Dáil Éireann díospóireacht -
Thursday, 12 Feb 1998

Vol. 487 No. 2

Central Bank Bill, 1997: Second Stage.

Minister for Finance (Mr. McCreevy)

I move: "That the Bill be now read a Second Time."

The purpose of the Bill is to bring the legislation governing the Central Bank of Ireland into conformity with certain provisions of the EC Treaty as amended by the Treaty on European Union and also with certain provisions contained in the Statute of the European System of Central Banks and the European Central Bank contained in Protocol No (3) to the Treaty establishing the European Communities. The provisions of the Bill are designed to cater for the streamlining of the independence of the Central Bank of Ireland along with its institutional integration into the European System of Central Banks and the European Central Bank.

These amendments are a necessary part of our preparations for full participation in economic and monetary union. The treaty lays down that, in assessing the fulfilment by member states of their obligations for achieving EMU, the European Commission and European Monetary Institute are to examine the compatibility between each member state's legislation, including the statutes of its national central bank, and the relevant provisions of the treaty and statute. In that respect, the compatibility of our central banking legislation is additional to the more wellknown convergence criteria in the key areas of prices, the Government's financial position, the exchange rate and long-term interest rates. The EMI and the Commission were consulted on the terms of this Bill and the response of both organisations to it has been generally positive.

Before I go into the detail of the Bill, I will put the legislation in its proper context by reminding the House of not only the institutional aspects of EMU, with which this legislation is directly concerned, but also the timetable for EMU and the background. The treaty envisages EMU being reached in three stages.

Stage one involved the completion of the Single Market and closer co-ordination of economic policies of member states. Stage two, which began on 1 January 1994, involved intensifying the co-ordination of member states' economic policies, based on multilateral surveillance within the context of broad guidelines laid down by the Council of Economic and Finance Ministers or ECOFIN. Most importantly, stage two brought into operation the excessive deficit procedure set out in Article 104c of the treaty which requires an annual examination of each member state's budgetary performance to see if it meets the deficit rules laid down in the treaty, with the Council making a recommendation for ending the excessive deficit of any member state which does not meet them. Ireland has never been the subject of such a recommendation.

Stage two also saw the establishment of the EMI which is the forerunner of the European Central Bank and has, inter alia, the task of developing the regulatory, logistical and organisational framework for the ECB to perform its task, as well as assessing the readiness of member states for participation in the third stage.

Stage three is the final stage of EMU and will begin on 1 January 1999. On that date, the euro will become a currency in its own right and the conversion rates of the currencies of the participating member states will be irrevocably fixed. At that stage the ECB will begin operating the single monetary policy in respect of the euro.

The major part of the arrangements necessary for the transition to the single currency are now in place. More recently, the Luxembourg European Council last December adopted a resolution setting out principles and arrangements for strengthened economic co-ordination among states sharing the single currency and between those states and other states not yet in a position to participate in the euro.

The European Council also concluded that the organisation of an ongoing and fruitful dialogue between the Council and the European Central Bank, respecting the independence of the bank, is an important factor in the proper functioning of EMU. I will deal later with the matter of dialogue with the ECB.

The decision on who will participate in the third stage of EMU is to be made at the beginning of May this year in accordance with the procedures laid down in Article 109j of the treaty. The ECOFIN Council will assess whether each member state fulfils the necessary conditions for the adoption of a single currency, on the basis of convergence reports from the European Commission and the EMI.

On the basis of these reports, ECOFIN, acting by a qualified majority on a recommendation from the Commission, will recommend its findings to the Council, meeting in the composition of the Heads of State or Government, who will, after receiving the opinion of the European Parliament, confirm which member states fulfil the conditions. It is expected that the Commission and the EMI will produce their convergence reports on 25 March next, allowing time for the Council and the European Parliament to examine them in detail before their formal decisions. The Government is anxious to facilitate a Dáil discussion of these convergence reports before the Easter recess. The changes included in this Bill, which will make our legislation compatible with the treaty, need to be enacted in time to be taken on board by the Commission and the EMI when they are finalising their convergence reports.

There will be a pre-announcement of the bilateral exchange rates of the currencies of the participating member states during the first weekend of May this year once the decision is taken on which member states will adopt the euro. These rates will become effective on 1 January 1999 and, in line with the treaty, the setting of the conversion rates against the euro can only take place on that date.

As regards the Irish pound, as I have stated previously, the Government's intention is that Ireland will join EMU at an exchange rate that meets the needs of the economy in the fullest sense of the word and that the decision cannot be finalised until next May. In the meantime, we will keep the issue under active review. Obviously, therefore, the final decision will take account of all the elements, including inflation and overall competitiveness, which contribute to the balanced development of the economy.

As soon as possible after the decision on the participating member states, the executive board of the ECB will be selected. The president, vice-president and other members will be appointed by common accord of the Governments of the member states at the level of Heads of State or Government on a recommendation from the Council and after consulting the European Parliament and the Council of the EMI. Under the treaty the ECB will be formally established immediately after 1 July 1998.

While the euro will become a currency in its own right on 1 January 1999, euro notes and coins will not be introduced into circulation until 1 January 2002. Legal tender status will have been withdrawn from national currencies at the latest by 1 July that year.

The European System of Central Banks is one of the three core elements of the EMU, the other two being the establishment of a single currency among participating member states and the intensified co-ordination of economic and budgetary policies among participating member states.

Article 4a of the treaty provides for the establishment of a European System of Central Banks, ESCB, and for the ECB to act within the limits of the powers with which they are conferred by the treaty and the statute of the ESCB. The primary objective of the ESCB, which will comprise the ECB and the national central banks of the member states, is to maintain price stability.

Without prejudice to the objective of price stability, the treaty requires that the ESCB shall support the general economic policies in the Community with a view to contributing to the objectives of the Community. These include the promotion of harmonious, balanced and sustainable development of economic activities, sustainable and non-inflationary growth, a high level of employment and of social protection, and economic and social cohesion and solidarity among member states. In carrying out this function, the ESCB shall act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources.

The basic tasks of the ESCB will be to define and implement the single monetary policy; to conduct foreign exchange operations consistent with the provisions of the treaty in relation to exchange rate policy; to hold and manage the official foreign reserves of the member states and to promote the smooth operation of payment systems. Member states with a derogation, or which have exercised an opt-out, are excluded from the ESCB's monetary policy responsibilities.

The ECB's independence is guaranteed by the Treaty. When exercising their powers and carrying out their tasks and duties, neither the ECB nor national central banks may seek or take instructions from Community institutions or bodies, from any government of a member state or from any other body. Furthermore, the treaty provisions in relation to the governance of the ECB and the ESCB are designed to copperfasten that independence.

The decision-making bodies of the ECB, which also govern the ESCB, are the executive board and the governing council. The executive board must be appointed from among persons of recognised standing and professional experience in monetary or banking matters by common accord of the governments of the participating member states. The members of the executive board will be appointed for eight-year terms — with some exceptions for the first round of appointments to ensure subsequent vacancies do not all arise at the same time, and appointments will not be renewable. The governing council comprises the members of the executive board together with the governors of the national central banks of participating member states, whose independence in turn is guaranteed by the treaty provisions with which this Bill is concerned.

This independence will ensure the ESCB focuses on its primary objective of price stability. This independence will generate confidence in the euro as a stable and secure currency. It will also ensure that in deciding issues, the ECB will be guided by the interests of the Community as a whole, rather than being unduly influenced by the views of a particular member state. This independence must be complemented by appropriate arrangements for accountability. In that regard, the ECB must present an annual report on the activities of the ESCB to the European Parliament, the Council of Ministers and the European Commission as well as to the European Council of Heads of State and Government. The report must cover the monetary policy of the previous and the current year. It will be presented by the ECB president to the Council and the European Parliament, who may hold a general debate on that basis. The president of the ECB and the other members of the executive board may be heard by the competent committees of the European Parliament, either on their own initiative or at the Parliament's request.

Whatever arrangements are in place at national level, under which national central banks are accountable to national parliaments, will remain in place as long as they are not in conflict with the provisions of the treaty which guarantee their independence and that of the ECB. In this respect, Deputies will be aware of the current position in Ireland whereby the governor of the Central Bank attends, if so requested, before a select committee of Dáil Éireann and furnishes to that committee such information as it may request, while having due regard to the independence of the bank. This practice will continue, except that, in accordance with section 17 of the Bill before us, such attendance and provision of information shall now also have due regard to the provisions of the treaty. These include the independence of the ECB and of the national central banks in relation to decisions taken on monetary policy issues. In particular in making such decisions instructions are not sought or taken from outside bodies, including the parliaments or governments of the member states. The governor will be constrained, for confidentiality purposes, in relation to the extent and type of information on ECB decisions which he or she may be entitled to make public.

