Dáil Éireann debate -
Thursday, 20 Apr 2000

Vol. 518 No. 5

Report of the Joint Committee on European Affairs on Economic and Monetary Union: Motion.

Mr. Durkan

I move:

That Dáil Éireann takes note of the Report of the Joint Committee on European Affairs on Economic and Monetary Union.

This is a continuation of the process started last week in respect of the reports of the committee which have been laid before the House. Unfortunately, due to time constraints, it was not possible to debate them. However, with the ever increasing importance of the evolution of the European convergence process, it is more important than ever that we have the opportunity for such debates.

I thank the staff and members of the committee, particularly Deputy Gay Mitchell who is the rapporteur for this report. Some of the reports were produced by the committee en bloc, while others were produced by individual rapporteurs. Each process has been most effective. It has put a great deal of stress and strain on the members of the committee. I thank them for their commitment to the task. Most of the work was extremely time consuming and tedious and required a high degree of concentration.

This debate is timely as we move towards the introduction of the euro coins and notes. We have heard discussions on that issue in recent days. There will be a greater concentration by the public on how the changeover will affect the consumer and prices.

The committee set out to identify in its report the pitfalls and snags that affected the changeover to decimalisation in the early 1970s. At that time, consumers – the people who have to pay for most things – found themselves disadvantaged because the cost of items in the market place was rounded up.

The euro changeover board has had the responsibility of monitoring progress and ensuring the public is fully aware of its rights and entitlements, what is likely to happen, how people are likely to be treated and how they should be treated under the process. It is fair to say that has been reasonably successful to date.

I am not sure the entire business sector has responded in the way I would have liked, for example, in regard to the posting of dual pricing. Many businesses, shops and commercial outlets have done so, but some still need to respond in that area. For members of the public to be fully aware of their entitlements and to compare prices effectively, it is imperative that they become familiar with the changeover at an early stage.

This report is just one of many the committee has made on EMU. We put particular emphasis on this aspect because of the degree to which this is likely to affect the commercial, industrial, economic and social life of the country. It is a response by the Irish economy to European integration and involvement in the European Union, of which Ireland is a very proud and active member. It is also essential that we continue to be an example to the rest of the European Union and that we encourage others to join EMU. It is important to have the right criteria for accession to membership of EMU and to maintain those criteria, because movement away from them tends to create obvious problems.

One the main issues I mentioned is the question of dual pricing. I hope that will receive greater attention, particularly as we move towards 2001 because, otherwise, too many options will be left open. The danger then is that the whole credibility of EMU will be threatened, which we do not want to see happen.

There are two follow-on reports to this one, one outlining the responses to the committee's recommendations and the other detailing the committee's discussions with the banks and the Director of Consumer Affairs. They have also been laid before the House.

The occasion should not pass without mentioning the importance of the single market and how effective it has been in terms of Ireland's economic development. Much emphasis is placed here and throughout Europe, especially by those who might like to criticise us, on the allegation that the whole basis for our economic success springs entirely from direct payments from the European Union. That is not so. It springs, essentially, from Ireland's ability to access the Single Market and develop our exports within that market.

The next step in that process is obviously the single currency, within which businesses and individuals can carry on their enterprises without incurring the potential penalties of financial transactions. I marvelled that if one took £100 and travelled to the ten member states, changing the money at each airport, one would have no money left at the end. That is a dramatic and graphic illustration of how business and industry can be affected. The same applies to casual travellers and holiday makers. The introduction of the single currency will be of huge benefit to anyone who has to make financial transactions across Europe. I do not accept the suggestions from some quarters that this is some plot hatched in Brussels or elsewhere to bring everybody into line with the thinking of the European Central Bank.

The European Central Bank has done its job so far. It has been asked to play a very difficult role. It has to bring together divergent currencies – with a great divergence in thinking – into a loop and encourage the various economies to progress together for the common good. That is not easy. However, at least a start has been made. If we continue that course of action, it will prove very fruitful and will benefit this and other EU countries, both those currently within the EMU and those which are likely to become part of it in the future.

Needless to say, there will be many more preparations between now and then. The changeover board, the Department of Finance and the Central Bank will have many meaningful roles to play in that regard. The important thing from the point of view of the country and the future of EMU is to ensure that it works well in the interests of countries which are contributing to it and of the consumers.

