Dáil Éireann díospóireacht -
Wednesday, 6 May 1998

Vol. 490 No. 5

Economic and Monetary Union: Statements.

The Taoiseach

On Saturday last in Brussels a number of truly historic decisions were taken. These concerned the countries participating in economic and monetary union, EMU, with effect from 1 January 1999; the presidency and board membership of the new European Central Bank; and the pre-announcement of the bilateral exchange rates of the currencies participating in the euro. Few people could be surprised by the decisions because for some time we have had available to us the recommendations from various reports — the European Commission's, the European Monetary Institute's and our own Central Bank's convergence reports. We have also had the statements made by the Governments of a number of member states as to their intentions. However, the lack of surprise should not detract from the real significance of the decisions.

It is important to be aware of the process involved in making these key decisions. Ministers of Finance met on Friday, 1 May in ECOFIN and made recommendations as to participating countries. The European Parliament met on the morning of Saturday, 2 May and voted overwhelmingly in favour of the ECOFIN recommendations.

It was at this point in the process that I and the other Heads of State or Government met, first informally and later in formal session, to consider the convergence reports of the European Commission and the European Monetary Institute (EMI), the recommendations of ECOFIN, the Parliament's opinion as to who should participate in the euro and the declaration on budgetary policy prepared by ECOFIN.

The informal discussions which began over lunch, as was widely reported, also dealt with the issue of the presidency and membership of the European Central Bank board. The key outcomes of both the informal and formal meetings by Heads of State or Government were: the approval of the ECOFIN recommendations that 11 member states should participate in the euro — Ireland, Austria, Belgium, Finland, France, Germany, Italy, Luxembourg, the Netherlands, Portugal and Spain; the endorsement of the declaration on budgetary policy prepared by ECOFIN; and the reaching of political agreement as to the European Central Bank presidency and board.

Perhaps it was the more predictable outcome as to participation and the content of the declaration that focused media attention on the only undecided area; that of the ECB board membership and the presidency in particular. This was unfortunate because it tended to distract from the very substantial areas where agreements had been reached. However, the scope of the agreements reached and the full involvement of all the key European institutions in them have ensured that last weekend will stand as an historic milestone on the road to a single currency.

I extend my congratulations to Mr. Wim Duisenberg, the Dutch candidate and current head of the Economic and Monetary Institute, on his selection. I wish him well in his new position. He has indicated he is unlikely to serve the full eight year term. I note also that it was decided that a French nominee should succeed Mr. Duisenberg and that the French Government has indicated its intention to nominate, at that stage, Mr. Jean-Claude Trichet for the position.

While no final decision on the ECB presidency was required last weekend, it was important that the matter should have been settled as soon as possible. I am glad it has been agreed and that Finland, a country with a population not much greater than our own, is amongst the countries represented on the board. Finland has secured a position and, I hope will provide a voice for smaller countries. While we will not be members of the first board, it is important that when the positions on the board fall to be filled in rotation early in the new millennium, Ireland will be in a position to nominate a suitably qualified candidate.

The sequence of rotation is as follows; the vice president has a four year term and each of the four remaining members has a five, six, seven and eight year term. These have been allocated to nominees from France, Finland, Spain, Italy and Germany, respectively.

The preparations for economic and monetary union have been under way since the Maastricht Treaty of 1992. Over the intervening years, substantial convergence in the planning and co-ordination of economic policy amongst member states has been achieved, with the rate of this convergence accelerating in recent years. This has provided a generally stable economic climate in much of Europe. Convergent and stable economic policies have allowed a relatively low inflation and low interest rate environment to prevail in many member states. There is a danger we may take for granted this very real achievement. We have all been encouraged at the rigorous approach adopted across the Union by those countries wishing to participate in the euro. The adoption of individual national programmes and budgetary policies designed to promote stability and sustainable growth must reassure those who have criticised the entire euro project, or questioned the ability or determination of member states to qualify for participation.

Ireland's performance in reducing debt is note-worthy, as are the performances of many of our fellow participant countries. It was a proud moment for me as Taoiseach and for the Minister for Finance, Deputy McCreevy, to see Ireland selected as one of the founder members of economic and monetary union. Qualifying for EMU was a significant national achievement and we comfortably met all the criteria. We all remember a time when the chances seemed very slim that Ireland could comfortably meet a deficit limit of 3 per cent of GDP. In 1989, we got our deficit down to below 3 per cent of GDP and we have kept it there ever since.

