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Dáil Éireann díospóireacht -
Tuesday, 20 Oct 1992

Vol. 423 No. 8

Private Members' Business. - Exchange Rate Policy: Motion.

(Limerick East): I wish to share my time with some of my colleagues, Acting Chairman.

Is that agreed? Agreed.

(Limerick East): I move:

That Dáil Éireann, mindful of the adverse effect on certain businesses which the devaluation of sterling has caused and conscious of the heavy burden which recent interest rate increases have imposed on borrowers, particularly those with high mortgages, calls on the Government:—

— to reduce employers' PRSI payments in respect of those businesses most adversely affected,

—to cover the exchange rate risk of those firms which borrow abroad for the purposes of expansion and job creation.

—to moderate the distortions in cross-Border trade with Northern Ireland by reducing the standard rate of VAT and the incidence of excise duty,

—to introduce measures to protect mortgage holders, both in respect of the tenure of their homes and the level of their repayments, either by adopting credible economic policies which will quickly reduce interest rates or by restoring full mortgage relief and

—to state its exchange rate policy and explain how all its recent actions are consistent with this policy.

The Government have made it clear that they have no intention of devaluing the Irish pound. Whatever other variables there are in economic policy this, they say, is a constant: all other causes must give way. The Taoiseach and the Minister for Finance have stated their position on a number of occasions and we must take them at their word: there will be no devaluation.

It is quite clear that this position is not substainable without a quantum of pain and suffering. We have already begun to pay the price and we will continue to do so for some time. Interest rates have risen by 3 per cent and are now at their highest level in real terms since the State was founded 70 years ago. Irish businesses have also paid a heavy price, not only in terms of higher interest rates on their borrowings but also because of the loss of competitiveness for those who are exporting to the United Kingdom.

I do not want to say anything in the course of this debate which will make the job of the Government more difficult in defending the value of the Irish pound but I do want to address what I perceive to be major problems arising from the situation in which we find ourselves at the moment. The Government do not have a policy on the exchange rate issue; they have substituted a slogan for a policy. It is a fundamental of all policy positions that if one wills the end one must also will the means to get to the end. It is reasonable to suggest that if people desire a certain result they must take the steps to reach their destination and achieve that result.

It is not possible to proceed, in relation to the question of the exchange rate, on the basis that no fundamental changes have taken place in the underlying circumstances, because it is quite clear that major changes have taken place. The Irish people have, historically, been hypnotised by events in the United Kingdom; they are so fascinated by what occurs there that they frequently miss the wider implications of great events by over-concentrating on the Anglo-Irish dimension. Every schoolboy now knows that the Irish pound is stronger than sterling. To put it bluntly, it is worth more and many of our citizens watch its fluctuations with a mixture of pride and horror, pride at having a currency stronger than that of the ancient oppressor and horror at the implications a too strong punt will have on exports and jobs.

If we ignore the Anglo-Irish effects however, the real position is starker than many people realise. The Irish pound has been revalued by 4.5 per cent on a trade-weighted basis and we are talking in terms of an Irish pound which has gone from a rate of, say, 93 pence to £1.08 today against the pound sterling. I suggest that that is to focus too closely on the old relationship between ourselves and the United Kingdom.

The process started in Finland where there was a dramatic devaluation; Italy has devalued its currency by almost 20 per cent, and Spain by 5 per cent, while both the United Kingdom and Italy have departed from the ERM and their currencies are now floating against all other currencies. When one looks at the position of Ireland against its trading partners the bottom line is that our currency has been revalued by 4.5 per cent on the average against all comers. That is the significant fact in terms of policy and not that we are up and down like a see-saw with the United Kingdom, although that is important also.

I do not believe there was anything in the fundamentals of our economy in the course of the summer, or into August and September, that would have justified devaluation of our currency. I agree with the Government that the fundamentals of our economy justify the relative value of our currency within the ERM but I do not think that there is anything in the economy either which would justify revaluation of the Irish pound by 4.5 per cent.

Let us look at what this means in simple terms. In so far as we buy Italian, Spanish or British goods or goods from other countries which have devalued their currencies we have actually awarded everybody in Ireland the equivalent of a pay increase of about 4.5 per cent, because their trade-weighted purchasing power has gone up by that amount with the same nominal income in their pockets. The question that must be asked is, do the fundamentals of the economy justify that and can the Government proceed on the basis that they are defending a revalued pound in circumstances where they make no other policy changes. I would like to hear the Government's view on this matter, as I have not heard anything yet which would suggest that that revaluation will not lead to the Government being forced into making other policy changes.

In theory we can have whatever currency value we wish. We could go back to the gold standard provided we were totally flexible about all other economic fundamentals, for example, prices, and were guaranted when the United Kingdom devalued its currency that the full effect of the price reduction on imports would be passed on and that the same would apply in respect of all other devalued currencies, such as the Italian, Spanish and Finnish currencies. This would be fundamental to supporting an Irish pound at a revalued level.

In terms of competitiveness, if you revalue a currency by 4 per cent to 4.5 per cent you obviously lose out on competitiveness in all markets. Again, in theory, you can pitch the value of your currency anywhere provided there is flexibility in relation to prices, wages, interest rates and all other variables. However the only variable on which I see the Government concentrating at the moment is interest rates. There has been an astronomical hike in interest rates and I suggest to the Minister of State with special responsibility for trade and marketing that relying on an interest rate mechanism alone is not a sufficient response to a revalued Irish pound and that this is going to lead the Government into increasing difficulty as the year goes on. In the absence of other fundamental changes in economic policy other than interest rates it is difficult to see how the present policy will not lead the Government into difficulty and to increasing unemployment and redundancies.

It was quite clear for most of last year that the fundamentals of the United Kingdom economy did not justify the value that they had put on their currency. The pound sterling was placed, when the United Kingdom entered the ERM, at a level that was not justified — they put too high a value on it. I think all economists would agree with that now. I think most commentators would agree that at least from the spring of this year it was quite clear that the British would have to face the reality of the situation and would have to devalue; it was only a question of by how much and when it would occur.

I was amazed when it was quite clear that a devaluation of the pound sterling would impose a heavy burden on Irish firms exporting to the United Kingdom that the Government seemed to have made no provision whatsoever for such a devaluation. When it occurred they spent several weeks searching for a response to protect exports and maintain jobs. I think that is unforgivable because one could not buy an English Sunday newspaper for months which did not make it clear that they were facing devaluation and that this was likely to occur before the end of 1992; yet the Government stood idly by and seemed to be surprised when it occurred and had no strategy whatsoever to help business exporting to the United Kingdom or to put a mechanism in place to secure the jobs of those employed in those industries.

