Will the Minister indicate to what extent he can plan for as efficient a transition period as possible? Much concern has been expressed, particularly by the smaller commercial sector, about the need for a dual pricing system for up to six months, if that arises, and the costs involved. Will the Minister outline his thoughts on this matter and whether his advice is that there should be a tendency towards a short and efficient period to complete the changeover from IR£ to the euro? What is the thinking among his ECOFIN colleagues on this matter which concerns many people who have considered it? However, the real issue in the context of the changeover to the euro is that too many people, particularly in small and medium sized enterprises, are not yet thinking sufficiently about it. If they put their heads together, the volume of concern would be much more audible. I am interested in the Minister's views.
Economic and Monetary Union Bill, 1998: Committee and Remaining Stages.
I support Senator Doyle's comments. The transition period will be the crux of the matter in terms of how it affects retailers and consumers. Everybody remembers the problems in 1970 with the onset of decimalisation and the allegations at the time that there was widespread abuse. People profited from the confusion over the value of the new coins in comparison to the old money. If there is a long transitional period, there is a greater opportunity for abuse. Another aspect is the staffing of small businesses and how they will be resourced.
In the context of consumers, Senator Quinn raised the point yesterday about the operation of buses for the six month period. Confusion will result with, for example, people paying in punts and receiving change in euros. That will create a great deal of trouble for a considerable time. Protecting retailers and consumers in this regard will be the key to a successful transition.
I hear what Senators have said. This matter has been raised on a number of occasions during the passage of this and a previous Bill. It has also been raised by the retail trade and customers.
Senator Costello referred to decimalisation. There is a perception that retailers availed of the opportunity at that time to hike up prices which led to an inflationary spiral. Everyone, including myself, believes that to be the case. I was very firm in that view until I read a recent article by the eminent former Taoiseach, Dr. Garret FitzGerald, in which he said that might not have been the case. He produced some compelling evidence for his view that what we had all believed happened in 1971 did not in fact happen. He provided chapter and verse and a considerable amount of back up documentation, and more or less concluded that the facts did not seem to back up our belief about what happened with decimalisation. We examined the matter in the Department of Finance and, to be blunt, we are not too sure if Dr. Fitzgerald is right or wrong. The question has not yet been disposed of by historians. However, people, including myself, strongly believe that decimalisation did have that result.
There has been a big change in consumer attitudes since that time. People are far more aware of competition and act accordingly. Dual pricing is primarily a matter for the Director of Consumer Affairs. The Department of Enterprise, Trade and Employment and the Director of Consumer Affairs are working on a national code of practice on dual pricing and will be consulting fully with consumer and other interests.
In answer to Senator Doyle's question as to what will happen from 1 January next, we believe the ordinary Irish pound notes and coins will still be in circulation and euro notes and coins will not be in circulation until 1 January 2002. However, we believe many of the big retail outlets will operate dual pricing from that date.
From next January?
Yes. Most big shops will operate dual pricing from next January in order to have a competitive advantage and show they are first off the mark. That should feed down the line to smaller shops, etc.
Senator Doyle and others made the point yesterday that the Bill gives the Minister power to set a date between 1 January 2002 and 30 June 2002 from which Irish pound notes and coins will no longer be in circulation. Irish pound notes and coins will be hoovered up during that period and euro notes and coins will be put into the system. The point was made very strongly by Senators that we should opt for a quick sharp shock if at all possible; this will be borne in mind. We are almost four years away from 30 June 2002, which gives us a long period to plan and during which matters will evolve.
Senator Doyle also made a point about the state of preparedness of small and medium sized enterprises for this changeover. I quoted yesterday from a recent survey conducted by Forfás which used a benchmark survey conducted in June 1997. While the awareness of small and medium sized enterprises has increased they are far behind the bigger operations. We published a national changeover plan last year, with a second edition published in January, and we will publish a third edition later this year. The euro changeover group, which is now the changeover board, has brought all these interests and groups together and a mountain of information is available.
Over the past year I have opened a number of seminars on the subject of the changeover, primarily run by financial institutions. While only specialists turned up to these seminars in 1997, any conferences I attended this year have been packed. I even went as far afield as a seminar in Belmullet, County Mayo — the next stop is New York — which was attended by ordinary retailers and members of the public. Small business people are becoming more aware and are being brought up to speed on the changeover; this awareness will increase.
Yesterday Senator O'Toole compared this changeover to the changeover to decimalisation in 1971. He made the point that that was a far more dramatic change and that we are far better prepared for this change. He said we handled the change to decimalisation fairly well and he was certain we would handle the change to the euro equally well. I am inclined to agree with him, on balance. However, as I said yesterday, people should start preparing for the change from today. Regardless of the size of their operation, business people should put someone in charge of handling the changeover; in most cases this will be themselves.