Similarly, our debt ratio was once almost double the 60 per cent limit. By the end of last year it was down to around 66 per cent and it will probably have fallen to around 60 per cent by the start of economic and monetary union on 1 January 1999.

From Ireland's point of view, last weekend provided a formal recognition of the economic progress that we have made and a recognition also of our determination to control inflation and put the public finances on a sounder footing. It is not enough for Ireland to qualify for the euro; we must continue to observe the criteria and requirements in the Maastricht Treaty, the stability and growth pact and the declaration approved at the weekend if we are to remain competitive and the economy is to continue its steady growth path.

In this regard, the high level policy objectives set out in chapter 2 of Partnership 2000 remain essential. These are: sufficient trust between the social partners to ensure an adequate information flow and burden sharing, and continuous efforts to strengthen the underlying competitiveness of the economy.

The continued successful implementation of Partnership 2000 by Government and the social partners, and the strict adherence to its terms, are critical to the sustainability of our recent economic performance.

The other key outcome of last weekend came from ECOFIN. As widely forecast, it was also announced that the bilateral exchange rates of the currencies participating in the economic and monetary union will be based on their current central rates in the Exchange Rate Mechanism (ERM). As the Minister for Finance made clear in his press statement at the weekend, the decision to use the ERM central rates is fully consistent with the economic fundamentals and convergence performance of the 11 member states involved.

As to the benefits of EMU, we know from the ESRI and NESC reports of July 1996 and March 1997, respectively, that participation in EMU is in Ireland's favour and will bring economic benefits. The balance of advantage is now even more strongly in favour of Ireland's participation. The statement issued by ECOFIN last Friday as to the benefits of the single currency said:

The move to the single currency enhances further the conditions for strong, sustained and non-inflationary growth conducive to more jobs and rising living standards. It eliminates the exchange rate risk among participating member states, reduces transaction costs, creates a broader and more efficient financial market and increases price transparency and competition. It thus provides the decisive step for a truly single market.

This extract captures succinctly the benefits to which we should look forward. The decisions of last weekend allow us now to focus our attention on the practical steps necessary for the changeover to the euro. This is an area which the Minister for Finance will address in detail in his response, but I commend him and his Department on the publication of the National Changeover Plan and on the establishment of the Euro Changeover Board of Ireland.

I also commend the Department of Enterprise, Trade and Employment, Forfás and the major banks and business organisations for their efforts to prepare the business community for the competitive and practical opportunities and challenges which the euro presents. With the decisions of last weekend behind us, the campaign to generate wider public and consumer awareness will gain momentum. While the euro notes and coins will not be available until 1 January 2002, the euro comes into effect from 1 January 1999.

It is sometimes suggested that the decisions by Government as to participation in EMU are taken without any reference, or very little reference, to the potential effects on cross-Border trade and on the island economy. The same was said when we joined the EMS in 1979. It was not true then and is certainly not true on this occasion. We would greatly prefer if the UK were to participate from the beginning. That would help to facilitate and underpin steps towards creating a single island economy. We are happy that the Prime Minister Mr. Blair's Government has given a firm positive orientation towards joining before too long. However, it would not help towards building a strong island economy if we were to hang back from involvement in the single currency from the outset.

The enhanced surveillance of the economic policies of all the member states and the agreed arrangements as to relations between the "ins" and "outs" will help to prevent competitive distortions between the member states of the Union sharing the single currency and those not yet participating in EMU.

So long as the situation persists as between ourselves and the United Kingdom it will simply mean, so far as the transactions costs aspects are concerned, that there will be two currencies, as now, and that the gains from cutting out exchange costs will not be realised. The trading relationship between North and South is becoming stronger all the time and I would not expect it to be affected adversely in any serious way during the few short years when we still have an exchange rate between us.

I met the Prime Minister Mr. Blair in the margins of the European Council meeting and we reviewed the reaction to the Agreement reached in the Multi-Party Negotiations. The Prime Minister and I welcomed the widespread support which the Agreement has received to date, both within political parties and, more widely, as expressed in opinion polls. We reaffirmed that there is now an unprecedented opportunity for real change for the better in relationships on and between the two islands. We called on everybody to focus on the prize of peace in the period ahead.

We asked those who have not yet made up their minds on the Agreement to view it positively in this light and we challenged the Agreement's opponents to spell out their alternatives, or their view of the future in the absence of peace and stability. We looked forward to a resounding "Yes" vote in the referendums, North and South, on 22 May and we pledged ourselves to doing everything necessary in this event to implement the Agreement as rapidly as possible and to realise its vision and full potential to the benefit of all the peoples of these islands.

