European Economic/Monetary Union and European Political Union: Statements (Resumed).

Mr. Lanigan

I do not intend to take my full time because there is a number of Senators who wish to contribute. I am glad this House is debating these very important issues of Economic/Monetary and Political Union. In the past we have dealt with more European matters than the other House. Id am glad this House continues to fulfil its role by debating our involvement in Europe and the changing political and monetary thinking in Europe.

Since we last discussed this matter there have been profound political changes on the world scene. The changes in Europe are profound and will have a major effect on the issues we are discussing here. The reunification of Germany has changed utterly our concept of what will happen in Europe. When the programme for economic, monetary and political union was drawn up and 1 January 1993 set as the date for the conclusion of negotiations and its implementation, nobody expected that East and West Germany would come together. This reunification has changed drastically the parameters of our discussions.

Even though we all agree that the reunification of the German people is very welcome, it creates problems for us on the periphery of Europe that we could not have foreseen. We have become more peripheral because of the changes that have taken place. Changes have also taken place in other states in Eastern Europe. While we all rejoice that there seems to be a semblance of democracy in these countries, we will have to wait for many years to find out whether the changes that have taken place will bring real democracy to the people or if changes were forced on the leaders because their economic situation was totally out of kiltee and there was no way they could have survived economically. It might emerge in the future that what seems to be the democratic wish of the people might have been the wish of the rulers in certain countries to run away from the effects of their bad economic, monetary and political policies.

In Eastern Europe the potential breakup of the USSR could cause major economic and political problems which could impinge upon western Europe to a large degree. Nobody knows exactly what will happen in the USSR but it seems that the breakup there is associated with nationalistic tendencies. There is absolutely no doubt that people want to get back their own nations but there is the economic background to the changes that are taking place. Certain states within the USSR are extremely wealthy but other states will need the support of the wealthy states within the body of nations which make up the USSR.

As I said the changes that have taken place in Europe are enormous. We are looking at the matter of political reunion against a background of East-West détente where what were two Super Powers got together and instead of having an east-west political and economic row, there is to a degree an East-West coming together. There are difficulties which could be associated with that; instead of having a cold war between East and West one might see a South-North conflict exacerbated. If the union of East and West is cemented, they will have to play a major part in ensuring that the North-South conflict does not grow to the same degree as the East-West cold war. It is necessary in political and other terms to try to bring the world together as one union. Those who have should share with those who have not rather than as happened in the USSR and other European countries where the haves had it all and the have nots had nothing. There are huge agricultureal areas in Eastern Europe which could provide any amount of food needed if properly organised. This could create problems for producers of food in Africa.

There are problems associated with the current political situation but what we are concerned with this evening is not so much the international economic scene but rather the impact that 1993 will have on our economic, monetary and political situation within the European Community. As a trading nation we are very open to changes which take place on the world market. The downturn in the economies of Great Britain and the USA is having an effect at present on our potential as a trading nation. At present three-quarters of our exports go to Europe and two-thirds of our imports come from Community countries. As so much of our exports go to Community countries we must ensure that we are able to maintain that ratio. The trading nation with which we do most business is Great Britain and if that economy runs down we are in trouble. The removal of non-tariff barriers to trade within the European Community is of immense importance to us. There is a huge challenge facing Irish business firms in the run up to 1993.

Firms which put into place market knowledge, capabilities and strategies will be able to get involved in expansion within the Community of an unprecedented nature.

Ireland is producing people in the marketing and commercial areas who will be able to compete with anybody in Europe but they have to be helped. If firms do not take up the challenge their continued existence is in jeopardy. Our partners in Europe recognised our position as a less developed region and we have achieved through tough negotiations a significant increase of Structural Funds. The national programme for industrial development, prepared within the Community's support framework agreed between Ireland and the Commission of the European Community, will make an important contribution to this objective. We must continue to upgrade our transportation and communications networks with the help of the Community and we must improve our training programmes for managers and workers. We have seen up to 1989 a rapid growth in output in Irish industry but we have not seen an increase in jobs to match that. Between 1983 and 1989 there was a substantial reduction in the number of industrial jobs but since 1989 we have seen a change. The decline in manufacturing employment was reversed in 1989 and since then we have seen a significant increase in manufacturing employment. This is extremely important. That is remarkable when compared with the average netfall in employment of 4,000 per year which occurred in the industrial sector in the early eighties.

There will be spin-off effects to other sectors of the economy arising from the expansion or output in the industrial sector. The manufacturing sector, with sales of over £15 billion per year, stimulates expenditure in Ireland of nearly £10 billion per year in supportive industries, supporting an estimated additional 150,000 jobs in service related activities. There has been in the past number of years a very impressive export growth by firms which are modern and primarily foreign owned with very significant output and export sales. These firms have increased their industrial output at an average rate of 16 per cent per year since 1980. It has to be said that they could not have achieved this growth without the substantial efforts of Irish Governments who helped them to set out their plants in a modern manner nor could they have done so without the co-operation of the Irish workforce which has proved capable of adapting to conditions in modern factories.

The performance of the traditional sectors of Irish industry has been generally very poor and investment levels have fallen. There were many reasons for this. Many of those industries have outdated equipment and, irrespective of the amount of work put in by any worker in them, they would not be capable of good production levels. We have seen factories with equipment which should have been replaced 20 years ago still operating. Workers in such factories are often blamed for low productivity levels. Low productivity levels are a problem but the major problem is a lack of investment in new equipment. There has been a lack of interest in diversification in some industries which need to diversify. That does not mean that diversification is always the answer as we found out recently when a very successful firm in the agri-sector decided to diversify into other areas. We saw the results of that.