I need your direction, a Chathaoirligh, on whether I should raise this query under section 9, section 10 which deals with the legal tender amounts of coins or the sections dealing with the provision of coins, the calling in of coins, the redemption of coins or the prohibition of melting down of coins.
Senator Finneran raised this issue yesterday. It is quirky but it could arise. What will be the legal status of our present notes and coins post June-2002? For example, what will be the status of notes and coins found one, five or ten years later in a shoe box under an elderly person's bed or under the mattress or in the attic? How will they be dealt with?
That is an awkward question to answer. I want all Irish notes and coins to be hoovered up before 30 June 2002 at the latest. The strict legal position is that Irish notes and coins will no longer be legal tender after that date. Post 30 June 2002 the Central Bank will honour and redeem Irish pound notes and coins. However, we want to encourage people to bring in all Irish pound notes and coins, regardless of where they are kept, before that date.
For how long will the Central Bank redeem them?
I hope for as long as our political careers endure. It will redeem them for a period after that date. The legal position will be that Irish pound notes and coins will not be legal tender as and from, at the latest, 30 June 2002, or, if the Minister for Finance so decides, from an earlier date between 1 January 2002 and 30 June 2002.
However, they will be redeemed by the Central Bank?
Yes.
They will have an antique value then.
Some people may hold onto Irish notes and coins because who knows what value they will have in 20 or 30 years time. I am sorry I did not keep farthings and ha'pennies for my own interest, as much as for anything else.
Yesterday I raised the query that Senator Doyle raised today. However, I had a further query as to the rate at which a punt would be calculated in 2010. Would it be calculated at the 2002 rate or will there be continuing evaluation?
No. This is a good question.
The rate that will apply will be that of 31 December 1998; when the conversion between the punt and the euro takes place, that will be the rate of conversion forever.
Regarding the rate of 31 December 1998, is there any likelihood of that changing between now and then? Is the Minister contemplating further revaluation and not devaluation?
Since becoming Minister for Finance, I have made a virtue of saying nothing about currency. I was asked about this yesterday and referred people to what was said in the communiqué after the revaluation meeting of 14 March last, when the monitoring committee said that the central rates were for all the currencies and would apply from now on. That remains the position. Some commentators have commented on this, perhaps with a view to encouraging speculation in the markets, but I have steadfastly refused to speculate about the markets, which have generally taken the view since 14 March that nothing further will be done in this matter. I am not considering anything to dissuade them from that viewpoint. People can read clearly what I have said. It is almost 6 months until 31 December, not a very long period.
I raised this matter with the Minister yesterday and he answered quite extensively. It is now three months since the March meeting and, with the wisdom of hindsight, did we revalue sufficiently then?
I have no doubt that my decision in March was in the overall interest of the Irish economy and will be proven by time to have been very farsighted.
I seek the Chair's guidance if I am not addressing the right section. What is the position with the operation of the Irish Mint in issuing coins? What role does our mint play in the production of legal tender for the euro? I hope good business is being generated here.
Senator Doyle is right in that nothing will change in this regard. The Irish Central Bank and Mint will issue notes and coins on licence from the European Central Bank, so there will still be a profitable business for our Central Bank.
Are we likely to have any more legal coinage issued or will there be a dearth of good quality notes and coins in the run up to 1 January 2002? Is there likely to be a problem in this area? I understand the logistics and that we must be practical but, in the retail and consumer contexts, are we likely to have dirty scraps of notes in our pockets for the next four years?
The Central Bank will operate in the same way for the next three and a half years as it has done up to now. Staff from the Central Bank are working on this major logistical operation up to 1 January 2002 and the bank will continue to issue notes and coins in the normal fashion. I am sure that coming to the end——
I cannot imagine they will issue notes in the last year.
Society is becoming cashless, but Irish notes have a very short life.
What is the life span?
It is one year, which is quite short by international standards.
Will the Irish Mint and the Central Bank get the contract to produce the euro?
The Mint and the Central Bank will issue euro notes and coins on license from the ECB; they will not all be made in Frankfurt. Each country will issue its own euros to the same standard.
Its own quantity?
That will be decided by the ECB and the Irish Central Bank, but coins in circulation in Ireland will be made in Ireland. Those travelling abroad will get coins minted in other countries, but the Irish Central Bank will produce notes and coins on licence and under direction from the ECB. The other ten participating countries will operate in the same way.
Does this section mean that when the Minister finishes hoovering up coins they cannot be melted down?