There are those who are actively seeking to undermine the Agreement by violence. However, we cannot allow them to succeed. The recent violence underlines the need for an overwhelming "Yes" vote on 22 May to demonstrate beyond any doubt the people's support for peace and reconciliation and their total opposition to violence and intransigence.

We are in a period of accelerating change within the European Union. Simultaneous with the changeover to the euro, the negotiations under Agenda 2000 will take place. It will be important that Ireland secures adequate transitional arrangements in relation to Structural and Cohesion funding. We need to secure funding and to use it wisely. The outcome as regards the reform of the Common Agricultural Policy must fully protect our interests. In view of the challenges presented by both the Single Currency and Agenda 2000, it will be important that sound economic policies are pursued which augment our existing economic and social infrastructure. Government and social partner co-operation in the formulation and implementation of a new national development plan will be essential. Last weekend was a major success for Ireland.

It provided a recognition of our standing among our EU partners and secured our place at the core of the Union and our part in its future economic development.

Mrs. Owen

I congratulate the Taoiseach and the Minister for Finance on sharing with their European colleagues in the successful launch of the Single Currency last weekend in Brussels. I also pay tribute to my party leader, Deputy John Bruton, and to the leader of the Labour Party, Deputy Quinn, for the roles they played as Taoiseach and Minister for Finance and to their predecessors who did much of the preparatory work for Ireland's entry to the Single Currency.

The decision to join the euro was ratified by the people in the referendum on the Maastricht Treaty. It is appropriate, therefore, to recognise that they deserve praise for their contribution to this truly historic development. By hard work and application, they have transformed the economy into a successful model for many countries in Europe.

The Celtic tiger is the most overused cliché in political and economic debate, yet the prosperity and success we see all around us is real. As we enjoy the good times, we must remember to move on from the self-congratulations and plan for the future. The Irish National Competitiveness Council report, which was published six weeks ago, must be the basis for the future reinvigoration of the economy. Ireland is a young country so we must commit ourselves to constant change if we want to remain vigorous. Complacency will be fatal.

We must be realistic about EU money. Ireland cannot expect to get the same share of EU money as in the past if the Czechs, Hungarians and Poles are to be accommodated. We can either choose to meet the challenge of changes in EU funding or we can be rolled over by them. In the next ten years Ireland will rise or fall by its own efforts, not by those made by anyone else. Ireland will have to compete, sell better goods and provide better services than our competitors.

Fine Gael set up the Irish National Competitiveness Council to advise on what we must do to compete. We are determined that its first report will not gather dust. If we do not act on this report, the Celtic tiger of today will become the mangy old beast ten years from now. The report highlighted seven areas where Ireland is falling behind — Telecom internet charges, delays in planning decisions, insurance costs because of excessive court awards, ability in foreign languages, delay in paying bills, poor investment in vocational training and retraining and competition in the provision of public services. Fine Gael has set a specific target for improvements in these areas in the next three years. That is what Ireland must do to stay in front in the race for growth.

I welcome the decision announced in Brussels at the weekend that arrangements will be put in place to monitor the budget policy of every euro member state. It is inevitable and desirable that when close co-ordination of economic policies is to take place among euro member states, they co-operate and share information about each other's budgetary strategies.

I am concerned that at a time when the Government is committing itself to outlining its budgetary intentions for 1999, it is simultaneously embarking on capital expenditure projects as haphazardly costed as yesterday's Luas announcement. It is hard to believe that the European Central Bank or the Council of Finance Ministers would allow any member state to cost a major capital project in terms of a base line figure with a plus added on which could be equal in magnitude to the original base line figure. I hope the Minister for Finance tells us what he thought of the decision to add a plus to the figure of £400 million, what that plus means and if there will be pluses and minuses after all his budgetary figures in the future so that he has latitude. It is hard to believe the Minister for Finance told the gardaí at the weekend and anyone else who asked for a pay rise that there was no money available, yet he can stand over a Government decision to add a plus to the figure of £400 million which might be equal to the original base line figure. I find it difficult to reconcile yesterday's Government announcement with the commitment given by the euro member states to use any excess moneys in their Exchequers to reduce debt rather than increase spending or cut taxes.

