Vol. 483 No. 1
18 Mr. Noonan asked the Minister for Finance if he will give details of his recent EMU statement that Ireland will join at a rate which meets the needs of the economy in the fullest sense of the term; his views on the real needs of the economy; and the way in which a particular conversion rate might influence them. [19764/97]
The September informal ECOFIN agreed that there will be a pre-announcement of the bilateral exchange rates of the currencies of the participating member states at the same time as the participants in EMU are decided and announced, which is due to take place in the first weekend of May 1998. These rates will become effective on 1 January 1999 and, in line with the Treaty on the European Union, the setting of the conversion rates against the euro can only take place on that date.
As regards the Irish pound, the Government's intention is that Ireland will join EMU at an exchange rate that meets the needs of the economy in the fullest sense of the term, and that between now and decision day we will keep the issue under active review. I do not propose to say anything more on this matter or on related issues because, as I hope the Deputy will appreciate, they are highly market sensitive.
I appreciate what the Minister said and I thank him for his reply. I hope, however, I can further explore the position by way of supplementary questions and that he does not have a note attached to that carefully drafted reply saying, "if pressed, keep repeating the above". I presume the Minister will discuss issues which arise. Has the Minister had any consultation with the exposed sectors of the economy on this matter, as promised in the programme for Government, and in particular has he had any discussions with those sectors on the appropriate conversion rate?
Before the Minister replies, I must inform Members that the time for priority questions has concluded. Any Member is free to ask a supplementary on this question.
The answer to the first question is yes, I have met with the exposed sectors of the economy. There is an arrangement under which I have met with a group which came together in the 1992-3 period. The answer to the second question is no, I have not discussed either with them or with anybody else the exchange rate at which Ireland will set its bilateral rates with other currencies in the first weekend of May 1998.
Will the Minister outline the considerations which will weigh the Government on the one hand to agree a conversion rate of 2.41 deutschmark to the punt, currently the main rate, as against a rate in or around the rate at which we are currently trading which I believe was 2.62 deutschmark to the punt yesterday? For the benefit of the House will he recite the considerations without opting for either rate?
As the Deputy probably knows, my policy in this regard, as Minister for Finance and when I was the Fianna Fáil Opposition spokesperson on Finance, has been outlined on the many occasions I have been asked this question both inside and outside the House. I will repeat it again. In regard to the rate at which Ireland joins, I will take account of what I consider to be the best rate for the Irish economy in the fullest sense of the term. I know Deputy Noonan does not want to make mischief in this regard but if I gave emphasis to any one sector or expressed a view on what I thought was more important in one area than another, it might be interpreted by the markets that I was signalling a course of policy which may not be in the best interests of the economy. For those obvious and sound reasons I have resisted on all occasions any discourse on this matter. I am strongly of the view, and have been for a considerable time, that the less said on matters of currency and interest rates by Ministers for Finance or people in authority, the better. History is littered with financial tragedies as a result of people speaking out of turn. I considered this matter over a long period and made up my mind on it even before I was an Opposition spokesperson. It has been termed the "button lip" policy and that is what will operate until we join.
One can sympathise with the Minister's desire to be prudent on this matter but there is another issue. I put it to the Minister that entry to EMU is one of the most momentous decisions that will be made by this generation of Irish politicians.
Yes.
The issue of accountability arises also.
Exactly.
The "button lip" policy is fine but a democratic deficit is emerging on that policy and people do not know exactly what is going on. I do not expect the Minister to indicate an option but it would be better if he gave a more balanced view of the pros and cons of a particular strategy so that he could share the context of the decision he will make with the public. The conversion rate will be relevant to everybody's pocket.
The Minister said a decision on the conversion rate will be made in the first weekend of May 1998 in regard to the states that will participate in EMU. Is the Minister constrained from announcing a decision on conversion rates prior to that date if turbulence in the markets, for example, made it desirable to do so?
