I support a point made by Senator Quinn relating to the engagement of the citizen in the process. I accept the Department of Finance and the financial institutions have been active in the lead up to the single currency and I noted what the Minister said about the various structures which have been put in place to prepare us. However, the Minister did not refer to the role of the citizen and small business. There was a notable absence of public debate on Maastricht and other aspects of European Union, which is one of the reasons this debate today is desirable. EMU is one of the most important things to happen fiscally for many years, certainly since decimalisation. It is important that citizens are aware of what is involved.
One negative associated with preparation for the single currency was also evident during decimalisation. The single currency creates an opportunity for retailers to increase prices during the transition period. In other words, they could avail of the confusion in relation to exchange rates to make hay. A consequence of that would be an increase in the level of inflation. If retail prices increased as a result of just the technical aspects of entering the exchange rate, there would be a negative effect on inflation which would be undesirable. Reference was made to the possibility of overheating the economy in the present circumstances and the Minister's fears in that regard were quoted in this morning's newspapers. This is one aspect of EMU of which we should be aware.
Citizens need to be engaged in this process and the media has some responsibility in this regard. They are only waking up to some of these issues as we move closer to the event and when most decisions have been made and the debate, in many respects, is virtually over.
In their preparations for entry into the single currency, the financial institutions, the ESRI and others have looked at the effects on various sizes of business. We must concede there will be significant compliance costs for some people. There will be implications even for the simple cash register. Implications for banking machines and toll bridge machines also come into play as does the question of accounting and book-keeping for small companies. There will be costs associated with EMU. The banks, in their analysis of some of these situations, have shown there are more minuses than pluses for certain sections. Allied Irish Banks, Bank of Ireland and the other major financial institutions have prepared valuable documents on EMU. We must be aware of the impact on small businesses, for example, the corner shop. Much preparation and detail has gone into aspects of Departments. The Minister said payments would be made by and to Departments. I am concerned about the degree of advice and information available to smaller countries.
A critical issue is the rate at which we enter. Obviously, it would be imprudent to state a rate which would restrict the Government's positioning leading up to entering. However, it would be reasonable to suggest that the currency should be somewhere at its mid-rate on entry. Recently, it has been very much at the top of the band which would have implications for us but perhaps not as significant as might be perceived at first because of the strength of the economy. Perhaps we may take whatever little jolt might be associated with that. However, it comes back to the point that once the rate is fixed we will not have to worry about currency fluctuations. Exporters will not have to worry about the rate moving against them in the period between the quotation and the delivery of goods to an export market. From a competitiveness viewpoint, this is desirable.
Turning to the United Kingdom and its approach, there has been a detectable shift in the attitude of the UK Government which has been even more noticeable since the Labour Party came into power. It was the perception of the former Tory Government that the UK would stay out. It is not certain what the UK will do, but the chances of it joining, though not at the start, are better than they were several months ago. I agree with the Minister that the clear priority for Ireland is to ensure, whatever happens, we qualify for EMU.
There is also the question of what we would do in the absence of EMU. The point was made that a continuation of the status quo is not an option and that there must be a degree of common currency or, at the very least, a structure whereby the currencies are linked. Deputy Quinn, as Minister, said there had been benefits to us in terms of our fiscal and economic policy by abiding by the Maastricht criteria. The Minister spoke about the debt-GDP ratio, the exchange rate, interest rate and the deficit and the fact that we qualify. At the start, we were well outside the parameters in respect of the debt-GDP ratio but the trend has been in the right direction, more significantly than might have been expected at the outset of the process when we were well outside of what was required.
Reference was made to the ESRI and the net benefits which will accrue. It was suggested that this would be the case even if the United Kingdom remained outside, although I contest that to some extent. I would be interested to know if the disadvantages outweigh the advantages. This brings us back to the level of trade and the degree to which we are dependent on the UK as a trade partner.
Another reservation I have relates to the creation of the European Central Bank. The system of central banks is fine but we are ceding part of our sovereignty to the European Central Bank. Sacrifices will obviously have to be made in sovereignty, and we have made several such sacrifices since joining the then Common Market. Those sacrifices have brought more benefits than disadvantages. However, the degree to which the European Central Bank could dictate our fiscal and economic policy is worrying. If the Bundes-bank makes a statement it can have a very serious negative effect on, for example, exchange rates. If we are locked into an exchange rate that would not arise, but questions arise on the issue of centralised influence. Senator Quinn raised the issue of the degree to which Brussels assumes it is right. If the European Union stands for anything, it should stand for flexibility, which it frequently proclaims it does. There will have to be a flexible approach to the European Central Bank.