This example highlights the need for clear Government leadership on the economy. The Government must act now to limit uncertainty with a clear statement of medium term economic and monetary policy. It must agree with the social partners shock absorbers for the economy to deal with any turbulence arising from the operation of the euro. With the pound euro exchange rate now locked, we are already in the euro. We must be ready to face pressures, which may be exceptional, for which economic shock absorbers may be necessary.

In the past 30 years Ireland's normal growth pattern has diverged greatly from that on the Continent. A study of the period from 1960 to 1993 shows only a 0.20 correlation between Irish and average European growth patterns compared to 0.63 correlation for Britain and 0.91 correlation for France. Our economy could have different needs from some of the other participants in the euro. Steps to cushion our economy against sterling volatility are also politically important because the impact of any divergence between sterling and the euro will be felt most acutely in the Border areas. The Border between the Republic and the North, the German Danish border and the Swedish Finish border are the only currency land borders in the EU.

Ireland is a small open economy which depends more than others on foreign investment to create and maintain jobs. If we are to protect our record levels of job creation, we must have shock absorbers to spread the impact of any downturn through a system of wage flexibility which would also reward wage earners when things are going well. Otherwise, the entire shock of any downturn would be absorbed through redundancies in a few exposed sectors. Such a system incorporating profit sharing was negotiated by the last Government in Partnership 2000. This Government has done nothing to advance those structural changes.

We also need to develop a system of financing housing which does not extenuate shocks to household income when the going gets rough and interest rates rise. Home ownership has been an achievable aspiration for many Irish families over the past five decades. Proportionately twice as many Irish families as German families own their homes, but, on average, Irish householders have four to five times as much debt as their German counterparts and most of the debt is at variable interest rates. Irish firms also tend to borrow more often at variable rates of interests whereas German firms tend to fund themselves through fixed rate bonds. That makes Ireland much more vulnerable to interest rate changes.

House prices in urban areas are continuing to spiral to a stage where couples on average incomes can no longer afford a house or, if they can, it will involve up to three hours commuting daily. The Central Bank, in its spring bulletin, stated we are not far from the point where home ownership will be beyond the reach of persons on average incomes, and this Government will be in power when that happens.

Interest rates are expected to fall by a further 2 per cent this year. Unless the housing supply is increased, that will convert directly into increases in house prices, which will benefit those fortunate enough to invest in property, but will kill the dream of home ownership for many of our people. The Government has promised action and we await the outcome of its proposals. However, the Government's piecemeal tinkering response appears to be cosmetic and is unlikely to make any real difference to those anxious to buy a home at a reasonable and, more importantly, affordable price.

The issue of bank charges will also become a major political issue in the early years of the use of the euro. In practice, the punt and the euro will operate in parallel for a while and people will need to be able to change cash freely from one form into another. If the banks impose a charge each time that happens, that could be exceptionally oppressive for households. The Government should make it clear it will not allow banks to impose charges for changing euros to punts and vice versa.

We must recognise the transfer to the euro is logistically a very difficult operation for everyone who deals in money. Major investments of time and equipment will be necessary. This must be undertaken at the same time computer programmes are adjusted for the year 2000 problem. The Government needs to give a strong lead to small businesses stating the steps that must be taken and estimating the amount of money and time that will have to be set aside. The Government cannot be a spectator in this process, it must be a participant.

The Government must also take steps to address the findings of a new survey that reveal Irish companies are lagging behind firms in Germany, France and the Benelux countries in their preparation for EMU. Perhaps the Taoiseach and the Minister for Finance who were busy attending 11 hour lunches and participating in the euro launch did not see that survey which was published last weekend. It found 65 per cent of German firms and 53 per cent of French firms consider themselves prepared for EMU. That compares with 50 per cent of Irish firms and 37 per cent of British firms.

Fine Gael has supported Irish policy to join the euro since it was decided at Maastricht by the Irish Government. However, we are lacking a coherent economic policy and logistical follow up by the Government of the type that could give real confidence. Economic and monetary union is, in the final analysis, a political project. It is happening because of political will. Its purpose is to bind Europe's countries so closely together that they will never again come into conflict with one another as they did so disastrously twice this century. The undignified squabble over who should hold the post of president of the European Central Bank was a less than auspicious start, but I hope more mature approaches will prevail in the weeks and months ahead.

It is right that Ireland should participate in this vital project. As the euro's only English speaking member, we will have tremendous job opportunities in financial services. We will also attract new investments, but we must recognise that political unity of purpose will be vital if the euro is to work. Countries will not be able to dine a la carte at the European table anymore. Europe needs to develop political institutions that have sufficient democratic legitimacy to demand sacrifices of European peoples and to mobilise them for a common cause.