I mentioned that, under current legislation, the governor is obliged to attend before a select committee of Dáil Éireann. In practice, this was the Select Committee on Finance and General Affairs. As that committee has now essentially been replaced by the Oireachtas Joint Committee on Finance and the Public Service, I intend to introduce an amendment to section 17 on Committee Stage which will have the effect of ensuring the governor will be obliged to attend before a committee of the Oireachtas rather than a Dáil committee.

As a European institution, the ECB's accountability is principally provided for by the provisions I have outlined in relation to the European Parliament. In addition, the treaty provides a framework for dialogue between the ECB and the Council of Ministers, which is of essential importance. Any dialogue will respect the respective competencies of the Council and the ECB.

The president of the Council of Ministers may participate in meetings of the ECB governing council and may submit motions for deliberation, although he or she has no vote. In turn, the ECB president may attend Council meetings whenever the Council is discussing matters relating to the objectives and tasks of the ESCB. In addition, the economic and financial committee to be set up under Article 109c of the Treaty will provide regular opportunities for dialogue between central bankers and Department of Finance officials at senior level. Members of that committee will be appointed by the member states, the Commission and the ECB.

Before addressing some of the consequences of EMU for Ireland, I would like to make the following points. First, the global economic environment is changing fast. This process will continue, and would continue even if EMU had never been thought of. Second, the formation of EMU will mark a substantial change in the economic environment of the Union as a whole. This is true for all member states regardless of whether they join EMU. In other words, continuation of the status quo is not an option for any member state: EMU will change things even for member states which do not join it.

The effects which EMU are likely to have for the Irish economy were analysed in detail in the ESRI study The Economic Implications for Ireland of EMU published in July 1996. The ESRI report concluded that EMU participation by Ireland would yield a net benefit to the Irish economy, even if the UK remained outside the euro zone, estimated at 0.4 per cent of GNP on an annual average basis over the medium-term. This conclusion was also endorsed by the National Economic and Social Council in a report European Union: Integration and Enlargement which was published in March last year.

The principal benefit of EMU participation by Ireland identified in the ESRI report was the prospect of a lower trend in the level of interest rates for Ireland within the single currency area. The ESRI report also examined potential but unquantifiable effects of EMU participation. It concluded that some of these, such as the increased attractiveness of Ireland as a destination for foreign direct investment, could be substantially positive and hence strengthened the case for Ireland's participation in EMU.

I stress that when the Maastricht Treaty received the endorsement of the Irish people, it did so without qualification or any provision for Ireland to opt out from the provisions for economic and monetary union. Ireland at present meets all the convergence criteria laid down in the Treaty for qualification for EMU. More generally, Ireland is in a strong position for participation in the third stage of EMU. There has been enhanced integration of the Irish economy with the continental EU countries generally over the past two decades, a trend that should continue to be reinforced as the full potential of the European single currency is realised. Irish-based firms can continue to exploit new opportunities for market and product diversification in the euro zone.

Ireland's capacity to participate successfully in EMU is also supported by our strong convergence performance over recent years, including growth in per capita income levels relative to the EU average, strong growth in employment and the reduction of unemployment, while maintaining low inflation and low budget deficits and achieving continued reductions in the debt ratio.

The launch of the euro presents us with an historic opportunity to build on the economic and social progress we have achieved in recent years by promoting accelerated economic convergence and integration of the Irish economy with our EU partners. According to the autumn economic forecasts published by the EU Commission on 14 October 1997, the Commission view is that a majority of member states should be capable of meeting the necessary conditions to participate in the euro from 1 January 1999.

Enhanced internal flexibility of the economy has a crucial role to play in underpinning Ireland's international competitiveness in EMU. This applies equally to those sectors of the economy likely to benefit from the expected lower trend in interest rates in EMU, but also likely to be sheltered from the direct impact of any competitiveness shock that may occur. A key concern of many Irish firms is that sterling might be volatile against the euro. That part of Irish industry which may be especially exposed in the event of such an occurrence must prepare appropriately for it. Potential problems would exist not only for those companies which are largely dependent on UK markets but also for those who are in competition in the Irish market with UK producers and those who are competing with UK producers in the markets of third countries.

Clearly the sterling issue is important but we must be careful not to overstate its importance. When we talk about a sterling shock we are talking about a sharp fall from its equilibrium level. Sterling is currently well above what most commentators, including the Bank of England, consider to be its equilibrium level. At present, therefore, sterling would have to fall a long way before it could be considered to represent an economic shock. Private sector preparation for possible shocks in an EMU scenario is, like all issues of competitiveness in the market place, primarily a matter for the individual companies. The most obvious measures to concentrate on are to maintain as much flexibility as possible in their cost base and to take steps to minimise their exposure to sterling, for example by examining their sources of supply and their opportunities for hedging.

We have seen over recent years how policies designed for EMU qualification have helped secure our exceptional economic performance. The challenge presented to us from 1 January 1999 is to ensure the best return for the economy and for employment from our membership of the euro zone and to deliver on the Government's commitment in its Action Programme for the Millennium to share the benefits of Ireland's EMU participation among all sectors of the workforce. It will be evident that costs associated with the changeover to the euro, and their timing, will vary from company to company according to various factors, including the nature of the company's business. A reliable estimate of such costs is not available. It will be in companies' own interests to minimise such costs by appropriate planning and by making changes arising from the changeover in conjunction with other changes which would arise in the normal course anyway. It should be borne in mind in this context that EMU should bring significant benefits to companies. Furthermore, such benefits will be ongoing, while of their nature changeover costs will be once-off.

The Government believes EMU will begin on time and Ireland will be a member from the outset. Ireland has always supported the process of European integration and EMU will be a substantial step in that process.

I now turn to the specific provision of the Bill which, as I have previously explained, we must introduce to comply with our treaty obligations. Indeed, to participate in the ESCB or the ECB, other member states are involved in similar legislative exercises.

Section 1 contains the Short Title, construction and commencement provisions. While these do not normally require special attention, the commencement provision in section 1(3) allows the Minster for Finance to commence any provision or part thereof on any day. This is necessary in that, as decisions are taken at EU level, each of the relevant provisions of this Bill can be commenced at the appropriate time.

Section 2 is an interpretative section which defines certain terms used in the Bill. Section 3 is a technical provision which amends section 5 of the Central Bank Act, 1942, by providing that the exercise and performance of the duties of the Central Bank of Ireland shall be subject to the provisions in the new section 5A of the Central Bank Act, 1942, which shall be inserted by section 4 of the Bill.

Section 4 inserts a new section 5A in the Central Bank Act, 1942, and provides that the Central Bank of Ireland shall perform any functional duty or exercise any power required by, or under, the provisions of the treaty or the statute. The section also provides that sole authority and responsibility of the ESCB-ECB tasks and duties in Ireland should rest with the Governor of the Central Bank. This is a significant change and I wish to explain it.

As I explained earlier, the EMI was consulted on the terms of the Bill and it was a concern raised by the institute that has led me to propose a change in the policy concerning the voting rights of directors of the Central Bank in relation to ESCB-ECB issues. In previous reports by the EMI on the computability of all member states' legislation with the obligation of Central Bank independence, it had been indicated that the presence of the Secretary General of my Department on the board of the Central Bank of Ireland with a right to vote on ESCB or ECB related issues was incompatible with such independence. Accordingly, I had originally intended that the Secretary General would not be empowered to vote on these issues.

However, during consultation, the EMI went further by stating that no part time director should have a vote on ESCB or ECB issues because of the danger of a potential conflict of interest. Removing voting rights in this area from the part-time directors would effectively leave the Governor as the only board member with a vote. To maintain voting in such circumstances would not make sense. Accordingly, the Government has decided that sole authority in ESCB or ECB related issues should be vested in the Governor. It should be emphasised that this involves input by the Irish Governor to discussions at the European Central Bank, where the actual policy decisions will be taken. The EMI and the Commission both favour this approach.

Section 4 also provides that the Governor shall keep the board informed of, and may discuss with it, the discharge by him of these ESCB or ECB powers, tasks and duties. Provision is also made that, in instances where the office of Governor becomes vacant or the Governor is unable, for any reason and for whatever length of time, to discharge the ESCB or ECB related powers, tasks and duties imposed on him by the section and the authority and responsibility for their discharge shall become vested, for the period of such vacancy or inability, in the Director General of the Central Bank of Ireland. The Governor's new role, as set out in the section, will only apply to the bank's activities within the ESCB. The board of the bank will continue to operate with exactly the same voting rights as it has at present regarding all its other, non-ESCB, activities such as the supervision of financial institutions.

Section 5 deals with the general functions and duties of the bank and its independence in the discharge of its functions as set out in section 6 of the Central Bank Act, 1942. Under Section 6, the bank is given a role independent of the Government in the discharge of its general functions and duties. Article 10f of the treaty provides that the primary objective of the ESCB shall be price stability. Section 6(1) of the 1942 Act is being amended to unambiguously reflect this primary objective. The opportunity is also being taken to specify the Central Bank's other main objectives, given the expansion in its responsibilities since 1942.

