Economic and Monetary Union: Motion (Resumed).

Debate resumed on the following motion:
That Dáil Éireann takes note of the recommendation from the Commission of the European Community, pursuant to Article 109j of the Treaty establishing the European Community done at Rome on the 25th day of March, 1957 (as amended by the Treaty on European Union done at Maastricht on the 7th day of February, 1992), concerning the fulfilment by Ireland of the necessary conditions for the adoption of the single currency.
— (Minister for Finance)

We are debating the adoption of the euro which has been described as one of the most important economic events in the history of the State. This is why I focused before the debate was adjourned on the information deficit and the need to close this gap. This matter must be tackled quickly. The Minister referred to the four convergence criteria. I do not criticise him for the language he uses as he must be careful, but he referred to the observance of the normal fluctuation margins of the exchange rate mechanism and the durability of convergence as reflected in long-term interest rates. The public does not understand such language and the Government must take up the task of translating it and communicating it to the public.

Last year a booklet was issued on the euro. One of the rhetorical questions posed in the booklet was: "I could lose money if banks and shops cheat in converting from my currency to the euro". The answer given was: "Don't worry, there will be plenty of price charts around to enable you to check on conversions". How definite would those who compiled the booklet be on this point post-NIB? God bless their naivety and innocence pre-NIB that there was no problem with shops or banks cheating.

I wish to deal with the more serious issue of inflation and the reduction in the number of instruments available to the Minister to cope with this. This is a matter of serious concern but it has not been dealt with adequately by the Minister. The headline in today's edition ofThe Examiner states: “Bank to stop interest rate cuts before EMU begins”. The Central Bank sees the dangers of inflation. The Minister's approach to this issue has been incorrect and far too cavalier. He said he does not see any need to revise his budget forecast for CPI inflation of 2 per cent for this year and 2 per cent for next year. Is he aware that the Governor of the Central Bank disagrees with him as of last week? The Governor of the Central Bank is talking about a rate of inflation for the current year which is more than one-third higher than that forecast by the Minister and reiterated in his speech. The Government has adopted a head in the sand approach to this problem, to which it contributed. The Government knew last December that we had a booming economy and that the strength of sterling would lead to imported inflation. It also knew that interest rates would be reduced. The Governor of the Central Bank stated in his report that everything possible will be done to prevent interest rates being reduced before the end of the year. However, there will be convergence at the end of the year. While one can delay the inevitable, it will not solve the problem.

I criticised proposals in the budget, wearing my social affairs hat, because they focused on greed rather than need. I thought at the time that they were wrong from a social point of view, but it is now clear that they were also wrong from an economic point of view because they fuelled an overheated economy. I am referring to the substantial cut in the top rate of tax and the halving of capital gains tax. This was like throwing petrol on an economic fire. We have already seen the consequences of this in the ISEQ index which was approximately 3,700 before the budget and is now zooming towards 6,000. It is 5,250 today and I bet it will hit 6,000 before the end of the year. This represents an increase of more than 50 per cent in the value of the Stock Exchange and it is largely related to the reduction in capital gains tax.

To use a cliché, house prices are going through the roof. This has been contributed to by the budgetary measures. One may ask what is the problem with this. While the increase in house prices does not feed directly into the CPI, it will affect it indirectly as workers who cannot afford to buy a house will press their unions for more wages so that they can do so. This increase is very dangerous to the economy in an indirect way and it has been contributed to by the Government.

The Minister did not deal with this matter properly in his speech. Having contributed to the present problem, the Minister did not set out any policy for dealing with it. He did not even refer to the Central Bank's forecast for inflation which is one-third higher than his forecast. The delay in the interest rate reductions will affect mortgage holders. However, this option runs out at the end of the year. What will happen after that? Will there be cuts in expenditure? I have seen no commitment by the Government to do this. Will tax cuts be deferred? The Minister should tell us his policy in this area.

The Minister did not deal in sufficient detail with the impact on our economy of sterling remaining outside EMU. This is exceptionally important from the point of view of inflation. The exchange rate is 81p at present and my advice is that it will go even lower. The pressures in the UK will be such that the Government there will have to change its policy. This will be to our benefit, but it is outside our control. What steps is the Government taking to react to the impact of sterling fluctuating against the punt and euro?

The Minister referred to his revaluation of the punt. This is like looking at the entrails of a goose and trying to decide what is best. I do not criticise him for this, but perhaps his decision was taken too late. While he probably adopted the right approach, experts differ and the economy suffers. I am not an expert on this matter and while the Minister probably made the right decision he should have made it earlier. A report in a major newspaper says that the Minister was forced to make a decision. However, one would think from his speech that it was a carefully considered approach. Is it true that the revaluation was forced on us by European institutions? If so, the Minister should be up front and tell us. It is not proper that we should be given an impression which may be false. This newspaper — I think it wasThe Sunday Times— has a reputation for accurate reporting. I would like to hear the Minister's view on that.

The next question concerns the millennium bug and one might ask what that has to do with the euro. The Minister did not refer to this matter but it is important because we are making a major change which will have an impact throughout our economy. Ultimately it will have an impact on the changeover of our currency and that will affect all our computers as well as machines which deal in cash, including public telephones, yet we have not taken this millennium bug into account. The UK Prime Minister, Tony Blair, said this problem should be treated as a civil emergency.

It seems we are keeping our heads in the sand over this issue. If there is a problem we should face up to it but by ignoring the problem the Minister is doing a disservice to the country. The changeover coincides with the new millennium and the problems of the millennium bug. How are we to have a smooth, effective changeover if we are confronted with this problem?

The Minister should deal with this issue which he does not seem to recognise. When the leader of my party, Deputy Bruton, raised this matter in the Dáil yesterday the Taoiseach reassured everybody by telling us the matter was being dealt with by the central unit in the Department of Finance, the same Department which drafted the Minister's speech for today's debate, yet the problem was not even mentioned in that speech. One wonders whether that particular loose end will be tied up by the Minister in his reply to this debate.

Another issue of policy that has not been touched on is the question of the future of the euro and our policy in that regard. It might be said that we are a small member state and that we will not have a major influence on that but we should at least know what we want. According to some reports the euro may be a soft currency. We all worked on the basis that the Germans would only agree to the introduction of a hard currency such as the deutschmark, but political considerations overcame economic considerations and we now find that the Belgians and the Italians are in the club despite the fact that they do not qualify according to any strict interpretation of the Maastricht criteria. I am not making a complaint. Politically it was probably the right thing to do but we should at least face up to the consequences of that political decision which may be that this hard currency, which would compete with the dollar and the yen in the global currency markets, is not what we thought it would be.

I do not want to ring alarm bells but it is important that questions are asked and addressed. Will we ignore this problem? Will it be a problem for us if the euro currency is relatively soft as opposed to the hard currency to which we hitched our wagon? I am concerned that we are allowing ourselves to be the victim of circumstances. I fully realise that in European circles we do not have a loud voice but we have a voice and we are listened to if we have something to say. We cannot have anything to say, however, if we do not have a policy and we cannot have a policy unless we are aware of the problems. I am concerned that in regard to a number of important policy issues the Government does not seem to realise there are questions to be addressed and, therefore, it does not have the policy options to deal with them.

In general I support EMU and look forward to seeing the euro in circulation. Despite the fact that I am a committed Europhile I am not starryeyed. Decisions will be made at European level in the broader interests of Europe. Some of those decisions may not necessarily be in our best individual interest. From the point of view of the development of EMU and the institution of the new currency, it is important that we are aware of the problems, that we calculate our best policy options and endeavour to achieve those objectives.

I am concerned that the Government is drifting headlong into the new system carried by a tide of public support but not appreciating the rocks in the channel. The Government will be unable to take the necessary evasive action to avoid those rocks and in some instances, as in the case of inflation, may contribute to hitting them. That is why I do not have complete confidence in EMU and in transferring over to the euro.

European monetary union is probably the single most important economic development in this country since the end of protectionism in the l950s and early l960s. It is probably the single most important political development in this country since the establishment of the State and certainly since our accession to the then EEC in l972.

The process of EMU is replete with opportunities and challenges, threats and dangers. It could and should provide the foundation for economic and political stability and growth but it carries within itself the seeds of potential disharmony and inequality. EMU is an economic challenge but, above all, it is a political imperative.

Europe has been the centre of much that was both good and bad in the 20th century. We have provided an unprecedented standard of living for most of our people. We have developed social provision — health, education, housing and employment — to a level not known before in recorded history. Yet at the same time we have twice sown the seeds of our own destruction in wars which saw the deaths or dislocation of a huge number of Europeans. That capacity for good and evil still exists and we need look no further than Yugoslavia today to see just how fragile democracy and indeed civilisation can be.

It is worth remembering and repeating that the political imperative behind the establishment of the then Coal and Steel Community in the l950s was to prevent the recurrence of war. It is important, even in the l990s, that we in Ireland who have never directly experienced war should acknowledge the centrality and the relevance of that guiding principle. It is important also that those of us of my age group and younger, who never lived through the war much less experienced it directly, should acknowledge that we too have learned the lessons of European war and are determined to do what little we can to ensure it never happens again.

I visited Auschwitz concentration camp as a student in the late l970s. I worked in Munich at the time, one of the first beneficiaries of the first generation of Irish students to benefit from the free labour market in the European Community. I remember seeing the two stark words on the monument to the dead in that camp which are "Nie Wieder"— never again. Those two words are the overwhelming and powerful imperative for the further and deeper political integration of the European Union. That integration must not be based just on a desire to prevent war but on a desire to create a safer, more stable, democratic, tolerant and prosperous Europe where all our citizens can rejoice in their cultural diversity and prosper in an economic interdependence.

There is always a risk of getting carried away with the ideals of politics, but I wanted to state that stark political commitment because some of what I say later may sound a little sceptical. Let me then make it clear and even starker that I and my party are committed to greater political integration of the European Union. I and the Labour Party are committed to economic and monetary union. However, there is also an obligation on those of us in this House, and in particular those of us in Opposition, to highlight some of the difficulties ahead. We cannot enter into this great economic challenge with our eyes closed to the dangers. Inasmuch as we can identify those dangers in advance, we may be able to avoid the worst at a later stage.