The United States of America, the world's other great and successful currency union, has strong federal political institutions. Europe has yet to develop in that direction, but it will have to do so. A resounding "yes" vote in the Amsterdam Treaty referendum later this month will be important in putting a human face on Europe. The single currency debate focused attention on money in Europe, but we must not lose sight of the human values the money was being created to sustain, such as good and rewarding work, a clean environment and safe and healthy products in our shops. The decision to join the single currency was a good one for Ireland and for Europe, but we must not lose sight of the many further steps we must take to keep our economy competitive and strong. Any complacency would be fatal.

Mr. McDowell

I welcome the decisions taken in Brussels last weekend and I compliment the Taoiseach and the Minister for Finance for the role they played in bringing this Act to a successful finish or to, what in reality, is a successful start. I acknowledge the role played by my party leader, Deputy Quinn, when he was Minister for Finance in bringing us to the position in which we now find ourselves.

On behalf of the Labour Party, I very much welcome what happened last weekend. We have long supported monetary union and all that goes with it, but we do not do so in a starry-eyed fashion. We do so conscious that it presents economic challenges and threats as well as opportunities. In a sense, EMU is, and always has been, an economic challenge, particularly to peripheral countries such as Ireland, but it has also been, and still is, very much a political imperative. It is a political imperative that flows from the Acts of the founding fathers in the late 1940s and early 1950s, that flowed as a seamless route through the 1970s and 1980s through the creation of the Coal and Steel Community, the Economic Community, the Single European Act, the Maastricht Treaty and, most recently, the Amsterdam Treaty. It is something that has been borne out of the conviction in most of mainland Europe that we must never return to war, a conviction, particularly on the part of Germany and France, that the age old vision between those two countries, which has so often brought the Continent into division, should not happen again. Even though we did not participate in those wars and have been peripheral to them, those of us, even of our generation, can appreciate this driving force and dynamic is something we must appreciate, participate in and, in every way possible, share.

In pure economic terms the EU is an appreciation by the French and by President Francois Mitterrand, in particular, that socialism in one country ceased to be a possibility in Europe quite some time ago. That was a lesson those of us on the left learned the hard way, but it is one we should never forget. It was not possible to create an economic power such as France, the third or fourth largest economic power on the planet, and to create economic circumstances to use economic instruments in a fashion with which the markets disagreed. The markets ultimately had a veto and they showed that to the French Government in no uncertain terms in the early 1980s. If we want to reflate our economies, influence, for the good, what happens in the European economy, stimulate employment and invest in infrastructural development, we need to do so in a co-ordinated way which makes sense. It is no longer possible and has not been for some time for any one of us to go it alone. EMU is also a product of the realisation in Germany, particularly on the part of Chancellor Kohl, that for Germany to stay peaceably at the heart of Europe there was a need for it to be anchored in a way that was not going to change over the decades to come.

In relation to the economic challenge, the report of the Commission produced a few weeks ago sets out the targets for EMU as being to revitalise the European economy and the Single Market, to foster investment, boost business competitiveness, benefit consumers and savers and make life easier for citizens where both work and travel are concerned. If all of that were true or likely, then the case for EMU would be unanswerable; only time will tell. The importance of confidence has been very clear over the past year and for some time before that. Six months ago many of us felt it was likely the period before 1 May would be dominated by speculation on the currency markets, but that did not happen. It did not happen because the markets formed the view that politicians were serious and that they were going to do the business. The business was done and the markets were stable. The markets today and yesterday have accepted that and, I hope, markets will continue to be stable.

Economic and monetary union was based on five convergence criteria: price stability, debt-GDP ratio, current budget requirements, membership of the ERM and interest rates. However, what was clearly lacking were convergence criteria dealing with the real economy. There was no reference to growth or the lack of it or to employment or the lack of it. We all know the political reality of why that happened. Some people would say, perhaps cynically, that these criteria were designed by the Bundesbank or perhaps by Germany generally to ensure that some countries did not participate. In hindsight, I am glad the Germans got it wrong. I believe that EMU broadly based with 11 countries is or will ultimately be a much healthier monetary union than one narrowly based on four, five or perhaps six economies in the centre of Europe.