Article 107 of the treaty provides that, when exercising ESCB/ECB-related tasks, members of national central bank decision-making bodies shall not seek or take instructions from any outside organisation, whether governmental or otherwise. Article 107 also contains a declaration by the treaty signatories, namely the member state Governments, that they will not attempt to influence decision makers in national central banks. Section 6(2) of the 1942 Act, however, allows the Minister for Finance to request the bank to "consult and advise with him" in regard to the execution and performance by the bank of its general function and duty and the bank must comply with every such request.

As far I know, the powers in section 6(2) have never been formally invoked. However, it is not unusual in practice, and indeed necessary to the proper administration of public policy, for the Minister and the Department, on his behalf, to request the governor and the bank to consult in the day to day operation of monetary, exchange rate and financial policies. This liaison has always been forthcoming. However, the wording of section 6(2) as it stands, particularly the requirement to "consult" in relation to monetary policy, runs counter to the requirements in Article 107 of the treaty. A requirement for the bank to "inform" is, however, acceptable.

Accordingly, I propose to replace this section with a provision which allows the Minister to continue to require the bank to consult with him on the execution and performance of all its tasks with the exception of those related to the duties conferred on it by the treaty. In such cases the bank shall only be obliged to keep the Minister informed. The amendments will not affect the right of the Minister to seek information and advice from the bank and it is not envisaged that there should be any change of substance in existing practice. The exercise of the Minister's right will be a matter for sensible and prudent judgment so not to overstep the line laid down by Article 107 of the treaty. There is no reason whatever to believe that the bank will not act in an entirely reasonable manner in this regard.

Section 6 amends section 7 of the 1942 Act, as substituted by section 21 of the 1997 Act, which sets out certain specific powers of the bank. The section confirms that the bank can participate in the ESCB, by contributing assets or liabilities to the ECB, and pooling its monetary income with the ESCB generally in accordance with the treaty; and also that it can perform any function necessary to give effect to the obligations imposed on it by the treaty and the statute.

Section 21(2) of the Central Bank Act, 1942, provides that the President may, on the advice of the Government, remove the governor from office for cause stated if the directors of the Central Bank, by unanimous vote, ask the President to do so. Article 14 of the statute of the ESCB and ECB requires that the Governor may only be removed in such cases if he has been guilty of "serious misconduct" and provides that the Governor may appeal to the Court of Justice. The wording of section 21(2) is being amended to bring it into conformity with the provisions of the treaty. Accordingly, it is proposed in section 7 to amend the section by substituting the words "on stated grounds of serious misconduct" for the phrase "cause stated". The section also provides for the right of appeal afforded in Article 14(2) of the statute to the Court of Justice by the Governor against a dismissal.

Article 5 of the statute provides for the European Central Bank to collect statistical information from economic agents either directly or through the national central banks. Section 8 extends the scope of section 18 of the Central Bank Act, 1971, which places an obligation on certain defined institutions in the State, for example, credit institutions and financial intermediaries, to provide information and returns to the Central Bank, to include "reporting agents designated by the European Central Bank".

Section 9 allows the Central Bank to require institutions in the State to hold special deposits, observe certain liquidity ratios, etc. , on behalf of the European Central Bank in accordance with Article 19 of the statute of the ESCB/ECB. The Central Bank already has both of the powers referred to in sections 8 and 9 in the case of banks for the purposes of domestic monetary policy, but these may have to be extended to other institutions to allow the bank facilitate the ECB's monetary policy operations.

Section 10 amends section 16 of the Central Bank Act, 1989, as amended by the Stock Exchange Act, 1995, the Investment Intermediaries Act, 1995, and the Central Bank Act, 1997, to provide for the disclosure by the Central Bank of information to the European Central Bank and to any auditor appointed by the European Central Bank in accordance with Article 27 of the statute. The section also provides for technical amendments to section 16 consequent on amendments to section 5.

Section 11 provides that the accounts of the Central Bank of Ireland may, in addition to being audited by the Comptroller and Auditor General, be audited by independent auditors appointed by the European Central Bank in accordance with Article 27 of the statute.

Section 12 amends section 23 of the Central Bank Act, 1989, which deals with the general fund of the Central Bank of Ireland, to cater for the bank's participation in the European System of Central Banks by providing for the pooling of the bank's monetary income as well as for accounting regulations. The section also adapts the Minister's power under section 23 to regulate the periodical determination and distribution of the Central Bank of Ireland's surplus income by requiring him to pay due regard to the powers, tasks and duties conferred on the Central Bank of Ireland by or under the treaty or the statute.

Section 13 deletes section 24(2) and (3) of the Central Bank Act, 1989, which give the Minister for Finance powers in relation to the exchange rate of the IR£ and require any exercise of those powers to be made public. Once Ireland joins the single currency, the exchange rate of the IR£ vis-à-vis the euro will be irrevocably fixed in accordance with the treaty and subsections (2) and (3) can no longer apply.

Section 14 amends section 5 of the Decimal Currency Act, 1969, to accommodate the fact that Article 105a(2) of the treaty provides that the issuance of coins is subject to the approval by the European Central Bank of the volume of issue.

Section 15 amends section 44 of the Central Bank Act, 1971, as inserted by section 120 of the Central Bank Act, 1989, to remove the specific conditions in that section for the issuance of notes in order to allow for the issuance of euro notes authorised by the European Central Bank under uniform conditions in the euro area.

Section 16 amends section 118 of the Central Bank Act, 1989, to accommodate the fact that Article 105a(1) of the treaty gives the European Central Bank the exclusive competence to authorise the issue of banknotes from 1 January 1999 and to include notes so authorised which are issued by the Central Bank of Ireland. It also provides that banknotes issued by the European Central Bank will have the status of legal tender, again in accordance with Article 105a(1) of the treaty.

Section 24 of the Central Bank Act, 1997, provides for the attendance by the Governor of the Central Bank, if so requested, before a Select Committee of Dáil Éireann and the furnishing to that committee of such information as it may request while having due regard to the independence of the bank. This provision is being amended by section 17 to be consistent with Article 107 of the treaty by providing that such attendance and provision of information shall also have due regard to the provisions of the treaty.

Sections 19 and 20 of the Central Bank Act, 1942, prohibit the Governor of the Central Bank from being a director of or holding shares in a licensed bank. Section 26 of the Central Bank Act, 1997, extended this prohibition to cover all commercial credit and financial institutions. The purpose of section 26 is to avoid a conflict of interest involving the Governor in view of the bank's new role in supervising a wide range of financial institutions under recent legislation. This prohibition, however, does not apply to the Governor being a member of the European Monetary Institute. Section 18 extends this exemption to the European Central Bank.

Section 19 substitutes a new section for section 134 of the Central Bank Act, 1989, which empowers the Minister for Finance, after consultation with the Central Bank of Ireland, to direct that certain business transactions be suspended if he considers it necessary "in the national interest or for the purpose of safeguarding the currency of the State". The new section recognises the competence of the European System of Central Banks in the field of monetary policy and the transfer to Community level of all monetary powers of member states participating in economic and monetary union by deleting the reference to the Minister in exercising this power, having regard to "the safeguarding of the currency of the State".

As I said earlier, the provisions of the Bill are necessary in order to fulfil our treaty obligations. They are, to a large extent, technical in nature and have been prepared in consultation with the European Monetary Institute and the European Commission. I wish to inform the House that I will be introducing a further provision at Committee Stage relating to the superannuation provisions of the bank. This is not related to EMU in any way, but I am advised that the measure, which provides for the introduction of a funded pension scheme, is desirable and the Bill gives us an opportunity to make the necessary arrangements. The technical drafting had not been completed when the Bill was published and I decided to go ahead with publication so that Deputies would have the greatest possible time to consider the primary provisions of the Bill. I commend it to the House.

Mr. Noonan

The Minister dealt with the Bill, which is essentially technical, in great detail and that is of assistance to all Members in understanding its provisions. He set the legislation in the wider context of entry into EMU and I thank him for that also. Fine Gael will support the Bill on Second Stage and will subject it to the usual scrutiny on Committee Stage. I presume the Minister intends to refer it to the Select Committee on Finance and the Public Service and, if time is made available, this side will be co-operative in terms of examining the need to table amendments. Fine Gael's position on the Bill and EMU entry is clear. We support entry and continue to do so despite the nervousness of independent commentators who become more strident as we approach the decision-making date in May. Many respected economists are now casting doubt on the wisdom of EMU entry, which they are entitled to do. It is being claimed that the decisions to enter EMU are being made on political rather than economic grounds. There seems to be an undercurrent of criticism that this is the wrong way to behave in a democracy, and that in matters of such fiscal importance economists should make the decisions for politicians to follow. That is not how I see this, and it is not how the EU has grown over the last 30 years. We must take cognisance of the views of the professionals, but in this, as in other matters, the decision is taken by the appropriate politicians and by Parliament on the advice of the Executive.

