Vol. 459 No. 1
8 Mr. M. McDowell asked the Minister for Finance whether he has studied the recent report of the EMI on Ireland's eligibility for membership of Economic and Monetary Union; and if he will make a statement on the matter. [17944/95]
25 Mr. M. McDowell asked the Minister for Finance if he has studied the recent report of the EMI on Ireland's eligibility for membership of Economic and Monetary Union; and if he will make a statement on the matter. [17884/95]
I propose to take Questions Nos. 8 and 25 together.
On 22 November, the European Monetary Institute published a report on progress towards convergence in member states of the European Union in accordance with Article 7 of its statute. The EMI gave a positive assessment of Ireland's performance on convergence. It acknowledged our good record on inflation, interest rates and the public finances, including the fact that Ireland is one of only three member states deemed in 1995 not to have an excessive deficit. The report also notes that, in 1995, Ireland's forecast general government deficit will once again be below the Treaty reference value of 3 per cent of GDP. In fact, Ireland's deficit has been below 3 per cent of GDP every year since and including 1989. The report also acknowledges the continuing reduction in Ireland's debt-GDP ratio, which is forecast to fall to 86 per cent in 1995. This represents a decline of almost 32 percentage points since 1986. Furthermore, Ireland is the only member state which will have a lower debt-GDP ratio this year than in 1991.
Overall, the report concludes that a majority of member states do not currently satisfy all the criteria and that progress towards convergence is not sufficient. In particular, the report found the public finances in most member states to be far from satisfactory.
The EMI also addressed, in respect of all members states, the risks affecting future progress towards convergence. On Ireland, it noted that the Irish pound's exchange rate remains below the ERM central parity against the strongest currencies. The EMI also referred to a possible effect on inflation stemming from our continuing high economic growth and expressed concern about a recent deterioration in cyclically-adjusted budget balances.
These remarks must be viewed in their proper context. Ireland was not singled out for criticism. For example the EMI also cautions Germany, the EU's strongest economy, on inflation and the budget deficit. The EMI's comments on fluctuations in our exchange rate reflect the impact on a number of currencies, including the French franc and Danish krone as well as the Irish pound, of US dollar and associated sterling weakness and the appreciation of the Deutsche Mark. The Irish pound continues to trade comfortably within the ERM and has actually appreciated modestly in trade-weighted terms this year.
Regarding the comments on inflation, I remind Deputies of our excellent record on inflation in recent years, which has been maintained during a period of sustained economic growth.
The EMI's assessment of our budget deficit is based on figures which include the full cash cost of equal treatment payments in 1995, amounting to £200 million. While the cyclically-adjusted deficit can be a useful indicator of the conduct of fiscal policy, it is a somewhat controversial measure of fiscal performance and, therefore, its importance should not be over emphasised. In this context, we have some reservations about the Commission estimates of Ireland's cyclically-adjusted deficit, on which the EMI assessment is based.
Somebody asked me the other day — as a child of the 1960's — if I agreed that at one stage EMI was a record label and Economic and Monetary Union was a glove puppet on Roy Hudd's knee and that life had changed when these terms were supposed to be on everyone's lips. Does the Minister agree that the EMI's view of Ireland was somewhat sceptical, that the most obvious point of scepticism related to our debt-GDP ratio and that, although it is moving in the right direction, there is no confident assertion or assumption that we will arrive at a satisfactory debt-GDP ratio by the time Economic and Monetary Union is put before us?
We should recognise the EMI for what it is — it is not a defunct record label — it is the embryonic central bank for the European Union currency. Therefore, its pronouncements will be in line with what one would expect to hear from a central bank. It will make the cautionary comments with regard to expenditure control that one would expect to hear from our Central Bank and frequently from the Bank of England which is not independent, or the Federal Reserve.
One has to consider the report in its entirety. It deals with the issue of progress towards convergence in member states. This was part and parcel of the Maastricht Treaty which gives legal expression to the Economic and Monetary Union project. I would be the first to admit that our performance could be better and would like to see our debt-GDP ratio fall faster. I do not think anyone in the House would necessarily disagree with that; no one is arguing that it should move in the other direction, but one has to consider what the report states about all the European economies and see where Ireland is located on the league table in terms of its performance by comparison with that of Germany. On balance, the assessment is reasonably positive, but not one about which anyone could be complacent.
Earlier the Minister made party political broadcasts on behalf of the British Labour Party. In this context was his fellow member of Socialist International, Mr. Neil Kinnock, close to the mark when he suggested that the target date of 1999 for Economic and Monetary Union was not attainable? The EMI is operating on the assumption that we are moving towards the first phase of Economic and Monetary Union in 1999. Does the Minister agree that this target will not be achieved?
I attended the ECOFIN Council meeting on Monday of this week at which 15 Ministers for Finance participated, ranging from the European socialist to the conservative group, not one of whom gave any indication, both in their formal presentations at the meeting or in the informal discussions over lunch, that the target date of 1 January 1999 was neither realistic nor achievable.
There is a question about whether the French will be in a position to join. This has been expressed by Chancellor Kohl and a number of other senior European statesmen. The French have made it clear, however, that they are determined to meet the criteria laid down in the Maastricht Treaty and in the report to be submitted to the Madrid Council. I have no reason to doubt their commitment and, on that basis Mr. Neil Kinnock was wrong and the ECOFIN Council was correct, that we are on target to move towards Economic and Monetary Union on 1 January 1999.
May the House take it that the Minister favours the Labour Party led by Mr. Tony Blair and not the outdated views of Mr. Kinnock?