Minister of State at the Department of Finance (Mr. Cullen)

I welcome this opportunity to thank the Joint Committee on European Affairs for its work in preparing this report and the two subsequent interim reports published last year. I understand that the committee yesterday decided to publish its fourth report, which will be carefully considered when it becomes available.

The specific recommendations contained in the committee's report cover a wide area and a detailed response was provided to the committee last January on the recommendations which are the direct responsibility of the Department of Finance. I do not intend therefore to go into detail today on all of the committee's recommendations – my allotted time would not permit this in any event. However, I want to take this opportunity to discuss a number of important points in the committee's recommendations, beginning with the latest plans for the changeover to the euro currency.

The committee's first recommendation relates to the date for the introduction of euro notes and coins, and the length of time after that during which Irish and euro cash would circulate together. The committee suggests that the introduction date be put back from 1 January to 1 February 2002, to avoid the winter sales, and that the period during which euro notes and coins and Irish notes and coins will circulate together should be shortened from the permitted six months maximum to perhaps two months.

As regards the date for introducing the euro, 1 January 2002 is enshrined in EU law and there is no prospect of changing it. However, the committee is quite right in its view that a six months dual circulation period would be far too long, and the national plan for the changeover to euro cash, which was prepared under the aegis of the Euro Changeover Board of Ireland and which was launched yesterday, envisages a dual circulation period of just under six weeks, with legal tender status being removed from Irish pound notes and coins at midnight on Saturday, 9 February 2002.

I want to describe briefly how the changeover will work. Put simply, accounts in financial institutions will be converted to euro on E-day, 1 January 2002. From that date all cash going out will be in euro, with incoming Irish notes and coins being retained and not issued outwards again.

I should perhaps emphasise that the changeover will happen as people go about their normal business. As the plan states, from 1 January 2002 people should continue to carry out their normal cash transactions, using their remaining Irish notes and coins first and acquiring euro notes and coins through one or more of the mechanisms outlined in the plan. The plan envisages that the bulk of cash transactions will be made in euro by the end of two weeks of E-day. From midnight on Saturday, 9 February 2002, legal tender status will be withdrawn from Irish notes and coins, and there will be no obligation to accept Irish notes and coins.

I should of course stress that the Oireachtas has the final say as to when legal tender status should be withdrawn from Irish notes and coins. The plan recommends that it should happen at midnight on Saturday, 9 February 2002, and a draft order to that effect will be laid before both Houses in the next session.

I emphasise that the organisations involved in drawing up the plan have included a specific commitment that they will carry out the changeover to the euro fairly and seek no advantage from the conversion. I heartily welcome that important commitment. I also thank all the organisations involved in drawing up the plan for their co-operation. It is good that the plan is being published now, nearly two years in advance. It will be widely circulated, and it should act as a stimulus to businesses and retailers to intensify their preparations so as to ensure the changeover goes as smoothly as possible.

The committee recommends that my Department lays a report on the continuing implications for the Irish economy of the stability and growth pact before the Oireachtas twice annually, before any such report is submitted to European institutions. The stability and growth pact requires countries participating in the euro zone to present stability programmes to the Council and the Commission. The aim of these programmes is to illustrate how member states intend to meet the objectives of the pact, in particular, the medium-term objective of maintaining a budgetary position close to balance or in surplus, thereby enabling them to deal with normal cyclical fluctuations without exceeding the reference value of a deficit of 3% of GDP even in adverse economic conditions.

In line with the code of conduct for the preparation of national stability programmes, Ireland's stability programme is prepared in the context of the annual budget and takes account of developments resulting from the budget. Ireland's first stability programme, covering the period 1999-2001, was prepared in the context of the 1999 budget and was presented to the Dáil as part of the budget documentation on 2 December 1998, prior to its submission to the Commission.

The Commission requires that the stability programme updates also be prepared annually in the context of the national budget and be presented at, or around, the same time as the budget. Ireland's stability programme update covering the period 2000-2 was prepared in the context of the 2000 budget, and serves as an economic background to the budget. This update was presented to the Dáil as part of the budget documentation on 1 December last, prior to its presentation to the Commission. It is anticipated that, in line with EU procedural requirements, the stability programme updates will continue to be prepared in the context of the annual budget and presented to the Dáil prior to submission to the Commission.