There is nothing unusual about this in European affairs. All the great decisions taken on the way to bringing us to the verge of real European union have been driven by politics. Those decisions have united a community of States in ways we would not have thought possible even ten years ago. Considerations of security have driven many of those decisions in continental Europe. The original coal and steel treaties were conceived to prevent France and Germany fighting about the sinews of war: power, coal and steel. A political and security agenda drove those decisions, so we should make no apology if that agenda is driving decisions now.

That is why, regardless of the views of 150 German professors of economics, Chancellor Kohl will continue to drive towards EMU. We should remember that, until the end of the Second World War, a united Germany was always a central European power. When the Berlin Wall fell there was a possibility that Germany would revert to its historic role of central European power, with many of its interests to the east and south. This would have weakened the Franco-German axis which has driven the EU forward.

When the European Community began, it was thought important to ensure the economies of France and Germany were inextricably linked to ensure they could not afford to fight. The same agenda is being followed now. It is inconceivable that the nations of Europe will go to war if their economies are inextricably linked by a common currency. It would be ridiculous to consider that happening, but it would not have been ridiculous in our fathers' time. Conventional wisdom now holds that peace will last forever, but the Balkan situation, and Bosnia in particular, shook many people. Modern economies, with beautiful cities, high-rise buildings and dual carriageways, were ravaged by war in the late 20th century.

We take account of commentators' opinions, but the reason for monetary union is the same reason for all the great European initiatives: it relates to politics and the security agenda. It would be foolish to pretend there is no economic dimension, because there is. The effects of this decision will be felt in business and in people's economic lives. However, the primary spur has been political.

This is true in Ireland also. Breaking with sterling in 1979 was not the wisest decision, but there was a strong political feeling that while we had achieved political independence in 1922, and some economic independence after entering the EEC in 1973, we would advance our economic and democratic independence by having a separate currency. That motivation underpinned much of the debates on the matter at the time, and that agenda still exists in the Department of Finance and the Central Bank. It is also being driven by a strong political trend common to all parties: practically every party is pro-Europe. Almost any major decision taken in Europe will be dealt with sympathetically in the Dáil by all parties. We are more inclined to go with such decisions than to go against them. There is no well-developed, respectable body of political opinion which would oppose reasonable European proposals.

To criticise EMU entry on the grounds that it is a political decision made by politicians, as if political and security considerations were trivial compared to economic considerations, is to misunderstand the development of Europe and our participation in that development. It shows no understanding of how the Franco-German axis has operated for 30 years to drive the European ideal forward. When the history of this period is written, it is clear that the movement from the Treaty of Rome through Maastricht to the Amsterdam Treaty will be shown as one of the main advances in Europe in the second half of the 20th century. It is the most interesting thing to happen in Europe in a millennium, and it appears that the movement is forward.

I thank the Minister. The Fine Gael position is clear. We are pro-Europe, pro-EMU and we support the Bill, though we have some difficulties with its details. We are going in; it is inevitable. Ten other nations will go in from 1 January 1999, and it is certain that this will happen. Those pulling on the coattails of the decision makers will not slow the process down. The timetable has been set out, detailing paper transactions from 1 January 1999 and the dissemination of notes and coins in 2002. That will happen, and the message has to be given to business and the professions. They will have to be ready and to advise their clients. If people think this is a dream from which they will wake without having to make preparatory arrangements or structural changes necessary, they are in for a very rude awakening.

Major changes will happen very quickly when we enter. It is a feature of modern life that one does not have an overview; people tend to follow particular issues without cross-referencing them to other movements. EMU or a common currency will not cause profound change. Those two factors combined with the progress in information technology which will cause profound changes. In circumstances in which money can be transferred by pressing a key on a keyboard, rates for products can be quoted across Europe on a screen and electronic mail can link everybody in Europe for the price of a local call, the combination of a common currency and the huge advances in information technology will bring about profound changes in the way we do business and relate to our fellow citizens in Europe. It is the convergence of the two that will create the significant dynamic, not merely the decision to enter the currency.

Once we have joined and the major changes take place, the decision will be irreversible. People who are not enthusiastic about the euro tend to think it will happen, but that during the first decade of the next millennium people will realise it is a bad idea and walk away as if it were an overnight card game where one could throw in one's hand and walk away from the table. That will not be the case. The changes will be profound and the perceived benefits for ordinary citizens will be so great that once it happens and the public experience it, the decision will be irreversible. A common currency will make trade between the 11 countries of the EU much easier. It will also make travel abroad much easier. In 2004, when people have got used to using the euro as they travel around Europe to soccer matches and so on, they will not want to go back to the old days of changing currency every time they travel to a different country. Once the business world gets used to the ease of making transactions in one currency, it will be not be possible to reverse the decision.

Those who believe this will not happen are wrong. It will happen. Those who believe it will happen, but that it can be accommodated in the business world without making major changes, are also wrong. There will be profound changes and businesses must get ready. While the major multinationals that operate here are well aware of this, many small Irish businesses and some of the professions are not taking the necessary steps to prepare for EMU. Once we have joined, the decision will be irreversible and it will change our lives profoundly.

It would be easier if the UK also joined. I do not know whether it will try to exploit the advantage of being outside the group and improve its terms of trade by playing the market and getting a competitive advantage by the way it deals with its currency policy or whether it will quickly adopt a tracking mechanism, give us the stability we all hope it will and, in effect, be a surrogate member waiting to enter at the start of the next millennium. I hope the latter is the case.

I welcome the Minister's advice that Irish businesses should be prudent about controlling their cost base and source supplies outside the United Kingdom if that is where their suppliers are located. The risk for Irish companies would be diminished if their supplies were sourced in countries inside rather than outside the club. The Minister's advice on hedging is also very prudent. It would be more prudent, however, if he had indicated the rate at which we will log into the system. It is very difficult to advise people to hedge if they have no idea of the value of the currency until the first weekend in May. How can people make a decision on hedging when they do not know whether it will be £2.41 to the deutschmark at the central rate or higher?

Mr. Rabbitte

The Minister will tell us today.

Mr. McDowell

There is nobody listening.

Mr. Noonan

While that advice is sound, it is not advice on which anybody can act until the Minister indicates the rate at which we will log in. Otherwise, his advice does not make sense.

The Bill emphasises that the European Central Bank and the European System of Central Banks will be independent and it is important that they should be. We have seen the benefits across Europe of cutting the political links with central banks. We have seen the benefits to Germany of the independence of the Bundesbank and the benefits to the Irish economy of the independence of the Central Bank. I am pleased the UK has decided to cut links with the Exchequer and make the Bank of England independent under statute. That is the way of the world. Traditionally, the record of politicians in managing currencies and setting interest rates for political reasons has not been great. Any Minister introducing a Bill such as this would have to ensure the European Central Bank and the European System of Central Banks are independent.

The issue of accountability, however, arises. It is obvious from the Minister's speech and from the Bill that those who conceived the EMU, the European Central Bank and the European System of Central Banks are not happy with the accountability that will exist. If one were happy with the system of accountability one would not need to adopt a belt and braces approach where four or five different groups are involved in the reporting system. The annual report must go to the European Parliament, the Council of Ministers and the Council of the Heads of State. It cannot go to national parliaments, but there is some provision for the Governor of the Central Bank to appear before a committee of the Oireachtas. There is a great deal of notional accountability, but no real accountability. That will prove difficult for small countries such as ours. The provisions of the Bill are technical in nature and we will have time to scrutinise them later.

How are we positioned if there is an asymmetric shock in the economy? That is a key policy issue for the Minister, but he has given no indication that he or any section in his Department have thought strategically about this. If there is a shock to the Irish economy the ECB and the ESCB are mandated to be independent, to maintain price stability and sustainable low inflation growth across the Community. In particular, their considerations must be Community-wide, and not in the interests of an individual economy. If there is a shock in the Irish market, the mechanisms being put in place — which are reinforced by the independence given to the ECB and the ESCB — will make those bodies very remote from political and public opinion in Ireland and unresponsive to any difficulties we might experience.

This problem will be magnified by the fact that two of the main instruments of policy which a Minister for Finance traditionally had are being removed as a result of the decision to join EMU, the power to manage a currency in consultation with the Central Bank and the power to fix exchange rates. These powers will no longer be vested domestically. The stabilisation arrangement makes it mandatory on Ministers for Finance to introduce balanced or surplus budgets in normal circumstances and, in the event of an asymmetric shock, allows only a deficit of 3 per cent.