Section 17 applies to section 15 of the Decimal Currency Act, 1969, to coins issued under this Bill which may be coins denominated in euro, commemorative coins and to euro coins issued by other participating member states which will be legal tender in Ireland. Section 15 of the Decimal Currency Act, 1969, prohibits any person other than the Central Bank, or a person licensed by the Minister for Finance, from melting down any coin issued under that Act, any earlier Act or any coin which is current elsewhere. What was the Senator's specific question?
The Minister has helped me already. Regarding the prohibition of melting coins, I presume we can melt down our coins that are no longer legal tender?
We have always been able to do that under the Decimal Currency Act, 1969.
Regarding the euro notes and coins, I understand that different member states will have different insignias on their coins, and that the harp will be on our euro. If a person brings notes and coins back from another country, will those be accepted without penalty? We do not want the present situation to prevail, where coins are not acceptable in bureaux de change. I would like free movement of coins; it should not matter if one uses a French euro coin to pay for a pint in Foley's.
Or for a half litre.
The pint is recognised.
One of the advantages of the new single currency is the elimination of all such problems. The notes will be common throughout the 11 participating countries and may be produced under licence from the European Central Bank. For example, notes used in a shop in County Roscommon will be similar to those in use in France. Coins are somewhat different but there will be exchangeability throughout the 11 participating countries. One side of the coins, which will have a map of Europe, will be common throughout Europe while the obverse, in the case of Ireland, will contain the word "Éire", the year, the harp and the 12 stars of Europe. The coins will be similar throughout the participating states in terms of minting. It will not be necessary to change them in a bureau de change as they will be totally interchangeable in the 11 states. Only if one is travelling outside the 11 states, for example, to the UK or Denmark, will it be necessary to change currency, in these cases to sterling or kroner, respectively. In the other 11 states the problem of changing currency will no longer exist whether one is in Bonn or Ballydehob.
The system already exists in Britain with different 50p pieces.
What does the word "Éire" mean?
The word is used in the Constitution. I cannot give a definitive answer.
Perhaps it is better that the Minister does not give a definitive answer. It is an interesting point. The word is used on existing coinage. However, the legal status of the word "Éire" is quite insecure and I am wondering whether we should perpetuate it.
I will give a treatise on the origins of "Éire" in the course of the debate.
The Minister will find an explanation if he examines the work of de Valera, etc. The word is used in connection with nothing else in the country.
Does this section mean the NTMA will be redundant?
No. The section deals with the redenomination of the outstanding debt into euros. Subsection (1) provides that the Minister for Finance may by order on such date or dates and under such terms and conditions as he or she determines, redenominate into euros all or part of the outstanding debt issued by or on behalf of the State under Irish law and denominated in punts. Subsection 2(a)(i) provides that the Minister for Finance may redenominate into the euro unit any debt he or she has issued in a currency to be replaced by the euro, provided the member state in the currency of which the debt is denominated has redenominated all or part of its national currency sovereign debt into euros.
Subsection 2(a)(ii) provides that the method of redenomination used by the Minister for redenomination under subsection 2(a)(i) must be that laid down in the law of the member state under which the debt was issued. Subsection (2)(a)(iii) requires the Minister to give at least one month's notice in Iris Oifigiúil of his or her intention to effect a redenomination into euros under subsection (2)(a)(i) of any debts issued in a currency to be replaced by the euro.
Subsection (3)(a) relates to facility agreements in respect of borrowings which State bodies have with financial institutions. It provides that subject to certain conditions, where amendments to facility agreements consequent on the introduction of the euro are agreed between the parties to them, there will be no need for the parties to obtain ministerial consent to change the terms of the contract to these ends. Subsection (3)(b) provides for the same waiver as subsection (3)(a) in relation to State guarantees given in respect of borrowings of State bodies. In other words, the section gives power for debt to be redenominated into euros. The NTMA will continue in existence as it deals with all matters relating to the national debt.
My question was facetious. I understand that much of the currency juggling to save interest by the NTMA has been done by very successfully playing the European currency market. This possibility will not be available to the NTMA when we are tied into the euro. What impact will monetary union have on the ability of the NTMA to continue being successful? It may look to other global currencies, but will Union impact on its manoeuvrability and ability to do the job for which it was established?
My questions relate to redenomination in the context of share capital and companies. In the context of the national debt or a company, does a ministerial order simply involve a stroke of the pen or will it involve a commission? Will any charge accrue to the Government or in terms of share capital?
Sterling will not be part of monetary union at the beginning. Up to 40 per cent of our business is with the UK and many companies will have no choice but to maintain part of their operations in sterling. If sterling joins monetary union in the not too distant future, as intended, will the same rules apply in terms of redenomination? Will those who hold on to sterling receive its face value at that time? Can the market be played in the context of how sterling will perform vis-à-vis the euro?
