Written Answers. - Economic and Monetary Union.
Donal Carey
Question:
39
Mr. D. Carey
asked the
Minister for Finance
the changes, if any, in Government policy on EMU entry, as a result of the decision by the British Government to defer the United Kingdom's entry to the single currency to 2002 or later; and if he will make a statement on the matter.
[19646/97]
Derek McDowell
Question:
45
Mr. McDowell
asked the
Minister for Finance
his views on the statement by the former United Kingdom Chancellor, Mr. Kenneth Clarke that the British pound may be subject to considerable instability and fluctuations upon the start-up of the Euro; the measures, if any, he is taking to guard against this situation; and if he will make a statement on the matter.
[19694/97]
Joe Higgins
Question:
69
Mr. Higgins (Dublin West)
asked the
Minister for Finance
his views on the decision by the British Government not to join EMU in January 1999; the implications, if any, for the Irish economy in this regard; and if he will make a statement on the matter.
[18111/97]
John Gormley
Question:
81
Mr. Gormley
asked the
Minister for Finance
whether Ireland should participate in EMU from the onset of the first phase in view of the criteria recently laid down by the British Chancellor, Mr. Gordon Brown as to the way in which his country would enter into EMU in view of the fact that this would greatly delay the entry of the United Kingdom into EMU and place prolonged pressure on the Irish economy.
[19583/97]
Derek McDowell
Question:
98
Mr. McDowell
asked the
Minister for Finance
his views on the recent announcement by Mr. Gordon Brown, the United Kingdom Chancellor of the Exchequer regarding EMU; and if he will make a statement on the matter.
[19693/97]
I propose to take Questions Nos. 39, 45, 69, 81 and 98 together.
The decision on who will participate in the third stage of economic and monetary union (EMU) 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 on EMU, under a Protocol attached to the Maastricht Treaty. Ireland did not seek any such opt-out. Under the terms of the Protocol, the UK 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 UK 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 UK will not be participating 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 UK should be part of it. Therefore, the UK Government has for the first time stated that in principle British membership of a successful single currency would be beneficial to Britain and to Europe. The UK Government has also indicated a determination to prepare intensively for the introduction of the single currency.
The Chancellor of the Exchequer also said that it is in the UK national interest for the single currency to work. In particular, the UK will use its position during its EU Presidency to play a full part in ensuring a smooth launch of the single currency.
The European Commission has welcomed the overall positive UK 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.
The British Chancellor set out five economic tests to be met by the UK Government to recommend membership of EMU to the Westminster Parliament and to the British people. These included economic convergence, flexibility to cope with change, the effect on investment, the impact of the financial services industry, and whether it is good for employment. These were used to make an assessment as to whether or not the UK Government would exercise their opt-out — a situation which does not arise in Ireland's case. The Chancellor concluded that EMU membership by the UK would yield significant benefits to the UK economy in terms of investment, growth and jobs. However, he has decided that the UK is not at the present time in a position to consider EMU membership from 1 January 1999, reflecting the current cyclical divergence of the UK economy from that of prospective EMU members.
Ireland, on the other hand, has over several years demonstrated sustainable and settled convergence with likely euro zone participants. On this basis, Ireland's participation in EMU from 1 January 1999 is entirely justified. Ireland's strong growth over recent years reflects the fundamental strength of the Irish economy and the acceleration in Ireland's trend growth rate. Inflationary pressures in the Irish economy remain subdued, with inflation forecast to be no more than 1.5 per cent for 1997, one of the lowest rates in the EU. Inflation in the UK is currently running at 3.7 per cent. Adherence to the Stability and Growth Pact, together with the intensification of the Single Market consequent on EMU, will accelerate the ongoing process of economic convergence.
While a decision by the UK to enter EMU would have positive aspects for the Irish economy, it is a matter for the UK Government to exercise, as they wish, the discretion they are 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 UK 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 possibility of sterling volatilityvis-a-vis the euro was a major element of the ESRI study of the implications of EMU for Ireland.
As regards Mr. Kenneth Clarke's remarks, it would not be appropriate for me to comment on the hypothetical movements of another member state's currency. 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. As the UK Chancellor's statement makes clear, the UK is now committed to a path of sustainable economic convergence with a view to eventual EMU membership.
Ireland approaches EMU from a position of considerable strength. The priority now is to prepare for successful participation.
The single most important contribution that Government can make to securing Ireland's international competitiveness is through its management of the economy. By ensuring the Government's budget is in broad balance over the economic cycle, by allowing only moderate growth in public expenditure, by reducing the burden of taxation on labour in the economy, and by continuing to support the social partnership approach to economic and social policy which has helped secure moderation in wage growth in the economy, the Government will remain focused on the intensification of an internationally competitive environment for enterprise in the Irish economy in EMU which is the key to successful participation in EMU.