The combination of the independence of the ECB and the ESCB, their remoteness from the normal life of Irish citizens, the fact that major decisions will be made abroad instead of domestically and that Ministers for Finance will not be able to adopt Keynesian-type economics to drive demand forward by borrowing, except in a very limited manner, could cause major problems. One might ask what is an asymmetric shock. If the war in the Gulf goes ahead it might affect oil prices, but that would be on a Europe-wide basis. I am not talking about a European shock. If the whole economy of Europe gets a shock the institutions will be sufficiently responsible enough to deal with it. The difficulty arises where things are going well for the UK and our other neighbours and something happens here which we cannot accommodate. The deafness claims by the Irish Army is an example. Suppose a tribunal is set up and over two or three years the drawdown is £2.5 billion or £3 billion. That is a shock which would be difficult to accommodate within the terms of the stabilisation pact. It would be difficult to have a balanced budget or to run surpluses in the event of such a shock and it would be difficult to accommodate it within plus 3 per cent in deficit.

There are other examples. For example a very bad winter or a bad spring or summer could diminish agricultural production to the point where it would have an impact on the wider economy. One can conceive of situations where a Minister for Finance, in the medium to long term, would be bereft of the economic tools to manage the economy and could find an independent European Central Bank and the European System of Central Banks remote and totally unresponsive to the needs of Irish citizens in our small economy. That issue has to be dealt with. There is no sign of strategic thinking. It is not enough to advocate that businesses should be conscious of risk and should strive for flexibility on their base costs. It is difficult to have flexibility on base costs if pay-roll costs are a major element of the cost base. The cards have to be put on the table. There will have to be serious discussions with the social partners on how to maintain flexibility, particularly in the labour market, and on cost base if a shock hits this economy. How will it be managed? What strategies are in place? What are people around the table willing to do where the social partners meet to cope with an asymmetric shock in the economy?

Social partnership has served the country extremely well. Much of that is due to the trade union side rather than the employer side. The trade union movement modernised and exceeded the British models and looked at what was happening in continental Europe. It quickly adopted a social partnership and adapted the views of its members to it. They have been a force for great growth in the economy. I pay tribute to trade union leaders and the Irish Congress of Trade Unions for the manner in which they have helped to build the social partnership. The employers' side have been more reactive than proactive in the manner in which they have dealt with social partnership. It is time those who represent employers came to the social partnership table with more creative ideas.

The Minister should examine the possibility of offering incentives to employers to pay their workers extra in good times while extra payments should not be mandatory in bad times. If the Finance Bill were to be amended to give power to companies in the private sector to give, say, 0.5 per cent of pay-roll tax free under certain conditions — it should not all go to the directors — it should be mandatory to spread it over at least one-third or 50 per cent of the workforce. That would give flexibility. When a company was doing well bonuses would be paid and it would offer incentives to production. If a company was doing badly it would allow for a company to pull back on its cost base without upsetting binding agreements on pay and conditions made with human resource departments and the representative trade union. The Minister will have to think on those lines and put ideas on the table for the social partners. Following from that the share options will have to be rerun. There is difficulty with share options in Ireland because there are not enough publicly quoted companies to make it interesting for many workers. Incentives will have to be offered to employers to provide cash bonuses tax free to employees. There is some merit in examining how that would work. I am suggesting it as a concept without having worked out the details.

Another issue arises from this Bill. The Central Bank has a fairly large reserve fund. All the reserves in the Central Bank will not be necessary to underpin the European Central Bank or the European System of Central Banks and there will be a fairly extensive residual reserve available in Ireland. Under the arrangements made, all the partners in Europe will have a say on what happens to reserves but there could be a domestic input as well. One obvious thing would be to reduce the debt. An alternative would be to hold it back for the prospect of reductions in Cohesion and Structural Funds so that a fund is available to keep the Cohesion and Structural Funds running at about the existing level beyond 2003. When the haul back takes place in Europe there will be a system whereby we can supplement. Another alternative — perhaps the Minister will advise whether it is legally possible — would be to hold it back as a reserve fund for the asymmetric shock. The figure may be £1 billion or more and perhaps the Minister will give the exact figure. When the arrangements the Minister is legislating to put in place are completed in excess of £1 billion or more may be available. If in bad times we could run a debt of up to 3 per cent and if a reserve was available to stimulate the economy by investing in capital programmes this would restore some of the flexibility. I am not making political points. I see a difficulty and I am encouraging the Minister to think strategically. This is not a situation where the Minister can say all this is useless, that it is all gone to Europe, that we are only carrying messages around the country on instruction from Brussels. It is not like that. There are still domestic options which would be of benefit and which would prepare the country for the asymmetric shocks which are inevitable.

In the United States there is a common currency. The dollar goes from coast to coast but fairly extensive federal budgets are combined with individual state budgets. They have built in a system of self-correcting mechanisms. When the GDP of California goes down in bad times — when the frost destroys the grapes — the federal budget automatically goes up. There is a self-correcting mechanism between the federal budget and the individual state budget. In its totality it is probably not more than the shock one would get on the demand side from being able to run deficits of 3 per cent. It is worth exploring with his European colleagues at ECOFIN the possibility of the self-correcting mechanism if the asymmetric shock hits in Ireland. Apart from permission to increase the deficit to 3 per cent it is possible to transfer European money to an economy or a region in shock. Perhaps the Minister would reply to that issue in this reply.

I am unhappy that the Minister has not told us today at what rate we will lock into the euro. The Minister is tied in to his own rhetoric at this stage. We do not mind the Minister coming in and saying this was a mistake, that he has changed his mind. We will not rub it in.

Mr. Rabbitte

Part of "The Late Late Show" was devoted to it.

Mr. Noonan

There is no point in the Minister telling Irish firms to hedge and source their supplies outside the United Kingdom if he will not tell us at what rate the IR£ will lock in. It is advice they cannot follow.

Mr. McDowell

I am tempted by Deputy Noonan's musings and treatise on the history of the last half century of Europe to do the same but we would be here for some time if I did. I agree with him that this is primarily a political project. The European Union is and always has been a political project. Political and-or economic nationalism is responsible for most of the woes of the 20th century in Europe. It has condemned large numbers of citizens to poverty and caused wars in which huge numbers of people died. Our experiment with protectionism in the 1950s and 1960s was a clear failure. We are still suffering the consequences of political nationalism which tends to express itself more in what one does not like rather than what one likes. There is nothing wrong with looking out for ourselves, economically or politically, but there is no reason we should do so at the expense of others — the traditional argument about the zero sum game. If I was to say anything about the priorities of the present generation of European politicians, it would be that we should consign that variety of political and economic nationalism to the dustbin of 20th century history.

In many ways, this is a technical Bill but important nonetheless. As the Minister indicated, we have little discretion in relation to its detailed provisions. I acknowledge that, in most cases, they directly reflect the provisions of the Third Protocol of the Maastricht Treaty and understand that the Minister and his officials have agreed them with the EMI. Nonetheless, this debate gives us an opportunity to look at some aspects of the operation of the Central Bank, to reflect on the nature of the European Central Bank and the system of central banks and its relationship with ECOFIN, and where we now stand on EMU.

The central purpose of the Bill is to bring the legislative basis for the operation of the Central Bank into line with what is required by EMU. This is normally taken to mean that we must establish the Central Bank as a genuinely independent central bank. We have been informed that the ECB will be a genuine, free standing, independent central bank. The Central Bank must be placed in the same position.

Unlike Deputy Noonan, I find the arguments adduced for independent central banks worrying. The argument is usually made by bankers, economists or self-styled experts on management of the economy — the subtext is clear — that politicians are meddlers and should not be allowed to interfere in important issues such as setting interest rates or currency related matters and cannot be trusted to manage the economy in a way that would guarantee low inflation. It is usually said in measured terms that these economic fundamentals are so important that they can only be left to experts. After all, politicians cannot be trusted to make a decision which is right in the medium term, if a short-term option appears to be more palatable. The usual example given in cases of this kind is setting interest rates.

This argument may have some validity but it is fundamentally undemocratic. There are dangers in this thinking, not alone for Ireland but for the future of the European Union as a whole. The European Union is already seen as being remote and unaccountable by many of its citizens. By putting in place a European Central Bank with enormous power and no accountability we are running some serious risks.

In recent weeks there has been upheaval in France where direct action has been taken by unemployed people and their representatives. Last week in Germany there were public demonstrations by unemployed people for the first time in many decades. I am reasonably familiar with the way things operate in Germany and we should be careful not to underestimate the importance of what is happening there for the future of the European Union. The unemployment figure is heading towards five million and economic growth is still sluggish. Many Germans are being forced to consider, some for the first time, the basic tenets of post-war stability, growth and prosperity. Inevitably, this is causing upheaval and disquiet, not least among the unemployed. The likelihood is that the first and primary loser will be Chancellor Kohl's Government when the German people deliver their verdict later this year.

We should be aware that there are real threats to the European Union from what is happening in Germany. There have been indications in recent years that many Germans are becoming less enamoured of the European Union. Specifically, they are becoming much less amenable to financing the European Union in circumstances where they are in some difficulty in financing themselves. Many Germans regard the Deutschmark as one of the building blocks of German prosperity. Opinion polls have consistently shown that a majority of the German public is reluctant, to say the least, to abandon the Deutschmark.