The economic argument for EMU is powerful and persuasive. In the words of the Commission report, EMU will "revitalise the European economy and the single market, foster investment, boost business competitiveness, benefit consumers and savers and make life easier for citizens where both work and travel are concerned". If all, or even most, of this were true, the case for EMU would be unanswerable. The truth is that some of it at least is wishful thinking and some of it is based on the unambivalent hope that the mere repetition of such extravagant aims will become a self-fulfilling prophesy. This latter point is not unimportant. If we have learned anything from the last three to four years, we have learned the importance of confidence in the business of currency exchange. When I first learned economics I was told the demand for currency depended on the demand for goods and services. In recent years we have seen the greater importance of capital movement in determining the exchange rate. These movements and speculation generally have in large part, but by no means always, reflected the economic fundamentals of a particular country at a particular time. However, in the run-in to EMU we have seen an increasing amount of speculation for the sake of it. We have even seen a measure of speculation which is clearly intended to disrupt the whole process of monetary union. What is remarkable about the experience is that so far this year there has been none of the speculative turbulence which many people had envisaged. At this stage it seems quite probable that we will get through to the end of April, and perhaps even to the end of this year, without any significant degree of turbulence in the financial markets. The reason is clear. The markets now accept that EMU will happen. Confidence has been boosted by the political determination of member states and the Commission to complete the project. The individual currencies are retaining their value because the markets are convinced that they will ultimately enter the single currency at about the central rate.

Confidence is also paramount for the future of monetary union. If Governments are confident, if the markets are confident, the currency will work and will be a hard currency, and the chances of success will be immeasurably improved for that. Clearly the Commission is conscious of this factor in drawing up the report. Both reports, the Commission report and the EMI report, read like propaganda documents. While neither is entirely uncritical, it is quite clear that both institutions see it as their primary role to bolster confidence in the new currency. This is hardly surprising, but it does mean that we have to read the documents very carefully in order to identify the sceptical notes. For what it is worth, I believe there is every chance that the euro will develop the dynamic and the dynamism which is required to produce the level of investment and growth which we want. In a sense, this is a major point that the sceptics missed. They assumed that all decision-making would continue as heretofore. They assumed that everybody would continue to behave as heretofore in making their decisions. There is every reason to believe that the new paradigm which monetary union represents will develop its own dynamic in a way which is likely to be positive for most if not all in the Union.

Of course, monetary union will only work if the prerequisites are in place. In identifying the prerequisites, the Maastricht Treaty set out five primary criteria — price stability, interest rate convergence, debt to GDP ratio levels, current budget requirements and ERM membership. In principle, adherence to these convergence criteria was meant to signal the convergence of European economies. It was also meant to indicate whether a particular economy was suitable for inclusion in the euro zone. The criteria were developed with a large input from Germany and, in particular, from the Bundesbank. The criteria chosen were the economic fundamentals most easily influenced by Government action. They were and are all essentially monetary criteria. If one wanted to be cynical, or perhaps just honest, one could also say that the criteria were developed so as to exclude some countries in particular.

In one way I am happy that the Germans effectively got it wrong. I believe monetary union will be more solidly based if it is broadly based. Given the extraordinary efforts made by the governments of the Mediterranean countries, it would be inconceivable at this stage that they could be excluded from monetary union. However, there is a very real problem relating to the criteria which are of particular relevance to Ireland. The criteria do not cover growth rates and they do not cover employment or unemployment rates. Ireland's growth rate is way out of line with that of almost all of the other member states. In addition, our rate of long-term unemployment is way above average. These two indicators, and in particular our growth rate, put us at a point of the economic cycle which is radically different from that of most of the other member states. In that important sense our economy is not currently convergent with that of the core states, notably, Germany, France and the Benelux countries. Most of the other countries are only now developing real growth rates, having gone through a period of little or no growth since the mid-1990s. By contrast we experienced GDP growth of near to 10 per cent last year following an average of 7 per cent over the previous three years. The lack of convergence represents a real problem for Ireland. Our interest rates are currently 2.5 per cent above German rates. As a result of the Asian crisis it now seems unlikely that German rates will rise any further between now and the end of the year. As a result, Irish rates will have to come down at a time when lower rates are at best appropriate and at worst dangerous. This is only a portent of things to come. It is likely that interest rates in the future will be decided to suit the core economy. Even if the rates are set based on a weighted assessment of the periphery and the core it is still possible, if not likely, that Ireland will end up with rates of interest that are simply inappropriate to our state of economic development and in particular to our rate of economic growth. It is vitally important that we put in place mechanisms to ensure that the needs of the economy are respected and understood when it comes to making these important decisions. It is important that the channel of communications between ECOFIN and the European Central Bank should be as strong as possible. It is important that the Euroex Committee should develop in a way which makes it possible to develop a coherent European policy on matters within the competence of the Union. It is also important, in so far as it is possible, that Ireland should be represented directly or indirectly on the governing board of the European Central Bank.

An obvious problem for Ireland arises from the decision of the UK Government not to proceed to the third stage of monetary union. A great deal has been written about this in recent months, not least in the ESRI assessment and some commentaries written on foot of that assessment. It is strange in a sense that the greatest cause of concern is not the current weakness of the Irish pound against the pound sterling but rather what may happen when sterling inevitably begins to fall. It is almost inevitable that the UK will eventually join the euro zone. It is likely that business in Britain will choose to do much of its business with the rest of Europe in euros, if not immediately then certainly over time. It is also likely, for example, that the euro will begin to circulate in the peripheral regions, such as in Northern Ireland, perhaps at a very early stage. All of the pressure from business, finance houses and, ultimately, the general population will be in one direction.

If all goes well, I would be very surprised if the pound sterling were not brought within the euro zone before the year 2005, certainly within a ten year period. The accession of Britain will make life much easier for Ireland, but a great deal depends on the rate at which the pound sterling accedes. Given the experience of Nigel Lawson in the late 1980s, it seems highly unlikely that any British chancellor would not guard against the danger of entering at too high a rate. In many ways this decision is in the lap of the gods, and it is well beyond our sphere of influence. All we can do now is position ourselves as best we can and hope for the best. In that context I support the decision of the Government to increase the central rate by 3 per cent against all other currencies. The only surprise is that that decision was not taken earlier. We all know the decision was taken to send a message and to strike a balance between taking competitive advantage and signalling our intention to fight inflation. It was also taken with an eye to future reduction in the value of sterling. The Minister will know I made this argument at the Joint Committee on Finance and the Public Service weeks before he went to Brussels to seek permission for this from the Commission. It is self-evident that I endorse the Government's decision on 14 March.

We will feel the loss of important instruments almost immediately. There is some argument about how important instruments such as the power to set the exchange rate, to revalue or devalue and the power to set interest rates have been. Some argue we did not make best or much use of those instruments in the past, but it is clear that they will not be available in future. This means that we will have to develop other instruments, the most obvious being fiscal policy.

I was interested in Deputy Jim O'Keeffe's contribution. It was clear that signals were sent from Brussels that the December budget was regarded as excessively proactive and inflationary. I would be interested in the Minister's response to this. Were we effectively told by Brussels that he had given away too much money and stoked the economy to the point where there was a risk of overheating and the brakes should be applied? If so, the Minister should admit it clearly.

We must develop other mechanisms also, and in doing so we must look to the social partners. Partnership has been an extraordinarily important part of the success of the economy in the last ten years. The Commission report states that unit labour costs in Ireland have reduced in the past four years. A fair amount of that relates to improved productivity, but it is also clear that workers have given away a great deal and contributed in no small way to the economy's success. It is also clear that the willingness of workers in particular sectors to continue to endorse the Partnership agreements is wearing thin. At least one of the reasons is that they do not see the benefits of the agreements reached in Government Buildings on the workfloor. It will be necessary to have a flexibility in the Partnership arrangements in future which has not been there heretofore. For example, if particular sectors experience difficulties with competitiveness, there will be a need for a mechanism to address that at the level of the individual firm and nationally. On the level of the individual firm we must look at alternative ways of remunerating workers. It will be impossible to convince workers to take real cuts in wages and we will have to look at other means by which they can be remunerated. I refer to employee shareholding schemes and profit sharing schemes. Congress has been to the fore recently in proposing that these schemes should be elaborated and extended into far more sectors of the economy. Individual workers and work-forces must have a stake in their company and a say in how it is run.

In this context we could benefit from looking at how the Nordic countries organise their industrial relations. In pre-Partnership times we took too much from the adversarial industrial relations of the United Kingdom, which would be largely our tradition. However, we would benefit greatly from looking at German and Nordic methods. It is normal for particular industries and firms there to have works councils and, in private industry, worker directors. Channels of information exist between workers and employers there that do not exist here.

There are also significant implications for the banks and capital markets. There is no reason in principle why one should not be able to write a cheque on the Bank of Ireland, Allied Irish Bank or even National Irish Bank and get it cashed in a German bank. I hope a clearing mechanism to enable that to happen will be put in place rapidly. It would make EMU far more meaningful not just to the average business customer but to the average tourist. There is also no reason in principle why capital markets should not be unified, which will be greatly facilitated by the advent of new technology. There should be no reason why one cannot buy or dispose of shares on the Irish Stock Exchange which were hitherto available only in Frankfurt, Paris or London.

I was interested by a reference in the Commission report to the further economic integration which is clearly envisaged by the Commission. It mentions the possibility of further development on employment and tax. The reference to tax is interesting and the Minister should expand on it. There are dangers to Ireland in greater harmonisation of the tax regimes between individual countries. There is already some harmonisation of VAT and we are told that there will have to be some harmonisation of corporate taxes. The Commission seems to envisage future harmonisation of income taxes. We must approach this area with great care. We have little control over our economy as things stand and after 1 January 1999 we will have less. However, if we give up control of fiscal policy we might as well give up sovereignty over our economy altogether.