The joint committee expressed concerns about the problems that could arise for Irish indigenous industry from a possible sharp fall in the value of sterling. It must be appreciated that EMU creates a new policy environment. The use of the exchange rate as a policy tool at national level to respond to unfavourable exchange rate movements is no longer an option. An economic shock which affects the EMU area as a whole will be dealt with jointly by the member states and the relevant Community institutions, including the ECB. However, a successful response to any possible shock which affects Ireland in particular will depend to a large extent on how well the economy has been prepared in advance to cope with such an eventuality. Flexibility in adjusting costs to meet competitiveness requirements is now even more important than in the past. How this flexibility is to be achieved in the private sector is ultimately a matter for each enterprise to determine.

The committee's report recommended that the campaigns of Forfás and the Euro Changeover Board of Ireland be re-examined so as to ensure that SMEs are targeted for special assistance. In fact, Forfás and the board maintain close links in their respective tasks of providing information for business and providing information for the public. For example, Forfás is represented on the board and a senior officer from the board's secretariat is on the management committee of the Forfás EMU business awareness campaign. SMEs have always been a particular focus of the Forfás campaign, while the board is careful to include mention of the Forfás campaign in its public information material wherever appropriate. In addition, the ECBI operates a programme under which funds are provided to non-governmental organisations to promote awareness of the euro, and activities to promote awareness among SMEs are identified as one of the key areas for support. The current round of the programme was advertised last September; activities under it are to be concluded by June, and a fresh round will be advertised in the autumn.

The committee also recommends that part of the annual budget surpluses be allocated to investment in needed additional infrastructure in such a way as to attract private partnership co-funding. Investment by the Government has increased significantly in recent years in order to tackle the infrastructural deficit. The national development plan contains a substantial programme of investment amounting to £40.6 billion in 1999 prices over the period of the plan in the key areas required for continued economic and social development. These areas include roads, public transport, water services, energy, housing and health infrastructure.

The funding necessary for the delivery of this programme is set out in the national development plan and will be included in the expenditure estimates for the relevant years, subject to the specific budgetary and expenditure parameters decided by the Government for those years. The national development plan includes a significant target for expenditure in public private partnership ventures. In the plan, PPPs are particularly focused on the economic infrastructure programme. Provision is included for £1.85 billion of PPP funding, including £1 billion for roads, £300 million for public transport and £550 million for environmental projects. This is a minimum target for PPPs.

The committee suggests that consideration be given to the creation of a national contingency fund into which part of the forecasted future budget surpluses will be paid to provide for possible unforeseen events arising from EMU. On this issue, it should be noted that there is a general contingency provision in the budgetary arithmetic. This represents a prudent provision in the overall budgetary projections for the second and third year of the three year multi-annual budgetary cycle against possible adverse factors outside the control of Government. Examples are variability in tax buoyancy resulting from slower econ omic growth or exceptional costs arising in areas of public expenditure.

One major contingency which we can foresee is the greatly increased Exchequer costs associated with the aging of the population in the decades ahead. The Government has begun to address this long-term challenge. The bulk of the proceeds from the sale of Telecom Éireann plus an annual contribution of 1% of GNP is being set aside towards these future costs. Pension pre-funding will be established on a statutory basis later this year.

I again thank the committee for its valuable work.

Mr. Wall

I sincerely thank Deputy Durkan for his work on putting this report before the House and Deputy Gay Mitchell, who has done tremendous work on all the reports on EMU which have been put before the House. I am pleased to have the opportunity to contribute to this debate on the fledgling single currency. My party was a keen advocate of the single currency, which represents a logical conclusion to the integration of the European Union. It will in our view facilitate trade and investment in the euro zone. It will also facilitate movement of workers across the euro zone and eliminate unnecessary transaction costs which have done more to add to the profits of banks than to benefit European citizens.

It would be naive to ignore the fact that the euro has come in for criticism since its introduction at the beginning of last year. It has not performed as expected by some of its keenest advocates. Those who opposed the introduction of the currency have been keen to take comfort from the euro's decline to a position where it is now worth 20% less than its initial value.

With regard to the euro's performance to date, it is far too soon to judge the success or otherwise of the new currency. For instance, the new notes and coins have not even been issued. The euro remains, in the minds of its citizens, a theoretical currency and we all know this will inevitably change.