The Government were irresponsible in not having a pre-arranged strategy to deal with events which were highly predictable. They are now equally irresponsible in proceeding to maintain the value of a revalued punt without making the necessary changes in economic policy to justify the present more valuable punt. I want to make it very clear that I believe that the Government should support the Irish pound at its present value but, to go back to the red catechism with which the Minister will be familiar, just as prayer without good works does not achieve very much, slogans to the effect that "we shall not be moved" without making fundamental changes in economic policy to underpin the value of the Irish pound will not work. They have not worked in the United Kingdom and they will not work here. I call on the Minister for Finance tonight to set out as quickly as possible the changes he intends making in fiscal policy which I believe are necessary to support the pound at its present level.

Increased interest rates are bringing the economy to a standstill. Interest rates are at an historic high and neither the investor nor the consumer is willing to increase borrowing in present circumstances. The prospensity to save is rising and this can only reduce activity in the economy. To put it more colloquially, I do not know anybody in a well paid job at present who intends incurring significant expenditure between now and Christmas other than normal household budgeting. Once that happens confidence in the economy is lost. If people do not borrow and do not spend but save instead, the first line of infantry to go down under that charge is the retail sector, as is happening at present. Whether it is the white goods trade, the brown goods trade, the garage industry, the builder, the plumber or the carpenter, the demand for business activity is evaporating as confidence is lost and the propensity to save is rising. I blame the Government for this because they have made no attempt to show that they are competent to deal with the very complex situation with which the country is faced, with the United Kingdom completely outside the exchange rate mechanism and with a floating currency and a major EC partner, Italy, following the same course.

The group facing the heaviest burden at present are those on high mortgages. I know of young couples in modest three bedroom, semi-detached houses who are facing an increase in repayments of up to £120 a month, but they simply do not have the money to meet those repayments. While arrangements made by certain lending agencies to capitalise the extra liability are welcome short-term initiatives, in the medium term the repayments will have to be met, but many householders simply do not have the income to meet them. Against this background the Progressive Democrats are continuing their campaign to abolish mortgage interest relief. Fianna Fáil, as they have done on many occasions in the past three years, are, I am sure, again quite prepared to yield to the expediency of the moment and pay whatever price the Progressive Democrats demand for their continuing support of the Government.

I call on the Minister for Finance to give a commitment before this debate ends tomorrow night that there will be no reduction in mortgage interest relief in next year's budget. I ask him to make a further commitment that if interest rates continue at their present level he will restore full mortgage interest relief. Unemployed persons with high mortgages are in particular difficulty. The number of families unable to pay their mortgages has risen to an all-time high. Health boards are paying mortgage subsidies on an unprecedented scale and, according to a report on the front page of The Star of Monday last, the courts in Dublin alone are processing 50 home repossession applications from the building societies every week.

Charitable organisations such as the St. Vincent de Paul Society have been approached by increasing numbers of families in trouble; yet the Government stand idly by and the best advice they can give mortgage holders is to grin and bear it. They are working on the basis that the increase in interest rates is a temporary phenomenon — I will reflect on that matter before I conclude my remarks this evening. As a consequence of the repyment difficulties faced by householders the building industry is coming to a standstill, especially in the house building sector. Most builders have no plans for new starts and are concentrating on finishing houses on hands. They are looking to a winter of decline and discontent in which the last of their employees will be made redundant.

I would like to turn now to the problems faced by business exporting to the United Kingdom. In recent days the Government brought forward a very inadequate set of proposals which are unwieldy, over-bureaucratic and, in many respects, misdirected. They will of course give help to a number of businesses in the short term but there is no underlying strategy other than the usual bush in the gap response which has become the hallmark of this Government. The Government should, as a matter of urgency, introduce a package of measures to protect the interests of Irish exports to the United Kingdom and make it possible for them to remain competitive in the new exchange rate circumstances. They should bring forward proposals to drastically reduce employers PRSI contributions in respect of employees in those businesses most adversely affected. Now that there is again a very significant differential between Irish and German interest rates they should put in place a scheme whereby the Government will accept the exchange rate risk for firms who borrow money abroad to maintain and increase jobs. Such schemes were put in place in the middle eighties for the agriculture industry and there is no reason why a similar scheme could not be put in place now for our exporters to the UK market who are facing the prospect of running their businesses at a loss and making their workers redundant.

It is likely that there will be a significant distortion in the retail trade along the Border with Northern Ireland. The Government should bring forward proposals in the autumn Finance Bill, which the Taoiseach has said will be published in early November, to reduce the standard rate of VAT and the incidence of excise duty to the rates which prevail on the other side of the Border. If the Government are serious about their present exchange rate policy they will have to take a series of decisions to underpin this policy by protecting the interests of individuals and firms adversely affected by it.

The United Kingdom, Italy and Spain have devalued their currency and imports from these countries should come down in price. We import a huge amount of goods from the United Kingdom and while some price reductions have taken place, they have not taken place on as widespread a basis or at the level which the devaluation of sterling would justify. The Government must ensure that the benefits of lower import prices are passed on. They are not being passed on at present, and our position will be unsustainable unless price reductions are passed on. Frequently it is said about revaluation and devaluation that what you lose on the swings you gain on the roundabouts. We are losing on the swings in the devaluation of sterling but we are not gaining on the roundabouts because the Minister for Industry and Commerce, the Minister of State at that Department and the officials are lackadaisical and are not ensuring that the price reductions which are justified are being passed on to the Irish consumer or to the Irish business who are importing raw material from the United Kingdom.

I heard Mr. Fergal Quinn, who should know what he is talking about, say on radio at the end of last week that, while price reductions had taken place across a range of items — the price of up to 1,200 items stocked in his stores has been reduced — the reduction was in the region of 5 per cent while the actual devaluation is nearer to 12 per cent. It is the Minister's job to see that the reduction in price is passed on to the consumer. High media profile is no substitute for action, and all the pretty pictures in the world will not protect the Minister from the wrath of the electorate if he does not do his job. At present neither the Minister for Industry and Commerce nor the Minister of State at that Department are doing their job in ensuring that those who have contracts to import goods are not profiteering by the devaluation of sterling but are quickly passing on the benefit to the Irish consumer. We saw how quickly the firms in Wexford, Monaghan and the Border counties faced the other side of the coin in terms of exporting to the United Kingdom. I would like to see as quick a response in passing on the price reductions, and it is the duty of the Minister for Industry and Commerce to ensure that they are passed on. To date I have not seen any urgency in the Minister's Department to ensure that this happens.

More than anything else, it is of vital importance that credible economic policies should be adopted to meet the new situation. Economic policies necessary to maintain the punt at the relative value it had within the ERM until some weeks ago are not the same policies which are necessary to underpin its new, revalued position. The United Kingdom devalued because the fundamentals of the economy did not justify the value they placed on their currency. Our currency has been effectively revalued and the Government must ensure that the fundamentals of the economy are strong enough to justify the increased value.

