Ivor Callely
Question:157 Mr. Callely asked the Minister for Finance the issues of concern that have been brought to his attention in connection with Ireland's entry to EMU; and if he will make a statement on the matter. [2431/98]
Written Answers. - Economic and Monetary Union.
I would like to remind the Deputy of the benefits of EMU which are the reason the project was undertaken by the European Community in the first place. These include: (i) elimination of transaction costs and exchange rate risk for trade, tourism and investment among participating member states; (ii) low and fairly uniform interest rates among participating member states; (iii) consolidation and further development of the internal market; (iv) promotion of price stability, sound public finances and sustained low-inflation growth in participating member states; (v) increased attractiveness of participating member states to foreign investment and (vi) a voice for Ireland in EMU decisions.
Such benefits do not come without some potential costs. The obvious one is that a single monetary policy will involve some pooling of sovereignty of participating member states. This disadvantage will probably, however, be felt more keenly in the larger member states, as the discretion over monetary policy enjoyed by smaller member states is considerably less.
Clearly, also, the exchange rate can play an important role in adjusting national competitiveness and stabilising national output following an economic shock. In EMU, with the permanent fixing of exchange rates this instrument will no longer be available to us at a national level. In these circumstances, the international competitiveness of the Irish economy must be secured through other means.
While it might be argued that the limits of budgetary policy, as a consequence of the EMU provisions in the treaty and the Stability and Growth Pact, may be a disadvantage, the reality is that the financial markets would more than likely impose a penalty in the form of higher interest rates on any country which was not participating in EMU and, in particular, if that country was pursuing policies which would lead to an excessive deficit. In any case, the measures necessary to meet the qualification criteria for EMU are desirable and, indeed, necessary in themselves. The policies pursued by successive Governments clearly demonstrate that sound Government finances are an essential foundation for sustainable and non-inflationary growth and for creating employment.
The move to EMU will necessarily entail transition costs for business, public administrations and the financial institutions. However, it is important to bear in mind that these costs are an investment aimed at producing long-term benefits for the whole economy.
In the case of financial institutions, there will also be an ongoing loss of revenues arising from the elimination of transaction costs and exchange rate differentials between EMU participants. However, this ongoing loss of revenues to the financial institutions will be an ongoing gain to business in general as well as consumers, which should help boost business performance and in turn be of long-term benefit to financial institutions. EMU will also bring new opportunities and a larger marketplace in which institutions can do business.
Ivor Callely
Question:158 Mr. Callely asked the Minister for Finance the target date of entry to EMU for all EU member states; the complications, if any, that may arise for Ireland given the current UK position; and if he will make a statement on the matter. [2432/98]
The procedure for the move to stage three of EMU is set out in the treaty and the timetable is as follows. Economy and Finance Ministers, ECOFIN, will assess whether each member state fulfils the necessary conditions for the adoption of a single currency, on the basis of a recommendation from the European Commission and convergence reports from the Commission and the European Monetary Institute. ECOFIN will recommend its findings to the Council, meeting in the composition of Heads of State and Government, who will, after consulting the European Parliament, confirm which member states fulfil the conditions.
The reports and the Commission recommendations will be published on 25 March 1998. The European Parliament will be consulted following publication of the reports and recommendations. ECOFIN is expected to meet to decide on participation in the third stage on 1 May 1998, with Parliament's formal opinion on 2 May, and the final confirmation by the members of the Heads of State and Government later on 2 May.
Stage three of economic and monetary union will begin on Jaunary 1999 when the euro will come into existence and the European Central Bank, ECB, will begin operation of the single monetary policy.
Under Article 109k of the treaty, those member states with a derogation, that is, which are considered not to fulfil the necessary conditions for the single currency, shall be the subject of convergence reports by the European Commission and the ECB every two years after the beginning of the third stage or at the request of a member state concerned. After consulting the European Parliament and discussion in the Council, meeting in the composition of the Heads of State or Government, the Council shall, acting by a qualified majority on a proposal from the Commission, decide which member states with a derogation fulfil the necessary conditions for adoption of the single currency.
As the Deputy is aware, the United Kingdom has an opt-out from the provisions on EMU, under a Protocol attached to the Maastricht Treaty. Ireland chose not to have such an 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, provided only that it satisfies the necessary conditions. The Council, acting at the request of the United Kingdom and in accordance with the procedure laid down in Article 109k, shall decide whether it fulfils the necessary conditions. It is a matter for the UK whether and when it may decide to change its notification.
Denmark also has an opt-out from the EMU provisions, under a different Protocol. Denmark has also notified the Council that it will not participate in the third stage. The procedure referred to in Article 109k shall only be initiated at the request of Denmark.
The policy of the United Kingdom on EMU is a matter for the British Government. While a decision by the UK to enter EMU would be welcome from an Irish point of view, 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 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.