By virtue of the relative share of the two sections of the economy — one-quarter modern and three-quarters traditional — employment given in the modern area has not been sufficient to make up for the loss of employment in the three-quarters traditional businesses and because of that we have seen up to 1989 a downward trend in employment. Thankfully, that position has been reversed. There are many structural constraints on Irish industry which must be addressed if we are to survive post-1992. One of our major problems is that we are located on the periphery of Europe and this problem will become more acute when the tunnel between Great Britain and France is opened. There are huge extra costs involved in delivering goods from Ireland to continental Europe as compared to trading within the mainland of Europe. We have to export by sea or air and, because of the small scale of Irish industry and the distances involved, the cost of transport is extremely high.

Another major problem is that 90 per cent of Irish industrial firms employ fewer than 50 people and less than one-half of 1 per cent of firms employ more than 500 people so we do not get in Ireland the scale advantages that one gets in countries where there is a bigger population base. We have a very small domestic market. Incomes are only two-thirds of the Community average. This is something that must be looked at and we must ensure that even though we are small in size and in market importance we are not at a major disadvantage.

Import penetration has been significant. Competing imports account now for 44 per cent of the domestic market compared with 20 per cent in 1979. As the economy has improved over the last two to three years, the market share for imported goods has increased and, of course, as more disposable money becomes available people look for goods which, unfortunately, are imported — what we would call "high class" goods. We are capable of producing goods of a higher quality than anybody else in the world but, unfortunately, a number of companies will not develop manufacturing units here because our domestic market is so small. Even the incentives they are offered cannot make up for the very small size of the market. We have a very bad marketing. We must address the development of a strong market capability and focus Irish industry on this aspect. This is being done in many ways. A start has been made, in that Irish colleges at third level colleges are taking up the challenge of producing people with marketing skills. There are groups who train graduates and give them some marketing experience. Experience in marketing products is just as important as or more important than the excellent academic qualifications which they get.

We must improve our technological capacity as it lags very much behind that of other member states. The cost of research and development and technological innovation is enormous. Only firms which are highly profitable can afford to invest in research and development. If we do not become involved in research and development firms that locate here will use the research and development facilities available elsewhere. We must expand the science and technology section of the Department and use the excellent technological and educational abilities we have available to us in that area.

Our membership of the Community has contributed to various structural improvements here. Our export markets have been diversified. The UK market, now under threat from economic factors, is there still and is our most important market. It has declined in importance as we have doubled the share of our market in Europe. As a result of market diversification within the EC we have strengthened the capacity of Irish industry to compete more effectively on world markets outside the EC. The competitive element of our use of world markets outside the EC is extremely important and that we must go after these markets.

There is the huge market in South America that unfortunately we are not really capable of going after because we would have a language problem. We are not yet teaching languages to a sufficient degree in our schools. Hopefully language classes will become more and more important. We must look at the languages used in international commerce. English is one of the main languages that is used. French is another. German is used only in Germany. While the German market will improve and increase dramatically, nevertheless it might be more beneficial for people to learn Spanish or Portuguese if we want to develop our exporting capabilities. Countries which use spanish as a main language generally do not use English as a second language as readily as do the Germans or French. There is a language barrier. You buy in your own language but you sell in the other person's language and that is something that people forget. They think that because they speak English people should speak English to them when they are selling. If I am selling something, I have to sell in the language of the person who is buying. If I am buying it does not make any difference what language I speak. The person has to learn my language because I am the person paying the money.

Support from EC funds has helped improve the position, as has support from the RDF. That support was in the region of £195 million for industrial projects. We must ensure that the increased level of structural fund moneys available are used to give Irish industry a new market for technologically based development — an impetus which will help industry to be more competitive in the environment which the internal market is bringing into place. We cannot over-emphasise the fact that education towards selling is of paramount importance, that language is the most important element in selling anything.

Traders traded throughout the world for many years before marketing became important but in the world of today Ireland has to have marketing capabilities or else we will be left behind even if we have products and crops which are capable of being sold because of our green environment. We must create a strong and competitive industrial structure by establishing a wide range of industrial firms, both Irish and foreign, but with attributes which would enable them to compete successfully in international markets and particularly in the more competitive environment being created by the EC programmes. We must ensure the creation and maintenance of increased value-added both in the industrial and other sectors.

We must ensure the development of our considerable natural resources as a foundation for increased industrial development by promoting, in particular, development based on our natural resources including food, timber and fish. We must also promote regional development by helping different parts of the country to realise their full potential to create employment and to develop economically. The setting up of the regional co-ordinating committees will fill a major role in these objectives.

The National Programme for Industrial Development has addressed itself to the objectives for Ireland in 1992. Thirty million pounds will be spent by the IDA and SFADCo on small business development measures up to 1993 to create 27,000 additional jobs. Decentralisation of decision-making in this area is to be especially welcome. Enterprise development measures will be intensified in international services, and mentor services will be used widely to improve our chances of survival.

The Irish Productivity Centre needs to be supported. Business innovation centres at Cork, Dublin, Galway and Limerick will provide a new joint public and private developed resource of advisory services with incentives available for the promotion of small business ventures. Medium firms must be incentivised by way of advisory support and financial asistance. Overseas investment must be encouraged. To this end, over £240 million will be spent by the IDA and SFADCo on the development of this sector to create 45,000 additional jobs. The Gaeltacht areas are not to be forgotten and new business must be attracted to this end. There will be investment of £22.8 million, of which the ERDF will contribute £13.33 million, for marketing development.