There is no easy way forward. The economic chaos in the United Kingdom shows us clearly that any attempt to return to a fixed exchange rate with sterling is futile and contrary to our interests. Our future is in Europe with our European partners and our policies must be placed firmly in that context. It is time for the Government to seriously consider making proposals at EC level to advance the progress of economic and monetary union. It is in our interests that the proposed European Central Bank is put in place at the earliest possible date so that we can have some direct influence over monetary policies which, in present circumstances, are totally controlled by the Bundesbank.

I heard the whingeing of commentators in the United Kingdom and I was amazed at some of the comments made by responsible people. I watched Teletext on BBC about three days after the devaluation and the message was that the pound sterling had thrown off the shackles of the Deutsche Mark and was now floating free—one would think an escape from Belsen was being described. What was happening? They had suffered a devaluation of 13 per cent or 14 per cent and were sinking; that kind of state of unreality is something to which we do not want to be attached.

It is time the Government said very bluntly that neither the Department of Finance nor the Central Bank have much control over exchange rate policies and that, because we are a surrogate mark, the main decisions which affect the value of our currency — if we want to stay the pace — are made in Frankfurt in the Bundesbank. It is time that we put forward a policy position to advance the establishment of the European Central Bank because it makes sense to exchange the nominal but unreal control we have over exchange rate policy at the moment for some real say in a fifth EC institution, where we would have representation, as we have in the courts in the Commission at present.

The Government have failed to act at home by setting out firmly the changes in fiscal policy which are necessary to underpin the new situation and they have also failed to exercise any influence in Europe to ensure that at the appropriate Councils of Ministers alternative strategies are being pursued. The level of chill now between the United Kingdom Government and the Bundesbank — and by extension the German Government — will only be got round when a new institution is put in place in Europe and the Italians and the British are given an opportunity to rejoin the ERM on the understanding that exchange rate policy will be controlled by the European Central Bank, in effect the fifth institution of the Community, rather than by the Bundesbank with whom they have been in conflict so recently. It is in our interests to advance the progress of economic and monetary union; it is also in our interests that the proposed European Central Bank is put in place at the earliest possible date so that we can have some direct influence over monetary policy which, as I said, in present circumstances is almost totally controlled from Frankfurt.

We have broken the link with sterling but we have yet to break the link of over dependence on the United Kingdom market. It is important that we diversify in other markets, I am sure the Minister of State — as Minister responsible for trade — will take this point. It is a fundamental of monetary policy that those countries to whose currency one's own currency is attached must also be one's main trading partners. We are in danger of doing the splits, of riding two horses in opposite directions, if our main trading partner continues to be the United Kingdom in circumstances where their currency is see-sawing and we are fixed to the German Mark. It must be a fundamental policy that our currency is attached to currencies of countries which are our main trading partners. I did not expect the Minister of State to be here tonight but she should take that advice, it is particularly appropriate to her because she has the opportunity to influence the pattern of trade and see that it is diversified.

Our motion also asks the Government to state their exchange rate policy and to explain how all their recent actions are consistent with this policy. I do not want to dwell to any great extent on this aspect of the motion but I should like the Minister to deal with this in his reply — my remarks are addressed to the Minister for Finance. In particular, I should like him to explain why in late August of this year, the Government and the Central Bank cast doubt on Ireland's exchange rate policy by allowing the exchange rate — which had been fixed for almost six years at approximately 2.68 DM to the Irish pound — to drift to 2.62 DM after tracking it at 2.68 DM for five and a half years. That was the first signal that the Irish authorities were contemplating a change in monetary policy and it was a most unfortunate signal to give, just three weeks before the major currency crisis descended on Europe and put so much pressure on the Irish pound among other currencies.

I will be brief as I want to allow Deputy Cotter to speak. His Border constituency is badly affected by prices in the mushroom industry in particular. I should like to say a few words about agriculture and food in endorsing everything which the last speaker said. I want to address myself particularly to the Minister of State, and her Department, in relation to the market development fund and to bring to her attention — and that of the Minister for Agriculture and Food who seems to be sleepwalking through this nightmare for the food industry — the fact that the three principal conditions attached to the market development fund scheme virtually exclude the entire agriculture and food sector. The first condition states that you must be paying 10 per cent corporation tax, which excludes every farmer and mushroom grower because they are sole traders operating on direct income tax, they are not in the 10 per cent corporation tax regime. Pigmeat and sheepmeat are the other two principal sectors affected; I am told by processors that they will not be eligible because the 15 per cent labour content condition is too high to include them. We have seen 8,000 sheep farmers in Molesworth Street today, they are facing the lowest prices for sheep and lamb in 16 years. Leaving aside the fact that the Minister has done nothing for them in relation to the ewe premium, we can see that the difference between the French and British lambs on the Paris market is £6; the price of British lamb is now more competitive to the tune of £6 and a depressed price of 70p per pound for lamb is uneconomic. It is not possible, even with the most refined breeding methods and the most efficient production methods, to make money at 70p per pound. There are 52,000 sheep farmers in this country, a ewe flock of 4.7 million created 1,500 jobs in the sheep processing sector which will go down the tubes unless the Government act.

There are 5,000 employees in the mushroom industry in a sector worth £55 million. The margin of the industry was not 6 per cent and we have now had 14 per cent devaluation. There are fixed prices and they also face the prospect of being undercut by local British mushroom growers and losing market share. However, they are told they are not eligible to be helped. They have been very hard hit by the new PRSI regulations this year, the sensible thing would have been to implement what is in this motion — to give an exemption for PRSI.

Even in the bigger sectors where there is supposed to be protection in the form of monetary compensatory amounts, MCA's — that is, a levy on, say, British exports or a refund on those exporting into Britain — what actually happens is that the refund on dairy products covers only the gallon of milk; the processing costs element is not refundable. In the same way, there are no MCA's on pigmeat. Because pigs are a "walking cereal" though, they qualify, but not at the appropriate rate. What are we faced with now? From 1 January 1993 MCA's will be abolished, there is to be no protection whatsoever.

Here we are in the middle of a currency crisis and there is no response from the Minister for Agriculture to meet the needs of this most vulnerable and exposed sector, the largest sector of our economy, and one worth £3.5 billion. There are 150,000 farmers facing a huge decline in income after two years of a sharp reduction in gross agricultural prices and in addition to the grave uncertainty arising out of the Common Agricultural Policy reform. The increase in interest rates will also have an effect. It takes 26 weeks for cheddar cheese to mature, and the 3 per cent interest hike will mean a cut of 3p a gallon in milk prices to those farmers supplying cheddar cheese processors.