Other European countries, not least the Mediterranean countries, have endured serious economic trauma to meet the Maastricht Treaty criteria. Italy, for example, has had to review its welfare provision, sell off large parts of the state sector and cut back significantly on some services. Much of this has been painful and many individual citizens of Italy, and the European Union, blame monetary union and the euro for this.

Many Europeans have already made big sacrifices to facilitate monetary union. There are some signs of anti-European Union and euro feeling in some of the bigger countries and there is every possibility that this will reflect itself when decisions come to be taken on the Amsterdam Treaty in a few months' time. In that context, it is important that the institutions of the European Union are in a position to be responsive to the needs of ordinary citizens. In that context, an ECB constituted as a largely unresponsive institution presents a serious problem.

This argument, as the Minister is aware, has been articulated by others at European Councils in recent years. Our French and Swedish colleagues in particular have been exercised by this issue and the need, as they see it, for a meaningful channel of consultation and communication between the Council of Ministers, ECOFIN in particular, and the ECB. It is enormously important that there should be an effective channel of communication.

Will the Minister explain and interpret the decisions of the Luxembourg Council which he quoted? He said that the organisation of an ongoing and fruitful dialogue between the Council and the European Central Bank, respecting the independence of the bank, is an important factor in the proper functioning of EMU. ECOFIN is restyling itself and will in future be at the centre of economic co-ordination.

These are fine and, to some extent, reassuring words but what do they mean? Is it intended that a representative of the ECB will attend ECOFIN meetings in the normal course? Is it intended that there will be a consultative or information process before important decisions are taken by the board of the ECB? If it is intended to raise or lower interest rates, will ECOFIN be informed in advance? Will its views be sought? What role will it have in the operation of Article 109? In principle, at least, the Minister for Finance is vested with the power to set the exchange rate. As a member of ECOFIN, will the Minister for Finance have any role in setting the external exchange rate of the euro?

These may sound like technical or even academic matters but time will show that they are far more than that. EMU involves the surrender of a great deal of economic sovereignty. We will lose several of the important instruments currently available to us. We will no longer be able to devalue to deal with competitive pressures or to stimulate or reduce demand by altering interest rates. These instruments, as the Minister is aware, have been of considerable value to us in managing the economy.

The nightmare scenario is not difficult to envisage. Some day, perhaps in 15 years' time, something will go wrong that will seem to demand a specific response from the Government. The Minister for Finance of the day will appear on national television and say there is nothing we can do about it, that we have no power and that we are no longer in control. In a sense, we have already bought into this. It is of some importance that the consultative mechanisms in place work and are seen to work.

On a domestic level, I am fascinated by the balance struck in section 5 of the Bill. The Minister is entitled to be consulted on matters which are not related to our obligations under the Maastricht Treaty. On the other hand he must submit a request to be informed in relation to such matters as are covered by the statute in the treaty. I gather from the Minister's contribution this morning that he considers this is as far as he can go, and that this is what is required in terms of the strict legal relationship between a Minister and the bank. I am somewhat concerned about this and it is an issue we need to go into in greater detail on Committee Stage.

Another issue I would like to examine in detail on Committee Stage but which I want to flag now is the confidentiality requirement on the bank that is set out in detail in section 16 of the 1989 Act, which I understand reflects the banking directive of the same year. Perhaps I should say where I am coming from on this issue. The bank is an important player in the management of our economy. It assembles and disseminates information which is vital to decisions made by it and made elsewhere. Currently it manages money supply and interest rates and, for the time being at least, it has a role in maintaining low inflation and managing the exchange rate in accordance with the principles set out by the Minister and the Department.

Section 16 of the 1989 Act imposes a duty of confidentiality which is capable of being interpreted in a wide way and has been in some cases in the past. It has been interpreted in the past to prevent the bank, and specifically the governor of the bank, from entering into virtually any sort of public discussion. It also means that the bank is entirely unaccountable in relation to the exercise of some of its more important functions. For example, the bank has an important regulatory role but section 16 might well be interpreted so as to render it impossible for the bank or the governor to account in public for the implementation and exercise of that role.

It is not difficult to find a concrete example. The bank carried out an investigation into the so-called Ansbacher accounts before Christmas. We know that report was furnished to the Minister and he in turn furnished it to the DPP. Is it likely that that report will ever be made public? We also know the bank is currently carrying out an investigation of the investment bonds sold by National Irish Bank on behalf of CMI. Will that report ever be made public? Will we ever be able to question the governor or his representatives as to how their regulatory role was discharged in these particular cases? Can we even question the governor in public in general terms as to the way the regulatory function of the bank is discharged?

A particular question arises in the context of the Moriarty tribunal. The legislation makes it clear that the bank is permitted to disclose information to a court of law in particular cases, but there is no mention made of statutory tribunals set up by the Oireachtas. Perhaps the Minister might indicate the advice he has been given in relation to this because it would be unacceptable if the bank were prevented by existing legislation from disclosing information of this kind.

I am glad the Minister has taken the opportunity in the Bill to clarify the position of the governor in relation to the Committee on Finance and the Public Service. The committee provides a useful public forum and, in fairness to him, the governor has made it clear he will be happy to attend before the committee if he is invited to do so. All of us acknowledge that some of the bank's activities are commercially or market sensitive and clearly there is a balance to be struck between the public's right to know and the need not to intervene in an unfair way in areas of commercial and market sensitivity.

The Bill sets out once again in section 5 the primary functions of the bank. Rather unsurprisingly, the emphasis is on price stability. I say that is unsurprising because all of us are familiar with the views expressed over the years by Herr Tietmeyer and his predecessors in the Bundesbank. The German terror of price instability is obviously reflected in the strategy and make-up of the ECB. That is inevitable and not especially worrying in itself, but the Minister will be aware that other countries have expressed the view that the legal remit of the bank is too narrow. We should take this opportunity to broaden the remit we give to our own Central Bank by including a reference to employment and unemployment in section 5 of the Bill. Specifically, the bank should be required to have regard to the desirability of full employment with particular reference to the employment chapter of the Amsterdam Treaty. Jobs, or the lack of them, is probably the most important economic criterion which directly impacts on the lives of ordinary European citizens. It is only right and politically necessary that the bank should be required to have regard to the employment consequences of its own actions.

I readily admit that I may be a little alarmist when I say this, and I hope nothing of this kind will ever come into play, but I could not stand over a position where the European Central Bank were to focus exclusively on monetary supply and policy and impose on the Union policies which led to the loss of many thousands of jobs. This is exactly what happened in the early 1980s during Mrs. Thatcher's blissfully brief but nonetheless devastating fascination with money supply and monetary policy. There is currently little indication that the ECB would be inclined in that direction, and in any event there is precious little we can do about it, but I see no reason in principle not to amend the remit of our Central Bank so as to include a reference to the importance of full employment. I would like to pursue that issue further on Committee Stage.

I am interested in what the Minister has to say about the voting rights of non-executive directors. For what it is worth, my instinct is that he has probably made the right decision even though it appears to leave the governor with what, on the face of it, seems to be rather extensive power. Our tradition of non-executive directors is a good one. In principle it is only right that we bring in people with expertise in various areas of life as non-executive directors of the bank; this argument extends to many other State boards also. It is not in keeping with the experience of most of our European partners but that does not make it wrong. I understand the reasoning behind the EMI view is that we should exclude even the theoretical possibility of a conflict of interest by making it impossible for non-executive directors to vote in matters related to the ECB. This brings up the whole issue of conflicts of interest and perhaps the Minister might elaborate on the systems currently in place in this country for ensuring there is no conflict of interest in decisions made by members of the board of the bank.

I want to talk about the banking sector generally and in particular the role of the Central Bank in regulating the banking sector. Recent years have seen something of an explosion in the variety of financial products available in or through Ireland. We have also seen an explosion in the number of investment intermediaries and banks located here. Is the Minister satisfied that the Central Bank has sufficient power to regulate the position of the banking sector? Even if the Central Bank has the power, does it have the resources to use that power? The operation of the Ansbacher and the NIB accounts are just two examples which have caused a great deal of public anger and cynicism. It is only fair to ask the reason the Central Bank was not in a position to identify problems which arose in those banks at an earlier stage. Did it not have the power to do so, did it not use the power or did it not have the resources to use it?

Particular questions have arisen in recent weeks in relation to non-resident accounts. People applying in Ireland to open a non-resident account are required to complete a relatively simple declaration. From a few examples I have seen, the declaration requires only basic information such as the name and address of the person looking to open the account. Surely there should be some requirement that the person opening the account can prove they are genuinely non-resident in the State. In any event, the suggestion has been made that nobody follows up on these declarations. I was interested to see press reports yesterday which suggested that the Revenue Commissioners are looking into this, and I welcome that. However, if it is the case that that has not been done heretofore, we are entitled and must ask why that is the case.