I assume that section 23(2)(a)(i) will come into operation when sterling, as expected, joins the single currency and that it will be possible to denominate the sterling part of a debt, if such exists, into euros. In other words, I presume a new section or Bill will not be necessary.
Senator Doyle raised the work of the NTMA vis-à-vis different currencies. One of the great advantages of the single currency will be that it will reduce the vulnerability of exchange rate risk for the NTMA in dealing with those currencies. A very successful operation can be run and very good rates of interests obtained through borrowing in deutsche marks or French francs, etc. Currently, if the rate of exchange goes against us, the overall situation will be worsened. For example, on 31 December each year a figure is given for the total national debt. The end of year total national debt account is shown in various currencies but the final figure is given in punts. A conversion is done on the basis of the conversion rate applying on 31 December. At the end of 1996 the conversion rates were very favourable with the punt being dramatically lower than the previous year. In 1997 it was a bit higher. A spot rate has to be taken on the date of conversion. In dealing with bonds issued in other currencies the NTMA will not run an exchange rate risk which will be an advantage.
At the end of May 1998 the national debt was £30.23 billion. Of this, £3 billion was in currencies to be replaced by the euro while £4.8 billion was in non-euro currencies, namely, sterling and US dollars. By the beginning of next year the composition of the national debt will be somewhat different as some foreign debt will be maturing and refinanced in punts. However, it is unlikely to significantly affect the broad order of magnitudes to which I referred.
On our succession to monetary union the £3 billion of our debt which is in currencies being substituted by the euro will effectively become domestic debt and thus not be exposed to foreign exchange risk. For example, if the Irish debt is in French francs and deutsche marks, it will be converted into euros so it will become part of the domestic debt. The debt will be expressed in euros on the balance sheet.
Deputy Costello asked what the financial institutions will do because costs will have to be borne. Senator Dardis made a point about sterling when it joins. The amount of national debt which will be non-domestic after 1 January will be expressed in sterling. If sterling joins EMU in years to come, the same will apply as with the other currencies. At present, interest rates in the UK are considerably higher than in Germany. Two weeks ago the Bank of England raised interest rates again.
I do not want the Minister to get into the area of exchange rate because he handled it well in the past and I would not like him to say anything today which would prejudice our actions in the future. Given the exposure on sterling when the euro comes into being and that stability will operate by denominating debt in the euro, it would seem attractive to take the best spot rate before sterling joins and convert to the euro at that point.
That would be an operational decision for NTMA, which is what it does successfully. It tries to anticipate these flows one way or the other. That is what every foreign exchange dealer hopes to do as well.
This section refers to the transfer of Central Bank functions. On Second Stage I raised the question of the interests of small countries. The European Central Bank will be responsible for decisions made with some guidelines from the Commission. What type of protective measures are in place for our Central Bank? What is the position between our Central Bank and the European Central Bank in relation to decisions made? Will there be a consultative process? We do not have anybody in the managerial section. Will a person or unit from each country be consulted by the European Central Bank on decisions made on interest rates and so on?
A carefully worked out structure has been put in place in relation to the European Central Bank. The executive board of the bank will comprise the six people whose names were announced on the first weekend in May. Mr. Duisenberg has been appointed president and there will be a vice-president and four other members. They will comprise the executive board of the European Central Bank. The governing body will be the governing council of the European Central Bank which will made up of the six executive board members plus the governors of the Central Banks of the participating member states totalling 17 persons. They will make the policy decisions which will be carried out by the executive board of the European Central Bank.
The governor of the Irish Central Bank, Mr. Maurice O'Connell, will sit on the governing council of the European Central Bank. The governing council will make the decisions on the policy of the European Central Bank which will be carried out by the executive board of which Mr. Duisenberg is president. The European Central Bank formally came into operation on 1 July, in accordance with the Treaty, but it has been operational for the past month. The European Central Bank makes decisions on interest rates and other matters relating to its area of jurisdiction.
As I pointed out, all participating member states have handed over two tools from their financial armoury. The ability of each country to set its own exchange rate has been subsumed into the European Central Bank as has ability to set interest rates. That applies to this country and the other participating member states.
How does that tally with the statement made by Mr. Duisenberg? He was reported to have said at the launch of the European Central Bank that Germany and France, the larger countries, would determine interest rates and that they would definitely fall. That does not suggest much consultation. Decisions will be made by the European Central Bank. What will be the status of the governors of each Central Bank in terms of taking on board advice on their economies?