Employment is the single economic criterion which is most important to individual citizens of the EU. Whether they have a job, how they are remunerated, etc., are the most important things to a citizen. One would be forgiven, however, for looking at EMU and thinking that employment was an adjunct or postscript to it. The monetary criteria are central to it and employment seems to be a factor which comes in at the end. The Amsterdam Treaty was an effort to redress the balance. It puts employment at the centre of the economic criteria of the Union. At the Luxembourg summit targets for employment and training were set out by the Ministers for Finance and heads of Government. I am interested in hearing how the Minister for Finance sees those criteria and targets applying to Ireland. It is important that those criteria and targets be given real teeth and do not remain mild aspirations we can disregard if we do not need them. If EMU is to have a real impact on ordinary citizens, they are extremely important.

Employment plays no part in the Stability Pact, which was negotiated by Deputy Ruairi Quinn while Minister for Finance in December 1996. It was a feat of negotiation, but there are inherent dangers in it for Ireland. No account is taken of our infrastructure, which is relatively underdeveloped by European standards. No allowance is made for capital spending in assessing whether a country has exceeded the allowed deficit. It would have been useful to make such a provision, as the lack of a provision which allows us to spend money on infrastructure, irrespective of our current budget situation, is a problem. Combined with the withdrawal of Structural Funds over the next seven years, this means that we must look to alternative means of funding infrastructural development in years to come.

The Minister was right when he said that we would have to look at alternative ways of doing this. My party has no problem with looking at public-private partnerships to fund infrastructural development in the future. The time is ripe to consider these possibilities, as we are no more than six or seven years away from having to implement them.

The central prerequisite for the implementation of EMU is the completion of the Single Market. In principle this is 80 per cent complete; the Commission report states that only 20 per cent of the legal instruments required for completion need to implemented by individual countries. However, this does not tell the full story. For example, in the construction of motorways here, it is not uncommon for such projects to be offered in pieces to allow local contractors to apply and to have a reasonable chance of being successful. However, if the construction of an entire motor-way was open to public tender a competitor from abroad would be more likely to be successful. There are ways and means to subvert the Single Market and we have not been shy in that regard.

It is in the interests of consumers that the Single Market is completed and that the additional impetus of EMU comes into play as soon as possible. However, while acknowledging the potential advantages for consumers, there are real threats to the competitiveness of producers, manufacturers and service providers. In two or three years' time, if not sooner, producers and service providers will experience competition from other sources. Much larger foreign companies will be competing in the same market and be in a position to offer goods and services at more competitive prices. We are well positioned to cater for such a shock, but we must be prepared for it. IBEC should make its members aware that such a shock is imminent.

It will be difficult to create a single labour market in Europe. We speak different languages and skills are transmitted in different ways in different countries. Another difficulty has arisen in recent times. Most of the European Union is cover by the Schengen Agreement, but Ireland has not signed up to it. On my return from New York after Saint Patrick's Day I noted that the passport control system is much more diligent than it used to be. I can only assume this renewed vigour of passport control is because we want to exclude people of particular racial origins and reduce the number of people applying for asylum status here. If that is the case, it is deplorable. While acknowledging the constraints that exist in terms of a common travel zone with Great Britain, we should seek to adhere as far as possible to the Schengen Agreement.

EMU is an enormous project and the dice have been effectively cast. While there will be significant challenges which we are well positioned to meet, we must be aware of the potential difficulties.

I am pleased to have an opportunity to contribute to this important debate. EMU is a natural progression from the formation of the European Economic Community. There were originally six members but that has increased to 15 and a number of other countries have applied to join. As time progresses business practices in banking and so on have converged across borders and the question of tax harmonisation has also been discussed in great detail throughout the Community. It is only natural, therefore, that we should move towards economic and monetary union in the next few months.

It is important that every country should meet the relevant qualifying criteria. They have not been met by the 11 countries that are likely to join. Political considerations were taken into account. I hope some of the countries that do not qualify will not go back to their old practices and cause hassle in the future. Controls must be strictly enforced so that the process can continue.

A report published by the Bundesbank on 27 March stated that Ireland is one of only five European Union member states that has achieved a fiscal position that can be unreservedly classified as sustainable. The five states include the United Kingdom and Denmark, both of whom have decided not to join, and Finland, Luxembourg and Ireland. Dr. Helmut Kohl and leaders of the other countries know that, from a political as well as an economic point of view, EMU is vital. Membership offers us the prospect of stable economic conditions. While there will be inevitable hiccups, it will give us increased access to a larger market and there is a possibility that interest rates will be reduced in the immediate term, although it is questionable whether such reductions will continue in the medium to long-term.

We are an exporting nation and unless we can export at lower cost in future we will not be able to maintain the current level of employment and growth. We will also fail to produce extra jobs for those coming on to the labour market. A common currency will reduce the cost of exports as well as the paperwork involved when goods are crossing borders. The ESRI estimates that, even without the UK joining, the EMU will add 0.4 per cent to our annual GNP rate.

Many companies from the Far East and the United States want to set up here because of our educated English-speaking workforce. They want to get into Europe and perceive us as the ideal country to do that. The main problem for us is providing workers to take up the jobs on offer. That is a change from 1987 when we had to make significant cutbacks while unemployment soared. Fortunately, things have moved in the opposite direction and I hope we will be able to maintain the level of prosperity that currently exists after we join EMU.

One fear which has been expressed over the past number of months concerns inflation and the housing market was mentioned as an inflationary pressure. The European Commission has expressed fears that there will be inflationary growth which will bring the level of inflation above acceptable limits. However, we have heard that warning before but it has not happened. Economists cannot understand why inflation has not increased nor can they tell us when it will happen, which makes a change. They do not know what to say and one takes a certain sadistic pleasure in that. However, the Minister for Finance has seen there could be a problem and has wisely revalued the punt. One of the main reasons was to ensure inflation would not stunt economic growth.

Another worry exercising the minds of many, especially those exporting to Britain, is how sterling will perform against the euro. The stability pact should allay their fears that the British will competitively devalue sterling because they cannot do it under the terms of that pact. Sterling's re-entry to the ERM should also allay fears because it will restrict the range within which it can appreciate or depreciate in value. It should also be explained that Britain must deal with the 11 EMU countries and normal economic checks and balances will ensure it cannot do whatever it wants for its own benefit. The Bank of England has also undergone change to make it more independent which should allay fears that the British Government will run the bank on a political basis.

I listened to Deputy Jim O'Keeffe express doubts about the wisdom of the Government and how it was tardy in making a decision on revaluation. I remember his predecessors expressed great doubts in 1987 when the then Taoiseach, Mr. Haughey, and the then Minister for Finance, Mr. MacSharry, made a deal for Structural Funds in Denmark. The outgoing Government at the time stated we would receive £4.5 billion and not a penny more or less. I believe we received £5.5 to £6 billion. The former Taoiseach, Deputy Albert Reynolds, stated we would receive £8 billion after a meeting in Edinburgh. He was also derided. People said we would only receive £5 billion and that he was an idiot to state otherwise. By next year, we will have received £8.5 billion. The doubts expressed on this occasion about revaluation and its detrimental effects can be put in the same category as those recorded in the history of Fine Gael.

As regards EMU, I believe we have moved in the right direction and that we have prepared properly for it. Previous Governments, including the last coalition of Democratic Left, the Labour Party and Fine Gael, have all realised that this is the proper direction in which to move as it copperfastens our continued economic growth.

The excuse or pretext for this debate is the 3 per cent revaluation already announced. Since that was the thrust of the argument advanced by a number of us over a period in this House, it would be churlish to do other than welcome it. The Minister stated that it was agreed the central rate of the Irish pound would be revalued by 3 per cent against other ERM currencies, from DM 2.41 to DM 2.48, and that this new central rate of the Irish pound is broadly in line with its recent market rate. In so far as any of us can be prescient in these matters, I broadly accept that that is right. Deputy Michael Ahern traced the history of this.

On previous occasions, I have dealt with my party's view on this question, the most recent being the debate on the Central Bank Bill. I do not want to cover that territory again except to say that my party is committed to greater European integration, that the single currency is a major step in that direction and that there is, therefore, no reversing of engines at this stage. I accept it is an historic decision. The Minister refers to it as one of the major economic decisions of the century. Some people say it is the biggest step we have taken since the Act of Union. Either way, it is a major decision.

It has been announced that 11 countries meet the convergence criteria and Ireland is included among those. At the end of this month, we can expect an opinion from ECOFIN on the convergence criteria and the progress towards the objectives set down. Towards the beginning of May, the European Parliament will deliver its opinion and the timetable is set out accordingly.

Part of that timetable was yesterday's report from the Central Bank and its assessment of the convergence criteria. I believe the Minister's speech was significantly informed by that assessment report which I received yesterday and which is published today, although I have only read his speech now as I was not present when he delivered it. The document from the Central Bank deals at some length with the four criteria of price stability, Government budgetary position, exchange and interest rates and sets out its assessment of Ireland's performance under each of these headings. There is no doubt that it is a picture of boom and bloom. I will come back to that issue later. I do not think anybody in the debate so far has referred to the fact that whereas we are competing to declare those congenial statistics and that picture of boom and bloom at the same time as it is the statistical case, there is a serious and endemic problem of poverty and long-term unemployment in this and other member states. Ojective evidence is now reaching the level of scholarship that shows that the gap is widening at the same time as these congenial statistics.

I do not wish to go back over the arguments on the euro and so on as I have taken previous opportunities to put my party's view on the record. However, the rate at which we enter the Euro must take account of the underlying credibility of our economic performance. The Irish entry level should not be dictated by what will probably prove to be an illusory and short-lived rise in the price of sterling. There may be problems in the short and medium term but we must make a judgment call in the expectation that sterling will ultimately enter and at that stage the instrument of exchange rate policy in adjusting competitiveness will no longer be available to us. The editorial inThe Irish Times today referred to the fact that the value of sterling continues to rise. For some considerable months people have predicted that sterling will fall but it has not fallen yet. I accept that poses certain problems for some sections of industry in the interim but it also provides certain opportunities. We have to make a judgment call and get on with it.

On another occasion I dealt with whether this economy would hitch its wagon to the star of Britain or to the wagon of the leading European countries for the future. That is the philosophical question on which we have made up our minds.