There are an extraordinary number of non-resident accounts held in Irish banks. No doubt many of them are held by people who are genuinely non-resident in the State. However, there are now good reasons why many Irish people should place money in non-resident accounts but the suspicion exists, and it is a strong suspicion, that Irish people and Irish companies are placing money on account in non-resident accounts which are effectively located in Ireland for reasons of evading or avoiding tax. If these accounts are being used as a means of evading income tax, we have to give the regulatory authorities, the Central Bank or the Revenue Commissioners, the necessary powers to investigate what is happening. If that means they require a general trawling power in circumstances where there is prima facie evidence that a scheme or a scam is operating, this House must be ready to give them that power.

A question arises in relation to the International Financial Services Centre. When I spoke in this House a few weeks ago I expressed concern about the nature of the value added by some of the work done in that centre. Since then there have been worrying reports and allegations about what is effectively, or would be effectively if it were true, money laundering. It has even been suggested that criminal elements have used the centre to launder money. We must be clear in this House that we cannot condone shady, improper or downright illegal activities to improve our tax take to the detriment of others. I am aware, like all Members, of the contribution the IFSC makes to employment and the Exchequer. I would like to think that the vast bulk of that is from the provision of legitimate financial services. However, there are indications and reports that some of what happens in the centre is not legitimate and I urge the Minister and the other regulatory authorities to take whatever steps are necessary to weed out those activities.

I wish to comment on the reserves on which Deputy Noonan touched. I am interested in the reference made to the pension fund which the bank maintains for its bank employees. That would be a worthwhile use of the reserves. There is a reserve fund in the Central Bank which is more or less capable of discharging its liabilities, but we need to examine the public service generally, which is operated by and large as a pay as you go system. There is serious merit in using reserves available to us now to form a sinking fund which, in the first instance, would not be capable of discharging all the liabilities, but which could make a significant contribution towards public service pensions in decades to come.

I deliberately refrained from entering into the issues we debated last week at the Committee on Finance and the Public Service. Deputy Noonan went into great detail on the issue of asymmetric shocks if sterling continues to yo-yo particularly during the first few years of monetary union. We dealt with that last week and I am sure I will have an opportunity to do so again so I will not detain the House with my musings on those issues.

This is largely a technical Bill. The Labour Party will be supporting it on Second Stage, but there are some issues that need to be teased out in detail on Committee Stage and I would be interested in participating in that debate.

Mr. Rabbitte

I thank the Minister for the manner in which he set out the detail of a technical but also a complex Bill. Democratic Left will support the Bill as it proceeds through the House although there are some intriguing questions raised about the dynamics of the relationship between our Central Bank and the proposed European Central Bank, about the operation of the ESCB system, and questions of accountability versus independence. Those are fundamental questions and it is difficult to be prescient about them from this standpoint. There are also questions of responsiveness, the ability of the system to respond quickly to a small country. There are other questions raised by section 4 which acknowledges the diminished role and power of the Central Bank, but confers additional powers on the governor per se. There is also the wider question raised by Deputy Noonan on the role of economists versus the role of politicians and that the debate to date has been left largely to the economists.

Like Deputy McDowell I do not want to go over ground covered at the recent finance committee at which I raised some questions, to some extent with tongue in cheek, in the hope I would get a reply from the Minister. Perhaps I could short-circuit that by putting on record a letter typical of those Members get from businessmen, arguably provoked, as Deputy Noonan said, by economists' commentary. This type of letter is typical of the type I have got on the issue. It states:

Our most eminent economists have now warned of the dangers of Ireland entering EMU at the end of this year. The original premise of the project might have seemed reasonable but even the ESRI report on Monetary Union suggested that the benefits were marginal .

Well, as we now know, the conditions are not favourable. Britain is not joining, the convergence criteria are almost certain to be fudged, the Asian economy is in crisis and our economy is being allowed to overheat just to get the pound down to Dm2.41.

So Ireland joining EMU makes no economic sense. It is purely a political decision. A political decision that will have disastrous consequences for the Irish people if it doesn't pay off and all the indicators suggest now that it won't.

The consensus on this subject among the main political parties has been total. There has been virtually no political debate and it has been left to the economists and a few journalists to ring the alarm bells. This is not democracy at work.

I am writing to you because you are a politician with a duty of care to the Irish people and the people of Dublin South-West. You have a duty to explain the risks of this process to the people so that that they are fully informed and do not amble into EMU just because they trusted their politicians not do anything silly.

I understand that it is difficult to stand out on this issue given the political consensus. It is unlikely to enhance anyone's political career (not in the short-term anyway) but the price the Nation may have to pay for generations to come is surely such that the country must come first.

We can delay entry with virtually no risks other than some hard feelings in the Departments of Finance and Foreign Affairs. We are drifting towards the waterfall and everyone in the boat is discussing the weather. Well it's time somebody shouted stop before it's too late. We have until May this year to change our minds.

That letter probably points up the folly of the debate having been left to economists and the Minister deciding to adopt, as he described it, a button lip approach. That kind of argument needs to be dealt with. I accept the Government has to make a difficult decision about the rate at which Ireland joins EMU. The Minister was at pains at the finance committee to explain that this is not a unilateral action. The critical question for Irish policy makers is whether we believe our economic indicators or whether the real Irish economy is less vigorous than the current boom would indicate.

A recent economic study asserts that hugely disproportionate contribution is made by the multinational companies, especially in the hi-tech sector, compared to the still seriously underperforming indigenous sector. Other commentators add in the transfers from Europe, equivalent to almost 5 per cent of our GNP, and conclude that those two factors are the main drivers behind our economic growth.

The rate we strike must take account of the underlying credibility of our economic performance. It is likely the post-1999 situation will see transfers to Ireland step down somewhat. It is impossible to know for how long the computer boom will continue, but in the medium term output could drop to more moderate levels. The East Asian turbulence must dampen down western economies as the deflationary effects come through. Will the present momentum continue? If the boom abates will somewhat lower interest rates boost investment? It may be that the benefits of a common currency zone within a huge Single Market will provide a substitute stimulus for the Irish economy. In any event the importance of not overvaluing the worth of the Irish pound on entry is evident. What is the serious intent of those who argue for immediate revaluation which would push up the pound against the Deutschmark? It seems an exceedingly risky proposition to entrench a high value Irish pound against the deutschmark at precisely the point that we irrevocably lose control.

We can argue interminably about the technical pros and cons. Not all of the commercial sector will be happy irrespective of the argument advanced. If the punt is weak against sterling we will have one series of complaints and if the punt performs strongly against sterling we will have a different series of complaints. The vested interests will continue to advocate their case as they are entitled to do. For example, the farming organisations and manufacturing exporters who benefit from the competitive advantage conferred by the lower value against other European currencies will be quite happy with what seems to be the Minister's strategy.

At the end of the day Ireland must take a view of its role in the world at this historical juncture. What is Europe's place in the world and what is Ireland's role in Europe? Even the economic commentators concede that they are addressing entry from an economic perspective only. However, EMU is a political construct, not an economic one, although it has an undoubted economic dimension. What is our view? Do we want to be part of the Franco-German orbit or the British orbit? We must take a view and get on with it. In seeking to answer the political question the overriding imperative is the impact Europe has had on society and the economy over the past 25 years. On the other hand, our pre-European dependence on Britain effectively conferred second class status on Ireland.

The Euro-scepticism that destroyed Mr. Major's Government seems to be, albeit on a more sophisticated plane, also represented in Mr. Blair's Administration. I would not be as sanguine as Deputy Noonan on this point. He wondered about the likely position of the UK Government, whether it was likely to adhere to a tracking mechanism during the changeover period or to exploit its position for short-term gain. I find it difficult to see the point of Britain's staying out if it does not exploit it. It is naive to think the British will have a fixed or semi-fixed tracking mechanism which will provide the yo-yo effect to which Deputy McDowell referred. There is a significant Euro-sceptic element in the British Labour Party, although they are a great deal more sophisticated than the deadbeats who surrounded John Major. However, the phenomenon which destroyed his Government is not entirely absent from the British Labour Party.

The creation of a strong euro currency which will compete vigorously against the dollar must give Europe greater credibility and give Ireland greater opportunities. If after all the investment we still have not learned how to compete the shock will be rude. Inevitably there will be shocks but if the pound sterling should dramatically fall interest rates will fall also. Whatever the balance sheet calculations, a decision to stick with sterling, irrespective of the short-term implications, cannot be politically prudent in the medium term. We would fritter away the credits we have built up and our capacity to punch beyond our weight in Europe would be diminished.