We are on the way to 1993 and at this stage 60 per cent of the 279 directives in relation to 1993 agreements have been achieved at this stage. There are problems in Europe which are not being addressed at present. There are problems in the Mediterranean area which are not being addressed. Our close neighbours in southern Europe and North Africa will need developmental help from Europe. There will have to be a greater co-ordination of effort in production, in marketing, in sales and in transfer of technology in the Maghreb-Mashraq and the southern European areas. The political unifying of Europe is something people will say is well on its way, but there are huge problems associated with political unification. There are other people who will take up this point that we have to have both monetary and economic union.

The other major matter that has to be involved is the protection of Europe from outside and inside elements in terms of terrorism, looking at terrorist activities which have happened throughout the world. Very close to home we have our own group of terrorists, throughout Europe we have terrorists and we have terrorists coming in. The protection of our people is of paramount importance and there is now way we can get away from becoming involved in making certian that terrorists do not have a haven in any country within Europe, whether they be from within or outside Europe.

The issue before us is one of major importance and I feel that we should talk about it as often as is possible. Probably, at some stage, we will have to break it down into individual components and have debates on individual aspects of European Union, whether it be monetary, economic or political. A start has been made here this evening and I am glad so many people will be able to get involved in the debate over the next couple of weeks.

Mr. O'Toole

I thoroughly agree with the final point made by Senator Lanigan. The matter being discussed is so broad and so wide that people just have not been able to relate to it. I intend dealing with just three particular areas. First, I want to take up the point Senator Lanigan has made, with which I also agree about the need for an educational service in Europe which will reflect the needs of a new Europe. I also want to discuss the question of currency and the Central Bank issue. I also want to approach an issue which I hope will be discussed more fully at another time, and that is the neutrality of individual countries in a European political union.

On the question of education, obviously people will be quite aware that education is rather close to my heart and it is also the area in which I spent most of my life. This week, on behalf of the trade union centres of the OECD countries and with the employers and business representatives of OECD countries, I made a presentation to the OECD General Council on the developments that should take place in education. I want to make one petty point about that. People will be aware that the OECD represents almost all of Europe and many influential countries outside like Japan, the US, Canada and Australia etc. Every country at that meeting was represented either by its Minister for Education or its Ambassador to the OECD, every country except Ireland and one other. I must say I was ashamed. I do not know the reason for it, but there were only two empty seats at top level discussions and we were the ones who were missed. In a sense that reflects some of our double think about international and European affairs. This is mainly a European body but we do not seem to be there when it counts. It was important because it was an education for many people there to hear people making their case. The person sitting beside me making the case for education was the chairman of IBM Europe. He was making the case that I am tired of making in this country about the need to invest in education, not just on the basic question of languages, which Senator Lanigan so ably outlined and with which I agree thoroughly, but also on the whole area of training and retraining.

I discussed with the employers and business people of the OECD the needs of their industry. I also put forward my views on the need for an educational service in whatever country. One thing is clear to me. It is absolutely certain that we can no longer be satisfied producing a product through the educational system, when somebody can say "O.K. Now I have my leaving certificate, my BA, my B.Comm. my B.Ed., and that is it. I am educated and I will go on working for the rest of my life". I give the example of somebody working in the computer industry as a career. Let us take the case of somebody now in his or her late fifties who would have begun his or her career in computers almost 40 years ago. That person will have come through four generations of computers. That person will have had to be trained and retrained or educated or re-educated — whichever word we want to use — four or five times. That is the trend. Technology is flying ahead. Discovery is expanding. Knowledge is growing at a rate over which we have no control. In order to keep abreast of any job, what we need to have are people who can accept retraining, who can accept re-education, who are adaptable and flexible, people who can create a climate of learning.

What are the skills we need in the business of new Europe? We need people who can communicate. We need people with good interpersonal skills. We need people with customer skills. We need people who can change. We need people who are flexible. We need people who can train and who can be retrained. We need people who can create a climate of communication and development from which the economy will eventually gain. The reality is that we in Ireland must prepare our service for "Europeanisation" in order to exploit the opportunities of Europe, which is really what we are talking about here tonight. When Senator Lanigan was talking about selling, that was a code word. He was talking about exporting Irish goods to the rest of Europe, and why not? We all know that if we are going to share benefits we must create wealth and therefore exportation becomes very important. It is important that we say it without putting a tooth in it. The selling Senator Lanigan was talking about was Irish people selling to Europe.

Let me give one example. Our worst balance of payments ratio with our European partners is with Italy and, coincidentally, Italian is the least taught language in our schools. His case is made in that sense. If we are going to sell we have to sell in the language of the people we expect to be buying. In order to do that we have to introduce it to our schools. If we are going to introduce it to our schools it is going to cost but we must recognise that we will get that investment back a hundredfold. We must insist that we get it back a hundredfold and to do that we must make that investment. We must assemble an education system which will efficiently and effectively prepare our youth for the challenge of Europe. Teachers and parents demand a quality education. They demand a product which is excellent for our pupils and the State must respond by the provision of adequate resources.