Will the Minister deal with the article which appeared inThe Sunday Times of 29 March, on the revaluation which has occurred? I do not know whether the Minister availed of the opportunity to do so in his opening speech, but if so it is not contained in the formal text, so far as I can see at a glance. That article claimed the Minister did what he did because he was forced to by our European partners. The Minister ought to use the opportunity of this debate to clear up that issue one way or another. Is it the case that our European partners decided to force our hand — I notice there was unanimity among our European partners on the question of the revaluation of three points — but from whom did the initiative come? Previously, I thought the Minister gave the impression that he took the initiative. I do not know whether he did but either way he should respond to that question so that we are clear on where we stand.

I referred to the assessment by the Central Bank of the convergence criteria in the context of Ireland's participation in EMU and to the fact that it is a picture of boom and bloom. I have an alternative summary which, in three sentences, reads: Thankfully for Ireland the assessment of Ireland's funding needs [this is in terms of Structural Funds post 1999] will be based on the country's level of GDP compared to the European average over the period of 1993-5 [this is known as the reference period]. Then Ireland was 88 per cent of European GDP, well over the 75 per cent threshold necessary to qualify for Objective One but not as much over as the latest figures indicate of 103 per cent. In the case of Cohesion Funds where the requirement is to be under 90 per cent of gross national product, Ireland was just under 90 per cent GNP during the reference period but has since then risen above 90 per cent. That is in keeping with the presentation from the Central Bank which is almost — with a possible caveat entered because of the fear of inflation — an unmitigated picture of boom and bloom. Whereas that may be the case, I draw the attention of Members to another report published recently, the most recent report from the European Observatory on national family policies. This is an annual report, reference authored on this occasion by John Ditch, Helen Barnes, Jonathan Bradshaw and Majella Kilkee, entitled Synthesis of National Family Policies. It is interesting that this report, which is up to date, used a number of other poverty indicators to compare child poverty in the different countries of the European Union. Other speakers have dealt with this question in terms of employment, unemployment, the phenomenon of endemic long-term unemployment and the fact that the employment here is predominantly that of low skills and no skills.

In dealing with the related question of child poverty, the findings of the report, which take into account the new indicators, are as follows. Using a set of 14 indicators to measure child poverty, Ireland was in the poorly performing end of the European league on most counts, coming second from the bottom in the European Union in four instances. Children in Ireland were twice as likely to live in a household without a car as the European average — 26.2 per cent compared to the European average of 13.7 per cent. The problems of debt were high for Irish households with children — 81.1 per cent of Irish households reported housing costs to be a burden compared to the European average of 68.3 per cent. Only 1.1 per cent of Irish households with children reported receiving a housing subsidy compared to the European average of 11.2 per cent. Some 37.6 per cent of Irish households with children reported that debts from hire purchase were a burden compared to the European average of 22.4 per cent. Ireland's debt figures were the highest in the Union. Some 36.4 per cent of Irish households reported that they had difficulty in making ends meet compared to the European average of 24.8 per cent and 53 per cent of Irish households with children said they could not afford a holiday away from home compared to the European average of 35.6 per cent.

The report states that in some areas Ireland compared better. For example, under housing indicators, Irish households with children were better than the European average in respect of household space, an absence of leaking roofs or damp walls. Irish households with children also scored better than the European average in staying warm in the home, their ability to buy new clothes, their ability to afford to eat meat, chicken, fish and so on.

One has to look at the comprehensive picture. On the one hand we were set a hurdle in terms of the convergence criteria. We have heard how remarkably and strikingly well we have done in achieving those criteria. However, in terms of the grander project of European integration and the ideal of the European Union, there is serious endemic poverty and unemployment cheek by jowl with that great wealth, performance and economic stability. This is the great challenge for the EU in the immediate years ahead. It is also the great challenge to the euro. Undoubtedly there will be strains for the reasons we have traced at the Finance committee and in this House on the debate on the new Central Bank Bill.

One idea touched on but not discussed much was the question of the Central Bank reserves and to what purpose it is intended they should be put. The cost of our subscription, if I may call it that, to the European Central Bank is of the order of £400 million. The question arises as to what we do with the remainder. It seems that unless there is a transfer of resources to the areas where long-term unemployment is clustered in terms of investment in training and giving people some skills and hope we have a serious problem within the EU, notwithstanding the very propitious circumstances with which we have dealt.

The Minister stated the Central Bank report also states that Central Bank legislation is now fully compatible with the requirements of the treaty.

I am sure this is the case. The meeting we had this morning with the Governor of the Central Bank on an aspect of this problem would seem to give rise to some questions about the Central Bank legislation. It would be foolish to pretend that this is a matter which only preoccupies domestic citizenry. It is likely that our trading partners and others are watching our performance.

There are questions about the Central Bank legislation. The 1971 Act was enacted prior to EEC membership. It was the 1989 Act which caught up with the play. Whereas the Central Bank would seem to have quite wide powers, it is fair to say that its preoccupation is with prudential rather than supervisory preoccupations. Should we persist with the unitary structure as distinct from the dual structure in the US and Germany? The Bundesbank has the prudential role of protecting the currency and so on but the consumer dimension is the responsibility of a different office. Similarly, the US Federal Reserve has the prudential responsibility and the consumer dimension is handled by a different office. We went half way in terms of setting up the Office of the Director of Consumer Affairs. Under the Consumer Credit Act I introduced in 1995, which became law in 1996, the Director of Consumer Affairs for the first time has explicit functions in terms of monitoring and approving bank charges. However, he has no major role in the area of interest rates. The question arises as to whether we beef up that office and give it a consumer dimension and let the Central Bank do what it does best separately and distinctly. Time does not allow me to go into this in any detail. The Central Bank interprets section 16 of the second banking directive concerning confidentiality in the most extreme manner possible. The bank takes an absolutist interpretation of the confidentiality imposed as a consequence. This might also need to be looked at.

Ireland's full and final entry into EMU is only nine months away. Judging by the level of public and political debate on this issue, one would think it is nine years away. There has been strong support for our participation in EMU from all sides of the political spectrum and from business organisations, farmers and trade unions. However, that support has tended to be somewhat unquestioning. It is vital that we use the remaining months before entry to tease out exactly what membership will entail in both political and economic terms and what kind of policy responses will be required to meet the challenges of monetary union. On balance, EMU will be good for business, investment, jobs and Ireland. Once economic and monetary union becomes a reality we can look forward to lower interest rates, reduced transaction costs and a more stable business environment. This will create a favourable climate for exporting industry.

I have been a consistent supporter of Irish involvement in Europe since the initial referendum campaign in 1972. It is heartening to see that many of those who opposed our entry at that time have converted to the cause of European integration. So much so that there is now no real opposition to Irish entry into EMU within the mainstream political system. The situation is different elsewhere, particularly in Britain, which has been riven by clashing attitudes to Europe. There is enormous division in that country, and in the Conservative Party in particular, towards this question. Some of the most passionate debates of this century in the House of Commons took place on EMU. Including your good self, Acting Chairman, there are five Deputies in the House and no one from the press. That is a measure of the passion that we hold for what is going to be, perhaps, the most important step Ireland will take in terms of ceding its sovereignty. This is a far more important step than joining the EEC in 1972. That step was reversible and was not as all pervasive as this. This is irreversible. That is what we have been told and I can see why. What Irish Government will be able to back out and announce on a particular day that the following week it will withdraw the euro and issue Irish Government paper instead? What speculation would there be against that Irish Government paper in the circumstances? It is, therefore, an irreversible step. The Germans see it as such. If it is for them, it certainly is for us. Life inside EMU will not be plain sailing, especially while Britain, regrettably, is outside it. There will be times when our exchange rate or our interest rates are either too high or too low and we will not be able to do anything about it. It is vital, therefore, that the Government takes concerted action to make the economy as competitive as possible.

Improving competitiveness will mean reducing tax rates, business costs and the power of State monopolies. The Government has made an impressive start in that direction. The decision to cut personal tax rates in the budget was wise and those cuts will have a beneficial effect on the labour market. They were criticised by the parties opposite but, strangely enough, there has been no commitment to reverse them nor, I venture to guess, will there be.

The halving of capital gains tax was also a wise move. I approved of it at the time and I approve of it now. Not alone will it encourage job creating investment it will also bring in more money to the Exchequer. Capital tax receipts for the first two months of 1998 are up 53 per cent on the same period last year. Any decision to reverse the rate cut would result in a large loss of money to the Exchequer. It is no great wonder that those opposite who criticised it are unwilling to commit themselves to reversing it.

Most heartening of all has been the progress made in the area of privatisation and deregulation. For five years the Labour Party kept privatisation off the political agenda. For five years we fell behind our international competitors, all of whom were heavily committed to privatisation and deregulation. During last year's general election campaign Deputy Broughan, who speaks for the Labour Party on enterprise matters, described my party's commitment to privatisation as a slash and burn policy. Ten months on Deputy Broughan is proclaiming the virtues of privatisation. There seems to have been much slashing and burning in the Labour Party's policy department last weekend. I hope the hypocrites will have the decency to acknowledge who was right all along.

I am very pleased that a comprehensive rationalisation and restructuring programme is to be implemented in Telecom Eireann and that the company will be floated on the Stock Exchange next year. All this should have happened years ago. It is a great pity so much time has been lost and Irish business and consumers have had to pay over the odds for their telecommunications services for so long. How many new, high quality jobs might have been created over the last five years if Government had adopted a liberal, pro-consumer policy in the telecommunications sector instead of trying to protect an inefficient, over-staffed and costly State monopoly for as long as possible?

I hope the Government will go the whole hog and move immediately to demerge Cablelink completely from the clutches of Telecom Eireann. As a member of Government eight years ago, I fought hard to prevent Cablelink going under the control of Telecom Eireann. I lost out in that debate but the real losers were telephone consumers. Telecom Eireann effectively abused its majority stake in Cablelink to frustrate the development of real competition in telecommunications. It is essential Cablelink is sold without delay to an independent operator which will invest in the company and develop it into a real competitor for Telecom Eireann.