There is a further compelling argument for not over valuing the Irish pound at the time of locking in to the euro which has been best advanced in a recent article by Angela Clifford who states that there is also the consideration that sterling can drop in value at any time and it may enter the European currency eventually at a much lower value than it is currently trading at. She says the present appreciation of sterling with regard to the Deutschmark runs counter to the trend of the previous 30 years, when it had been depreciating by about 5 per cent a year and if it did enter at a more realistic rate, British producers would get a trading advantage over Irish, if revaluation had taken place. She also says it would be unfortunate if the Irish entry level to the Euro had been distorted upwards by an illusory and short-lived rise in the price of sterling and that the position could not be rectified when Britain joined as the value of the Irish Euro will then be fixed.

I am strongly persuaded by the argument. These events are not far away because in the light of statements by the British Chancellor of the Exchequer the decision will face the British in the not too distant future. We should have some regard to the implications in the medium term.

The Minister acknowledged to a joint meeting of the Finance and Public Service Committee and the Committee on Enterprise and Small Business that

. the exchange rate can play a role in adjusting competitiveness and stabilising output following a severe economic shock. In EMU, this instrument will no longer be available to Ireland.

That is manifestly true but a glance at the historical pattern shows that the power of the Irish Government to determine exchange rates is not absolute, to put it mildly. The value of a floating currency is determined by the market. Whatever we may think about the current reality of the underlying strength of the Irish economy, nobody could argue that the punt is dropping because of our current economic performance. Rather the price of our currency in external trade is an indication that, for the first time in our history, the international currency markets recognise that the punt is moving away from the sterling-dollar zone and into the European sphere of influence. However much we may have tried to follow the European star in the past the markets did not believe us. They believed that our relationship was with sterling because a great proportion of our trade, albeit declining in recent years, was with the sterling area. What is happening now indicates that the markets believe we are inexorably heading towards EMU, a new reality of which they must take account.

The customary reason for a decline in exchange rates is a loss of confidence by speculators and investors in the economic outlook of a country. Therefore, it is evident that exchange rates do not follow a scientific rationale. This is further borne out by our experience since sterling fell out of the ERM. The subsequent unpredictable sterling influence on the punt which caused some pain for Irish exporters had little to do with the real economy in Ireland since 1992. This is not to say that as the Irish pound drops towards its central level in the ERM some pain will not be experienced as the punt's value falls vis-à-vis sterling. I do not know the correct rate at which to lock in, no more than do many others. However, I am persuaded that it would be a great mistake to enter at an overvalued rate.

It is unfortunate that the Minister feels unable to engage in this debate other than to repeat the mantra that we face into EMU from a position of economic strength, quoting ‘very strong growth, rapid employment creation, low inflation, a budget close to balance and a rapidly declining debt ratio'. It is an impressive mantra and I thought the Minister might have taken the opportunity of the cosy chat on "The Late Late Show" to talk about the rate at which we would lock in to the euro, but although he talked about other locks he did not talk about the lock-in rate.

Mr. McCreevy

The Deputy was undoubtedly impressed by the show given he has mentioned it three times.

Mr. Rabbitte

I was immensely impressed by the Minister. It was invaluable security no matter which way the punt goes in the future; it secured his position in north Kildare.

I agree with Deputy Noonan that there can be no reversing of engines now, so to speak. We are headed inexorably on a particular course. The document prepared by Forfás will be very helpful to businesses and I hope they avail of it. I raised the matter of asymmetric shocks and I will not go back over it. At the joint committee meeting to which I referred I raised the cost of the Army deafness claims, a sobering matter to which the Minister might refer. On the reserves, I take a slightly different view from that of my colleagues who have spoken so far. I understand we will have to make a contribution of some £400 million to the European Central Bank and so on. That should leave us with some reserves. Perhaps the Minister would tell us the figure. The Minister ought to look seriously at the devastated unemployment black spots in this and other cities with a view to using much of that money productively to try to lift areas that transparently are not being lifted by the rising tide. That endemic long-term unemployment, where every conceivable kind of social problem is concentrated, is not benefiting from the economic success we are enjoying. The people in the Department of Finance should organise a bus tour of some of these areas because they do not live in them and do not know the detail of life there.

Mr. McCreevy

Some people not too far from me were born and raised there.

Mr. Rabbitte

I have no doubt about that, and I am glad to hear it, but it is not conditioning our public policies efficiently. It is a serious black cloud over our society and economy.

I also welcome the single currency for the reason that it narrows the speculative angle for speculators who have been taking undue profits whenever the opportunity has presented itself in the past. I would like to talk at another time about the question of independence versus accountability because there is reason to believe that some of these regulator bodies become captives of the very institutions they are supposed to regulate. It goes a long way to explaining the phenomenon Deputy McDowell raised in relation to Ansbacher Bank and Northern Ireland Bank, and the 40,000 accounts that are said to be here, held by fairground owners in Cologne, who open a company in Leeson Street for £100 to avoid paying tax to the German Exchequer. The Minister for Finance must know that sooner or later that will bring down on our heads the wrath of the German Government which will not put up with that kind of thing. If it is the job of the Registrar of Companies to deal with that, it should be addressed there. When I was Minister I put an investment of £1.5 million into that. There is now a new premises and 60 additional staff. I do not know whether the chief executive that the Cabinet at the time decided, on the basis of a memorandum from me, should be appointed has been appointed, but it is a phenomenon that should be dealt with before we incur the wrath of the German and other Governments.

Mr. Gormley

I am quite surprised at many of the views expressed here today. Deputy Noonan spoke at length about asymmetric shocks. While he was playing the Opposition game in one sense, he seems quite happy to support the whole concept of economic and monetary union, as are all the parties in this Chamber. We have heard Deputies from what are commonly known as the five main parties again singing from the same hymn sheet on this issue. However, a debate requires real opposition. It requires people to put forward another point of view. Clearly, this has not happened in this House on such an important issue. The former Foreign Affairs Minister, Deputy Spring, compared the decision to join EMU to the decision to enter what was then known as the European Economic Community, but there has not been the same amount of debate on this issue.

A debate in this House on the future of the Central Bank and the onset of economic and monetary union is long overdue. Not only is it belated, it is probably too late. Nevertheless, the opportunity to put on record and, where possible, to divert the path on which this country has been needlessly placed needs to be taken. The Government, and those political parties that support EMU, point to the agreement of the Irish people gained through the Maastricht Treaty referendum in 1993. However, can it be honestly said that the agreement was honestly sought and freely given? European Union treaty referenda in this country have consistently reduced complicated treaties into simple and simplistic slogans. The Maastricht Treaty referendum was among the worst examples of the Irish democratic system being overridden by avoiding the type of questioning and debate that would properly inform the electorate and give confidence that decisions, when reached, had been freely made. The constitutional action instituted by my colleague, Patricia McKenna, showed how Irish governments had propagandised voters with their own money. Future referenda must reflect this important democratic principle.

Technical aspects of the conduct of referenda are one thing, but the ethical conduct of referenda is another. We wait to see whether the debate on the Treaty of Amsterdam will be an honest debate, not reduced to sloganeering over free money as was the case with the Maastricht Treaty. If there are Members who have difficulty in accepting this argument, I urge them to conduct their own straw polls among their constituents, asking them how many believe they voted for EMU at the time of the Maastricht Treaty, or even how many understand EMU and its implications.

Previous speakers asked about the difference between the view of economists on EMU and that of politicians. There is one part of the equation to which they have not referred, the people's view. We have to ask whether the decision to join EMU is a democratic decision. What would be the result if, for instance, as Jacques Chirac promised, a referendum were held in France where there is huge unrest because of unemployment? Deputy McDowell referred to the 4.5 million unemployed people in Germany. What would be the outcome of a referendum there on EMU, and what would be the outcome of a similar referendum in Britain? We know the Danes are not holding a referendum. The question then is, is the decision to join EMU a democratic one? I have no doubt that if a referendum were held here, we would be made to feel that we had to be "good Europeans", whatever that means. I consider myself to be a "Europhile", but I question the expansion and the integration of the EU. I feel I should be able to do that and not be in the category of "Eurosceptics". To describe me as a "Eurosceptic" because I question such decisions would be like calling someone a bad Irishman for questioning something the Irish Government wanted to do. I do not know why we make a distinction, but it is a very good way of marginalising those who question.

If there are Members who have difficulty in accepting this argument, I ask them to look again at all the referenda which have been conducted here and see how the opposition argument has been marginalised. I hope that with the introduction of the referendum commission, we will have a fair and informed debate because this gulf of understanding has to be addressed.

The Green Party believes that the debate on the Treaty of Amsterdam should centre around the implications of EMU, and the people must be properly informed before we embark on what could prove to be the most economically uncertain policy this country has ever faced. It is regrettable that the debate on EMU has only recently been fired. The Minister for Finance may seem content to whistle in the dark, despite these arguments. He seems happy to rely on the ESRI report which states that the likely impact of EMU on the economy will probably be neutral. The ESRI has produced many important reports, and it would be encouraging if the Minister for Finance were to attach the same weight to all the comments issued through the ESRI.

Debate adjourned.