The Minister will realise that the food processing sector have withheld passing on this pain to the farming community because, first, they wanted to determine whether the currency crisis would come right and, second, they wanted to find out whether the Market Development Fund would help them. It has transpired that they are not eligible for assistance from the Market Development Fund and the exchange rate is now £1.09 sterling to the punt. Farm incomes will be severely depressed because the food processing sector cannot hold back any longer.

I hope my remarks will be brought home to the Minister for Agriculture and Food. I cannot understand how he is so oblivious to the hardship being experienced and I ask him, collectively with the Government, to act immediately to ensure a fair deal for the food processing sector.

I support the motion wholeheartedly. I support also Deputy Noonan in his critical analysis of how thing in the economy are today and how they should be.

I will be much more parochial in what I have to say because what I want the House to know is the way things are on the ground. It is very important that the Minister and the Government do know exactly what is happening, where it is happening and what remedies they can apply.

Of course, there are mixed emotions about current exchange rates. People are very proud of the fact that the punt has increased in value. People in the Border corridor in particular are hurrying north with their punts and, even without arguing the point, are being offered 6p of a premium. When they do argue they are offered even better terms. It is quite natural for people to be proud and it is quite natural for them to take their money north as well.

When the currency crisis erupted some weeks ago the Government decided, in the best interests of this country, to take a particular course of action. Deputy Noonan of my party, supported the Government in their decision not to devalue the currency. The good reasons for that were that devaluation would reduce the standard of living for everyone in this country, would upset the balance of trade, would fuel inflation and would probably add a couple of billion pounds to our national debt. Those reasons are generally acceptable. Devaluation would have cost the country a huge amount of money.

However, because one-third of our exports end up on the UK market one could say, very simplistically, that one-third of our jobs in the manufacturing sector are at serious risk. I know from my own investigations and from the contacts I have had with industrialists and others in the economy that a relatively huge number of jobs is at risk. Nowhere is that more so than in my own constituency and in the Border corridor in general. There we are attacked on various fronts, whereas other parts of the country might not be in the same predicament right across the board.

Everyone in the House must know of the modern satellite industries that have grown up in Monaghan and, to some extent, in Cavan. For example, there are the poultry, egg and mushroom industries. In our area we produce an extraordinarly high proportion of the total native product in those sectors.

We can very proudly state that the mushroom industry is the brightest jewel in this economy. It has attained a market share in England of about 30 per cent. I doubt whether anybody in the House could name another industry that has achieved that kind of market penetration. It is also to be noted that that has been achieved at the top level, in the multiples. This has happened primarily because we concentrate on quality, service and prompt delivery. Today, though, the mushroom industry is in tatters. Marketing groups and growers alike are now taking losses they cannot sustain. Unless adequate support is provided for both the marketing companies and the growers, our finest industry will collapse. I have been saying that to the Minister and I shall continue to do so. I ask the people on the ground to get that information moving up to Leinster House as well, so that everyone here knows about it. Neither the marketing companies nor the growers can exist without each other. The House knows that jobs have already been shed in the mushroom industry. Unless the growers are kept in business the marketing companies will have no product to sell. Under the current terms of the Market Development Fund the growers will not get support. I predict that unless the criteria are changed to allow the provision of support for mushroom growers the industry will collapse very soon. Growers have been taking a cut in margins since early in the year, since sterling began to weaken. Summer production is always poor and this year it was bad. The collapse of sterling came at a time when the growers and the marketing companies were least able to cope with it. One would have to say that the collapse in sterling amounted to kicking the producers when they were down. I call on the Government to ensure that support for this sector will come, and will come soon.

It came to my attention recently that the EC is objecting to the provision of support to companies in receipt of MCAs. My area has a very strong poultry industry. The MCAs paid out would amount to about 1.3p per kilo—an insignificant and useless amount in view of the difficulties that have to be sustained. Poultry exporters are taking huge losses and I am informed by industry sources with whom I am in contact on a regular basis that very soon poultry exports will come to a halt. Companies have already prepared contingency plans. In order to survive they have to cut costs. How do they propose to do that? They propose to discontinue exports that are costing them money and also to shed jobs. Companies have their plans on paper at this stage. They are wise; companies should try to survive in the midst of this crisis. There is also a very strong poultry industry north of the Border and it is already infiltrating the market in the south by offering attractive price reductions because it is in a position to do so. The poultry sector supplying the home market is preparing for chaos. Certainly the industry is feeling very isolated at present. Those involved feel that they will get no support. The Government must examine the programme and must change its terms if necessary in order to ensure that support is given to that industry.

I make the same appeal on behalf of the egg industry, the clothing industry and the furniture industry, all of which industries are suffering heavily and all of which are very strong in my constituency.

Devastation is coming from another source as well. I have already mentioned that people are crossing the Border with their Irish money because a premium price is paid for it. Business people in the Border corridor are now faced with losing Christmas trade. It will be very sad if that happens.

I support Deputy Noonan in his call to the Government to immediately reduce the standard rate of VAT and excise duties to the levels pertaining in the North. That measure would go some way in assisting our people to stay in business during this very difficult period.

Acting Chairman

Deputy, you must conclude now.

I should like to ask one specific question and then I shall finish. Has the Minister for Finance asked the EC for permission — if that is necessary —to apply a fair exchange rate on a daily basis for the purpose of calculating VAT at point of entry? Yesterday the Minister was charging an effective rate of 22.6 per cent. That Minister has been asking importers, wholesalers, retailers to pass on the benefits of sterling.

Acting Chairman

I would ask the Deputy to conclude as his time has expired.

How can he continue to do that while at the same time he is putting pressure on people who are reexporting and on retailers, particularly in Border areas, by increasing the price of their products? He should immediately negotiate a position, if it is necessary to do so, because obviously there was a change when sterling left the ERM. Therefore, it is essential for us to make whatever changes are necessary to ensure that we survive.

I understood Deputy Roche was to take ten minutes of my time.

Acting Chairman

Is that agreed? Agreed.

I move amendment No. 1:

To delete all words after "That" and substitute the following:

"Dáil Éireann endorses the firm exchange rate policy of the Government and the response of the Government to the recent turbulence in financial markets and welcomes, in particular, the measures taken by the Government to alleviate the adverse effects on Irish businesses of the sharp and sudden depreciation of sterling within a framework of continuing budgetary discipline".

I was very interested to hear the views put forward by Deputy Noonan (Limerick East) and echoed by Deputies Yates and Cotter.

The recent turmoil in the currency markets, and especially the effects of the devaluation of sterling, raises serious questions about how we, as a Government and as a nation, go about dealing with major international economic disturbances which cause shock waves in our economy.