Without a doubt, investment in education, particularly basic education because that is what leads to steps in every other direction, is an imperative for economic growth. I did not make that up. I never met any student of economics who would not go along with that. At my first lecture in economics I learned that a healthy, educated work force was the first predeterminant of any economic development. We seem to have forgotten that in the way we have cut back on health and education over the years. Nevertheless, an investment in education is an imperative for economic growth. An investment in education is a first priority of economic development and without a shadow of doubt investment in education will be the final determinant of economic success. Everything that we say about balance of payments, selling and sales, will come back to that basic point. Unfortunately because politicians in the main demand a sort of instant gratification and immediate returns, the State has been slow to provide finance resources for the educational service. Politicians know that the rewards from the investment in education are reaped in the long term rather than before the next election. Therefore we have always had to fight for those kinds of resources and investments to be made.

A recently issued OECD statistical report which I was studying about a month ago has Ireland with Greece firmly at the bottom of the European league in terms of public expenditure on basic school pupils. I do not want to misquote the report, but I think in general terms I can say the same about post-primary education. I do not have the book to hand, but it is the OECD statistical report published in December 1989. There will be a new version published by the end of this month which will give us the up to date position, which will not show a great improvement in the meantime.

Ireland's education service indeed can learn from Europe. As far as I am concerned — and I said this before — the new three R's for Irish primary education might well be: resources for education, the first R; reducing class sizes, the second R; and retirement options for teachers who feel they need a break and a move from the job, the third R. These are things which have to be addressed and everybody agrees they have to be addressed, but it will not come cheap and in order to gain from Europe we must invest in those terms.

The Government could begin moving on that and also on the question of languages. Take our unemployed teachers. We have 2,500 primary and 2,000 post-primary teachers with the skills to begin, for instance, a programme of language teaching in our schools. That might be a start in response to what was said earlier by Senator Lanigan.

On the question of the currency, the first point I want to make — and I hope somebody will contradict me before the end of the night — is that nobody knows where we are going in terms of European currency; nobody understands how it will be controlled; nobody has explained how we will have political accountability in terms of a Eurobank; and nobody can explain how we are going to face or begin the introduction of a Eurocurrency. The row going on in Britain at present is obviously very interesting and very close to the discussion that is taking place in Ireland. All I know is that we require the Central Bank to be answerable, not to be controlled but to be accountable, to those we elect to be in political control of the country, the Government. There was a certain independence, but they were answerable and accountable, and that is the way we would want it. I cannot understand how that is going to work in a single Europe or in a European union. How do we control things like interest rates? How do we control what are at the moment matters for the Central Bank? Every prognostication that I have seen in this matter has been disproved.

Remember the discussion last year about what would happen when the two Germany's came together? It was going to do that to our interest rates; it was going to do that to our balance of payments; we were going in all sorts of directions all at the same time. The only person who was saying otherwise, in fairness, was the Minister for Finance, Deputy Albert Reynolds. I was one of the few people who agreed with him at the time. I did not agree with the prophets of doom who were saying the whole thing would fall apart. A most casual examination of what was going to happen made it clear that the amount of money that would have to be printed in order to accommodate the Ostmark into Europe was no more than 5 per cent of what was circulating in the West German economy anyway, and with a 12 per cent leeway to play with — even if that whole 5 per cent was going to be used on imported and consumable products — then all it would do would be to slow down the German economy, which might be to our benefit. That seemed very obvious to me. In the heel of the hunt, what has happened is that when the East Germans got their hands on the Deutsche Marks they proved to be very careful indeed about how they spent them and most of them came out of one bank and into another. Those people who thought that the people from the East were going to buy televisions, fridges and consumer items imported from Japan found that the birthday party did not take place for all the consumer product companies of the world. It did not happen.

Similarly, in regard to the discussion that took place about the introduction of a European currency, there was a major row early this year when Prime Minister Thatcher was putting forward a viewpoint that we would go on a step by step basis into Europe. Other people were saying other things. At the moment, there is no clear line being put forward to me about how it would work but I am certain of one thing and I would certainly like a response to this if anyone can offer me one: I cannot see how we can have 12 central banks with a Eurocurrency. It cannot happen. We cannot have 12 central banks. It is the same currency and even within the Treaty of Rome, which demands that there will be free movement of, among other things, capital, and that means having a central bank for each country, it will not work despite the fact that there is going to be a Eurocurrency. We certainly need to address that point. I also want to know how the political responsibility will be tied into it and to whom they will be accountable. It seems that where we are going in Europe in terms of money is not really being addressed. What is the value of a stock exchange in Dublin at the moment? Is not the reality that I can buy on the Cologne market, on the Amsterdam market or on the London market through the screen? I wonder what our independence is at this time? Having said all that, I want to say it is not that I have any great ambitions to protect the capitalists of our society, it is not that I have any great ambition to protect our banks from the ravages of Europe — to put it quite bluntly, I would be as happy to be answerable to a French bank as I would be to an Irish one, I do not see any great difference in it from that point of view — but it is simply on the political level.

I want to say a few words about neutrality. Considering what it implies, there is no word at the moment which can get backs up quicker than talk about neutrality. I have given this a lot of thought myself. I wonder where we might be in moving towards a closer European political union. I have found the view of many people on the left of Irish politics to be over-purist; I have found it to be contradictory. I have found that many of my colleagues on the left of the political spectrum who would celebrate, quite correctly, and wish to participate in some way after 50 years with those people from Ireland who, say, went to Spain and fought on the correct side in the Spanish Civil War, are the same people who, the same day, at the same conference would say "We will not fight for or defend a united Europe" or "We will have nothing to do with any kind of a defence pack in Europe. We are neutral." What does that mean? The reality is that we have never defined neutrality. I am told that we are neutral. I have never noticed it myself. I have heard the principal bleatings from all sides of the political spectrum. I have heard a politician from a western county saying that we should join NATO and produce 30,000 jobs in Clare — that was his interest in it. I have heard others saying that we should involve ourselves in the arms industry, that there were a lot of openings there to create jobs. In other words, I have heard people from all sides of the political spectrum who have their own views and believe that we could be neutral and do all these things at the same time.