Enlargement, Structural Funds and Agenda 2000 are issues that lead us away from the central subject of this debate, but they are nevertheless related to it. I disagree with Senator Quinn's assertion that the gravy train has stopped. It is wrong to describe these funds as a gravy train, but if it is a train, it has not come to a stop but is slowing down; it will slow down increasingly as Agenda 2000 is adopted, but it will not stop. Under GDP criteria, we will not qualify for Objective 1 status, which would entitle us to maximum accrual of EU funds. There would also be very advantageous co-funding arrangements in that status. However, there is now discussion of Objective 1 in transition, which leads to the suspicion that we will have to argue that the infrastructural and general economic benefits have been such as to warrant continued transfer of funds from Europe to Ireland.
It would be wrong, however, to overstate the degree to which our economic boom has been contingent upon those European funds. Most analyses suggests that perhaps 1 or 1.5 per cent of the 6 per cent growth rate accrues from the transfer of Structural and Cohesion Funds. Our management of the economy has been very good, and it has not just been the contribution of Structural Funds that has caused growth in Ireland. Those funds have helped, but not to the extent that some EU enthusiasts believe.
Exchange rate management will be very important leading to entry. I am content to leave it to the Minister and his officials to form a coherent strategy to get us to enter at a desirable rate.
Senator Finneran made an important point when he raised the question of changes in the Common Agricultural Policy, a matter to which Agenda 2000 is related. That may be more significant to Irish agriculture and the economy generally than EMU. While it is desirable to remove those exchange rate fluctuations which have caused problems for exporters of beef and other food products, the changes in the CAP will be very significant for the individual farmer. There will be other significant changes because of European enlargement. One of the biggest battles we will have to wage in the next five years will relate to protection of the CAP and farm incomes. That will dominate our approach to the World Trade Organisation talks, as it will be difficult to ensure that our interests are served. Trade liberalisation is a very attractive idea as it presents a package of removing trade barriers to create a world economy. I profess myself a liberal, and that doctrine is very attractive to a liberal. However, it has as much to do with American dominance of world trade as any other factor. American manufacturing and agriculture are so competitive as to give that country an edge in circumstances where trade barriers are removed.
Mechanisms will have to be put in place to ensure that retail customers are not exploited. It is an issue that will have to be examined, though I am content with the public sector's approach to EMU.
The competitiveness of the Irish economy has been mentioned in this debate, and EMU will improve that competitiveness. It is sometimes suggested that we are relatively uncompetitive from a labour viewpoint in comparison with economies such as Taiwan in the Far East. Their labour costs are much lower than ours, but a senior American industrialist I met suggested that Ireland is extremely competitive. His view was that while our labour costs on the unit cost of production were high relative to the Far East, our educated and productive workforce meant that the labour factor in the unit cost of production was less here in certain circumstances than in the Far East. That applies particularly to hi-tech industries such as Intel and Hewlett Packard, which we are fortunate to have in Kildare.
It is important that this process be seamless, from entry to the locking of rates and then to production of notes and coins. That is where difficulties may lie in establishing the ideas of the single currency and economic and monetary union. Hiccups may occur, and it is critical to meet targets on time so that there is international confidence in European determination to meet those targets. Several leading experts in this field have made this point, and it was emphasised at a Philip Morris Institute conference on Europe's global currency in Rome last year.
Regarding the euro, we will create a critical mass in currency by balancing the dollar and, to a lesser extent, the yen. However, experts will probably suggest that the dollar will be the dominant currency and that there is a danger that the euro will become a regional currency. A co-operative relationship between the yen, dollar and euro rather than a contest has been suggested as a remedy to that. We would then be in the fiscal equivalent of the World Trade Organisation.
We must stick to the timetable so that the system has credibility. It has long been the case that Ireland is committed to entry. There is a caveat about the UK, but that is no longer as serious as it was. One hopes that the positive forecasts of the long-term benefits to the Irish economy are correct and that the growth we have experienced will continue into the future.