I regret having to say that the motion proposed by Fine Gael tonight represents the quick fix, machine gun approach to economic policy which leads nowhere except into a spiral of higher Government borrowing, higher interest rates and higher inflation. The motion before us is an all things to all men and women and do not ask the cost approach. As an approach to economic management and action, it contrasts poorly with the Government's response to the currency turmoil.

As the Government's amendment states, we have pursued a firm exchange rate policy and we have taken specific and targeted measures to alleviate the adverse effects on Irish business of the sharp and sudden depreciation of sterling within a framework of continuing budgetary deicipline.

In the middle of September, the European Monetary System experienced greater pressures than ever before. So severe was the buffeting it received that two of its members suspended their participation in the Exchange Rate Mechanism. This was the first time any member had done so.

The effect of the currency devaluations which followed, particularly the sharp fall in the value of sterling, posed real and immediate problems for many of our firms. It also raised serious questions about the position of our currency. The options facing the Government were to stand our ground or to deliver our currency immediately. I welcome the restated affirmation of our stand expressed by Opposition Deputies this evening.

For several years, the Government have pursued a consistent line in regard to their exchange rate policy. Our aim has been, and continues to be, a firm and stable exchange rate within the narrow band of the EMS. Our capability to sustain this position has been recognised consistently by our Community partners and has been reflected in the increasing interest on the part of foreign investors in Irish Government securities in recent years. Earlier this year, following a rigorous examination of the Irish Economy, the Council of Economic and Finance Ministers unanimously endorsed the position of the Irish Government and paid public tribute to the good management of the Irish economy.

The withdrawal of sterling and the lira from the exchange rate mechanism of the EMS and the devaluation of the peseta has created further fears in the market that the EMS might break up, thereby fuelling further speculation against the Irish pound as well as other EMS currencies.

Only massive intervention by the Central Banks of the member states utilising also the mutual support provisions of the exchange rate mechanism prevented the dissolution of the EMS.

In the case of the Irish pound the Government have acted promptly to stop entirely unwarranted speculation against our currency. There were no good financial or economic reasons for such speculation and the Irish currency was subjected to deliberate and unjustified undermining for huge and speculative gains.

The Government as a whole, and the Taoiseach and the Minister for Finance in particular, have held a firm policy line on maintaining our currency within the ERM.

There are many good reasons why it is important that Ireland remains part of a hard currency regime within the ERM. Holding the brief of Minister responsible for Trade and Marketing, I would like to refer to just some matters which are important from an industrial development point of view. Firm currency policies in recent years have contributed to competitiveness and allowed our trade with the rest of Europe to increase dramatically. I wish there could be more toing and froing in the debate but this is not allowed for in set speeches. I find I have to restrain myself not to contribute to debates as they are taking place.

I should like to take up a point made by Deputy Noonan in regard to over-dependency on a particular market. Over the past 20 years we have, as Deputy Noonan will be aware from his time in the Department of Industry and Commerce, dramatically diminished our dependency on the UK market but not as much as one would wish. As I said on Thursday last in the debate on the market development fund, one could only shudder at the consequences if we were still 66 per cent dependent on the UK market for our exports. There has been greater emphasis on seeking out markets within other countries and that will have to continue. Excellent programmes are prepared by An Bord Tráchtála and by various other agencies. Deputies in various Governments will have assisted in those targeted marketing plans and will have done their share for Ireland, so to speak, in going abroad and encouraging exports there. I take the point that more can be done and we are progressing along those lines.

Uncertainly, and the risk of fluctuation, undermine trade and serve to inhibit firms from undertaking costly and potentially high risk marketing initiatives in new markets. In the market development fund recently launched there is a certain amount of money for An Bord Tráchtála to enable manufacturers and exporters go abroad, and not to count the cost so to speak, to intensify and deepen their links with markets in other countries.

Nearly £8.9 billion of our national debt is denominated in currencies other than sterling; accordingly a devaluation of our currency would increase the cost of servicing our national debt by almost £1 billion per year if the Irish pound devalues to the extent of the recent devaluation of sterling. A devaluation now would lead to similar expectations at times of future currency instability and drive away of seek to put up walls against future investment. It would add a higher risk premium to interest rates in future and discourage industry.

Our membership of the ERM and adherence to its disciplines has facilitated a significant improvement in the state of our national finances. Recognising that much more needs to be done to sustain and increase employment we cannot jettison recent progress by now going for a devaluation option. There has been in the Chamber both on Thursday last and this evening a recognition of that fact.

One must readily admit that this policy is not without cost in the short-term particularly for firms which are heavily dependent on the UK market. But the Government have responded to the needs of those firms in a speedy and focused way. I take the points made by Deputy Yates about the agriculture and food sector, those made by Deputy Cotter and also what was said on Thursday last about the needs of certain industries. I expect Deputy Leonard will speak tomorrow on the same issue. I had a conversation with Deputy Cotter after the debate last week. The flexibilities inherent in the market fund can, I hope, deal with some of the problems raised. Following consultations with Irish exporters, small firms and chambers of commerce, on 28 September the Government decided to set up a working group. After that it was decided to establish the market development fund. Other Ministers will refer to other aspects of this motion.

I wish to take up the points made by Deputy Noonan and his two colleagues in regard to the market development fund. This fund is not being operated in a bureaucratic way. Last Thursday during the debate on the Supplementary Estimate for my Department, Deputy Hogan, and other Fine Gael Deputies, agreed with the thrust of the market development fund. The change of mind on this between Thursday and Monday is astonishing. During that debate I welcomed the support given by Deputies on all sides of the House for the non-bureaucratic way in which the fund is being administered. When I telephoned An Bord Tráchtála this evening I was told that the huge number of applications that had been lodged were being processed. The team, the Department, the Minister, the Government and I want the criteria to be operated in a flexible way so that the fund will respond to the individual needs of firms. It is very important that this is done.

(Limerick East): Have any grants been sanctioned yet?

(Limerick East): How many?

The Deputy should telephone the team tomorrow. Alternatively, I can get the information for him. There is a huge interest in this fund. There has been great co-operation between the team, An Bord Tráchtála and all the parties in this House in regard to the fund. It is not something we want to keep to ourselves; we want every Member to be aware of what is in the fund and the expertise available to it. I thank Opposition Deputies for attending the meetings set up by the team and for the constructive manner in which they addressed the issues raised.

(Limerick East): I heard the team has sanctioned nothing yet.

The Deputy is struggling now.

The Deputy is trying very hard to draw back the full support given to the fund by Members of his party last Thursday. It is an amazing volte-face. I suppose I should not be amazed at this volte-face as they are good at doing this.