I support the idea of neutrality and I intend to define that in some way, but neutrality in Ireland has never been a principle but it has been a pragmatic response to world situations. That is as I see it. I reject the sort of confused and confusing noises that are made by people who to my mind have never distinguished between sovereignty, pacifism and neutrality. There is no distinction made between sovereignty and neutrality and they are all tied up with pacifism and with this other ides that peace is something that can be achieved without fighting for it. In the words of a Scottish folk singer, Dick Gaughan, "Peace will never come by words alone." That is the reality: peace will never be brought by speaking for it. The truth is that the essence of Irish neutrality has always been, however, to be neutral on the right side.

Let us look back at our history. This is what worries me about going into a European union. We are the country which has a shameful record of alleged neutrality. We have a shameful record of countenancing the Irish version of neutrality. As we have practiced it, it can be nothing but shameful. We have proudly and in splendid isolation stood idly by. How can we explain to future generations, or even to the present generation, a policy which meant that we stood and watched while Hitler slaughtered a nation in his bid to eliminate Jews, gays, handicapped and so on? How can we explain that we stood by and watched while Stalin murdered millions in his purges? How can we explain that we stood and watched while Pol Pot massacred millions of workers, intellectuals and others? That is what our neutrality has given us. I do not want people to turn that around and say we should accept responsibility for those happenings either, but I do want to put it firmly on the record that those things happened in the lifetimes of people who are active in this country at the moment and we did nothing about it and it is nothing about which we can be proud.

That is the only point I want to make, no more. I am not attaching blame, but I am saying that it is nothing that we need to be proud of. If that is the policy of neutrality, I want no part of it. In short, we have given neutrality a bad name, because neutrality is not a passive state. It must be a vibrant, responsible and positive position; but, above all else, it must be active. The only action I can remember us ever taking under the heading of neutrality was when De Valera rushed around to the German Embassy to sign the book of condolences on the death of Hitler, which I consider was negative and irresponsible at that time. That is a subjective view, but I state it for the record anyway.

Nowadays we have worked with and aligned ourselves with different groups and many different peoples — the Yanks with their foreign policy wrecked Central America; the British and their foreign policy led to the whole Malvinas catastrophe; the French have countenanced the proliferation of arms and involved themselves in affairs such as the sinking of the Rainbow Warrior.

The problem with discussing neutrality however is the lack of role models. Where is the neutral country? Have we seen one? Have we come across one at any stage? In the European context the one that is most normally thrown at us — the one I heard about going to school — is Switzerland. The one I have heard about in recent times in Sweden. Let us have a look at both of those countries. Switzerland — the "I'm all right attitude", look after No. 1, we will take the money of every criminal and mafia man and disruptive and degraded regime the world over, we will take their money, launder it and clean it up. That is Switzerland's neutrality. It has added nothing to world peace; it has added nothing to world development and has in fact facilitated crime and regimes of the worst types in many countries of the world. Then there is Sweden, the more modern role model; Sweden, to which we have looked towards for more progressive policies; Sweden, which I have regularly quoted myself as being the role model for many progressive liberal and positive pieces of legislation. Sweden has become wealthy on being an arms dealer to the world, selling arms to both sides of any war anywhere. That is not neutrality. That is not pacifism. That is certainly not what I would see as being a role model. It is easy to be a pacifist until somebody holds a gun to your own family or until somebody holds the country to ransom. I do not know what pacifism is about. There are very few people who would not kill to save a loved one.

It is always very easy to be neutral until we are invaded. It was very simple to be neutral while people were trampling over the Netherlands, Belgium and overall Europe through the Second World War. What would we expect of Europe if the West threw up a Hitler or a Stalin or Hussein tomorrow morning, who decided some morning before lunch to take over this little island of ours? What would we expect of the rest of Europe at that stage? How would our neutrality policy stand us at that time? How would we then remain neutral when we had just been taken over by some lunatic, and the world will continue to throw up the lunatics who may well be in positions of power at any time? History will continue to throw up these people and one of them might some day decide that this is the country that he or she wants for strategic reasons. What do we expect of the rest of the world at that time? What do we expect of Europe at that time? The world will always produce these people — leaders with policies and determinations of aggrandisement, expansion and empire building. True neutrality must defend the weak. True neutrality must be active, positive and strong. True neutrality must be prepared to fight for peace. True neutrality must be an international rather than a national initiative, and that is one of the keys to it.

In recent years Ireland's heroic contribution to UN peacekeeping forces is for me the beginning of an acceptable role model in what international neutrality and peace keeping is all about. We must be prepared to do it for peace as well. What it means is that we have to shift. We have come to a decisive stage in the Cold War in regard to the power blocs on each side, East and West. We now hear people saying "NATO is no longer relevant", "The Warsaw Pact is effectively finished". But the danger is that we will say "O.K. let us now move from NATO and set up a Western European defence pact". To me, that is just the same under another name. That to me is unacceptable. It is an error and is the danger that we will fall into.