Media commentators have differed vigorously on the prospects for the single currency. Falls in its value are viewed in a damning light while rises in its value, particularly against the dollar, are viewed as signs of strength. The reality is that 18 months is but a blip in the life of a currency. We do not know as of yet how the euro will settle. In the meantime it is probably fair to say that its low value has helped invigorate the European economy, which is good for Ireland as that is where an increasing percentage of our exports are sent.

I warn against allowing the short-term perspective of the markets to dominate our thinking on these matters. Events in recent weeks have indicated the turbulence of markets. One of the reasons my party supported the introduction of the euro was that it would help eliminate uncertainty in relation to currency fluctuations. Currency speculators have too often damaged the living standards of working people in self-generated and often selfishly inspired binges. Ireland had experience of such speculation against us as recently as eight years ago.

In this era of transnational capitalism it is important that an element of democratic control is restored in relation to currency values. Obviously the European Union is a much stronger vehicle in which to achieve that end than a state the size of Ireland. It is my party's view that the arrival of globalisation has increased not weakened the argument for strong international co-operation on economic issues. Economic and monetary union is one such example of this.

There is some concern in Ireland that signs of an early entry by the British Government into the euro zone seems to be receding. There is no doubt that British membership of the euro zone would be of benefit to Ireland. Many British citizens, such as the workers in Rover, are also coming around to that view. However, as things currently stand the possibility of a British referendum on the issue early in the lifetime of the current Parliament seems less likely than it once was. On the other hand, I still feel that both Tony Blair and Gordon Brown are keen to see British membership of the euro during their political careers.

The initial concern of people about the prospects of Ireland being in the euro zone while Britain remained outside, was that our currency would appreciate not depreciate against sterling. Those concerns are not difficult to understand. Such a scenario would have put considerable pressure on Irish exporters, but it has not come to pass. On the contrary the opposite is the case. The value of our currency has fallen considerably against sterling. This has given rise to fears about the importation of inflation and the loss of macro-economic tools, like the power to raise and lower interest rates, to deal with it. It would be unwise to dismiss out of hand these concerns, but they should be put in perspective. As one who lived through the 1980s, inflation levels of 4% do not scare me as much as they may scare people used to rates of 1% and 2%. While there is no room for complacency, the recent OPEC agreement should deliver a reduction in pressure towards the end of the year. We know too that Government decisions on excise duties on tobacco and fuel have also contributed significantly to the recent rise. Despite claims that Irish economic requirements are out of synch with the priorities of the European Central Bank, movements in European interest rates have been upwards not downwards.

It is too early to judge the success of the euro. However, I would point out that within a few years all existing members of the EU, with the possible exception of the UK, will be members. Commentators would dismiss a currency based on these firm foundations at their peril. The euro zone is among the most powerful trading blocks in the world, the vast majority of its trade being internal. When the euro becomes a real trading currency for the citizens of the euro zone I sus pect that an amount of the uncertainty that surrounds it will disappear.

Mr. G. Mitchell

I thank those who contributed to the report which was published at the beginning of last year, though it is dated December 1998. I thank the committee for giving me the opportunity to act as rapporteur. On Wednesday this week we approved a further report on EMU which will be placed before the Dáil in due course and which raises some interesting issues.

I thank Deputies Durkan and Wall for their kind words. By and large I am happy to acknowledge the responses to the recommendations of the report which we received from various agencies. In particular the report recommended that there should be a shorter changeover period, which has been taken on board.

The report raises the dangers of Ireland not meeting the Maastricht criteria for EMU as a result of asset inflation, specifically housing inflation, and the way that could drive demand for higher pay increases and in turn fuel inflation. The report makes a specific recommendation in this regard. It might seem a peculiar context in which to raise the housing issue, but the recommendation which deals with this is central to us meeting the Maastricht criteria. For example, a married couple, one of whom is a nurse and the other a garda, cannot afford to buy a house in Dublin, something which was unthinkable in times gone by. If inflationary demands are made on the Exchequer or individual employers we will create difficulties for Ireland qualifying for EMU. Already the inflation rate is touching 5% on an adjusted EU basis, probably the highest figure in the EU, something about which we must be very concerned.