The process of privatisation and deregulation must not stop with Telecom Eireann. It must stretch across the State spectrum. The interests of the consumer, whether private or business, must come first. The onus must be on those who claim that a State undertaking should not be privatised to prove their case. Unless they do so its disposal should proceed, whether by outright sale or floatation on the Stock Exchange that is starved of stock and real investment opportunities.

Innovative thinking is also needed in the area of infrastructural development. Despite improvements in recent years, our national transport infrastructure is still hopelessly inadequate by European standards, particularly where roads are concerned. We know that our access to EU Structural and Cohesion Funds will decline over the next decade due to our growing prosperity. Equally, our ability to fund infrastructural development via Exchequer borrowing will be limited by the EMU Stability Pact.

All the indications are that our road development programme needs to speed up, not slow down. The policy implications are clear: we must move towards the private funding of public infrastructure that is now essential. This idea has worked successfully in many countries. In Britain, the new Severn Bridge, opened two years ago at a cost of £300 million, was funded by the private sector. At home, the East Link and West Link bridges in Dublin are vital links in the national infrastructural chain. Both were built with private money. There are many gaps in the primary road network which could also be filled in this way and remunerated by tolls, if necessary. We must be much more open to the concept of private sector funding. Otherwise, we will not be able to put in place the transport infrastructure a modern, exporting economy requires. Roads are infinitely more important than railways.

Entry into EMU will be one of the biggest and most dramatic changes ever experienced by the economy. For us to prosper, workers, business and the Government will have to respond to that change in an innovative and imaginative manner. This will be particularly true in the area of social partnership. Once inside EMU we will be exposed to the full volatility of sterling. In the past when sterling fell in value against our currency we used devaluation to restore our competitive position. From 1 January next that option will no longer be available to us. It is not available even now in the lead-up to EMU.

In the new situation much of the competitive pressure will fall on the labour market. The key word in economic jargon is "flexibility". In plain man's language, that means that workers in individual companies will have to take up the slack. I am not convinced the full implications of this have been taken on board by politicians, the unions or businesses. We will have to develop mechanisms at the level of the firm that will enable companies in the traded sector of the economy to cope with sterling volatility. One option may be a pain sharing and gain sharing approach. This would mean that workers may be required to take pay cuts when times are bad but would have the opportunity of sharing in the company's success when times are good. Clearly, there is much work to be done before this becomes a reality.

There is also the question of social solidarity. EMU will impact differently on the public and private sectors. Those in the public sector stand to gain from low inflation and low interest rates. There is little downside involved for them. For those in the private sector on the other hand, EMU could pose considerable risks unless Government pursues the appropriate policies to protect their interests. It is extremely important that growth in Government spending is kept under control. There has been dramatic growth in public spending over the past five years and 40 per cent of it is accounted for by increases in the public service pay bill.

We will need tight control of spending so that taxes can be cut to boost competitiveness and preserve and create jobs in the exposed sector of the economy. This means that any new partnership programme will have to include measures to control the public service pay bill. That will pose a real test of social solidarity for all concerned and one which will have to be faced up to, even though they have chosen not to up to now.

The debate, such as it was, as to whether we should enter EMU is effectively over but real debate on our policy options within EMU has still to get under way. With just nine months to go it is high time that happened.

We should reflect on what is involved in the Commission determining that Ireland has fulfilled the criteria necessary to participate in the adoption of a single currency. It is important that we have fulfilled these criteria, not only externally in that it allows us participate in the creation of a single currency, but also domestically. Like Deputy O'Malley, I think the domestic implications need to be carefully considered in the same way that the external implications and the implications for our relations with the UK must be considered.

Not enough attention has been paid to the fact that the prospect of participation in the single currency and EMU has been an important motivation for the policies which have led us to fulfilling the criteria set out in the Maastricht Treaty. Those criteria constitute legitimate and appropriate objectives for any Government. They concern price stability, sustainability of the Government's financial position, currency stability and low long-term interest rates. All these issues are important not only for our participation in a single currency or for the ability of our products and services to compete on international markets, but also for our ability to provide services to expand employment, achieve social goals which can be affected or determined by Government action, maintain sustainable levels of current public expenditure and sustain the level of public investment required for projects which are not capable of being met by or suitable for private investment.

I agree with much of what Deputy O'Malley said about private participation in the provision of public infrastructure. It must be noted that there are many areas of public infrastructure where it would be difficult to perceive the involvement of private investment. I am glad much attention is being paid by the Government and interest groups to the fact that there will be so much pressure on public finances to support necessary infrastructural investment in areas not appropriate to private participation that we should develop private participation as far as possible. This involves expenditure and must be done in the most rational manner possible.

This is illustrated in the report of the National Competitiveness Council, "The Competitiveness Challenge", which shows a number of areas where such considerations will be important. For example, the report states that "a reduction in the tax wedge will have important incentive effects in encouraging take-up of employment, and in reducing upward pressure on wages across the economy. ". The council is saying we must restrict as far as possible the Government's appetite for current revenue to maintain the competitiveness of our production system, thereby ensuring the employment of people on a sustainable basis. The report goes on to state that "competition in utilities has to be encouraged as this will be the best way of bringing down costs to business". There is more to it than this, as effective competition in utilities which brings down costs must not be supported by public expenditure. This means real competition on the basis of utilities funded by the market. Funding by the taxpayer would result in a loss of the effects of competition.

I congratulate the Labour Party on arriving at the position it has in relation to competition and the funding of the required investment in public utilities. It arrived at this position with some difficulty last weekend, some ten years later than it should have. Nevertheless, the conversion of sinners is always welcome.

Other matters listed as important by the National Competitiveness Council include considerations of the strength of the Irish enterprise sector, especially through close attention to costs, quality and innovation. This is a signal that public expenditure must be such as to allow leeway for the enterprise sector to pay attention to costs, quality and innovation, none of which can be got right if there is an excessive bite by the State into their operating revenues and incomes.

The council also speaks of research in the context of science, technology and innovation. Its report states that we must ensure adequate funding continues to be available for science and technology after the current round of Structural Funds in 1999. There years after this date the amount of money we receive will begin to decrease. We must leave room in the public capital programme, from the resources we have, for adequate funding in this important area. The council states that we should "reallocate an additional £12 million in Structural Funds in 1998 for the industry R&D scheme". It suggests that "additional resources are required to improve the standards of science in primary and secondary schools, particularly to fund teacher training in this area". It advocates an "increase in support for basic research in third level colleges from £2 million per year at present to £6 million per year" and that "financial support for post graduate research students needs to be increased". It goes on to make the following proposals in the area of economic policy stating that "economic management and exchange will have to prepare for reduced structural funding, the possibility of inappropriate interest rates and a slowdown in GNP growth". I find it wryly amusing to see a reference to "inappropriate interest rates" because I recall a time when all we had were inappropriate interest rates which were too high. Now, all our pundits think that lower interest rates than those which we have would be inappropriate. That is quite a turnaround. The Competitiveness Council also states that:

Government borrowing should be reduced whenever conditions are favourable, as they are now. The overall burden of taxation should be lowered in order to assist the development of enterprise. As a consequence, public expenditure growth must be restrained to meet the need to reduce taxation and to eliminate borrowing.

Those are all very interesting and apposite statements and reinforce the need to ensure that, having achieved the Maastricht criteria, we should continue to adhere to them. They offer the best guarantee that we will be in a position to sustain the provision of essential services, that we will be able to sustain the necessary level of public investment and that we will, therefore, be able to continue to contribute to employment growth in this country.

For the sake of completeness of argument, I should make the point that observance of, and adherence to, the criteria would be important to us even if we never joined the single currency. In fact, it would probably be even more important if we did not join. However, that is only a hypothetical situation and one which need not concern us.

It is important to reflect on the roads which Ireland has had to travel to get to the point where it could be determined that we satisfied the criteria. Deputy O'Malley spoke about this and was around during the period I will speak about. There were occasions when he was not very helpful in moving along the road. The process began under the Government of former Taoiseach, Garret Fitzgerald, in 1981 when the current Leader of the Opposition, Deputy John Bruton, was the Minister for Finance. The process continued during the period 1982-86 when I had the honour of being Minister for Finance. It continued during 1987, when the principal Opposition party, Fine Gael, took a rather unprecedented view of its approach to economic policy. It was a matter of great regret to me then, and one which caused some delay in bringing about Ireland's economic health, that Deputy O'Malley and his colleagues in the Progressive Democrats did not have the guts to participate in, or support, the macroeconomic policies being followed by the then Government under the Minister for Finance, Ray McSharry.

All the actions taken during that period constituted a labour of great pain. I was often reminded of the Duke of Wellington's comment "hard pounding gentlemen". That was a time of hard pounding but that pounding was needed to ensure that we could get our public finances into a sustainable position and could have confidence in planning forward to arrive at the condition in which we now find ourselves where we can participate with confidence in the single currency.

Questions have been raised, not merely in this country but in other member states, about what member states might have had to give up to conform to the Maastricht criteria. That question has been raised in France and Italy as well as in this country. It has been suggested that the provision of social services and adequate levels of remuneration in the public sector are being sacrificed on the altar of the single currency. Those concerns miss the point because the experience of fashioning economic policy since 1981 to meet the criteria shows that we cannot be confident of being able to continue enlightened policies in the social areas or public sector on a sustainable basis unless, and until, our finances are in the kind of shape required to conform with the Maastricht criteria.

The criteria are, in many ways, essential pre-conditions for economic and employment growth. I have no doubt that the states which will participate in the single currency will experience an increment in overall growth and employment over and above what would have been the case if Ireland decided not to join.

Concern about growth and employment levels necessarily lead us to adopting these criteria. I disagree to an extent with the view expressed by Deputy McDowell when he said, with some seeming disapproval, that the Maastricht criteria do not cover growth and unemployment rates. That is true but the criteria must be applied so that Ireland is in a position to contribute with confidence to the future development of growth rates and the future expansion of employment.