By 9 October the team drawn from seven State agencies and Government Departments needed to manage the operation of the fund which was in place. We introduced a Supplementary Estimate, which was agreed by all sides of the House, to enable £20 million of the £50 million to be paid from the fund during the current year. The establishment of the market development fund has received widespread support. The sequence of events which I have described is one of clear positive action by the Government, concentrating on the key issues and harnessing our resources to the greatest possible effect.

One of the key objectives of the market development fund is to target support on those firms which are at greatest risk and which are prepared to demonstrate a willingness and an ability to manage their way out of their difficulties. The assistance provided will be of a short-term nature and will in no way relieve the firm of the need to make the necessary adjustments. The financial and trading criteria which the team are applying have been designed to focus support on the firms most seriously affected by the recent currency devaluation.

This targeting of Exchequer resources contrasts vividly with the kind of approach suggested in the Fine Gael motion. At first glance their proposal to reduce employers' PRSI appears an attractive option. However, the working group who advised the Government on the options available rejected this approach in the current circumstances for a number of reasons.

What does that mean?

Will the Deputy listen to me? First, expert advice indicated that the PRSI system was unsuited to the kind of case by case relief which will be possible under the market development fund. Fine Gael refer to this in their motion. Second, the PRSI system is firmly enshrined in legislation and going down the PRSI route would not enable the Government to now provide quick and flexible assistance to firms. The PRSI system could only provide assistance of up to £30 per week for each employee compared to assistance of £50 per week for each employee under the market development fund. The assistance provided from the PRSI system would have been greatly short of what is now available under the market development fund.

I should like to refer briefly to the points made by Deputy Noonan in regard to consumers. I did not like the Deputy's reference to pretty pictures; it was a sexist remark. Not only have I spoken about consumers' rights on several occasions but I have taken action on the right of consumers to share in the positive aspects of the present currency turmoil. The Deputy said we were taking no action in this regard and yet Deputy Cotter said he would resist any threat by the Minister for Finance to importers who were not passing on the positive aspect of the currency turmoil in terms of lower prices.

The Minister missed the point entirely.

The Deputy went on to further qualify his remarks.

The Minister missed the point.

I did not miss the point; I caught it very clearly. The fact is that there has been a concerted consumer-geared consensus in the Government — we have referred every day to the rights of consumers to lower prices.

As Deputy Noonan knows, before he came into the Department of Industry and Commerce in January 1986, Deputy John Bruton introduced measures which abolished offices to which consumers used go to complain about prices. This was done in the greater need for competition and the creation of the right climate. I regard it as a duty of the Government to ensure that the price decreases are passed on to consumers. Like Deputy Noonan, I am not at all happy that this is being done satisfactorily. A few hours ago I met with Mr. Willie Fagan, the Director of Consumer Affairs. The strict monitoring policy which he has pursued for the past two weeks will be continued for a number of weeks to come. His inspectors have visited many outlets, particularly clothing, electrical, magazine and food outlets. This monitoring is beginning to have an effect, but, as the Deputy said, not enough of an effect. Last week a Fine Gael Deputy said he was astonished at the remarks made by a reputable representative group that price reductions should not be passed on to consumers. I share his astonishment at that remark.

If it appears at any stage that there is an undue delay or failure to pass on price reductions to consumers the House can be assured that appropriate action to protect consumers will be taken, including the introduction of price control orders. That is the port of last resort; nobody wants to resort to it. We have established a healthy competitive climate within the retail sector and we wish to see that continued. Nevertheless, I strongly believe that consumers should benefit from the positive aspect of the currency turmoil. I will continue to ensure that this is done.

I thank the Minister for sharing her time with me. In the current economic gloom it is important that we remind ourselves of one fact, that is, the Irish economy is one of the strongest economies in Europe. The pressures which have built up in recent times are not related to any failure on our behalf — we have not over-spent, over-borrowed or been profligate in any way. We have kept a tight control on borrowing and spending. As a nation we have been willing to accept all of the pain and hardship that arise from economic discipline. It is important that we restate these factors as it would be easy to talk ourselves from a situation of economic hardship to one of recession or depression. It would also be easy to take the wrong kind of action at this time, to lose our heads and be precipitated into a position where the results of all the hardship of the economic policies of the past few years could easily and rapidly be undone.

The Minister for Finance accurately identified the problems in a recent address to the Dáil. A loss of confidence in the British and the Italian economies to underpin the existing exchange rates for their currencies led ultimately to speculation, to the operation of a herd instinct in the exchange markets and ultimately to the collapse, first of the lira and, second, of sterling. German unification and the collapse of Eastern European state socialism led to further pressure on the capital markets. The position was further complicated by the pre-presidential paralysis which has descended on the United States.

To this rich mixture we could add the further spice of the results in the Danish referendum, the narrow squeak result in the French referendum and the ongoing British equivocation about the ratification of the Maastricht Treaty, not to mention the fact that Britain, in effect, has no economic policy worth referring to at present and, in general, their economy seems to be somewhat out of control. The sole economic reality there seems to be that they are content to wander punch drunk from crisis to crisis with no visible evidence that anything approaching a cohesive policy or a cohesive economic thought is likely to emerge from Downing Street, the Treasury or Threadneedle Street in the foreseeable future. Those are the realities against which the current exchange rate crisis has occured.

In one sense the Fine Gael motion is welcome in that it indicates, as indeed does The Workers' Party amendment — it is regrettable that no Member of The Workers' Party is here to speak to their amendment — that, while the parties are willing to push individual additional measures to alleviate hardship to companies and to private citizens, none of the parties in this House has proposed any radical departure from the overall direction of Government policies. Therefore, while these motions suggest that there should be some changes and specific measures introduced, measures which the Minister has dealt with more than adequately, the reality is that nobody in this House is suggesting a fundamental departure from such policies.

When I learned that Fine Gael were putting down a motion on this matter I was mindful of the idiotic proposals put forward in a Sunday newspaper recently by another member of that party, namely, Senator Ross when he advocated that we should hitch our economic wagon to that of Britain — a question of climbing on the Titanic before she goes under. Senator Ross took the view taken by a small minority of not particularly distinguished economic commentators that we should cut away from what he saw as the high cost of “devotion” to the Deutsche Mark. Fine Gael's new found Senatorial economic guru scorned the idea that the present exchange rate problem situation would be resolved in the foreseeable future.

I did not catch what Deputy Roche called Deputy Ross.

An economic guru.

The Deputy has good judgment.

I have indeed as have some members, or former members, of Deputy Cotter's party in the Wicklow constituency.

I thought that was what the Deputy said because they are quite plentiful in that constituency.