I have gone to some lengths to explain what neutrality is and what it is not, but I am certain that we must shift the power from the war room of the Pentagon building to the peace room of the UN building. That is where the shift must take place. I want to give the justification for that. In this city tonight — peace keeping city, peace keeping people — we had gardaí out there in riot gear trying to keep peace on the streets. That is just a microcosm of the world. What we saw on O'Connell Street tonight might be the desert of Saudi Arabia tomorrow. At the end of the day somebody has to keep the peace. In the same way as it would be unacceptable and impossible to operate a country without a police force, it would be impossible to have an international peace without somebody to police that peace. The questions we have to ask ourselves are: (1) who will do that policing and (2) what is our involvement in it? Once we have established that to our satisfaction, that is where our neutrality will be and that is where our sovereignty will be, because our sovereignty will be strengthened by our dependence and inter-dependence on the nations of the world, because we will be doing it with those people in order to create a better world — in other words, we will be fighting to keep, make and create peace. But the exchange of the British Khaki or the US green berets or whatever colour the French wear for the blue of the UN would be the first move in that direction.

I think I made my views on this known in my first contribution to Seanad Éireann in April 1987 when we were discussing the legislation that went through at that time on the European Act. It is a danger that we have to look at. We have to establish a directive for ourselves. We have to understand what we are going to do and we must recognise that we have a right to defend ourselves and others. We have no right whatsoever to stand idly by and not make a positive active contribution to world peace and in that way to assert our neutrality as a very positive thing indeed.

I would finish up by saying I have touched on three points, education, very briefly the economic matter and neutrality and sovereignty. I agree completely with what Senator Lanigan said, that this subject is too broad to be comprehensive way in this discussion and, therefore, the nature of his contribution will be that people will pick and choose various aspects of European development and say their piece on it. I certainly hope that some of the things we have said tonight will lead to a more detailed debate on those aspects in the future. It is also important that the views we are putting forward here go to the test in a confrontational way perhaps. We put the case, hear the agruments and in that way make some progress towards a better Europe.

We have proved beyond a shadow of doubt, despite what the prophets of doom say, that we can hold our own in Europe with any group. We have nothing to worry about, about being submerged. We have nothing to worry about, about being isolated culturally. We have nothing to worry about regards losing our culture. These things will not happen. I have confidence in ourselves as a nation and as a State that we will assert ourselves positively in Europe but we also need to exploit Europe. In doing that, in order to create a better life for our people, we have to have the creation of wealth. As somebody from the trade union side of things I say for the record, as I say consistently, that we cannot share wealth until we create wealth.

The creation of wealth is a matter for all the social partners and it can only be done by having a clear objective of that wealth creation. The tension takes place between the different groups, the workers and the manufacturers are the people who control the means of manufacturing in terms of who gets what portion of the cake. At the moment the Government are policing that in the sense that they are overseeing the discussions that take place on it. There is a huge world out there which need hold no fear for us, a world which is full of opportunities, a Europe which is growing and developing, a Europe that has a place for Ireland and a Europe where Ireland is held in the highest regard. We must now, however, put or infrastructures in place. I spoke only about one of those, the education service. I could have spoken about others. These are things we need to do.

An example of one thing we have done so efficiently and effectively over the last five years has been the development of our telecommunications. Telecommunications in Ireland is as forward and far ahead as any system anywhere in Europe. We can do that in every other field as well — in computerisation, in information technology, in communications, productions, etc. It goes on and on. With the population profile we have, we have a generation that no other country in Europe has. That generation could be the key to European control and influence for Ireland over the next 20 or 30 years.

Mr. O'Keeffe

I want to refer to what Senator O'Toole has said, particularly in regard to education. I did not intend to speak on the education issue at all but Senator O'Toole and myself are bedfellows to the extent that both of us are involved in the education field. We have a common interest in education. I can share his sentiments with regard to the expansion of knowledge and indeed in the development of technology and how important selling to Europe is as was emphasised extremely well by Senator Lanigan in his contribution.

I can also understand that; as secretary of the National Teacher's organisation Senator O'Toole would be very concerned about the level of investment in education. While everything he says is extremely desirable, he indicates that the cost factor would, in fact, be met by the benefits derived therefrom. I can understand all of that but I can also understand that the level of cost to any Government would obviously be prohibitive if we were talking in terms of providing the type and range of language training that we need. We can talk about developing the Eastern market, we can talk about providing language training in Chinese and in Japanese without ever even talking about Europe at all.

I quite agree with the Senator with regard to the Italian market. Up to recently German was all the rage. The potential for exports to Germany and the resulting job creation was impressive to say the least but now with the coming together of the two Germanies, that is a question to be pondered. Perhaps Ireland should look to both the Italian and the Spanish markets by way of language training.

There is a number of questions I would like to pose arising from Senator O'Toole's contribution. I would like to ask what contribution private enterprise is making to language teaching and, in particular, what percentage of their profits they are putting into this area, given that a fair percentage of those companies are involved in export growth. We hear every day of the importance of selling consultancy and professional services but one must ask what contribution people involved in that area have made to the development and training in languages for export growth.

We would need to have a debate on funds coming in by way of the European Social Fund and indeed the Regional Fund. As somebody involved in third level education I must ask, in regard to the regional colleges, the universities and the higher education institutes, for how many of their courses is language training a prerequisite and part of their curricula. Have we ever quantified, for instance, the number of students who graduated in the engineering, the electronics and computer sectors and went on to be involved in marketing? Likewise, it would be interesting to learn how many of them had language training while going through college. Under the European Social Fund perhaps a prerequisite of making grants available for courses in regional colleges is that there be a foreign language dimension to the various courses.

There is also a dilemma for us with regard to the money coming from the Regional Fund vis-a-vis training. What balance is there between training and eduction? From an Irish point of view, we would need to look at what contribution training funds can make to the development of languages. We would all agree that we would need to look at the courses being provided and the relevance they have to what we would term an export growth economy. We would find many of these courses deficient in that sense.