As far as the operation of the system itself is concerned, there has been, and still is, an ongoing debate in this country about what we can expect. Some of the debate seems to be based on a false statement of the comparisons which should be made. Many of those who are sceptical or unconvinced about the case for a single currency compare the current economic situation with that which will prevail if Ireland enters the single currency and the UK does not. That is not the comparison which should be made. We should compare the situation as it would be if Ireland and the UK did not enter and that which would prevail if Ireland joined and the UK did not. When speaking about the difficulties Ireland will experience with sterling, people seem to overlook the simple fact that those difficulties would arise in any event.

It is arguable that a single currency which includes the punt may render sterling a shade less volatile than if Ireland did not enter. Those who argue that we should stay out because they worry about sterling should really reflect on what that means. If Ireland stayed out and sterling were to appreciate, are those people saying we should apply the kinds of policies which would be required to drive up our exchange rate against all other currencies to maintain pace with sterling? They are not because such policies would be anathema to them. Are they saying that, in the event of sterling depreciating, we should follow the kinds of policies which would be required to push our exchange rate down against other currencies simply to maintain a given relationship with sterling? They are not, and it would be folly on Ireland's part to do either of those things.

A fear expressed in some quarters is that the changeover to a single currency and its new denominations will lead to covert attempts by people involved in various businesses to secure a hike in their prices. The myth is that on the last occasion Ireland did anything like this with its currency, the conversion to decimalisation in 1971, there were price increases. There were not. The evidence from the period of two years prior to and two years after decimalisation shows no blip in the trend of consumer price inflation. It did not happen. Of course, there was rounding up and rounding down of prices, but ultimately they cancelled each other out. In the preparation programme both at European Union level and at national level for this conversion there are stronger measures to ensure there will be no hidden price increases that would give rise to a blip in inflation.

I ask the Minister to examine the progress being made in the national changeover plan. The last version of the plan was produced by the Department of Finance in January. It is impressive and reads the needs. However, I wish to be assured that a more vigorous approach is being taken to ensure that firms throughout the country apply it. If they do not, they will find themselves in a great deal of bother in the near future.

I welcome the opportunity presented by this motion to address a number of issues concerning the move to the third and final stage of EMU.

The convergence reports from the European Monetary Institute and from the Commission demonstrate that outstanding progress has been achieved by member states towards the achievement of a high degree of sustainable convergence since the beginning of the second stage of EMU in 1994. The extent of this achievement is reflected in the fact that the Commission has recommended that eleven member states, including Ireland, should participate in EMU from 1 January 1999.

It is clear that EMU will entail both opportunities and challenges. It will increase the efficiency of the Single Market through the elimination of the exchange rate risk and improved transparency and competition. It will also provide a new environment of price stability and sound public finances. These will, among other things, reduce the uncertainties that impede investment decisions and should, therefore, provide a solid basis for future growth and employment generation.

The Minister, Deputy McCreevy, has already referred to the fact that Ireland's strategic interest lies in joining EMU from the outset. He also made reference to the 1996 ESRI report on the economic implications for Ireland of EMU. This report found that membership for Ireland would, on balance, be economically advantageous for Ireland even if the UK were to remain outside the single currency zone.

In a recent newspaper article, one of the editors of this report, Terry Baker of the ESRI, examined the current situation in order to assess if the conclusions of the report could still be found to hold true. In relation to external shocks, Mr. Baker concluded that the risks are now thought to be considerably lower than they were in 1996 for three reasons: an increase in the number of prospective EMU participants, a massive appreciation of sterling and a fundamental policy shift by the UK government in favour of eventual membership of EMU.

However, the use of interest and exchange rates as economic instruments to deal with shocks which are particular to Ireland will no longer be available in EMU. This means that if there are any shocks in the future which are particular to Ireland, the adjustment process will have to be assisted by a combination of fiscal policy, pay policy and structural reform. In this context, Mr. Baker pointed out that the room for manoeuvre has increased significantly with the further strengthening of the public finances since 1996.

It might be useful to quote Mr. Baker's summary of his reflections:

.the risks attached to EMU entry have diminished significantly since mid-1996, while some of the risks that would be faced had Ireland opted to delay entry to EMU have tended to increase. With hindsight, it appears that our 1996 assessment underestimated the advantages of initial entry. The balance of risks now seems to confer a clearcut and substantial benefit to Ireland from the decision to join EMU at the outset.

The report from the Central Bank on Ireland's convergence, which was published yesterday, also acknowledges that substantial progress has been made on convergence and that this is true of all countries aspiring to participate in EMU from the beginning. The bank goes on to state: "It is reasonable to anticipate greater convergence when the single currency is established. The single market and currency will promote further the process of integration and real convergence, and this should, over time, lessen the risk of major shocks affecting individual countries".

The Central Bank report points out that, having experienced the consequences of instability in the past, Ireland's recent economic performance reflects the benefits of prudent, stability-oriented policies. Inflation and the general Government deficit have averaged 2.5 per cent and 1.9 per cent of GDP respectively over the past decade. This period has been characterised by generally moderate wage increases that have been conducive to employment increases. The bank states that this recent economic performance provides a solid base on which to ensure that Ireland continues to meet the objectives of low inflation and a balanced Government budget in the long run.

The Commission's convergence report includes a detailed assessment of the impact of the cyclical economic factors on the budgetary performance of all EU member states. The Commission concludes that Ireland's underlying or structural budget was in broad balance last year, in accordance with our own forecast. For 1998 it forecasts that our structural budget balance will be unchanged, indicating that the macroeconomic impact of last December's budget was broadly neutral. The EMI report draws attention to the significant underlying improvement in the Irish budgetary position in recent years which, in its opinion, may reflect a lasting structural move towards more balanced fiscal policies. I assure the House that the commitment to stability-oriented policies is reflected at the EU budget council, at which I am the Irish representative.

The Minister talked about the communique which was issued following the recent revaluation of the Irish pound. It signalled his decision to hold strictly to the tight expenditure targets set out in last December's budget and hence to allow the general Government surplus, already pitched at 0.5 per cent of GDP, to increase in line with any unanticipated revenues this year. The communique also noted the Minister's resolve to propose a budget for 1999 having as its primary objective the continuation of low inflation in Ireland. This approach to budgetary policy will help secure the medium-term sustainability of Ireland's economic growth. The decision regarding the conduct of budgetary policy in 1998 and in 1999 is fully in accord with the commitment contained in the economic background to the budget last December to run budget surpluses when the economy is doing well.

The case for Ireland joining EMU from the outset is now stronger than it ever was given the remarkable convergence that has occurred among the eleven potential EMU participants, which is sustainable into the future assuming that appropriate stability-orientated policies are pursued by them. This is confirmed by the EMI, the Commission and the Central Bank convergence reports and the Commission recommendations. Taking these with the economic assessments by the ESRI, the recent review by Terry Baker and the NESC, it is clear that Ireland's long-term strategic interests lie in joining EMU from 1 January 1999.

Social consensus has played a central role in supporting these achievements over the last decade. Wage moderation under the terms of successive partnership agreements has helped to secure strong non-inflationary growth with significant gains in employment and living standards in the economy. The substantial improvement in economic performance over the course of the l990s has been reflected in the state of the public finances, which in turn has provided the fiscal flexibility for significant reductions in taxation. Hence, those in employment have seen large increases in their take home pay.

The Minister emphasised the importance of the social partnership approach to addressing the challenges of EMU and I endorse this. The competitive challenge of EMU will require an intensification of the flexibility and problem solving approach displayed by the Government and the social partners over the past decade. The Partnership 2000 agreement also provides an explicit review mechanism in the case of a disturbance to Ireland's international competitiveness in EMU. The Government, IBEC and ICTU have agreed to meet in the near future, in the context of Partnership 2000, to accelerate the preparation for the competitive impact of EMU. Enhanced competitiveness will be important in determining the economy's capacity to successfully accommodate economic shocks. Provided we maintain our competitiveness, disturbances can be more readily absorbed by appropriate adjustment to domestic costs and prices, leaving long run competitiveness unaffected.

The strengthening and deepening of the single market in the context of EMU will have implications in terms of our competitiveness. Indeed, even without the advent of EMU, the forces of global competition would have been increasing relentlessly anyway. However, my focus is on the consequences of EMU in particular. EMU will see the opening of a new chapter in terms of opportunities for Irish-based business. We all now realise that as a small, open economy we are particularly dependent on international trade. Given the small size of the domestic market, the quest for profitable sales growth sooner or later forces most businesses into the export market.

In the euro area, we will see exchange risks eliminated, transaction costs greatly diminished and greater ease of access generally to a huge market. Moreover, the greater transparency of prices within the euro zone should, given our relatively lower price levels, help us to win new markets. It is essential, therefore, that Irish-based industry, indigenous or foreign-owned, should seize this opportunity and exploit it to the fullest extent possible. In this regard, it is important from the point of view of Irish companies to be aware that, simply as a matter of good management, large firms across Europe are likely to change over to the euro early in respect of their international business. UK firms with a European market may well do the same. Such changes could provide a significant competitive opportunity for smaller Irish firms.

Ultimately, private sector preparation for EMU is, like all issues of competitiveness in the marketplace, primarily a matter for the individual companies themselves. Forfás is co-ordinating the Government's EMU business awareness campaign. This widely publicised campaign is working well and considerable progress is being made on making companies aware of the issues which deserve attention in the context of their individual operations. Special attention is being paid to SMEs, which are perceived to have particular needs.

There is need for all interests to appreciate the extent to which we will operate in a very different environment from 1 January 1999. Our membership of the single currency is not simply a technical transition; it is a move to a new and more challenging environment. In this respect, I acknowledge the important work already under way in the private sector, primarily in the financial sector, in spreading the message of the need to prepare for EMU. The Minister, Deputy McCreevy, has explained the role of the Department of Finance as regards the Irish economy's preparations for the changeover. On 1 January 1999, the euro will be introduced in cashless form and I expect that a number of big businesses in particular will start to use the euro from that date.

The Minister, Deputy McCreevy, mentioned the national changeover plan which, among other things, sets out what the public sector will do to facilitate the use of the euro from January 1999. Briefly, the public sector will accept payment in euro, as well as in Irish pounds, and will generally make payment in euro where a supplier presents an invoice in euro. The Revenue Commissioners have a key role in supporting Irish business through the changeover. Revenue have made it clear from an early stage that they will accept payment of any tax in euro as well as in Irish pounds. Revenue will also accept returns and declarations in euro from companies and for self-assessed income tax. In addition, companies may file their accounts with the Companies Registration Office in euro and tenders for public contracts may be submitted in euro. Any banking service required in euro will be available in Ireland.

