Dáil Éireann debate -
Thursday, 13 Feb 1997

Vol. 474 No. 8

Written Answers. - Economic and Monetary Union.

Desmond J. O'Malley

Question:

51 Mr. O'Malley asked the Minister for Finance if he will make a statement on the likely consequences for Ireland if the United Kingdom decides not to enter into an economic and monetary union with the other member states of the EU. [3344/97]

Minister for Finance (Mr. Quinn)

The possibility that not all member states would participate in economic and monetary union from the outset was, of course, made explicit in the Treaty on European Union.

The United Kingdom Government has indicated that the question of whether the UK will participate in economic and monetary union, economic and monetary union, from 1 January 1999 will not be decided until closer to that date. It has not indicated that the UK will never enter economic and monetary union, nor even that it will not enter in 1999.

It is relevant that the Treaty sets out a framework for the co-ordination of member states' economic policies to help ensure stability within the European Union as a whole. Under the Treaty, member states, whether participating in economic and monetary union or not, are obliged to regard their economic policies as a matter of common concern and to co-ordinate them within the Council. In particular, they are obliged to treat their exchange rate policies as a matter of common interest.

The implementation of these obligations was clarified by the agreement at the Dublin European Council on a new Exchange Rate Mechanism, and on the stability and growth pact, which inter alia includes provision for more effective monitoring of the budgetary and economic performance of member states, whether participating in economic and monetary union or not. The Council and the Commission are considering further the methods for the effective surveillance of exchange rate developments. The arrangements being put in place will help foster price and exchange rate stability. In the context of Ireland joining economic and monetary union where the UK remainded outside, they offer the prospect of helping to promote orderly exchange rate relations between the euro and sterling.

As regards the consequences for Ireland if the UK decides not to enter economic and monetary union, the Deputy will recall that last year, on the Government's behalf, I commissioned the ESRI to conduct a study on the implications of economic and monetary union for Ireland. The resulting report, "The Implications for Ireland of economic and monetary union", is a comprehensive analysis of the impact of economic and monetary union on the Irish economy. A copy of the report was sent to every member of the Oireachtas.

The report examined the implications for Ireland of a number of membership scenarios, including the situation where Ireland joined economic and monetary union but the UK did not do so.

Taking as a benchmark a situation where both Ireland and the UK were outside economic and monetary union, the report made a quantified assessment of the balance of economic advantage from Irish participation, both together with the UK and in the context of UK non-participation. In relation to the latter it assessed the likely costs of the loss of currency autonomy, both in a scenario where sterling expressed a severe depreciation and by reference to historic experience.

The ESRI report concluded that membership of economic and monetary union for Ireland would, on balance, be economically advantageous even were the UK to remain out and with allowance made for possible sterling-euro exchange rate turbulence. The ESRI conclusion was reinforced by its view that the unquantifiable implications of economic and monetary union membership for Ireland — including the convenience of a common currency, the impact of Ireland's commitment to Europe and increased currency stability on business confidence and investment, as well as wider intangible political factors — were also likely to be positive. However, the ESRI report makes clear that while the overall impact of economic and monetary union membership would be positive for Ireland even if the UK remained outside, a sharp fall in sterling against the euro would give rise to significantly greater problems in some sectors of the economy than in others. The challenge to all concerned, including Government, is to continue working to minimise the exposure of the sectors concerned.