I also ask, having again some knowledge of the Marketing Institute of Ireland and their courses, having a knowledge of the various federations, how many of these people are concerning themselves with language and with export growth. This is a vast area. I agree with Senator O'Toole it is something we should look at more fully on another day. The result of any such discussion should be very fruitful from the point of view of the Irish economy in the long run.

I wish to go back to what I set out to speak on. With the advent of the European Economic Union I believe it is necessary to set the scene by examining closely the economic entity in Ireland prior to taking a plunge into partnership with other member states. By doing this we can establish how amenable union is and how prepared we as a nation are for it, what advantages can accrue to our economy and, indeed, the pitfalls that we as a small nation would need to avoid.

Last year showed substantial growth in output and employment. There is moderate inflation and there is certainly further progress on the budgetary fund. The up-to-date figures indicate that the domestic output increased by almost 6 per cent while GNP itself grew by 5 per cent. Personal consumer spending increased by 5 per cent and investment grew by 12 per cent. All of these are positive barometers. The composition of the growth in 1989 was very much employment-intensive. The private sector expanded rapidly, whereas unemployment continued to fall right across the economic spectrum. Our balance of payments remained comfortably in surplus last year. While inflation increased somewhat, that was due to the external influences. Nevertheless the domestic costs in income developments were moderate and led to a further improvement in the economy's competitive position.

When we look at the prospects for 1990 they show that economic growth still remains satisfactory though obviously the accelerated pace of expansion will be slower than in 1989. World economic growth has been slowing down from the very buoyant rates of last year, and it certainly goes without saying that the Gulf crisis adds considerable additional uncertainty to any forecast of economic prospects for an open economy in the short to medium term. Apart from all these uncertainties, however, the prospects for our economy in 1990 are still favourable. Economic growth still remains relatively strong with GNP likely to expand by over 4 per cent this year. Consumer spending again is growing by 3 to 4 per cent, investment is expanding at a rate of about 10 per cent and inflation remains at 3 per cent. That is even allowing for the recent increase in oil prices. It compares extremely favourably with the UK rate of interest, which is almost 11 per cent. If we look at industrial output we will see that the growth is likely to be about 7 per cent this year, following 12 per cent last year. Exports again remain buoyant and we expect to have a very healthy trade surplus at the end of the year.

Unfortunately jobs always are the last link in the chain of economic recovery. I am glad that that now is beginning to come right and that employment over the three year period to 1990 has increased by an average of 13,000 per year, and over the past three years the increase in the non-agricultural private sector employment has averaged well over 20,000 per year. On top of all that the interest rate recently has been cut by ½ per cent bring the total reduction for the year to date to 1½ per cent. This cut, it should be remembered, was facilitated by our strong external reserves position and by the strong currency policy which the Government are pursuing within the EMS.

We should also be mindful of the calm response to the Irish money market, to sterlings recent entry into the exchange rate mechanism rate of the EMS. That surely, in my view, must be a further indication of the growing maturity of our financial markets. It also confirms the fact that the Irish economy is being judged on its own merits rather then by reference to the UK, something we all had reservations about over the years.

We should also remember that Irish interest rates and inflation have tended to converge with those of stronger European economies over the past few years. We still have some way to go on interest rates. It is worthy of note that the diffential between the Irish and the German three month interest rates has improved by over 7 per cent since 1987. There is absolutely no reason to suppose that further progress cannot be made in this regard. I would also like to remind the house that the Bundes Bank recently increased its key official rate by 0.5 per cent. This received considerable publicity because it led to speculation that there would be consequent pressure on interest rates here.

The German official rate having being increased, it transpired that the French authorities actually reduced their rates by 0.5 per cent. There is no reason to conclude that the option of the Bundes Bank should have an impact on our interest rates. On the contrary, I suggest it would be necessary again to point to the strength of our external reserves. At the end of September, to show Senators what the figure was like, it was of the order of £3,700 million, which is an historically high figure.

We have certainly more uncertain conditions facing us in 1991. I am pleased that the Minister for Finance has spelled out again that bedgetary discipline and cost containment are essential prerequisites for progress. It is only right that we should wish the representatives among the social partners success in the negotiations that are now under way and that will be so important to our economy. I issue an important reminder to all of them. Nominal pay rises are not a sacrifice. In fact they can be translated into higher real incomes and more rapid employment grawth in the future.

There is major confidence in the economic management. Economic management, now that we are thinking of monetary union, is even more important than ever because that confidence has been successful in attracting funds. It is interesting to note that up to one third of Irish gilts are in the hands of nonresidents. This definitely is an indicator of the growing confidence in our economy. It serves also to sound a warning as to how fragile the balance can be and how easily outflows can lead to severe disruption if confidence in the management of the economy began to falter.

Monetary union has been in mind since 1950, it is not a new concept. It was the ultimate objective for those who had a united Europe in mind. Since the oil crisis in the seventies progress has been retarded in that companies within the EC became very defensive and inward looking towards their own economies. With the passing of the Single European Act and, particularly, now with the findings of the Delors Committee, a solid basis for further work has been put in place.