This degree of certainty from key sectors in the economy allows the business sector to put their plans for the changeover on a sounder footing, knowing exactly what facilities will be available. Of course, it is still up to firms themselves to make sure they are ready for the euro. EMU and the changeover to the euro will have a practical impact on business. All businesses need to sit down and take stock of what EMU and the euro will mean for them. Business can start by looking at the short leaflet that Forfás has produced for small and medium enterprises or SMEs. The leaflet aims to get those involved in business of any size thinking about how EMU might affect their business and seeks to highlight the operational areas they should look at.

Firms are urged to nominate a member of staff to take charge of the changeover process and to carry out a business impact analysis to identify the challenges and opportunities presented by the new business environment. Business should then look at the potential impact on key business functions. Will EMU open up new markets for them? Will it mean increased competition? What will increased price transparency involve for them? When should they change over their company accounts to euro? I have already said they can file company accounts in euro from 1 January 1999. This does not, of course, mean that companies have to change their accounts into euro, or that they will have to keep dual accounts. Businesses can continue to keep their accounts in Irish pounds until 2002. Businesses also need to consider when their customers and suppliers will be changing over. They should also look at when their competitors will be changing over, and whether this makes any difference from their point of view.

Another major area that business need to consider is their computer operations. For the euro, business should look at each operation that handles money and financial data and see how it may need to be adapted. Before companies make any new investments, they should see if the new equipment will handle the euro. They should also develop a timetable for handling the changes they identify.

Staff training is also very important. All businesses need to see what training their staff will need in areas like invoicing, cash handling, accounting systems and customer inquiries. When businesses have looked at these operational areas, they should draw up a plan for the necessary changes, setting out what needs to be done, when it needs to be done and who will do it.

It is clear that the euro will impact on business at an early stage, which is why I have gone into some detail about what businesses need to do to prepare themselves. Of course we have not forgotten the need to alert the general public to the changes for them. I am satisfied the necessary structures are in place to ensure the future balanced and sustainable development of our economy and, therefore, I support the motion.

I wish to share my time with Deputy Gerry Reynolds.

Is that agreed? Agreed.

A good friend of mine rang me a couple of weeks ago and told me that following discussions in his local pub he was a little concerned about the view held by the group that the banking system, while claiming that it would lose much revenue due to the cessation of currency changing, still welcomed our entry to EMU. He said he felt it difficult to visualise the banks welcoming something that would lose them money and the only conclusion he could draw was that not all was right in the state of Denmark. There is much confusion among the general public about our entry to the EMU. A large number of people are concerned that the value of their money will decrease rapidly. One man commented that it will be similar to the decimal changeover when the pound decreased from 240p to 100p.

Whatever excuse economic commentators have for being out of touch with the general populus, we as politicians have none. There should be a realisation that the vast majority of people know virtually nothing about the single currency other than that the design of our notes will change sometime in the near future. Recent referenda have shown that most people do not read detailed economic or political comment and a very small minority study Government advertisements. It will be interesting to see if the body that has been given the task of informing the public about the Amsterdam Treaty can come up with imaginative ideas.

I often feel that a 20 second clip in Molly Malone's bar depicting Miley's difficulty in grasping change, both literally and metaphorically, would be more informative than many of the economic or political discussions we will have in the months ahead.

Recent events have shown that bank statements are not read closely. Surely the sight of the euro on the page will not assist the TAM ratings, but the onward march will continue and lack of knowledge will be no barrier.

What is the EMU? The European Union is committed to forming an economic and monetary union. The monetary union in this case is a group of countries, one of which is Ireland, that will use the same money. A vital step in this process is the permanent locking of exchange rates between the various currencies and stability in this regard can be assured only by the merging of national monetary authorities. The final step will be when national currencies are replaced by a single currency by the year 2002. Economic union means there will be no formal barriers to trade and payments or the movement of labour and capital among member states. Some commentators believe economic union should involve a harmonisation of all economic policies and this may well evolve as all members will be subject to virtually the same economic conditions.

There are two main principles behind the establishment of EMU, political and economic. The establishment of EMU should assist Europe in becoming more closely integrated politically. There is a desire for the lead player, Germany, to be at the centre of a Europe which is westward oriented and many of its close neighbours welcomed this development as their histories show they have suffered greatly due to instability in their relations with that country. If Ireland can assist in this process, it should do so.

While predicting the economic future is a dangerous occupation, economic benefits should accrue from EMU. On the lower scale, there will no longer be currency change charges and one of the main advantages will be the ending of exchange rate uncertainty in cross-border trade and investment. While it is not applicable to Ireland at present, the commitment to price stability should assist in the control of domestic inflation.

There will, however, be economic costs. The changeover in terms of the physical money and operating systems requiring change, will place a burden on many in the short term. Certain events could lead to major difficulties with the system. A repeat of the 1970s oil crisis or something of the magnitude of the reunification of Germany in 1990 would cause a major strain, the result of which we will not know unless and until it occurs.

There will be a new European Central Bank, the operations of which are defined in a protocol to the Maastricht Treaty. It is envisaged this bank will be free of political pressure as it sets monetary policy. Fears have been expressed about Irish entry without our main trading partner, Britain. However, staying out of EMU is likely to result in higher interest rates and an unstable exchange rate. While it would be preferable for us if sterling were included in EMU official trade statistics show a sharp reduction in dependence on Britain in the past 25 years. Entry into EMU is, in some ways, entry into the unknown. There will be uncertain times ahead. However, if the political will holds fast, we should be better off in EMU than out of it but, ultimately, the market will decide our fate.

I welcome the opportunity to debate EMU and wish to make a few salient points. It is necessary that people are informed about a move which will affect our economic future. The difficulty I have with this debate is that the ordinary people, to whom Deputy Timmons referred and whom Deputy Joe Higgins says he represents, do not know what is going on, and I am not sure if the ordinary TD knows either. As a graduate in economics, I find it difficult that I cannot explain the advent of EMU in simple terms. Pragmatism is wonderful and I understand why the powers that be in Europe see a single currency as the way forward. It is a move towards federalism, something which the main political parties accept.

A number of questions, however, must be asked, given the political happenings in Germany where Chancellor Kohl, who has been the main negotiator and instigator of EMU and the federalisation of Europe, seems to be in political difficulties. While I would not write off his chances of being re-elected Chancellor of Germany, what effect will it have on the progress of EMU if he is not? These issues must be thought out.

I am also concerned about small businesses. I read a pamphlet from IBEC on the euro currency countdown which stated that about 47 per cent of small businesses in Ireland are prepared for the advent of EMU and believe it is a positive move. However, many small service industries do not know what will happen and have not put measures in place to help them deal with EMU. There will be job losses in this area. The Government should establish a forum to explain to businesses in simple language what will happen. When EMU occurs in 2002 many small businesses will find themselves in difficulty.

Another question we must ask is, how important is it for Ireland that Britain joins EMU. I suppose if one put a number of economists in a room, none would come up with the same answer. It will cause some problems but it is difficult to know what they will be. It would be better for this country if our main trading partner joined EMU at the same time. That is another question which we must consider.

I hope the Government, in its wisdom, will consider establishing a committee or structure to explain the theory behind EMU and the pragmatisms which will occur over the next two years. I hope this debate will be the start of many on this issue because people are not fully aware of the significance for us of entry into a single currency. It is a positive move and a single currency is the only way to bring about political promotion of a federal Europe but we need more debate and information and we, as legislators, and the Government should do all we can to inform people.

I move amendment No. 1:

To add the following to the motion, after "currency"

"; and that this House further recognises that the meeting of these qualifying conditions should not immediately be followed by this country entering into a monetary union, until a full and proper consideration is given to the likely impact of such an action. "

This is a sensible amendment. Sweden, Denmark and Britain have adopted a wait and see policy, which is exactly what we should do. It is clear the Minister will have the support of the majority of the House which is evidence, if further evidence is needed, that the Green Party is the only real Opposition Party. My party has voiced its opposition to EMU from the very beginning. We have tried, in particular, to highlight the folly of participating in EMU without Britain.

The Minister maintained that the public voted for EMU at the time of the Maastricht Treaty. This will be news to many people as the clear impression given at that time was that we were voting for the euro loot, the famous £8 billion or £6 billion, depending on one's interpretation. It is a safe bet that if one conducted a vox pop or more scientific survey one would discover overwhelming ignorance of the consequences and implications of EMU. I have carried out an informal survey and most people are ignorant about its consequences. They believe all that is involved is that member states will have the same currency and this will come in very handy when they return from holiday in Spain and Italy as instead of having loose peseta or lire in their pockets they will have euros which they can spend at home. That is their understanding of the single currency. The loss of control of monetary policy does not seem to have impinged on the consciousness of people. They have been kept in blissful ignorance.

The creation of EMU is largely a political project. This has been admitted by many Deputies on both sides of the House. The project is driven by the attempt to turn the European Union into a quasi federal European superstate, possessing one of the two key features of statehood, its own currency. This is to be followed in due course by the second key feature, a European army and a police force. As Helmut Kohl said in 1992, a European army and a European police force lie at the end of the road to European Union. Helmut Kohl would like to see himself as a modern day Bismarck and he is a key proponent of the single currency. Those pushing the single currency believe it is the glue of a political union which would otherwise disintegrate. However, the huge pressures caused by EMU will lead to the disintegration of the Union. There is already evidence of this in France and Germany where there has been civil unrest because of the huge increase in unemployment. As a result of further centralisation and disempowerment, we will witness the rise of extreme elements in Europe which will necessitate the need for a unified army and police force. We already witnessed strong arm tactics at the time of the signing of the treaty in Amsterdam.