I will explain the background to this particular decision and the way it will take place. At the Mondorf-les-Bains informal ECOFIN in September it was decided by the member states that on the weekend of 1 to 3 May 1998 the bilateral exchange rates between member states will be set. At the same time, the participating member states in EMU will be decided. That will not necessarily be the rate at which countries will be interlocked against the euro as and from 1 January 1999 because the treaty lays down that at midnight on 31 December 1998 the rate of the ecu will become the conversion rate at that time. The ecu is an amalgam of a basket of currencies. It must be remembered, however, that some of the currencies which make up the strength of the ecu will not be participating countries and in theory there might be some fluctuation. The rate at which participating countries will interlock with the euro will be the rate at 31 December 1998. The decision taken at Mondorf-les-Bains was that when the participating countries are decided upon in the first weekend of May 1998, the bilateral exchange rates will be decided at that time. In theory, therefore, from 1 May 1998 until 31 December 1998 some fluctuation could occur but it is unlikely because everybody will know the bilateral exchange rates between the participating countries.
The Minister is missing my point. Does the agreement he has made commit him to waiting until that date? If considerations were to arise between now and May 1998, is the Minister free, as the Irish Minister for Finance, to make an announcement ahead of that date if trading conditions justify it?
The Irish Minister for Finance is responsible for setting the Irish exchange rate. From 1 January 1999 those powers will no longer apply because the Irish pound will no longer be an internationally traded currency. Up to 1 January 1999, the Irish pound will have a quoted rate against currencies throughout the Union and the world but in the first weekend of May 1998, participating member states in EMU will set their bilateral exchange rates. Between now and the first weekend of May 1998, any Government could, under the current law, set a new rate for the Irish pound if it so wished, but as I pointed out to the Deputy earlier, and which he kindly accepted, speculation in this regard by a Minister for Finance would be unhelpful to the markets.
I can understand the reason the Minister has steadfastly adhered to a "button lip" policy until now but there is now a necessity for a "button brain" policy. The idea that the Irish Minister for Finance can set the exchange rate is totally at variance with the facts. Will the Minister agree that it is the monitoring committee, meeting over the weekend, which sets exchange rates and that no member state of the EMS and ERM can arbitrarily set the exchange rate, as he has mistakenly and perhaps inadvertently suggested to the House? I further put it to the Minister that he will not be in a position to arbitrarily suggest, select or choose a rate in the weekend of 1-3 May and that what is critically necessary for the markets and stability to ensure there are no surprises in the marketplace is for the Minister to outline an understanding of what the process will be in the debate between now and May. Will the Minister agree that the bilateral rates that will be fixed within the mechanism of the monetary committee of the ECOFIN Council on the Friday of the weekend of 1-3 May will not necessarily be the rates that will apply between 1-3 May and 1 January?
Not necessarily.
Those were the Minister's words. I took careful note of what he said. To avoid the sort of turbulence that could cause chaos in the Irish monetary system, which the Minister steadfastly wants to avoid but in respect of which he is creating serious difficulties, he must give some signals, as Deputy Noonan invited him to do, to ensure there will be no surprises. In the interest of the national currency, for which the Minister has partial responsibility, will he not revisit his decision to adopt a "button lip" policy and have a clear brain policy instead of the present "button brain" policy because he does not know what he is talking about? The Minister is totally wrong.
Deputy Quinn should have learned from his time as Minister for Finance when as a result of talking out loudly at a meeting he created a run on the Irish pound and interest rates shot up here.
The Minister should answer the question.
The Minister will select the rate next year.
Deputy Quinn has been personally insulting and that does not become him. I have not heard him in that vein before. I have no intention of getting into a personal insulting match.
The Minister should calm down.
Deputy Quinn from his time in Government and now in Opposition is well aware of my policy on this matter. I criticised him for his intervention on this matter many months ago and said what I would do, and that is what I have done. In the time I have been Minister for Finance the markets have been steady and things have progressed well regarding the Irish currency. Even Deputy Quinn would accept that. I have no intention, irrespective of insults or otherwise, to do anything else.
They were not insults. The Minister should answer the question. He is factually wrong.
Is the Minister concerned that there is a lack of discussion on the effects on our society, particularly our economy, of our joining EMU? There is a sense of unreality about the position. Perhaps that is because the parties in this and previous Governments have got so carried away with their propaganda on the Celtic Tiger that they failed to appreciate there can be drastic effects for our economy as a result of our joining EMU. The Minister will agree that the cycle of the capitalist market is boom and bust. Is the Minister not concerned about when there is a downturn of the effects on our currency of it being locked into EMU and the British currency not being locked into it? It could have a disastrous impact on our exports which would put thousands of jobs in exposed sectors at risk? Is the Minister aware that as preparations for EMU intensify in many European economies there is growing resistance among large sections of workers in many European countries to the programme of cuts in public expenditure and the social wage involved? For example, cuts in pension rates and conditions for public sector workers in France has become a major issue. There is widescale and justifiable resistance by workers. The protection of their hard won rights can mean that the timescale set could go into never-never land.