We must be clear about this issue. The European Central Bank sets interest and exchange rates of the euro against other currencies. The Irish Central Bank no more than the Belgian, French or German Central Banks no longer has these powers. The Central Banks will continue to exist because of their prudential role in relation to financial institutions and the wide variety of activity which they undertake. Interest rates will be set by the European Central Bank and neither the Bundesbank nor the Irish Central Bank will have powers in that regard. The powers of the Irish Central Bank and the other banks will be subsumed by the European Central Bank.
There was nothing too startling about what President Duisenberg said in Frankfurt on Tuesday.
He said what we were all thinking.
There was nothing surprising about it because he had said it before. When the Irish Central Bank sets the short-term interest rates it does so for the entire country. If there is a problem in the south-west, it does not set a lower interest rate for Cork and Kerry, a higher one for Dublin and Kildare and another for Donegal and Cavan. The Irish Central Bank does not operate in that way nor will the European Central Bank, which will set interest rates and make decisions on policy on the basis of what is in the best economic interests of Europe as a whole. The Governor of the Irish Central Bank and the governors of the other banks and the executive board, which will make up the governing council, will be involved in that decision making process.
Some people have tried to read into what Mr. Duisenberg said the other day something new which should not have been said. It would have been surprising if he has said anything else. The Irish Central Bank sets interest rates in the best economic interests of the entire country and does not differentiate and apply different interest rates to particular regions.
It is amazing the way some economists like to have a number of bites of the cherry. They blame politicians for trying to have it both ways but no group is better at that than economists and financial analysts. If the records are checked it will be found that all over the world, and not just in Ireland, they have been wrong in their predictions over the past 30 years.
Several years ago a big selling point in Ireland joining a single currency was the prospect of lower transaction costs and, more importantly, lower interest rates. Senator Doyle and I are of the same vintage. We attended UCD at the same time and lived through our political and business careers with interest rates three times what they are today. Many of my friends were put out of business because of colossal interest rates. One of the great recent successes of the economy has been lower interest rates, which have enabled it to sustain its present high economic growth rates.
The economists and analysts who, 15 years ago, called for lower interest rates as a spur to business are now saying that low interest rates will be very bad for the economy and will engender inflationary tendencies. They did not want us to join the single currency for other reasons, primarily because they thought it would not work. They should be consistent in their argument. Nevertheless, they have successfully persuaded people that lower interest rates are bad because they will cause a spiral in inflation.
I am prepared to debate with economists whether lowering interest rates at present will have much of an effect on inflation. It is an open question. No economist predicted that the economy would grow at a rate of 7 to 8 per cent on average over the last number of years with inflation at 1 or 2 per cent. Indeed, had people made such a prediction they would have been laughed at, yet it happened. This is not an exact science.
France and Germany are the largest economies in Europe. According to a recent survey France, Germany and Italy make up approximately 75 per cent of the GDP of the 11 member states joining the single currency. I was not, therefore, surprised at President Duisenberg's remarks. He had made them previously.
President Duisenberg baldly expressed what we had been thinking and saying for some time. He said interest rate policy in the euro zone will be set to meet the requirements of the bigger member states, such as Germany and France. The Minister's analogy about not setting different interest rates for Counties Cork and Kerry as opposed to Counties Dublin and Meath is irrelevant here. The President's remark sticks in my craw, not because it is not what would probably happen but because, if it is to be top of the agenda of the ECB and policy driven by the President, one wonders where the interests of the smaller member states will get a hearing.
The differing economic cycles in the different euro countries means that, because of the success of the economic management in this country for some years, the policies set by the ECB will not, or may not, be in our best interests. We do not know. The Minster said 95 per cent of our economic analysts have been proved wrong in their forecasts over the past 20 years. To whom do the Government and the Department of Finance listen? Who is expert in this area? How does one define a professional economist or economic consultant? The bigger the name the more often they have been proved wrong.
True.
The names that do not make the headlines in the business and economic pages have possibly been right. There is something odd about the commentators in this area, who we have put on pedestals. They have been prophets of doom and gloom. Perhaps it has something to do with the Irish psyche or the maudlin nature of Irish people.
Perhaps its the weather.
Not enough sun. The seasonal effect of disorder. There is something wrong and it affects all sections of the community. There seems to be something wrong if the people we look to to comment and guide those of us with no expertise in this area have been proved wrong 99 per cent of the time over the past 20 years. That is a frightening scenario. I hope the minority of those who point to the US and other economies, with their high growth and low inflation, will be proven right and that the bigger names who do not allude to this phenomenon will analyse this and see if, with an even greater reduction in interest rates here, growth will continue without overheating and without price inflation.