As I reminded the House recently, Senator Ross dismissed the idea that Ireland's positive trade surplus could have any positive impact on the lives or livelihoods of the average Irish man or woman. He scorned the idea that our inflation rate of 2.8 per cent could be of any importance. He chose not to mention the positive state of the nation's finances or the fact that State borrowing had been brought under control. He choose to dismiss the good and sound economic position of this country as of no relevance— at best it was entitled to his scorn. I am pleased to note that in this regard, as with many other matters, my colleague in my constituency is out of step even with his own party.

By extension the good Senator choose to suggest that we should abandon existing policies in favour of re-establishing our link with sterling and in favour of a devaluation policy. In spite of the arguments occasionally put forward by escapees——

Deputy Roche is getting very close to the bone.

I do not know whose bone the Deputy is talking about. In spite of the arguments put forward by escapees from economic reality, such as Senator Ross, the reality is that we have little choice but to continue to follow the current economic policies introduced by the Minister and the Government.

One cannot unscramble scrambled eggs.

I am not certain what that means, but in fact, it is a truism. It is unusual to find economists in agreement with each other on anything, but in so far as a consensus can be said to exist among our leading exponents of the dismal science here in this country, there is agreement on the reality of the approach being adopted by the Minister for Finance, Deputy Ahern, and the Government in response to the current unprecedented situation.

The Dublin Economic Workshop in Kenmare recently held two debates — one formal and one less so — about the proper response from Government to recent events in the exchange market. By far the majority view as reported in the papers was that the Government had no real alternative but to maintain our present position in the ERM and to avoid any consideration or even discussion of devaluation. The saner contributors at that conference opposed the view that we should contemplate devaluation or the proposals put forward by Senator Ross and one or two others from the economic fringes.

There were, however, warnings about the possible consequences of any prolonged period of exchange rate uncertainty with the high-value punt. The consequences contemplated in Kenmare should be borne in mind by the proposers of this motion. If, as is possible, a slow down in growth occurs in 1993 it would impact heavily on taxation. Very low or zero inflation could also, ironically, have a detrimental impact on the State's tax revenues in that the buoyancy which has existed in recent years could dry up and disappear altogether. Low growth here coupled with a high-value punt and a continued depression in Britain could, and will, make it increasingly difficult to meet job creation targets. The worsening position in the UK will undoubtedly force more and more Irish women and men to return to this country which, of course, is very welcome but it will put further pressures on the nation and on our public purse.

Against this scenario it is hardly logical for any political party worth their salt to come in here and push forward major new expenditure proposals over a wide area. That is precisely what is being sought in the Fine Gael motion and, indeed, the proposal from the Democratic Left.

What did the Deputy call Senator Ross?

God save Ireland.

Whatever I called Senator Ross, I would have to say that it is much more charitable than what Senator Ross has been referred to by members of Fine Gael in my constituency.

Is the Deputy looking in the same mirror now?

The Government are not mindless of the hardship being caused by the present situation. Job saving measures have been announced in the past few weeks. A local enterprise fund of £150 million has been launched and PRSI savings to employers and the taking on of more workers have been announced. There has been an easing of the more bureaucratic elements in the FÁS grants system and specific measures to assist sterling dependent firms here have been instituted. With Government encouragement and some prodding, lending institutions have taken measures to dampen the impact of the huge rise in interest rates on home buyers.

As a nation, we must adjust to a new set of economic realities and one of those is that in the future our closest neighbour and major trading partner is out of the running economically. It will be painful to adjust to that circumstance but, since 1987, we have shown that if we keep our heads we can achieve proper economic progress. We must retain our position in the ERM. Far from following the advice of some of the more exotic members of Fine Gael, we should seek to establish an irrevocable link with the Deutsche Mark. We must press for further development in Europe towards closer monetary integration, and I acknowledge that members of the Fine Gael Party share this view.

We must press also for the creation of a European Central Bank in which we would have a real say. Above all, it is important that we keep our heads at this time. The Minister for Finance and the Government have shown that in spite of all the difficulties we can keep ours. If the other parties in this House show the same level of sanity we will make progress in this matter.

It is no wonder the Deputy is smiling.

Has the Deputy struggled from the bottom of a lake?

Could we regularise this tecte-à-tete and continue. Deputies should listen quietly without interruption to Deputy Gerry O'Sullivan.

With the permission of the House I propose to share my time with some of my colleagues.

Is that agreed? Agreed.

The Labour Party will be supporting the motion before the House tonight. We will be doing so, not particularly because we believe the approach hinted by Fine Gael in their motion is a particularly correct one in all its details but because we believe the Government have failed to spell out any coherent response to the collapse of sterling and to the pressures that has produced in the Irish economy.

In particular, it seems to us that the Fine Gael motion is weak in calling on the Government to spell out an exchange rate policy, thereby hinting that Fine Gael might perhaps prefer some different policy. The Labour Party do not believe that the Government ought to have contemplated a policy other than the one they are following.

There has not been any choice in this matter up to now. The Government clearly were not in a position to follow the pound sterling out of the ERM on any unilateral basis. However, that is not, by any means, the same as saying that the Government have managed the situation well, or that options will remain as limited in the future. The reality is that in the face of the sterling devaluation, the Government's response was stereotyped, unimaginative, and carried out at considerable cost to the people of this country.

At the time devaluation occurred, we suggested a number of approaches that ought to have been followed once a unilateral devaluation was ruled out. None of these strategies included devaluation, or anything remotely like it. We approached the issue on the basis that the long term benefits of European economic integration should not be put at risk for short term relief. Neither, in our view was it ever necessary for Government strategy to include crazy approaches like offering foreign investors or speculators guarantees if they buy Irish gilts.

I will give fine examples of effective strategies which we suggested as being available for rapid implementation and results. I am disappointed that Deputy Roche has left the Chamber as some of my comments may be of interest to him. First, we believe that the Government must take action, if necessary in the context of mini-budget, to protect home owners against the massive impact of increases in the mortgage rate. The Government must consider, even on a temporary basis, raising the ceiling for mortgage interest relief to a higher level — say 100 per cent of interest up to a ceiling of £5,000 per annum for a married couple instead of the present figure of 80 per cent of £4,000. The Government have consistently said that this is a short term crisis. If that is the case, and hopefully it is, this measure will not cost a great deal of money. Most banks and building societies have now postponed increases in monthly repayments, to allow time for the situation to rectify itself. If it does not, then the option of increased protection for mortgages through the tax code even on a short term basis as I have outlined must be kept on the agenda.