Deputy Higgins has opened up the debate on whether EMU is a good prospect and whether Ireland should join. All those issues were discussed at one forum or another over the past number of years. The one point on which I agree with the Deputy is that the debate has not engaged the majority of our people, but that is not the fault of Members. Over the past number of years there has been continuous debate on EMU in subcommittees and on the floor of this House. That has been badly reported in most of the national media until quite recently. The other matters raised by the Deputy were taken into account many years ago by the originators of the idea of EMU, by successive Irish Governments and by a number of independent research institutions which carried out analysis of what was best for Irish interests. We decided to join economic and monetary union with the first wave of participating countries. This Government, the previous Government and the one before that decided we should participate from day one in the overall interests of the economy.
19 Mr. Quinn asked the Minister for Finance his views on the United Kingdom Government's decision not to join EMU for at least five years; if he will undertake a study on the impact on the Irish economy of a volatile sterling, which could appreciate against the punt and against the euro after 2001; if he will reconsider his position on this issue as set out on 8 October 1997; and if he will make a statement on the matter. [19762/97]
The decision on who will participate in the third stage of economic and monetary union will be made early next May, in accordance with the procedures laid down in Article 109j of the Maastricht Treaty. The Council of Ministers, ECOFIN, will assess whether each member state fulfils the necessary conditions for the adoption of a single currency on the basis of convergence reports from the European Commission and the European Monetary Institute. ECOFIN will recommend its findings to the Council meeting in the composition of the Heads of State or Government, who will, after receiving the opinion of the European Parliament, confirm which member states fulfil the conditions.
The United Kingdom has an opt-out from the provisions of EMU, under a Protocol attached to the Maastricht Treaty. Ireland decided not to seek such opt-out. Under the terms of the Protocol, the United Kingdom has notified the Council of Ministers that it does not intend to move to the third stage of EMU on 1 January 1999. Consequently, the United Kingdom is under no obligation to move to the third stage. The United Kingdom may, however, reverse its notification at any time after the beginning of that stage.
The British Chancellor of the Exchequer in his statement to the House of Commons on 27 October last made it clear that, barring some unforeseen change in economic circumstances, the United Kingdom will not participate in EMU during the lifetime of the present Westminster Parliament. However, the Chancellor stated that, if a single currency is successful, and the economic case for Britain is clear and unambiguous, the United Kingdom should be part of it. Therefore, the United Kingdom Government has for the first time stated that, in principle, membership of a successful single currency would be beneficial for Britain and Europe.
The Chancellor of the Exchequer also said that it is in the United Kingdom's national interest for the single currency to work. In particular, the United Kingdom will use its position during its EU Presidency to play a full part in ensuring a smooth launch of the single currency and has also indicated a determination to prepare intensively for its introduction. The European Commission has welcomed the overall positive United Kingdom's attitude towards the euro and its determination to prepare intensively for the introduction of the single currency. I, too, welcome the constructive approach being adopted by the British Government.
While a decision by the United Kingdom to enter EMU would have positive aspects for the Irish economy, it is a matter for the United Kingdom Government to exercise, as it wishes, the discretion it is afforded by the treaty. My priority remains ensuring that Ireland qualifies for EMU and will take part in the third stage from the beginning. When the Maastricht Treaty received the endorsement of the Irish people, this was given without qualification or any provision for Ireland to opt out from the provisions for economic and monetary union. Membership of EMU, irrespective of what the United Kingdom does, will on balance be of benefit for Ireland — an assessment borne out in studies by both the Economic and Social Research Institute and the National Economic and Social Council.
The ESRI's EMU study considered, in a situation where Ireland goes into EMU and the United Kingdom stays out, both the possibility of sterling strength and sterling weakness against the euro. The estimate of 1 per cent of GNP over the medium term presented in the ESRI study of the cost of the loss of exchange rate flexibility for the Irish economy allows for periods of sterling strength, as has been experienced since summer 1996. When estimating the cost to the Irish economy of the loss of the exchange rate instrument in EMU the ESRI assumed that sterling would behave against the euro as it had behaved against the deutschmark, that is, a depreciating trend in sterling over time, interrupted by periods of sterling strength, reversed by sharp downward movements in sterling.