I hope the Minister is right. I gather from more economic commentators this morning that the proposed reduction in interest rates may not be the full 2 per cent. We are now being prepared for a reduction of just over 1 per cent, which is probably nearer the reality, perhaps to dampen expectations and stop the money being spent in the prospect of greater reductions. In view of this, I hope there are enough serious commentators who can urge caution on those who would continue to be prophets of doom and gloom. Perhaps they are hedging their bets and are into worst case scenarios and want to be sure they have covered every option. It is depressing to listen to the views of the Minister and of the economic commentators and financial analysts. It is Hobson's choice. They are contradictory in the direction of their views. One picks a commentator and one has a future. I hope the Minister's natural optimism is justified. We support him on that.
I am at a disadvantage in that I do not have a copy of the Central Bank Act, 1989, before me. Do I interpret the insertion of this new subsection (4A) in section 134(4) of that Act to mean that there should be no political interference in the Central Bank? The subsection states:
No direction under this section shall be made by the Minister in respect of the performance of any function or duty of the Bank, .
Will the Minister assure the House that this will not preclude a healthy financial services authority being brought into play to ensure that those functions in the interest of consumer protection, which the Central Bank has failed to carry out, can have direction and that changes can be made in that area?
Before I lose all my economic analyst friends——
The Minister has done so already.
——many of whom I have known over the past 30 years — some of them are my best friends — I should say that some will be right and some will be wrong. Their great advantage is that they take totally opposing views. I said in an interview that I am not short of advice but it is a pity that it is coming from all directions. It is a shame they cannot all agree. In the past five years some people in the higher echelons have questioned if economics can be considered a science at all.
Good question.
As Minister for Finance I take advice from everyone and then do my own thing; that pleases the officials in the Department of Finance greatly.
The independence of the European Central Bank is guaranteed by the statute which established it. The Central Bank Act which I introduced removed any possibility of interference and made our Central Bank legislation compatible with the ECB. The European Monetary Institute, however, noted two imperfections in the underlying Central Bank legislation regarding the guarantee that there could be no interference at all. I read the background note on this and in its report in March 1998 on the compatibility of Irish Central Bank legislation with the provisions of the EU Treaty and the statute of the European system of central banks, the European Monetary Institute advised that, with the commencement of certain provisions of the Central Bank Act, 1998, there will be no remaining incompatibilities in Irish law with the Treaty and statute requirements for stage 3 of EMU. Every member state had to change its central bank legislation to ensure it was compatible with the ECB structure. The European Monetary Institute examined the legislation and agreed it. Some countries are not totally in line yet but Ireland was one of the first to implement its recommendations.
According to the EMI, however, two imperfections still existed. The first imperfection is in section 134 of the Central Bank Act, 1989. This is addressed in section 12 (27) of the Bill before us. The second imperfection related to the provision in the Central Bank Act, 1997, for the establishment and supervision of Payment Systems Ireland. That is dealt with in section 28 of the Bill.
Section 134 of the Central Bank Act, 1989, empowered the Minister for Finance, after consultation with the Central Bank of Ireland, to direct that certain business transactions be suspended if he or she considered it necessary in the national interest or for the purpose of safeguarding the currency of the State. The Central Bank would not immediately suspend operations if there was a run on the Irish currency. Central Bank legislation allowed the Minister for Finance to direct the Central Bank to suspend operations.
Section 19 of the Central Bank Act, 1998, amended this provision in order to recognise the competence of the ESCB in the field of monetary policy and the transfer to Community level of all monetary powers of member states participating in EMU. It did so by direct reference to the Minister exercising this power with regard to the safe-guarding of the currency of the State. In its convergence report, however, the European Monetary Institute said that this new provision needs to be clarified to avoid any possibility of Government interference in the Central Bank's ESCB related operations. Such interference was never envisaged in the preparation of the 1998 legislation and would not be permissible under the Treaty. Nevertheless section 27 clears up the imperfection by providing that in exercising the power conferred by section 134 of the 1989 Act, the Minister for Finance cannot make a directive in respect of the performance by the Central Bank of any function or duty, or the exercise by it of any power required by the Treaty or under the statute of the ESCB.
Now that the European Central bank will be established many of the broader responsibilities of the Central Bank in terms of the national operation of our currency and fiscal policy will be transferred. There is much work that the Central Bank will no longer have to do. What does that mean for the staff? Will there be cutbacks at the Central Bank?
What about the transferral of powers? The Governor of the Central Bank stated when the abuses in national banks first arose that it was not the role of the Central Bank to deal with these matters, it had broader areas to deal with and daily monitoring of what was happening in domestic banks was outside its domain. It is time to tighten up the procedures and regulatory responsibilities of the Central Bank. It should now be given a hands-on role in monitoring the day to day operations of the various banks within the State.