That is not to say we should not look in greater detail at the convergence criteria which did not apply. Employment is important. It is perhaps the single economic criteria which most impacts on the lives of Irish and European citizens throughout the Union. The Luxembourg Summit set targets or obliged Governments to set targets for employment and training between now and the end of the century. The Tánaiste and Minister for Enterprise, Trade and Employment produced those targets just a couple of weeks ago. The House will excuse me if I express a certain scepticism about the way in which those targets were produced and were presented by the Tánaiste. I got no sense of mission, no sense that she had given this any great thought.

Mrs. Owen

Cobbled together.

Mr. McDowell

I got the feeling that a few bureaucrats were asked to put together targets which we would then present to our European partners and say we had complied with the requirements of the Luxembourg Summit. For example, the plan to oblige people under the age of 26 to take a form of training or take a job is not researched. We have not been given detail. We have not been given an indication that the Government has given it any real thought or has any real intention of implementing it. Incidentally, I believe proposals of that kind have some merit if they are properly worked. However, our experience with the local employment service has been patchy to say the least. Employment is important and the Luxembourg targets should be taken seriously. The contents of the Amsterdam Treaty dealing with employment must be taken seriously also but, regrettably, I see no indication from the Government that it is doing so.

With regard to interest rates, all of us probably accept that we do not need lower interest rates in the current economic circumstances and that a reduction of 2 per cent or perhaps more than 2 per cent between now and the end of the year would not be a good thing in general terms. I am interested that Spain reduced its interest rates by 0.25 per cent this morning or yesterday. We are conscious of course that there is currently speculation that the Bundesbank will raise German rates. I hope it does — I know it is conscious of what is happening in Asia and in the so-called peripheral economies in Europe — because this raises a central question about what happens after 1 January next and the way in which the European central bank sets interest rates. Those of us in Italy, Spain, Finland and Ireland, where growth rates have been considerable for the past two or three years and interest rates are, and probably should be, higher than they are elsewhere, are entitled to expect that due weight will be given to the requirements of our economies, the non-core economy, and that the ECB decision making will not be dominated or dictated by the requirements of France and Germany.

In a sense perhaps we have been lucky. Six months ago one might have said we were on a completely different economic cycle to the rest of Europe. There are now some indications that the core economies are turning towards growth, that things in France, perhaps in Germany and certainly in Italy are improving. Perhaps in that sense we, in Ireland, have been very lucky, but I hope that there are in place mechanisms whereby Euro X and ECOFIN can in some way inform the decision of the European Central Bank. I want to be clear about this. I accept that the central bank should be independent in the strict treaty definition of the term, but I also believe that we must avoid a situation where six or seven extraordinarily powerful people make decisions entirely irrespective of the views of Finance Ministers in the Council of Ministers. Let us face it, there is a sufficient democratic deficit in Europe already. We should not be in the business of creating a central bank which is entirely unaccountable and uninformed by the views of the people directly elected by the peoples of Europe either to their national parliaments or for that matter to the European Parliament. In that respect, I agree entirely with what Deputy Owen has been saying.

There are obviously particular difficulties for Ireland in the fact that the UK has decided at least for the moment to stay out. The concern is not really with the current relationship with sterling but with what happens to the relationship when sterling inevitably begins to reduce in value. All of us accept that will happen sooner or later. All of us accept too that Britain will become a member of the EMU within a relatively short time and that has been clear from the utterances of the Chancellor Mr. Brown and the Prime Minister Mr. Blair in recent days. I am encouraged by the comments of the Trade and Industry Secretary, Ms Margaret Beckett, over the past day or two when she has been counselling British industry to prepare even earlier for effective entry into EMU. All of us expect that the euro will become a widely used currency in business and, for that matter, in peripheral areas of the UK such as Northern Ireland within a relatively short time.

Over this past weekend we have voluntarily surrendered a measure of our economic sovereignty. We have voluntarily surrendered control over exchange rate policy and interest rate policy. We retain, broadly speaking, within our control two large instruments of economic policy: fiscal policy and a measure of flexibility.

A few months ago few people were talking about tax harmonisation in a serious way but I have been struck over this past two or three weeks by the way in which tax harmonisation is suddenly central to the argument. There is already a measure of harmonisation with VAT rates. We are reducing corporation tax rates, and there is more and more influence on corporation tax by virtue of the ruling on State aids and investment. However, it is quite clear that soon we will be talking of the harmonisation of income tax, for example. This is something about which we must be extremely careful. Budgetary supervision and co-ordination is a good thing. I never really believed that it was important to keep all budget secrets until the day of the budget, and clearly that is becoming less and less the case. Ironically, one of the reasons always given for keeping budget secrecy was that it could affect the markets. We are about to abolish one of those markets, probably the one which was most susceptible to being influenced, namely the currency. Therefore, that argument no longer holds water. If the Minister is being required and has agreed with our European partners that he will flag to them the broad outlines and parameters of his budgetary policy, then surely we, in this House, need to consider a way in which we can make the process of budgetary decision making a good deal more transparent that it is currently. I am talking about the process of the so-called Estimates campaign as well as the decisions on taxation which are taken on budget day. If they are being flagged to the Commission in advance, then we need to develop a process in this House whereby that process becomes more accountable and transparent before the event so that we make real choices.

