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Dáil Éireann díospóireacht -
Tuesday, 5 Nov 1996

Vol. 471 No. 1

Céisteanna—Questions. Oral Answers. - Economic and Monetary Union.

Charlie McCreevy

Ceist:

15 Mr. McCreevy asked the Minister for Finance the progress, if any, which has been made in relation to economic and monetary union, including stability pacts, during the course of Ireland's Presidency of the EU; the likely progress, if any, which will be made prior to the completion of Ireland's term as President of the EU; and if he will make a statement on the matter. [20324/96]

When I became President of the ECOFIN Council in July I set out my priorities in the economic and monetary union area in accordance with the mandates given to ECOFIN by the Madrid and Florence European Councils. Briefly, these require ECOFIN and, in their respective fields of competence, the European Commission and the European Monetary Institute to present conclusions to the Dublin European Council in December 1996 showing further substantive progress towards ensuring a smooth transition to economic and monetary union. Three areas are involved.

The first concerns strengthening budgetary discipline in stage three of economic and monetary union among member states that adopt the euro. This work follows from the treaty provisions in relation to the avoidance of excessive deficits, and the specific proposals made by Germany last year for a stability pact to operate among member states in economic and monetary union. The second involves study of the range of issues, particularly in the monetary policy area, raised by the fact that not all member states will adopt the euro from the outset. The third is the legal framework for the use of the euro.

Very satisfactory progress has been made on all three areas so far during our Presidency. In Dublin in September I hosted an informal meeting of EU Finance Ministers and Central Bank Governors to review progress and to chart the course to the December European Council. This meeting ensured that we are well on our way to achieving our Presidency objectives.

On the stability pact, Ministers endorsed the idea that member states in economic and monetary union will be obliged to submit stability programmes outlining their plans for keeping their public finances in order so that their general government deficit will be kept below the treaty reference value of 3 per cent of GDP over the course of a normal business cycle. There was also broad agreement that member states not in economic and monetary union should submit convergence programmes showing a commitment to manage their public finances in accordance with the principle of convergence. All member states agreed with the idea of an early warning system to help prevent excessive deficits arising.

Article 104c of the Treaty on European Union provides for sanctions to be imposed, including the imposition of fines, if a member state fails to take effective action to remedy an excessive deficit. At Dublin, there was a consensus that as a general rule when sanctions are first imposed, the member state involved should make a noninterest-bearing deposit; and that after two years a deposit should be converted into a fine of the same amount if the deficit continues to be excessive.

Finally, there was agreement that the pecuniary sanctions provided for in the treaty should have both fixed and variable components and should be of a magnitude sufficient to discourage excessive deficits. Further work is being carried out on the scale of sanctions.

On the second area, the Dublin informal Council also made progress on the objectives and main features of a new exchange rate mechanism. There was a consensus that the central rates of currencies in the new ERM should be set by reference to the euro only, to reflect both its anchor rule and the goal of convergence to the euro area. We also called for work to be done on the issue of strengthened surveillance of exchange rate policies of member states outside the euro area, with a view to making more effective the obligation in article 109m of the treaty for member states to treat their exchange rate policies as a matter of common interest. Finally, there was agreement at Dublin on the need for certain legislation on the legal framework for the introduction of the euro to be produced as a matter of urgency.

The progress made under the Irish Presidency so far was reflected last month when the Commission adopted legislative proposals on the stability pact and on the legal framework for the introduction of the euro, as well as a draft communication to Council on the relationship between participating and non-participating member sates. As for the rest of our Presidency, we will be chairing a working group on the draft legal framework for the introduction of the euro with a view to as much agreement as possible being reached on it in advance of the European Council in Dublin in December. Work is also continuing within the Monetary Committee, on the Commission's legislative proposals on the stability pact.

Early next month ECOFIN will finalise reports for presentation to the European Council which will show substantive progress on the three areas I have outlined. Many key elements of the stability pact and of the legal framework for the introduction of the euro have been agreed and I expect further progress to be made before the end of the year. The main parameters of the new ERM are almost settled, although the details cannot of course be finalised until the European Central Bank is set up in 1998. Work on other aspects of the relationship between participating and non-participating member states is ongoing in the context of improving multilateral surveillance. The work on the legal framework for the euro is at an advanced stage.

I should not neglect to mention in the context of our Presidency role that, although there is now no likelihood of a decision in 1996 to proceed to economic and monetary union in 1997, there is still a Treaty procedure under which the European Council must decide, before 31 December 1996, whether a majority of member states fulfil the necessary conditions for the adoption of a single currency, whether it is appropriate to enter the third stage of economic and monetary union and, if so, to set the date for the beginning of the third stage.