The key question is whether an economic and monetary union can work in Europe. The Minister and Opposition parties argue that it will bring certain benefits and consolidate the internal market. They also argue that we will attain a uniform rate of inflation and there will be a reduction in transaction costs and uncertainty between participating states. However, Ireland's inflation rate is set to rise. Lower and more uniform inflation and interest rates can be achieved if countries espouse similar monetary and fiscal policies. We do not require a single currency to do this.

It is interesting to note that, despite the adoption of a single currency, a country's credit rating still affects the cost of borrowing. The essential point is that we are surrendering irrevocably the instruments of monetary policy. Those who are proposing this are the very people who told us during the currency crisis of 1992-93 that we could not and should not devalue. However, common sense prevailed and we devalued. Luckily, we had not abandoned our control over exchange rates at that stage. It is interesting to note that in conventional economic terms we have not looked back since. The years 1994-8 are the only ones in the history of the State when we followed an independent exchange rate policy and allowed the currency to float. This has been an essential element of the Celtic tiger phenomenon and the high growth rates of 1994-98.

Between 1921 and 1979 our exchange rate was tied to sterling at par. From 1979 to 1993 we tied ourselves to the DM within the ERM. This is a case of if it aint broke why fix it. If our economy is doing so well why are we jeopardising it? Our booming economy is overheating and soon it will be ablaze. Instead of dampening down the flames the Minister and his advisers, supported by the Opposition parties, are pouring petrol on the fire.

The revaluation was like a wet sponge and what we really needed was a fire brigade hose. The last thing we need is lower interest rates, but this is what other European countries require as they emerge from recession. There is very little we can do about this as we do not have control over monetary policy. In all likelihood we will face a recession in late 1999, caused by increasing inflation. Labour costs will rise and our exports will become less competitive, exports will fall, economic growth will slow, there will be less inward investment, unemployment will rise and tax revenue will decline. What will the Government do? It will be constrained by the stability pact so it will have to choose between higher taxes and lower spending. That is the likely scenario. The Minister's speech did not inspire confidence. He failed to address adequately what the country will do in the case of an asymmetric shock. He simply said: "The adjustment process will have to be assisted by a combination of fiscal policy, pay policy and structural reform". He went on to make the interesting point:

The successful participation in EMU will require an intensification of the flexibility and problem-solving approach displayed by the Government and social partners over the past decade. Structural policies for the development of Ireland's competitiveness as well as prudent budgetary policy and appropriate pay developments will be critical. This seems to echo the response of Mr. Hans Tietmeyer, President of the Bundesbank, in March 1996. He said that in the event of an asymmetric shock the countries in the monetary union must, on a point of principle, be responsible for themselves, for achieving the necessary flexibility through internal measures.

What he meant is that one is on one's own: this might be an economic union but it is not a fiscal union and there will be no fiscal transfers.

The famous ESRI report refers to "labour market adjustments". All these terms are euphemisms for wage cuts. As Deputy McDowell rightly said, workers will not accept wage cuts. What does the Minister mean by "appropriate pay developments"? He told us that Partnership 2000 provides an explicit review mechanism in the case of "disturbance of Ireland's international competitiveness in EMU".

I have the highest regard for Dr. John Fitzgerald who has compiled many enlightening reports, particularly on the "polluter pays principle", ecotaxes, etc. However, on this occasion he has allowed political prejudice to distort his judgment and got it wrong. Mr. Frank Barry of UCD has got it right. According to his analysis, if there is a 15 per cent fall in sterling and wages do not fall there will be a sharp drop in manufacturing employment of approximately 22,000 and a drop in service employment of 44,000, giving a total of 66,000 jobs. Even if wages fell by 5 per cent we would still have a loss of 42,000 jobs.

One third of our trade is still with Britain. I have argued for many years that we should expand our trade base through the teaching of languages in schools. People need to speak a language if they want to market a product. This has not happened and the sad reality is that one third of our trade is with Britain, one third is with countries in the euro zone and one third is with America and other countries. It is clear from the above figures that it is absurd to enter EMU without Britain. Has the Minister read Mr. Barry's analysis and, if so, will he comment on what he said? Have the Labour Party and Democratic Left read Mr. Barry's analysis?

Deputy McDowell stated that if there was a fiscal union we might have to close up shop. How can we have an economic union without a fiscal union? Where are the historical precedents for that? There are none. Deputy Rabbitte made a Freudian slip in his contribution when he said Ireland was concluded when he meant to say Ireland was included. We will be concluded if we enter EMU and if we do not have a sensible approach such as that adopted by Sweden, Britain and Denmark.

This is the biggest decision this country has taken, as Deputy O'Malley rightly said, yet there is no passion, insight or interest. There is only apathy. I believe we have given up the ghost.

I thank Deputies for their participation in the debate and their many interesting and constructive comments. While the decision as to whether Ireland will be part of this next step in European development was made by the people in 1992, it is important that we as public representatives engage in the debate so that all the issues can be aired and, as far as possible, public awareness is raised.

Many Deputies have expressed their concern about the lack of coverage of the extensive discussion of EMU in this House, in debating these and related issues in the Joint Committee on Finance and the Public Service and during the debates on the Central Bank Bill. Perhaps the contributions in this debate may be more fortunate. I will attempt in the brief time available to respond to as many as possible of the various comments made by Deputies.

The movement of Europe towards full economic and monetary union and the adoption of a single currency, the euro, is not simply a question of how any particular country or interest can gain an immediate benefit or how they would be affected by any immediate cost. It is a quantum leap, as it were, in the construction of a European Community based on peace and prosperity. Deputies, including my Government colleagues, have spoken eloquently about this aspect of EMU, particularly in the broader political context. I would like to reiterate the long-term strategic and economic rationale for Ireland's long-standing commitment to European integration.

It is in this context I must reject any opposition to the motion I put down. In the first place the question has been decided by the people in a referendum when the vote in favour was 70 per cent. I do not intend, as Minister for Finance, to pursue a course that contradicts the clearly expressed view of the people. Furthermore, if we are considered to fulfil the necessary conditions for the adoption of the single currency, it is not open to us to act as if we had an opt-out.

Nobody is pretending there will not be challenges in EMU but we have to think of these in the context of what life would be like for any EU member state which remains outside EMU, particularly a small country like ours whose prosperity and growth fundamentally depend on trade and access to overseas markets. There are those who say we should wait and see. They express the fear that in various ways Ireland is not ready to be part of a European economic and monetary union. In that respect I refer first to the views of the European Commission. One of the fundamental roles of the Commission is as guardian of the European treaties and it is a role that is not taken lightly. It is the recommendation of the Commission that Ireland fulfils the necessary conditions for the adoption of the single currency, a recommendation based on both its convergence report and on the report prepared by the EMI.

More generally, it is clear that Ireland is ready to take part in economic and monetary union. The third stage of EMU will begin on 1 January 1999. Most of the EU will take part. Already the rest of Europe and the world are getting ready to deal with this new economic entity as well as the new global currency.

Irish business is well placed to compete in the euro zone. The performance of firms in Ireland in the European and international markets is clear proof of that. Obviously we must continue to build on their achievements. We may be fit but we must strive to be fitter. The social partnership framework, and particularly the work of the National Competitiveness Council established under Partnership 2000, provides the basis for ongoing improvements to our competitiveness. That framework for partnership is a significant comparative advantage for Ireland. I must therefore ask the House to reject Deputy Gormley's amendment to the motion.

Deputies expressed their concern about inflationary pressures and some comments were made also about the revaluation of the Irish pound's ERM central rate. I addressed this question in detail when I commended the motion to the House. I do not propose to repeat myself unnecessarily. I have outlined already the measures being implemented by myself and the Central Bank to ensure Ireland's impressive track record of price stability is preserved. The adoption of a package of measures is the best way to achieve that objective. I am confident that the approach adopted by the Government and the bank is the most appropriate one to ensure continued price stability while maintaining balance and sustainable growth.

The revaluation of the central rate of the Irish pound is an important element of Ireland's overall economic and budgetary policy stance. This policy stance will help to ensure that our economic success continues in a balanced and sustainable way and will put Ireland in a strong position to participate successfully in EMU. Deputies will not disagree that there was risk of a significant increase in inflation and that we needed to take action to address this risk. I am confident that the revaluation, taken together with our budgetary policy and the Central Bank's intention to continue its present monetary policy, will put us in a good position to meet the challenges facing the economy.

This revaluation was an appropriate response to short-term inflation possibilities in the economy as an element in a balanced package of policy responses. Taken together with the expressed intentions of our budgetary policy in 1998 and 1999, and the Central Bank's monetary policy orientation, it will ensure that Ireland continues to be in a strong position to participate successfully in EMU.

Deputies raised matters relating to the European Central Bank. Many of these issues were discussed at length in the debate on the Central Bank Bill, 1998, but I would like to respond to some specific points. In relation to accountability, the various provisions protecting the independence of the ECB which have been incorporated in the Irish legislation apply only to the Central Bank and its Governor's role in monetary policy. Arrangements for the accountability of the Central Bank in a supervisory role will not be affected. The Governor of the Central Bank will continue to attend, if so requested, before a select committee of the Oireachtas and furnish to that committee such information as it may request having due regard to the independence of the bank and the provisions of the treaty.

We are on the threshold of one of the most momentous changes in the Irish and European economies. Our participation has received support across the range of Irish opinion including the social partners, the vast majority of public representatives and the people. Our priority now is to ensure that we respond to the challenges and make the most of the opportunities open to us. The recommendation of the European Commission is that we are ready, a view widely shared in Ireland and elsewhere. That view is also endorsed by the Government and I ask this House to respond by supporting the motion.

Deputy O'Keeffe asked about the difference between the forecast for inflation made by the Central Bank in its report and my Department's forecast at the time of the budget. The forecast of 2 per cent made in December was based on standard assumptions in relation to exchange and interest rates. This forecast will be revised, as usual, in the course of the year in the light of developments. An updated forecast will be published in the mid-year economic review and outlook. However, price developments so far this year have not undermined my confidence in the budget's forecast for 1998. The consumer price index has risen by 1.7 per cent in January and 1.8 per cent in February, while the latest year on year figures for manufacturing output home sales show no change. I commend the motion to the House.

Amendment put and declared lost.
Question put and declared carried.