The unseemly row about the presidency of the ECB does not matter a great deal. Mr. Duisenberg will do a good job. Mr. Trichet would have done a good job had he been appointed for the full eight year term too. All we may have done is given those who want to be sceptical a reason to be sceptical. Those who want to see that the bank is less than independent can now do so. I am surprised and perhaps like everybody else I do not understand what the French were playing at. I do not understand why they persisted with Mr. Trichet's candidature for so long. There was never a real choice in the sort of policy which the central bank would pursue and that has not been influenced by the choice which has been made. I am sorry in a sense the argument happened, but we can put it behind us quickly.

I hope, as the Taoiseach said, that the presence on the governing board of a Finn, from an economy and country which shares many of our interests, will help us to express our view and interests at European level. This is very much an economic challenge. It presents threats to producers and opportunities to consumers. It is very much part of a political project which all parties, except one or two, support, and I count the Labour Party among them.

Proinsias De Rossa

I join other speakers in congratulating the Minister for Finance and the Taoiseach on our successfully joining EMU and on the process that took place last weekend. Deputy McDowell expressed doubt about what the French were about in terms of their argument for their nominee for the European Central Bank. I suspect it related to the perception in France. The French are strongly nationalistic and chauvinistic. Joining EMU represents a significant derogation of sovereignty in financial matters and it seems the French were attempting to demonstrate that they would still retain significant control over the financial matters which in reality they are ceding to a large group of states which will share that power.

A great deal of nonsense has been written and spoken about the weekend summit. What was a fairly mundane event has been hyped into a macho arm-wrestling bout between France and Germany which has very little relevance in the real world as even the notoriously febrile financial markets have subsequently confirmed. Most of it has been invented by a bored press, fuelled by so-called experts in the financial markets and Europhobes of the right and left who suddenly find the honour of the Bundesbank worth defending to the death. The ultimate in silliness is the suggestion that this development justifies a ‘no' vote in the forthcoming Amsterdam referendum.

It would have been preferable if the decisions were taken more efficiently and the long lunch avoided. On a purely technical basis, however, it seems reasonable that Mr. Duisenberg should step down at age 72 and that he should be succeeded by the French nominee. On the wider question, I am happy the French view prevailed, that it is clearly established that the operation of the future European Central Bank is a political question and that it answers to all the people of Europe, not merely to the financial markets and so-called economic "experts". I see this argument as part of the ongoing battle to correct the gaping flaw in the Maastricht Treaty which refused to establish any institutional democratic control over the Central Bank and refused to ensure that it takes account of growth and employment objectives as well as inflation and currency stability.

We should not forget that Europe's recession of the 1990's, the longest and deepest since the war, has "made in Germany" printed all over it. That was brought about by Kohl's predictably disastrous absorption of Eastern Germany and the equally disastrous high interest rate policy of the Bundesbank in the first half of the decade. Those who believe that employment and social progress is the primary objective of economic and fiscal policy will have to take sides in the coming years. The Progressive Democrats has long sided with the stockbrokers and central bankers, but perhaps Fianna Fáil will enlighten us on which side it is on.

Away from all the hype surrounding the summit, the decisions which were taken will have pro-found consequences for Europe. The formal sealing of the single currency project rather than closing the chapter instead underlines the necessity for other policy options to be assessed and complementary decisions taken. A single currency area without the rapid evolution of corresponding political and economic structures will fail and almost certainly collapse. The new regime which deliberately removes currency and interest rate adjustment mechanisms from national control cannot be managed by the economic and political instruments now available. No matter what the neo-liberal gurus prescribe, the workers of Europe will not indefinitely acquiesce to ongoing pay restraint as they see stock markets boom and inequalities widen.