This Chapter is correctly entitled "Miscellaneous". We have interpreted that literally in our questions on the different sections.
I would like to ask about representation of our Central Bank in the ECB. Is the Minister satisfied that the level at which we will have representation in the hierarchical structure of the ECB is sufficient to look after Ireland's best interest now we are relinquishing control of our Central Bank operation?
This has nothing to do with this section.
Most of the debate today has had little to do with the relevant sections. I will raise this on Final Stage.
Acting Chairman
I have tried to be as generous as possible.
Senator Costello raised the question of what will happen to staff now that many Central Bank activities will be transferred to the European Central Bank. The number of people working in the monetary policy area who will find their activities subsumed by the European Central Bank is very small. One of the terms of reference of the Moriarty Tribunal is to look at a wide variety of the supervisory powers of the Central Bank of Ireland and we should await the tribunal's recommendations.
Recently many questions about supervision were asked of the Central Bank. The Committee on Finance and the Public Service issued some proposals for financial institutions. At this stage we should wait to see how the situation develops. There will be work for the Central Bank staff, although it may not be in their traditional areas. In the past year we have transferred a number of supervisory powers from the Central Bank. We should wait until these matters settle down but I do not expect any redundancies. May I deal with the point raised by Senator Doyle?
Acting Chairman
We will deal with that matter at the end.
Is the Minister satisfied with the level of Irish representation in the staffing structure and management of the European Central Bank? I was disappointed when I read the line up of officials and managers. What will be the highest level of Irish official representation? Does the Minister consider that level sufficient to look after our best interests now that the Central Bank has relinquished control? Has he made any representations on this matter to the ECB? I am disappointed the expertise in the Central Bank which has so successfully guided our financial affairs for so long has not been better recognised in the ECB.
As we cede control of our affairs and the role of the Central Bank changes dramatically, we should thank successive Governors for the safe management of our finances. Secure managment by the Central Bank has contributed in no small way to the economic success we are enjoying. We have not yet existed for eight decades as a sovereign State and we have had a particularly successful record. The integrity and expertise of those involved has been second to none. This is all the more reason for disappointment that this was not recognised at a higher level in the pecking order of the ECB. What are the Minister's views on this?
This is historic legislation. There is great fondness and affection for the pound in our pocket and our legal tender in general.
The best friend is the pound in the pocket.
Our greatest problem has been that many felt they did not have enough pounds in their pockets.
The pound in one hand and the euro in the other.
It will take a good PR machine in the Department of Finance to ensure that people feel comfortable about the change to a new currency. This changeover jars with some people. Their fears are exacerbated because they are not sure about what is happening and how it will work. I hope these fears are unnecessary.
It is a major move for any sovereign state to relinquish its legal tender and adopt a common currency. We may be getting older than we would like to admit but my children do not know about the half crown or the sixpence. They look puzzled when one talks about 12 pence in the shilling. How quickly we forgot the system with which we were reared. Young people look upon a threepenny bit as if it was a currency from the Far East. How quickly we will forget the punt and become familiar with the euro. The next generation will be reared with it and will not know what a punt coin is or appreciate the beautiful coinage we have had. I express my thanks and appreciation to the designers of our coinage which has been aesthetically beautiful. We have lost control of design as the euro is designed centrally, but we should record our appreciation of the designers of our coinage and of the safe pairs of hands which has been in the Central Bank that we have taken for granted. The bank was so safe and had such integrity that it never hit the headlines and we could afford the luxury of taking it for granted.
This important legislation will mean the pound coin and punt notes will be phased out as we transfer to a common European currency — the euro.
I also thank the Minister, his officials and the staff of the House on the passing of this Bill.
I am touched by Senator Doyle's fond nostalgia for past coinage and currency — I will throw in the tanner, the farthing and the bob. This is a dramatic and far reaching development. It is by far the biggest step we have taken on European union. It is a huge step to go past any suggestions of federation or subsidiarity and straight to unity of coinage and currency. Both sides of the House have supported this in the belief that it will work. It is not being taken with an absolute conviction that it will be successful but in the belief that pooling our sovereignty is the best way to go forward collectively.
The new currency may be a success or a failure. I believe and hope it will be a success. However, what if it fails? I raised this matter on Second Stage but did not hear the Minister's reply. Are there any contingency plans for such an appalling vista?
The Domesday scenario.
Acting Chairman
Let us not be too gloomy. This is the Final Stage of the Bill not Second Stage. Let us go forward briskly with optimism.
Senator Costello has been vaccinated by Senator Ross.