The ESRI study went on to analyse in some detail the impact of an extreme scenario of a sharp 20 per cent sterling depreciation. It also analysed the impact of an oil price shock, which leads — with the UK outside EMU — to a medium term sterling appreciation of 12 per cent. That a sharp 20 per cent sterling appreciation was not explicitly assessed does not bias the results of the study since the ESRI's findings are based on the behaviour of sterling against the DM historically — which includes periods of sterling appreciation and depreciation — and also draws on the likely impact of each as disclosed by the scenario analysis carried out in the report.
In any event, it should be recalled that, in addition to the requirements to co-ordinate economic policies and to avoid excessive deficits, the Treaty on European Union requires all non-participating member states to treat exchange rate policy as a matter of common interest.
The overall conclusion of the ESRI study, that EMU membership by Ireland would yield a net overall benefit to the Irish economy even if the UK was not to participate, remains valid.
I believe EMU will start on time and Ireland will play its full part from the start. Ireland approaches EMU from a position of considerable strength. The priority now is to prepare for successful participation.
I thank the Minister for his comprehensive reply, but unfortunately he did not answer my question. I specifically asked if either his Department or the ESRI would undertake a study against a scenario, which nobody anticipated 18 months ago, whereby sterling would appreciate by as much as 20 per cent against the punt and, consequently, possibly against the euro. The study undertaken, which the Minister referred to in his reply, quantified that approximately 28,000 jobs would be at risk in the scenario where sterling outside EMU, and the punt inside, would depreciate by 20 per cent.
To facilitate the debate Deputy Higgins and others referred to, it would be useful and informative if a study could be undertaken and published either by the Department or the ESRI dealing with that scenario, which is now much more likely than it was previously. Will the Minister agree to undertake such a study, postulating a scenario where sterling would appreciate by 20 per cent — which is approximately where it is at present — and examining what the impact of unemployment and inflation would be on this economy?
There is a misconception that the ESRI study only considered the situation in a case of sterling weakness. The report's analysis, as I said in my reply, considered what sterling's strength would do as well.
It did.
We know that.
This has been considered by the ESRI and, therefore, there is no need to announce a further study now because it has been subjected to detailed analysis. To initiate another study at this stage would not be useful to the debate on EMU.
Button brain and button mouth.
For some time the UK position has been interpreted by many people as meaning the UK will not join EMU on day one and will not join for some considerable time. When the British Labour Party assumed power earlier this year the soundings from it were far more pro-European than the previous Administration's. As a result, there was some speculation in the market place that the participation of the UK in EMU would be changed somewhat by the Labour Government. In his statement some weeks ago, the British Chancellor of the Exchequer, Gordon Brown, laid out quite clearly that the UK Government was in favour of the idea, in principle, but that it would not be considered in the lifetime of this parliament. All that was known when the ESRI was doing this study, therefore, there is nothing new in what happened in recent weeks. All that Chancellor Brown's statement has done is to reiterate what everybody understood the position would be in any event.
If the Minister reflects on today's question time he will notice an emerging concern that the framework for a debate which is necessary about a matter which will decide the employment prospects and living standards of many of our citizens, is totally inadequate at the moment.
Exactly.
If the Minister feels inhibited from making a personal statement for fear of a shock in the market, at a minimum he should follow Deputy Quinn's good advice that a third party agency should be retained. This could revisit the issue and provide the parameters on which a debate could be conducted at arm's length from the Minister, so that there would be some level of democratic participation in such a momentous decision.
Exactly.
Will the Minister reflect on that and try to accommodate us? What the Minister is hearing today is only the beginning, in a calm atmosphere, of a debate which, by the time he is proposing it, will dominate the debate on the Amsterdam Treaty referendum, even though it has nothing to do with the currency issue.
