Michael Noonan
Question:51 Mr. Noonan asked the Minister for Finance if the Government has decided the rate at which the Irish pound will lock into EMU; and if he will make a statement on the matter. [1720/98]
Priority Questions. - Economic and Monetary Union.
I do not intend to say more on this issue than I have already said many times. The Informal ECOFIN last September agreed there will be a pre-announcement of bilateral exchange rates of the currencies of the participating member states at the same time as the participants in EMU are decided and announced, in the first weekend of May 1998.
As regards the Irish pound, I said many times that the Government's intention is that Ireland joins EMU at an exchange rate that meets the needs of the economy and that between now and decision day we will keep the issue under active review. Obviously the final decision will take account of all the elements, including inflation and overall competitiveness, which contribute to the balanced development of the economy.
Is the Minister aware that our exchange rate is now the only one where there is a significant divergence between the spot rate at which it is trading and the central ERM rate, and that all the currencies of the other ten member states who intend joining in EMU are hugging their central rate? Does he realise that he is now seriously out of line and that in the past two weeks his Italian colleague and his Finnish colleague, who were trading away from the central rate, expressed a preference for a rate at which their currencies should lock in and the markets moved down to that preferred rate? The Minister's position is downright silly and out of line with the practice among all his colleagues in Europe. Why does he continue to insist on saying nothing until the second week in May and allow speculators to decide the value of the Irish pound when ten of his colleagues across Europe have already indicated domestically to their money markets the rate at which they are going to lock in?
The Deputy is correct in saying that the Irish pound has been an out-lier regarding its central rate for a long time. However, he is incorrect in his assumption that central rates will necessarily be used for the bilateral exchange rates to be announced on the first weekend in May. No decision has been made about that. At the informal ECOFIN Council last September it was decided that when the rates at which member states will be joining EMU are decided upon on the first weekend in May, the bilateral exchange rates between the participating members and their method of announcement will also be announced. There has been speculation as to the method, but no agreement has been reached. Furthermore, the bilateral exchange rates must be decided unanimously by the member states. One cannot just decide on a rate and go in at that rate.
Of course no decision has been made because the de jure decision will be made on the second weekend in May. Is the Minister aware that the de facto position is that his ten other colleagues have taken up positions on the lock-in rate of their currencies and, as late as two weeks ago, his Finnish and Italian colleagues publicly expressed a preference rate and the markets moved to that rate? It is as clear as crystal that we are the only people who do not know at what rate we are going in. The Minister is abrogating his responsibility because, in the final analysis, he is responsible for the rate at which we lock in. By not giving an indication of that rate he is causing speculation in the market and he is being unfair to people who are involved in export and import activities where the rate at which we lock in is becoming increasingly relevant.
The Deputy seems to be signalling a rate at which he would like to lock in. It would be totally irresponsible to signal my intentions in any way and, as I said previously, the matter of bilateral exchange rates is one that must be unanimously decided by the member states. It is not just a matter of waking up one morning and deciding to go in at a rate one likes. There are unique circumstances relating to the exchange rate of the Irish pound. For example, in May 1995 sterling traded at a rate to the Deutschmark of 2.17. Today it is trading at a rate of 2.94-2.95DM. On occasion it has reached a rate of 3DM and more. The value of the Irish pound during this period has been dragged up by sterling and this has put us far outside our central rate.
To put it another way, there has been so much volatility in the exchange rate markets for a long time that if decisions had been made when some people wanted them made we would be in a peculiar position today. To repeat what I said, I will make a decision taking the overall interests of the economy fully into account. This means taking into account many of the legitimate points raised by the Deputy both inside and outside the House. However, it would be totally irresponsible for a Minister for Finance to say what rate he preferred at any particular time. As I said on many occasions, all factors will be taken into account in making this decision, including the need for unanimity between all member states and the decision by the ECOFIN Council last September as to when this will take place.
The Minister's Hamlet-like procrastination will not impress the markets. May I ask him again why he will not indicate his preferred rate? May is not very far away and all his colleagues in Europe have indicated their rate. If he leaves it any longer to make a decision it will be the speculators who will decide the value of the Irish pound, not the Government advised by the Minister for Finance. The Minister is shirking his responsibility.
I do not accept the Deputy's point. The first weekend in May is a little over three months away. Various commentators wanted me to announce the rate as far back as last July but I did not do so. The policy I have adopted of not giving the market an indication of the rate is the correct one, and history will prove this to be so. The mechanism has been in place for some time and it is the one I will follow.
There was always going to be volatility in the currency exchange markets. When Deputy Quinn was Minister for Finance I debated with him on many occasions the inevitable volatility in the markets in the run up to EMU on 1 January l999 which would require them to take a position one way or the other. That is the job of the financial markets and it is not the job of the Minister for Finance to encourage them in a certain direction. They must make their decisions as best they can. It is their job to make money but it is not my job to assist them.
The Minister must be aware that the markets regard his failure to make a statement as a statement that we are locking in at the central ERM rate of 2.41DM. The Minister has put himself in this difficulty.
If I respond to the Deputy's very good question one way or the other I will be signalling my intentions. I have never on any occasion either publicly or privately signalled any preference in this regard and I do not intend to do so now.
Does the Minister have a rate in his head?
Will the Minister consult with Beverley who has offshore skills and expertise?
The Deputy comes from the same part of the country and maybe I will consult with him.
Accounts on Clare Island are offshore ones.
They have been for many years.