One of the most important features of the report is the special recognition of the difficulties pertaining to the poorer and the peripheral regions. While not making specific proposals it acknowledges that the Community policies in the regional structural field will be necessary to bring about the best allocation of resources and spread those gains throughout the Community. The contention is that the peripheral regions may fall behind unless appropriate counteracting measures are put in place. It will, in my view, require further action designed specifically to close the development gap between the rich and the poor regions. This, in turn, may even require an increase and a broadening of the Community budget to strengthen existing policies and to develop new ones in support of cohesion. It is gratifying to note the Commission's recent idea of a scheme of grants or loans to help member states overcome their difficulties with major policies and it is something that must be welcomed by everybody here. One of the main problems that will arise from Ireland's point of view is the question of tax harmonisation. The House is aware that there is a great variety of tax regimes and tax practices throughout the Community. There has not been great progress to date in achieving uniformity. However, at long last, there is a realisation, that harmonisation is essential and that the matter must be addressed urgently.

Progress over the last year can be reported in the area of VAT. The new system will allow imports and exports to move freely without border controls. Discussions are now centred on the technical arrangements to make this work. What has yet to be decided, however, is the level of VAT and excise rates to apply after 1992. It is quite clear that our rates, will have to approximate closely to those in Northern Ireland if serious diversions of trade are not to occur. I suggest that any such distortion would be contrary to the Single Market philosophy but the process of bringing our rates into line with lower UK rates will be an extremely expensive one: It is estimated that it will be something like £600 million annually. Obviously, the Government and the country must look to the Community as a whole to assist in a solution to this problem.

Members will also be aware that barriers to capital movements are to go before the end of 1992, I will revert back for a minute to 1987. At that time we had an extensive range of controls over capital movement, particularly over portfolio investments overseas. Today virtually all of these restrictions have been removed with the exception of those on the opening of foreign currency accounts by private residents. We have gone down the road quite a long way and my understanding is that the Minister intends to put proposals to the Government shortly to provide further interim relaxation of controls leading to the full removal of these by the end of 1992 at the latest.

We are now four months into the first stage of economic and monetary union and there is no doubt there is a great degree of progress to report in preparing for the Inter-governmental Conference. There is broad agreement concerning the basic principles which would form the budgetary monetary aspects of the union which is in its final stages. The proposal for common monetary policy will involve the creation of a new independent institution, possibly entitled the European System of Central Banks, with price stability as its principal objective. I should like to refer to what Senator O'Toole said about the Central Bank and indicate that my understanding is that basically we are going to have one new institution and each national central bank will be basically a sub-agent for it. If we are talking about economic, financial and other unity then total integration is a must in this regard. I hope that will get over any fears the Senator might have. I am conscious that other speakers want to get in and I will conclude.

Mr. Howard

I want to make a few general observations in relation to our position versus Europe. I want to project impressions I developed as a result of visits, first of all, to east Germany in recent times and, subsequently, to the European Commission in Brussels. I want to advance reactions I found there in relation to our situation and, particularly, in relation to certain points the Minister made.

I accept that progress is irreversible now. The Single Market, as the Minister said, is well on its way to completion. He spoke of the cohesive dimension of the Community which is also well on its way the fact that the qualified majority aspect of decision-making, has been brought in and that economic and monetary union is irreversible. It would appear that the only personality who might be in a position to put a brake on that is at risk at present. That is what confronts us.

I had, on the occasion of both of those visits, an opportunity to assess the political and industrial attitudes to what the Europe of the future will be. German unification, as we all know, has been resolved in a very peaceful and satisfactory manner. Fortunately, for Ireland in particular, the resources of West Germany were sufficient as it were to finance the absorbing of what was East Germany into the present German State.

We have ongoing developments in Central Europe, all of which happened in the last 12 months. The trend that ran through the projections of many of the people I spoke to was that the economic powerhouse of the Europe of the future was in central eastern Europe. The new Germany, together with Austria and Switzerland, Czechoslovakia and Hungary have the work ethic, the industrial tradition and background. There is a capacity there for economic development that is not available elsewhere. I would expect because of that attitude which I found in influential quarters, that with any funds which become available within the Economic Community there will be a tendency to go in that direction with them.

The eyes and the interests of what I accept as influential people in both the political and industrial sectors are looking eastwards and particularly at that grouping. It was also made quite clear by them that countries such as Czechoslovakia and Hungary and, to a certain degree, Austria, in time will require aid to achieve the economic progress that was spoken about. Poland was looked on as a kind of after thought. What crystalised that thinking and brought it into focus for me was that one of those people, looking up at a map of the world, said: "It is fine to talk to people from Ireland, there it is up in the north-western corner of Europe, a remote island out there". It was worrying to discover that attitude among people who have influence in the political and economic fields. Something else that caused a certain element of fear was that on my drive through East Germany I looked at the rolling miles of farm land, land with a tremendous capacity to produce food. Certainly, where volume production is concerned, we are not at the races on this island.

There are serious implications for the economic development of our country. The Minister said "we will be seeking an outcome to the Inter-governmental Conference which will ensure that the periphery is afforded the same opportunities to benefit as the centre." I fully support that. I know it is the attitude of the Minister and the Government. I know it is the attitude of every responsible person in this country but to me that attitude may well find itself in competition with the attitudes that I encountered and that I referred to. We are that island out on the north western corner of Europe. I do not want to say that in relation to Europe we are in a somewhat similar position to the Aran Islands vis-a-vis Ireland but the thinking of some people, as expressed to me, left me with that distinct feeling.

Debate adjourned.

Acting Chairman (Mr. Mooney)

When is it proposed to sit again?

Mr. Wright

At 10.30 a.m. tomorrow.

The Seanad adjourned at 9.30 p.m. until 10.30 a.m. on Thursday, 15 November, 1990.

Seanad Éireann debate - Wednesday, 14 Nov 1990