it has indicated that the UK will not join Economic and Monetary Union in 1997, but that if European Monetary Union commences at a later date, a decision on UK participation will be made closer to that time; 1 January 1999 is now the agreed commencement date for Economic and Monetary Union and the 1997 date has been abandoned. Ireland's position will not be advanced at this point by engaging in speculation about what the UK may decide when the time comes.
As the Minister for Finance, I am determined to ensure that Ireland will be fit and ready to join Economic and Monetary Union when it is formed in 1999 and that our economy performs well when we are in Economic and Monetary Union. We must, therefore, continue to meet the convergence criteria set down in the Maastricht Treaty. We must also improve our competitiveness, flexibility and efficiency at every level to ensure that we can continue to grow and maximise sustainable employment both before European Monetary Union is formed and when we are members of it.
I should also inform the Deputy that I have announced I am commissioning, on behalf of the Government, an in-depth study by consultants of the likely economic implications of Economic and Monetary Union. The study will assist us to deepen our understanding of how the Irish economy interfaces with its trading partners. By having more detailed information, we will be better prepared to plan our national policies with a view to Economic and Monetary Union — both in preparation for it and to participate successfully within it. The study will have particular reference to employment and will extend to sectoral level. It will cover both direct and indirect economic effects and address both short and longer term impacts. The study will be completed by the end of June 1996 and its findings will be made public.
I am also concerned to ensure that work continues at EU level in particular, aimed at mapping out the relationship between member states moving to the single currency at the outset and those member states not in Economic and Monetary Union. The importance of this relationship is recognised by Article 109 M of the Treaty which requires countries not participating in Economic and Monetary Union to treat their exchange rate policies as a matter of common interest. I might add that the question of the relationship between the single currency and non-participating currencies is also a matter of concern to other member states and the importance of that work is fully recognised at EU level.
The Minister is aware that my question refers to the speech by the Governor of the Central Bank on 30 October 1995 to the European Parliament. The Governor warned that Irish firms employing approximately 45,000 could be devastated if Ireland joined the European Monetary Union and the United Kingdom stayed out. If that happened, he said these industries would either have to be protected or compensated. What are the Minister's views on that warning?
It all depends on what is in the best interests of the UK economy. The British negotiated the option in the Maastrict Treaty not to participate in Economic and Monetary Union on the basis of the outturn of the 1997 budget figures even though they may possibly qualify. At present they would not qualify and following yesterday's budget they still do not qualify because the EBR or GDP is over the 3 per cent threshold. Assuming they qualify they could exercise the option not to participate.
This is highly speculative but the Deputy asked the question in a constructive manner and I am trying to respond in a similar vein. We must ask what is in the best interests of the British economy, the rate of sterling and its performance if they choose not to enter Economic and Monetary Union. If it is in the best interests of the British economy that sterling maintains its value, does not depreciate and import inflation as a consequence, there will be no substantial change between the quoted exchange rate value of the Irish pound or the Euro currency on the one hand and that of sterling on the other. Therefore, the present relative level of value between sterling and the Euro currency will remain static, if not converge. In those circumstances it would have a positive effect on Irish firms. If, on the other hand, the British Government under the mismanagement of the Tories — we have seen some spectacular mismanagement over the last number of years — so abuse the fundamentals of their economy that the value of sterling depreciates——
Is that the way to speak about a friendly country?
I refer to their economic policies.
It is just as well the Minister did not say this yesterday.
Britain has had benefit of North Sea oil for 25 years and it does not have a single thing to show for it.
That is why we campaigned against it.
If the British decide on an irresponsible economic policy along the lines of the Tory policy and that results in a significant depreciation of the value of sterling relative to other EU currencies, it could have a damaging effect on some Irish firms but it would have a devastating effect on the British economy. As they are motivated by self interest, in common with other countries, including Ireland, I do not believe they will manage the economy in that way. When Gordon Browne becomes Chancellor that will not be the case.
Notwithstanding the Minister's party political broadcast on behalf of the British Labour Party——
It is a sister party. I was speaking to him this morning.
It seems as if the Minister is his election agent. I accept the bona fides of the Minister and the Government but I posed questions which should be taken up at EU level. I would have liked to have control over the actions of various Governments and Ministers for Finance in the past. I have little doubt that despite the best will in the world politicians in the future from all sides of the House will act irresponsibly in managing the economy. The Minister for Finance cannot pre-empt what will happen in the UK.
A question, please, Deputy.
Members of the EU will have access to the Single Market but if some countries join the Economic and Monetary Union — Ireland will be one — and others do not there will be difficulties. These will not just apply to Ireland but our position will be worse given our economic relationship with the UK. Surely some mechanism must be put in place to prevent those who stay outside the club, as the Minister described it in a recent speech, using the major economic tool of their exchange rate to benefit them. Surely that would devastate the Irish economy. Does the Minister agree with the Governor of the Central Bank that some compensatory mechanisms would have to be put in place for those types of industry?
We have exhausted half the time allocated to priority questions. I wish to accommodate those Deputies who tabled the other four questions and I ask for the co-operation of the House in that regard.
There is another question on this topic. I hope my brevity in replying to this question is not taken as lack of an adequate response. The behaviour of currencies inside the internal market but outside the Economic and Monetary Union is a matter of concern to all potential members of the Economic and Monetary Union — the French and German in particular. The Commission has been requested to address the question of what is described as "cohabitation" and establish new rules of behaviour — a new kind of currency arrangement — to avoid the problems of competitive devaluation. Deputy McCreevy is correct to say we need to know the areas of vulnerability sector by sector, region by region because of our substantial relationship with the UK economy. We have some information but it is not sufficiently detailed to enable us to construct targeted policies and that is the reason I undertook the study.
The measures I introduced in this year's budget — employers' PRSI and others — were designed to give direct assistance to labour intensive, low profit type indigenous industries traditionally selling into the UK market where the bottom line and payroll cost for such industries was reduced by 3 per cent.