Second, the Government have mechanisms available to them which enable the balance of the mix of our borrowing to be changed rapidly. For example, arrangements can be made to increase the foreign component of borrowing — borrowing in foreign currencies — and decreasing the Irish punt component. This would not affect the overall level of borrowing but would improve the liquidity of the economy in terms of foreign currencies and would greatly reduce the need for interest rate increases. After we called for it, the Treasury Management Agency did take some steps along these lines. We said at the time that if the agency had been encouraged to move quicker and with more resolution, the interest rate increase could have been avoided altogether.

Third, most of the speculation against the punt was carried out by domestic businesses, and some individual speculators, and Irish pension funds. Large transactions where Irish entities sell punts to buy foreign currencies can be a breach of exchange controls unless they are carried out with the permission of the Central Bank. We have consistently argued that the Government should have been ensuring the maximum monitoring and control of such transactions to ensure that exchange control regulations are strictly observed. Any transactions which appear to the authorities to be purely for speculative purposes should have been and must be forbidden.

The fourth suggestion we made was that the Government should establish a fund—part of the so-called £100 million could be used for instance — to assist targeted business which have been particularly affected by changes in sterling. These would in the main be labour intensive businesses which export to the UK. I should add that we also congratulated the Government when it introduced such a fund, and I hope it will be successful in its objectives.

The fifth point is that on the other side of the coin, we called several times for immediate Government action to protect Irish consumers from profiteering by a small group of importers and distributors. A department of consumer affairs with only 12 inspectors and with only one public telephone line which operates for minimal periods have neither the staff nor the resources to combat the blatant profiteering which was possible as a result of the fall in sterling.

A month after the crisis in the European currencies erupted, we have still not seen any real independent analysis of the amount and extent of price reduction on consumer goods. In the debate on jobs I raised this matter with the Minister for Industry and Commerce, Deputy O'Malley, and he stated that he had no intention of increasing the number of inspectors and that competition would automatically resolve the problem, but that has not happened. The Minister of State at the Department of Industry and Commerce, Deputy O'Rourke, stated that she will examine and monitor the situation and, if necessary, introduce price controls. That is to be welcomed. When I raised this matter in the House on Friday last I was told by the Minister for Industry and Commerce that one of the products he would be monitoring the price of would be Scotch whisky to check if it decreased due to the exchange rate difference between sterling and the punt.

We want the Director of Consumer Affairs to spell out clearly and lucidly what he proposes to do in order to protect the consumer. He has already ruled out price control as a means of dealing with this issue, but has offered no alternative to ensure the protection of the consumer. I am calling for the publication of a comprehensive price survey that will set out the realities and will not leave the consumer in the dark. Price control should be introduced wherever there is evidence of importers and distributors making a fast buck and ripping off the consumer in the process.

The Government's response in this area has been weak and inadequate particularly in relation to the rights of the consumer. Consumers should now be saving £1 million per day alone as a result of the fall in sterling. A few days ago I had the opportunity to check the price of products and I was amazed at the difference in prices between Britain and Ireland. The consumer is being ripped off and there does not seem to be any Government policy to curtail it.

An issue which deserves to be addressed is the management of these matters in the immediate past. In the future we must be prepared to adopt a more flexible approach. Any suggestion that the punt should be unilaterally locked into the Deutsche Mark for all time, as proposed by a number of economists, can only be seriously contemplated by a Government who can ignore the tens of thousands of jobs that will be lost in indigenous industry if sterling falls below 2.40 DM. There is confusion, alarm and panic in the business and indigenous industrial sectors. Even hardened businessmen do not know what to do next. Some would contemplate devaluation to save their business but we would not favour that policy. We should press for a general realignment of EC currencies in a reformed ERM which would allow the re-entry of sterling. That is a key requirement. If the ultimate hard choice has to be made and the Italian, Spanish and Portuguese currencies are forced to devalue against the DM, we will have to follow suit. That is a totally different proposition from a unilateral or forced devaluation.

Irish jobs must come before the value of the assets of the financial sector, who have been pressing to turn the punt into a monetary province of the Bundesbank. The one fundamental that financial economists never refer to is the Irish unemployment level, which is four times the German rate and the highest in the European Community. That is the key issue which needs to be addressed in our exchange rate policy. We must consider the 300,000 unemployed and the threat to indigenous industry and the agriculture and food sectors. Those industries would be wiped out if the current trends were to continue and the results would be horrific. We must take whatever action is necessary. We can be flexible for a certain time but at a given point we must call a halt and take necessary action, even if it is unpalatable.

I do not disagree with the view that our future is in Europe but we must consider the kind of Europe to which we want to belong. It would be a major historical miscalculation on the part of any EC member state to believe that the exclusion from monetary union of countries such as Britain, Spain, Portugal, Greece and Ireland, which account for 50 per cent of EC output, would not undermine, perhaps fatally, the European Community itself. This is the possible crisis we are facing. Many ordinary people do not understand the mechanics of monetary union but they understand that their jobs are in jeopardy because their employers cannot sell their products in Britain. There could be major closures and job losses, with a consequent loss of status for many people who are struggling to survive.

The Maastricht Treaty cannot be implemented on an á la carte basis. The Treaty falls unless it applies equally to all member states. That is the Treaty which the Irish people approved and any change in it would be a breach of contract with the people.

European Union will not succeed unless it addresses the needs of the 16 million unemployed in the Community, whose numbers will continue to rise unless there are changes in policy. We have the highest rate of unemployment in Europe. Emigrants are returning because they cannot find jobs on the continent. Major problems exist in the eastern part of Germany.

I welcome the new emphasis on unemployment by the Taoiseach at the Birmingham Summit but it was very little and very late. He and other Heads of Government must realise that uncertainty and unemployment are the twin effects of an economic policy which has exchange rate stability and low inflation as over-riding priorities, irrespective of the consequences for the level of economic activity and employment.

Now that we have taken so-called corrective action to reduce inflation and our public sector deficit, the levels of both are close to the Maastricht conditions for European Monetary Union, but our people have paid a very heavy price to bring that about. At the end of it all we find that interest rates have risen by 3 per cent and may have to rise further to stay with the Deutsche Mark. Germany's public deficit is well outside the 3 per cent target. If Germany were to fund more of the cost of unification through increased taxes, Germany interest rates could be reduced, thus helping other currencies to stabilise. Without a reduction in German interest rates, Irish rates will not come down. The consequences do not appear to have been taken on board by the Government for a period beyond three months. That would represent an unacceptable price for membership of any monetary union.

One very severe aspect of the financial crisis is that people are having great difficulty in meeting their mortgage payments. Some people told me at a meeting last night that this is the straw that will break their backs. For many people an increase of up to £80 per month is a critical problem. The holding off by the banks and building societies is delaying the evil day but unless something radical happens these people will have to pay huge sums of money which will put further pressure on their household budgets. All members of families will experience hardship as a result of this financial crisis.

Debate adjourned.
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