Dáil Éireann debate -
Wednesday, 29 Nov 1995

Vol. 459 No. 1

Written Answers. - National Forum on Monetary Union.

Martin Cullen

Question:

31 Mr. Cullen asked the Minister for Finance if he will convene a national forum as requested by some of the social partners to discuss the implications of Economic and Monetary Union and the Government's response to the most recent statement by the European Monetary Institute on Monetary Union. [17901/95]

Minister for Finance (Mr. Quinn)

I dealt with the matter of a national forum in my reply to a question from Deputy Michael Ahern on 19 October. On that occasion, I stated that it would be premature to publish a policy paper on Ireland's approach to Economic and Monetary Union or set up a national forum on the issue. This is still the position.

I also said that practical planning for Economic and Monetary Union is continuing at both EU and national level. The main focus of our attention remains on the work at EU level. Following the Cannes European Council meeting in June, two working groups were established at EU level under the auspices of the Monetary Committee to further practical preparations for the single currency. These groups met on a number of occasions and Ireland was fully represented. On 14 November 1995 the European Monetary Institute, of which the Central Bank of Ireland is a member, published a document dealing with the changeover to the single currency. All this work is providing a key input to the draft reference scenario or plan of action which was considered by the Council of Economic and Finance Ministers last Monday and will be considered by the Heads of State and Government at their meeting next month in Madrid.

I also said that I will be developing our process of consultation further after the reference scenario is agreed. I can assure the House once again that timely and wide-ranging consultation will take place with the relevant interests on the practicalities of the changeover to the single currency, which is obviously a matter of vital public importance.

On 22 November the European Monetary Institute published a report on progress towards convergence in member states of the European Union in accordance with Article 7 of its statute.

The EMI gave a positive assessment of Ireland's performance on convergence. It acknowledged our good record on inflation, interest rates and the public finances including the fact that Ireland is one of only three member states deemed in 1995 not to have an excessive deficit. The report also notes that in 1995 Ireland's forecast general government deficit will once again be below the Treaty reference value of 3 per cent of GDP. In fact Ireland's deficit has been below 3 per cent of GDP every year since and including 1989. The report also acknowledges the continuing reduction in Ireland's debt-GDP ratio, which is forecast to fall to 86 per cent in 1995. This represents a decline of almost 32 percentage points since 1986. Furthermore, Ireland is the only member state which will have a lower debt-GDP ratio this year than in 1991.

Overall, the report concludes that a majority of member states do not currently satisfy all the criteria and that progress towards convergence is not sufficient. In particular, the report found the public finances in most member states to be far from satisfactory.

The EMI also addressed, in respect of all member states, the risks affecting future progress towards convergence. On Ireland, it noted that the Irish pound's exchange rate remains below the ERM central parity against the strongest currencies. The EMI also referred to a possible effect on inflation stemming from our continuing high economic growth. The EMI also expressed concern about a recent deterioration in cyclically-adjusted budget balances.

These remarks must be viewed in their proper context. Ireland was not singled out for criticism. For example, the EMI also cautions Germany, the EU's strongest economy, on inflation and the budget deficit. The EMI's comments on fluctuations in our exchange rate reflect the impact on a number of currencies, including the French franc and Danish krone as well as the Irish pound, of US dollar and associated sterling weakness and the appreciation of the Deutsche-Mark. The Irish pound continues to trade comfortably within the ERM and has actually appreciated modestly in trade-weighted terms this year.

Regarding the comments on inflation, I would remind Deputies of our excellent record on inflation in recent years, which has been maintained during a period of sustained economic growth.

The EMI's assessment of our budget deficit is based on figures which include the full cash cost of equal treatment payments in 1995, amounting to £200 million. While the cyclically-adjusted deficit can be a useful indicator of the conduct of fiscal policy, it is a somewhat controversial measure of fiscal performance and therefore its importance should not be overemphasised. In this context, we have some reservations about the Commission estimates of Ireland's cyclically-adjusted deficit, on which the EMI assessment is based.