Deputy Noonan may possibly be right as to what will energise the people between now and 1 January 1999, but this date has been known for some considerable time and this debate has gone on for an even longer time. The ESRI study was conducted in the full knowledge that we will participate on 1 January 1999. No useful purpose would now be served by commissioning a new debate, except the negative aspect which is that it might give the impression abroad that Ireland was not fully committed to joining EMU in the first wave of participants. That would be totally unhelpful to the Irish position and to the marketplace. This Government and its two immediate predecessors wanted to make sure Ireland would fulfil all the criteria and that if it did, we would be in the first wave of countries participating in EMU.
It was also in the form of a referendum and people voted for it.
Absolutely. When we brokered the Maastricht Treaty this is what the people voted for. It would be totally unhelpful at this late stage to commission another report and seek to give the impression abroad that Ireland was reconsidering its position. We are not reconsidering our position. We are joining in the first wave of participating countries in January 1999 and no other impression should be given by anybody else.
Over the past four or five years the level of debate among people was not as we would like it to have been, but there has been an avalanche of information from all kinds of official, trade and industry sources. Arising from that, the Government commissioned the ESRI report and the National Economic and Social Council looked at it also. To commission another report at this late stage would be futile and would create uncertainty where none exists.
The Minister is continuing to talk out the situation presumably because he thinks that if he were to say anything it could possibly be damaging. I appreciate why a Minister for Finance has to be prudent.
A question please, Deputy Rabbitte.
Surely the Minister does not believe it is his job to keep his mouth shut on one of the most important issues confronting this country. Is it not the case that the decision announced by the new British Labour Government in the House of Commons is a new factor in this? Nobody is asking the Minister to reconsider his position or to send out any such signal. The Minister is being asked to address the implications of the British Government's decision, which the ESRI report did not. Some people may hold the view that it was certain the British Government would not join on day one. However, would the Minister agree we did not know what we now know, which is that it will not join during the lifetime of the current parliament?
Four years.
Who knows what the position immediately thereafter will be, or what the colour or character of the British Government thereafter might or might not be? Will the Minister agree that, without any signal of intention to change the Government's position, it is only prudent that such a study be carried out having regard to the possible jobs impact of the variable factor that has now entered the equation?
It would be imprudent to commission such a study. The ESRI study considered what would happen if Ireland joined EMU without the UK and what effect wild fluctuations in sterling outside the monetary zone would have on Ireland. Deputy Quinn outlined the figures for jobs, etc.
It did not specifically look at appreciation of sterling at 20 per cent for interest rates and inflation.
The Minister, without interruption.
The Deputy knows what the ESRI study investigated and that it considered appreciation and depreciation of sterling.
Not of 20 per cent.
It investigated all such matters. I accept Deputy Rabbitte's point which may have some superficial attraction. However, it would be imprudent to commission such a study because it would send a signal that Ireland is reconsidering its position and I am not prepared to do that. Appreciation of sterling was considered by the ESRI in the context of that report. There is no point revisiting the matter because we will join EMU from day one. I have resisted and will continue to resist pressure to speculate on what the bilateral Irish exchange rates may be in the lead up to that momentous decision. We have taken all these factors into account and we will be in the first wave of participating countries. It would be better if the UK joined from day one or in the medium term, but those matters have been examined by the ESRI which published its report during the Deputy's term in Government. It does not help to revisit these issues.
(Dublin West): It would be more imprudent for the Government to live in a fool's paradise. Is the Minister deliberately ignoring the fact that jobs could be seriously affected if the Irish currency is pegged at a high level in EMU compared to sterling? Has the Minister forgotten the currency crisis a few years ago, when the Taoiseach was Minister for Finance, which pushed the export markets to the limit? The Government has an obligation to tell the truth about the effects of EMU to the tens of thousands of workers whose jobs depend on this sector. It should not cover it up and pretend nothing will happen.
Nobody has suggested what the Deputy is implying in his question. The ESRI study clearly shows the downside if the UK does not join. The main document is large but the executive summary states that it would be better if the UK joined EMU from day one or in the near future. However, it concludes that in the overall interest of the Irish economy, it would be better for Ireland to join with or without the UK. We will not join EMU with our eyes and ears closed. Nobody has attempted to pull the wool over our eyes.
The Deputy mentioned the situation in 1992-93 where an appreciating Irish pound resulted in job losses in our export markets in the UK and colossal interest rates. The Deputy must remember that, irrespective of how sterling fluctuates, our interest rates will be set by the European Central Bank. That part of the "double whammy" will not exist in EMU. That problem will not arise in the future.