I first became a councillor in 1979 on Dublin Corporation and in the early 1980s we were building in the region of 1,700 houses per year. This year, between housing starts and house purchases, the figure will be as low as 300 local authority houses. We did not have a bob in the 1980s and yet we could provide that level of local authority housing. The local authority now says it has no land. It must, therefore, buy private houses, thereby bidding up the price in competition with young married couples trying to purchase a home. The creation of a new bank of local authority housing would do much to resolve the housing problem and ensure that our inflation rate and its threat to the Maastricht criteria are brought under control.

Most of the houses built by Dublin Corporation in the 1980s were located in the county and not within the city limits. When commentators reflected on the problems that created they said the councillors in the county area were not responsible for the housing because the corporation built it. However, that is just a technical, administrative matter. The houses have been handed over to the local authority in the county area. Would it be an enormous sin if the corporation were to build houses for newly wed couples and others in other counties, for example, County Leitrim? I do not know what Members from Leitrim would think about that but they could be built in consultation with the relevant local authority. If there was a proper public transport system in and out of Dublin, such a plan would contribute to alleviating the housing crisis. Dublin Corporation does not have to build all its houses within the city boundaries. We have the power to change. Some people will say that massive estates will be built, thereby, creating more social problems. That need not be so because the houses could be built and, from the beginning, 100% mortgages could be given to half the people buying them so that they become residents immediately.

Vast housing estates were built in Tallaght, Clondalkin and Blanchardstown in the 1980s but after the Second World War suburbs such as, Crumlin, Drimnagh and Cabra were developed. They are now the most sought after addresses in the city. The long-term effect of local authority housing has been a success. There are problems in large estates in Tallaght and Clondalkin. However, 60% of housing in Tallaght is private while the local authority housing comprises three and four bedroom houses in well laid out estates. Some mistakes have been made from which we can learn but, as the report states, local authority housing has a contribution to make in terms of addressing the housing crisis and relieving inflation, which could be further fuelled by people having to seek more money to fund the purchase of a home. If supply is increased, demand will be met and prices will even out.

That recommendation in the report was responded to in the weakest manner. A standard reply was issued. There needs to be a complete rethink of the entire local authority housing programme and perhaps when new estates are built houses should be allocated first to newly married couples in terms of the social mix. Would it be harmful to discriminate in favour of those who are married given that the system currently discriminates against them? Perhaps we can return to such thinking, thereby encouraging settled communities.

I refer to the contribution of EMU to European integration. In the first half of the last century, 60 million Europeans, the majority of whom were in their 20s, died in two world wars which began in Europe because of rampant nationalism. Some nations thought that they were greater than others, had ambitions and felt it their right to have hegemony in a particular region backed up by bombs and bullets, when necessary. At the end of the Second World War a small number of people with vision got together to ensure that their differences would be resolved in order to ensure such events would not happen again. They formed the European Coal and Steel Community – steel, from which the weapons of war were fashioned, and coal, the energy used in the manufacture of such weapons.

The concept of the European Union derived from that organisation. We must remind ourselves that the integration process, of which EMU is one element, is about peace and stability. Europe cannot prosper, whether it has one or one million currencies, if there is not peace and stability. The enlargement and integration process embarked upon by the EU involves peace and stability as a prerequisite. Nobody is telling Ireland what to do, for example, and Ireland is not telling everybody else what to do. Intergovernmental institutions and others, such as the Commission, have been agreed and they oversee the integration process. It is an important and welcome process and EMU is a vital part of it. We must try and impress upon member states, particularly Britain, the importance of EMU as part of the integration process in order to ensure that there will never again be loss of life such as that in the last century.

The euro will in time challenge the pre-eminence of the dollar which will result in a decline in US influence and a rise in EU influence worldwide. To prepare for this role the EU should consider a high representative for the euro similar to that on common foreign and security policy. Such a representative could be a second Secretary-General on the EU Council of Ministers. The Ginance Ministers of the G7 reached a compromise effective from their meeting in Frankfurt in June 1999. Their meetings are split in two sections. The first part deals with the global economy and exchange rate developments. The President of the European Central Bank and the country holding the rotating presidency of the euro 11 represent the euro zone. The Finance Ministers of Germany, France and Italy attend, although their central bank governors do not participate. During the second part of the meeting all other international financial issues are discussed. The president of the euro 11 is not present but the governors of the central banks of Germany, France and Italy are together with the Finance Ministers. The EU is only invited to participate on those topics in the second session in which it plays a direct role. That format is cumbersome and untenable in the long-term. That issue was addressed in the most recent report on EMU which was approved by the committee on Wednesday and will be debated in the House at a future date.