The European Council has of course already decided that 1 January 1999 will be the starting date for economic and monetary union, so the outcome of this procedure is already clear. The procedure must nevertheless be carried out. Our aim is that the Dublin European Council will reaffirm the 1 January 1999 commencement date for economic and monetary union and drive home the message that the move to economic and monetary union on that date is irreversible.

I have no doubt the negotiations on economic and monetary union are complex and difficult. Some European experts recently attended the Select Committee on Finance and General Affairs, one of whom stated the timetable is sacrosanct while another said the criteria are sacrosanct. What is the Minister's view in that regard? Are the criteria immutable or is the timetable immutable?

The Deputy has posed a valid question on which there has been a great deal of debate in many capitals across Europe and beyond. The main body of the treaty text is explicit in regard to the timetable. The five Maastricht criteria are not embodied in the body of the text per se; they are attached to a Protocol. If one wished to be entirely legalistic, one could say the treaty gives explicit reference to the timetable whereas the five Maastricht criteria are not embodied in the main text. However, the need for sustainable convergence is embodied in the main body of the text and the five criteria are an expression of what is understood to be sustainable convergence. In reality, the timetable and the criteria are embodied in the treaty and both are very solid.

I do not blame the Minister for giving a somewhat obfuscatory answer to my question.

I gave the Deputy a factual reply.

He did not understand it.

The two issues do not add up. A number of statements from the German Minister and utterances from the president of the Bundesbank suggest that adherence to the criteria must be met. Is the Minister saying the timetable is immutable and that economic and monetary union will proceed on 1 January 1999, even if the criteria are not met? As the Minister recognised, there is considerable divergence of opinion in this regard. Is it the Minister's view that the criteria are more important than the timetable or vice versa?

The Deputy has altered the thrust of his first question in his supplementary query. However, I did not obfuscate my answer. He asked me what the treaty explicitly stated and I outlined that clearly. The timetable is explicitly stated — while the criteria are not — in the main body of the treaty, which refers to sustainable convergence. This is defined in the Protocol where the five criteria, with which we are familiar, are outlined. Both have equal importance and it is not a case of one or the other.

I am aware of the debate and speculation as to whether countries will qualify or meet the criteria, or whether the criteria can be altered in respect of various matters, but it is unproductive at this stage. If we agree with the economic and monetary union project and recognise that the timetable for commencement is 1 January 1999, we must ensure that as many countries as possible which aspire to participation qualify on the day. Hazarding guesses as to what might happen in advance of that is mere speculation and serves little or no useful purpose other than to give fuel to those who fundamentally disagree with the project, who do not want it to happen and who will use every device possible to undermine its credibility. This is not the position of the Deputy or his party but I do not wish him to be inadvertently ensnared in a pointless intellectual cul de sac which does not advance the debate.

There is a strict time constraint on priority questions and over half that time has been expended on Question No. 15.

By necessity the Minister's reply was detailed and, consequently, the supplementary queries are also detailed. I thank the Minister for his advice but I am capable of taking my own counsel. This debate did not start in Ireland but was brought to the forefront by Germany. It is the main driving force and must participate in economic and monetary union at the outset. Germany has made these noises for a considerable time; the debate has not arisen only in Ireland or elsewhere. Conflicting views have emerged from Germany and it has said that the criteria must be met. Given that it will be the main participant in economic and monetary union, it is legitimate for Ireland and the Minister to have a view.

I take it the Minister does not have a view that the criteria are more important than the timetable or vice versa. However, he cannot have it both ways; he must take a view one way or the other. Does he agree with the utterances from Germany that the criteria are more important or does he consider that the timetable will proceed willy nilly even if the criteria are not met? This is a fundamental point because if and when Ireland participates in economic and monetary union, the decision cannot be reversed. It must be debated because we cannot decide six months or years later to get out of the system. This issue is of fundamental importance and a wide ranging debate is necessary.

If the criteria which underpin sustainable convergence are not met and the European Council judges that a sufficient group of countries have not met them, the economic and monetary union project will not proceed if that is the outturn of the recorded result of the 1997 budgets. It is my considered view that speculation on whether the criteria will be diluted or modified is not helpful at any stage.

I must draw the Deputy's attention to the existing constitutional legal position. The electorate of this Republic voted to alter the Constitution to include a treaty which, inter alia, contains specific timetables, one of which is no later than 1 January 1999. I am not aware of any provision which allows anybody, as far as the citizens of this or other countries which held referenda or made formal resolutions of parliament are concerned, to alter that timetable without having recourse to the bodies which made the decisions. The Deputy asked which is of more importance.

In the Minister's view.

Both are of considerable importance for the reason I outlined. The project will not sustain itself in the future unless convergence is self evidently sustainable. In addition, the project cannot proceed unless the obligations of the treaty, including the timetable obligations, are met.

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