Dáil Éireann díospóireacht -
Tuesday, 16 Feb 1993

Vol. 426 No. 1

Adjournment Debate. - Currency Crisis.

Mr. Cox

With regard to the devaluation of the Irish pound on 30 January 1993, it is becoming increasingly difficult in recent days to figure out exactly the "whodunit" dimension and who, if anyone, let us down in Ireland. It appears to be the "Government dog that did not bark" who is responsible for this particular tale.

On 6 January the Minister for Finance was reported as being critical of what he called a "sweetheart" deal between France and Germany to protect the French franc, a deal not available to countries such as Ireland. In his contribution to this House on 10 February, the Minister said:

It is common knowledge that on two occasions last year the German authorities went beyond their obligations in providing assistance for the French franc. This led to the understandable perception that the dominant partner in the European monetary system was differentiating between currencies.

It is clear that the Minister and the Government were deeply concerned at this discriminatory process, although the French intervened politically to secure advantage from the Germans for themselves.

Last weekend the Department of Finance expressly confirmed that the Bundesbank was not asked for specific support for the Irish pound. This is fully consistent with the reported comments of Herr Hans Tietmeyer, the Governor-in-waiting of the Bundesbank. The Irish Government in terms of a potential vital "sweetheart" deal from the Germans to uphold its exchange rate policy got precisely what it asked for from the Bundesbank. The Minister asked for nothing specific and that is precisely what he got in the end. In the past two days that uneasy truth has been recycled to suggest that a "sweetheart" deal was sounded out on more than one occasion by the Governor of the Central Bank and separately by a senior official of the Department of Finance. These overtures were rebuffed by the Germans. Politically the buck stops with the Minister, the Taoisearch and the Government.

Taking account of the General Election and subsequent negotiations to form a Government, it is difficult to avoid the conclusion that nobody was minding the shop. The Government appears to have confined itself at a political level to a single letter from the Taoiseach to Chancellor Kohl of Germany. This whinged about "sweetheart" deals but, incredibly since they worked so well for the French franc, the letter is reported in the national media to have stopped short of seeking such a remedy for the Irish punt. The Minister and the Taoiseach should confirm that this is the case and be accountable to this House. If we are to accept the Minister's recycled version of events it follows that the Germans were in no doubt about separating the wheat from the chaff in currency terms. In such circumstances it was grossly irresponsible of the Government to plough on regardless with its currency policy in the full knowledge that no special comfort would be granted to Ireland as a means of steadying market sentiment. The Minister stated that it was not possible to telephone the Bundesbank or to get in touch with them by direct means. Why? This was a crisis affecting every person and business in this country. Would direct contact not have underlined the very importance of the matter to this State? If Protocol was so important then, why is it not important now when the Minister was engaged in a whingeing war of words with the Bundesbank after the event? It is reported that the Government felt it would be in breach of ERM rules for the Bundesbank to provide special help for the Irish punt.

An Ceann Comhairle

I would be grateful if the Deputy would now bring his speech to a close.

Mr. Cox

It is a disgrace that the Government chose to play by the Marquis of Queensberry rules while whole sectors of the Irish economy and our national reserves were threatened with extinction. If there is a political lesson to be learned it is that passive politicians, particularly the Taoiseach and the Minister for Finance, must accept full responsibility for a debacle which they could have addressed if they went about their business as confidently as their French and Danish colleagues.

Minister for Finance (Mr. B. Ahern)

I have made clear in recent statements the approaches made requesting support for the defence of the Irish pound in the crisis since September.

The approaches made were directed mainly at the German authorities because of the necessity for the backing of the Bundesbank if any support moves were to be successful. As a Minister, I could not approach the Bundesbank formally since no mechanism is available for such approaches. We were in new territory and there was no precedent for this on our part. In addition, the whole EMS was suffering unprecedented strains.

Against this background a number of soundings were taken to ascertain the position of the Bundesbank for intra-marginal support for the Irish pound.

In September, the Irish Central Bank asked the Bundesbank for support similar to what had been given to the French authorities in regard to the French franc. The Bundesbank was not prepared to render such assistance.

During the autumn both at ECOFIN level and in the context of meetings of the monetary committee, I and my officials sought to encourage the German authorities to take greater steps to defend the ERM and the Irish pound than they were obliged to do under the ERM rules. In particular, we, in common with other member states pressed for an early lowering of German interest rates since such a vote would have the most beneficial effects in lessening tensions in the whole EMS, thereby reducing the need for currency support.

In November, the Irish representatives on the monetary committee informally approached the Bundesbank representative to again suggest that we should be afforded the same assistance as the French franc. However, this was refused on the grounds that this would be a fundamental change to the ERM and that other members would look for similar treatment.

At the Edinburgh Summit, I raised the issue of the EMS crisis. I felt it had not been treated with a sense of urgency and that greater solidarity was needed to solve the problem. I pressed for greater co-operation from all our partners, including the German authorities.

In the first week of this year the Governor of the Central Bank approached the President of the Bundesbank about the issue of intra-marginal support. However, the Bundesbank did not offer any prospect of such support.

On 11 January, the Taoiseach wrote to the German Chancellor about the Franco-German arrangement and pointed out that this was damaging for the Irish pound. In our view, the absence of such an arrangement for us was open to misinterpretation and could be seen as a lack of commitment to our currency by our EMS partners. The Taoiseach asked for the Chancellor's assistance to promote Community wide initiatives to help ease the ERM tensions.

I might remind Deputies that in response to my request the Council of Ministers on 18 January issued a public statement indicating their support for the stance of the Irish Government.

Immediately prior to our devaluation, we received intimations from the Chairman of the Monetary Committee that he was prepared to work to put together some type of support arrangement. However, as I have said before, at that stage we considered it too little, too late. There was no mention of a reduction in German interest rates at the time. After we devalued, the Danish crown came under pressure but there was co-ordinated action by European Central Banks and a reduction in German interest rates which helped stave off this attack.

I might also add that in the period since September, it was quite clear to all concerned that our currency and other currencies were under sustained pressure. Despite pressures on the German authorities they felt that new initiatives outside the ERM rules were not required. For domestic reasons they felt unable to cut interest rates until February this year. I would point out that there has been no intra-marginal support for several other currencies in difficulties during the crisis; and that despite pressure from several member states since September a German interest rate cut did not materialise until early February.

We cannot dictate to the German Central Bank their response to situations. Their perspective is different from ours. This is a matter where one must put forward one's views as strongly as possible in the hope that in the ensuing dialogue it may be possible to convince the other party to change its mind. I consider that the Government and the officials involved took all possible steps to get assistance for the Irish currency from the German authorities over the period since September.

I welcome the belated co-operation signalled by the support for the Danish Crown. I hope this is a sign of greater co-operation by the ERM partners for the future.

I thank Deputy Cox for the opportunity to reply to this issue. I have done so on three consecutive days. As far as I am concerned it is unhelpful to pursue this matter any further.

Mr. Cox

Unhelpful to whom?