Mr. Durkan

I thank the Minister of State and Members for their contributions. The points raised were indicative of the concerns of the public and also arise from a genuine concern to make EMU work to ensure the continued integration and co-operation of the European concept in line with the original vision of the founding fathers of the modern Europe. Tragically, Europe had to rise from its ashes in 1945, as Deputy Mitchell stated. It is now unfolding once again. New horizons are opening up and the danger of ultra-nationalism can come to the fore on such occasions. It is to be hoped, however, that econ omic and monetary union and the euro will ensure it does not happen to a disruptive extent. The original concept of one European currency was thought up by Napoleon. It was seen as a plot to achieve economic dominance alongside political and military dominance for one regime. In the run up to the debates on the Maastrict and Amsterdam Treaties it was suggested by the euro-sceptics that the idea of closer European co-operation was a similar plot.

This process is vital to the well-being of this State and we play a central role in it. The smaller countries which are applicants for EU membership look to Ireland to see how things can be done effectively and how membership can be of enormous benefit. We should take our proper place on the European stage. We have gained from the co-ordination of economic and social policies. It is now recognised that small countries have a meaningful role to play, particularly in the stability of Europe. The introduction of the euro will contribute to that stability.

Deputy Wall mentioned that the British are still not members of the euro. It is hoped they will come on board. It may be beneficial to us that they are not on board but to move forward together in Europe, it is desirable that the British come on board. We all look forward to that day.

Globalisation is a key area. If there are trade barriers and tariffs, such as currency exchange rates, it puts those involved in commerce at a huge disadvantage. It is particularly disadvantageous to the ordinary consumer who goes abroad for a holiday. He or she has to change money on leaving and on returning. Senator Brendan Ryan has been very critical of that area in the compilation of this report, as has Deputy Barrett. This springs from a recognition of the need to ensure that we do our job to the best of our ability and point out to the agencies involved – the Central Bank, the Department of Finance, IBEC and other commercial interests – the need to ensure there is no downside to the change over, that people will not be able to complain afterwards that they lost out.

Economic and monetary union represents a commitment by the larger countries in the European Union to join the smaller countries under a single banner, to trade together and to use a currency which will not disadvantage anyone by virtue of geographic location, size or trade volume. We must strive for that. Scepticism will arise from time to time. That is healthy and we should not be discouraged by it. We have to move on and address the issues which arise and come to terms with them. If we do not, we are not doing our jobs.

This committee is unusual in that it comprises members who would originally have been opposed to European integration and those who were totally committed to it. As part and parcel of the committee's investigation into European law, integration and development, it has argued the various concepts in an interesting manner and has adopted some of the positions of those who are totally committed and some of those who are totally opposed to the concept. It has arrived at a point where it can produce reports which enjoy the unanimous support of all members. Any committee of 19 people which can do that is not doing badly. It includes Members from all sides of the House, all of whom have made a major contribution. None of this has come without sacrifice on the part of the committee members. There have been tedious meetings, both behind the scenes and in public, and reports have been drawn up. It would be wrong not to mention the members who repeatedly give of their time. It is very hard to get everyone to attend every meeting because they have other commitments.

Committee life is not easy. It is outside the limelight and is not the same as speaking in either House. Committees do not get the same degree of recognition in the national media or anywhere else. If the system is to work effectively for the benefit of the State it should be given more recognition. It is not true to say the work is uninteresting. It may appear to be at first glance but it is serious work which requires a great deal of commitment. If it does not receive just recognition, people will not want to be part of the committee system. Every item of European legislation is vetted by this and other committees. It is important legislation which has an impact on everyone and it is essential that we examine it and make recommendations. It is also essential that those in the business of vetting our work look in occasionally and report on it. If we are doing something wrong, let us hear about it. If we are doing something right, let us hear about that as well. I thank Members and look forward to the next debate on the large number of reports this committee has already laid before the House.

Question put and agreed to.