Charlie McCreevy
Question:4 Mr. McCreevy asked the Minister for Finance the likely impact the early election in France will have on the single currency commencing on time; and if he will make statement on the matter. [11852/97]
Ceisteanna — Questions. Priority Questions. - Economic and Monetary Union.
Heads of State and Government of the 15 member states decided in Madrid, confirmed in Florence and reaffirmed in Dublin, that the third stage of economic and monetary union will begin on 1 January 1999. Indeed, in Dublin last December, the Council, meeting in the composition of the Heads of State or Government, confirmed that the procedure laid down in Article 109j(4) of the Maastricht Treaty will be applied as early as possible in 1998 with a view to deciding which member states will enter the third stage on 1 January 1999.
Accordingly, the starting date for economic and monetary union has been decided in accordance with the treaty and I do not foresee the French election having any impact thereon.
Will the Minister avail of this opportunity to clarify the remarks he made some weeks ago on the rate at which he would like to see the Irish punt enter the new exchange rate which, without any shadow of doubt, has led to speculation against the Irish currency over recent days? Speculators have taken the Minister's word as affording them an opportunity to have a go at the Irish currency and force the Irish punt down to its present rate, when wholesale interest rates rose by half of 0.5 per cent this morning?
I said in March 1995, prior to attending an ECOFIN meeting when the Irish punt was trading just under parity with sterling, that Government policy with regard to currency was that the Irish punt should trade comfortably within the exchange rate mechanism band, and that that would be our position as we moved toward membership of the single currency on 1 January 1999. Since then sterling has strengthened considerably to the point at which it is now a very strong currency relative to its position in the league some 12 months ago. We do not know how long this will last or where it will go but, as I said yesterday in the course of an interview with George Lee, the position is that no decision has yet been taken on the rate at which the Irish punt will be fixed and enter the single currency. There are two rates at present, the first, the central rate for all currencies and, second, market rates and, because of the increased strength of sterling in relation to the dollar, the Irish punt was pulled up in the band. As a consequence, the Irish punt rose in value against other Continental currencies in addition to coming down in value relative to the pound sterling. Finance Ministers have not decided on the rate at which currencies will be fixed in the context of the single currency. Different currencies may fix at different rates relative to the central rate that prevails. We will propose a rate that best meets the needs of the economy in the medium to long-term.
Will the Minister accept his recent comments about the rate at which he would like to see the Irish pound entering the new rate mechanism represented the green light to speculators to have a go at the Irish currency? It is in nobody's interest to have the Irish pound forced down in such a manner. Will the Minister accept his words were unwise and should not have been said?
I do not accept that. The position of the Irish pound in the band has been known for the past nine months. My comments reflected what many people had said in the trade sector of the economy, that the Irish pound has appreciated in value against the deutschmark, the French france and other currencies, and that we were not trading as comfortably as I would like. The position with regard to the band was well known to money markets for many months.
Will the Minister agree there is spin-doctoring going on here? We are told this is a planned currency shift. Government spin doctors told the media that is in response to careful remarks by the Minister, which signalled a change in Government proposals, but in the same newspapers we read that the Central Bank was spending money trying to prevent that movement in currency. Will the Minister agree there is a fundamental conflict between his remarks that signalled a change in Government attitudes, which was designed to bring about a realignment of currency values, and the Central Bank flinging away taxpayers' money to prevent that realignment? Will he indicate how the Central Bank's change in policy is reconcilable with suggestions in the media that this is a planned and wished for realignment of currency values?
It is inevitable, as we move closer to European Monetary Union, that the rates at which currencies join the single currency will be a matter for interpretation and that the markets will take different views in that respect. The market has clearly indicated that Ireland will quality for the single currency and that we will join on the first day. I have said, and our policy has been consistently repeated, that we want to trade comfortably within the ERM band. That policy was reaffirmed by me to the Central Bank. The actions of the Central Bank on a day to day basis are a matter for it. The bank has a responsibility to implement policy. Government policy, that we trade comfortably within the ERM band, has not changed.
I have been particularly careful over a long period not to say anything that would endanger the Irish currency, despite great temptations at times to do so. I spent years, before I became spokesperson on Finance, monitoring Union currencies. The Minister made a grave error in his recent comments. I accept anyone can make an error in an off-the-cuff remark, but in regard to currency matters a shut mouth is often the best policy — that is the case not only in an Irish context but worldwide. There are clear demarcation lines here. The Government sets exchange rate policy and the Central Bank implements that policy — the law of the land is explicit in that regard. Interest rates and other issues are different matters.
The Minister told a newspaper a few weeks ago that he wished to see the Irish pound going downwards and a few day later he tried to correct that. He is now saying that his remarks were misinterpreted. It is as a result of those remarks that the Irish pound has been speculated against in recent days. Speculators do not need broad hints from the Minister for Finance to speculate, they can do so of their own free will at any time. The Minister's remarks are the direct cause of what has happened in the financial market in recent days, and that is in nobody's interest. In future the Minister should be more cautious. There will be some chaos in the run-up to the date of joining the European Monetary Union, but if the Minister continues to do as he did in recent weeks, he will create absolute chaos. His remarks were irresponsible and unwise. They were not in the long-term interests of the economy and we will pay a price for that.
We are encroaching on the subject matter of No. 5 in the name of Deputy O'Hanlon. If the House agrees, perhaps we should deal with both questions together.
Before we deal with No. 5 — I do not wish to exclude Deputy O'Hanlon — I would like to ask a question. I accept the Central Bank is a separate institution which makes decisions to buy or sell the Irish pound without seeking the Minister's advice, and perhaps it is just as well that is the case. Will the Minister confirm that it is normal for a Minister for Finance to warn the Central Bank of his intentions before announcing a general desire for a realignment of currency, so that taxpayers' money is not wasted by that bank pursuing a different policy? Has this move cost us £10 million, £20 million, £30 million or £50 million in the last fortnight? How much has the Central Bank lost as a result of propping up the bank against the outcome of the Minister's remarks?
If there was a change in policy the Central Bank would be obliged to implement that policy. That is the law of the land.
I have consistently said that I want to see the Irish pound trade comfortably within the ERM band. That is the justified and correct policy.
Why did the Central Bank not respond to it?
The Central Bank has responded to it.
There is no confusion on my part as to the roles of the Minister for Finance, the Government and the Central Bank — this is a pet subject of mine — although there may be confusion in the eyes of some people. The Minister said he was concerned about the strength of the Irish pound vis-à-vis other EU currencies. Since the Minister for Finance sets the policy, that was a clear indication to speculators that he wanted the Irish pound driven down. While it would be unacceptable for the Irish pound to join the new exchange rate mechanism at the rates which prevailed in recent months, it is even more unacceptable for the Minister for Finance to signal to speculators to drive down the rate, as has happened. The Central Bank is obliged under Irish law to operate the policy as announced by the Minister for Finance. That is why the Central Bank has to pull out of the market. The Minister will have to accept at this stage that his comments were unwise.