I am going forward with optimism. It will be difficult for some countries joining, for the country not permitted to come in, and that which chose not to come in. Other countries will experience great difficulties, particularly with their economic situations, unemployment rates and so on. We are in a fortunate position. Had we wanted to enter ten years ago there would have been a greater questioning of conscience. However, despite the possibility of higher inflation, this is a good time to enter because of the strength of the economy, .
I pay tribute to the Central Bank for its good work. It will not go out of existence so this is not its demise. It has been effective and successful in keeping the ship of state afloat and in a strong fiscal position. I also pay tribute to the Minister and his officials and thank him for the generous and courteous way he has dealt with this legislation.
I thank the Minister for the comprehensive way he has dealt with the Committee Stage debate which at times strayed well beyond the scope of the sections under discussion. However, it is right that these important issues were discussed. We have already rehearsed the arguments for and against the single currency. The overwhelming argument in favour is that it will bring a degree of stability and lower interest rates and conversion costs in terms of trade and travel within the EU will be eliminated. The banks have gained enough from these margins over the years and I am sure they will find other ways of making money in the future.
The negative side of the debate is that we will be vesting part of our sovereignty in the European Central Bank. There is also the question of sterling and our vulnerability in that area. However, we will be part of a large pool and in that circumstance our ability to resist movements in sterling will be much greater than in the past when we had to defend our currency by large increases in interest rates. On the philosophical argument about economists, the Minister and I are more accustomed to putting our money on the nag in the 3 o'clock in the Curragh or Punchestown and perhaps that influences our thinking; the dismal science has frequently been in error. This science differs from other areas of life. If one is an agricultural consultant and recommends a certain course of action for a crop, if the crop does not grow the consequences are pretty immediate and devastating. Economists do not have to confront these types of realities. In terms of our influence over the European Central Bank for a small country our influence will be quite substantial because we are one of the governors represented on the board of the bank. This will give us a particular influence which is greater than it might have been for a small country. On balance, I believe joining the single currency will be beneficial. I wish the legislation well and I know the Minister will do everything in his power to ensure any negatives that might occur during this development in our economic history will be minimised.
I thank the Minister and his officials for their help during the passage of this Bill through the House. This is one of a number of pieces of legislation passed to accommodate the introduction of the single currency.
I thank Senators for their contributions. Senator Dardis raised a point about our voice within the European Central Bank. This breaks down into two areas. I have dealt with the question of the Governor of the Irish Central Bank being on the 17 member board of the European Central Bank. This will be the governing council of the European Central Bank. The executive board consisting of the president, vice president and four executive members will carry out operations. The governing council will make the policy and Ireland has the same voice there as the other participating 11 states. We have as big a voice on that board as France and Germany and matters will be decided by a simple majority.
The question was also raised about top management positions which were filled recently. The filling of these positions is a matter for the new European Central Bank. Of the 59 positions filled, 49 were transfers from the existing European Monetary Institute, so six positions were filled. Of the 49 positions being transferred, Ireland has three people appointed. This is a far greater number than we should have on the executive board. No one from the Department of Finance applied for one of these top positions.
Senator Costello mentioned the failure of the single currency. It is like Irish marriage pre the divorce referendum — there is no opt out mechanism. This must work because failure has not been contemplated. The architects of the single currency went singlehandedly about their job and left no doubt in people's minds that it would work. This is Irish marriage pre the divorce referendum — you are in it, you must stay in it and it must work. There are no side rules if it is a failure. This will not be a failure. I am an expert in both these areas as people inside and outside the House know.
Senator Dardis pointed out that being part of this large pool will have big advantages for a small country like Ireland. There has been much emphasis by economists on giving away our sovereignty and so on but there has not been enough emphasis on the fact that we will benefit from being part of a larger pool and that we will have no need to worry about currency fluctuations against the French franc or the deutsche mark. Hopefully, if the United Kingdom joins the single currency in the next few years, we will have eliminated all our exchange rate risks except that of the dollar.
I thank Senators for their contributions over the past two days. Obviously much of the Bill is technical. Nevertheless, it marks a historic moment by declaring that from 1 January 1999 the euro is the currency of the State. The adoption of the euro will represent a significant further step in the process of European unification. At a national level it will mark the closing of the chapter in our affairs when the monetary unit of the State was the Irish pound. From both a European and national viewpoint, we are witnessing an important moment as this Bill passes into law.
The Bill had a speedy passage through the Oireachtas, and I would like to thank the Members of both Houses for their work in examining and debating it.
I also thank the personnel in the various bodies we consulted, including those represented on the EMU Changeover Board of Ireland, for their valuable contribution to the drafting of the Bill. Finally, the officials of both Houses, as always, co-operated fully with us in the processing of the Bill and I thank them also for their help.