The issue of a Community budget appropriate to manage an area as integrated as Europe 11 now is, must be tackled urgently. The proposal in the Commission's Agenda 2000 documents that the new single currency regime and up to ten impoverished central and east European states can be absorbed with a budget of less than 1.27 per cent of GNP by 2006 is madness. Thus far the only voices raised against it, apart from the agricultural sector which always thinks that everybody else should make sacrifices for its benefit, are those countries such as Germany, Holland and Sweden who want more of their money back, presumably reducing the budget even further. These assumptions should not be allowed go unchallenged any longer. It is the responsibility of those political forces committed to European integration as an agent of social advance to seek to change the thrust of the debate.

Regardless of how this country will fare under the budgetary regime after 1999, it is vital to our interests that Europe continues to have the capacity to intervene for social objectives. A budget appropriate to the powers and responsibilities of the newly established monetary entity is an absolute essential. If after accepting the transfer of economic policy levers from the member states Europe shows itself incapable of intervening in the face of recession, unemployment and reduced living standards in areas of the Union, it will not be long before a disintegration process begins. That the current pathetically inadequate Community budget will be unable to face these challenges is an infinitely more important issue than the weekend nonsense about the personality who will head the Central Bank in 2003.

I will briefly address points about Northern Ireland referred to by the Taoiseach. I welcome the further meeting between the Taoiseach and the British Prime Minister on the margins of the summit at the weekend. Maximum co-ordination and co-operation between the British and Irish Governments is essential between now and 22 May. The two Governments must speak with one voice in promoting the Agreement in both Northern Ireland and the Republic. I hope all parties to the Agreement will note the joint statement issued after the meeting which said that it had to be seen ‘as a single comprehensive package of many different elements which taken together require compromise on all sides'. This is a clear rejection of the notion that any party can cherry-pick elements of the Agreement, deciding to support what they like and reject what they find difficult.

To ensure the Agreement has the fullest possible moral authority it is clearly desirable that it is approved not just by a majority in the Republic but also by a majority of both Nationalists and Unionists in Northern Ireland. I hope this can be achieved. No effort should be spared by the two Governments and the parties to ensure a resounding endorsement of what offers the best chance for peace in 25 years. This is a time for democrats, North and South, to step together to bring the people of Ireland closer together in peace, democracy and partnership.

The signs are positive. Endorsement of the Agreement by a whole series of local authorities in Northern Ireland last night, including Belfast City Council and Ballymena Council, is a positive development. Similarly the decision of the Sinn Féin Árd Comhairle to recommend a "yes" vote on both sides of the Border and the Árd Comhairle motion for the Árd Fheis to allow its representatives to take their seats in the Northern Ireland Assembly, are important developments. Mr. David Trimble is entitled to enormous credit for the sound judgment and steady leadership he has shown since Good Friday. He has remained resolute in his support for the Agreement, despite the internal difficulties he has faced within the Ulster Unionist Party. All of these factors would suggest that the pieces of the jigsaw are falling into place, but there is no room for complacency.

No reasonable person could disagree with the conclusion of the two leaders in their statement that the agreement is "fair to both Nationalist and Unionist traditions". The Agreement must be sold for what it is, not what some would like it to be. It is a delicately balanced work, the end product of almost two years of intensive discussion, and it could be scuppered by ill-chosen words or triumphalist interpretations of it. There is, as I noted at the weekend, no need to gild the lily, whether it be an orange or an Easter lily.

There are many problems to be overcome, the most difficult of which will almost certainly be the decommissioning issue, but the commitments in the Agreement on decommissioning will have to be honoured. The premature demand for decommissioning was allowed, for far too long, to become an obstacle to the opening of talks. A refusal by the paramilitaries to face up to the decommissioning issue provided for in the Good Friday Agreement must not be allowed to obstruct its implementation when it has been endorsed by the electorates, North and South.

Minister for Finance (Mr. McCreevy)

Last weekend was most important from an Irish as well as a European point of view. Of greatest importance is the fact that the Heads of State or Government confirmed the recommendations of ECOFIN Ministers that 11 member states, including Ireland, should adopt the euro from 1 January 1999. The recommendations from ECOFIN to the Heads of State or Government were accompanied by the text of a joint declaration on budgetary policy. The Heads of State or Government also reached a political understanding on the persons to be recommended as president, vice-president and the other members of the executive board of the European Central Bank. The ECOFIN Council then adopted the recommendation on these appointments. Following consultation with the European Parliament and the European Monetary Institute, these nominations will be confirmed by consensus of Heads of State or Government of participating member states before 1 July 1998, after which the European Central Bank starts functioning.

ECOFIN Ministers also decided that the current ERM bilateral central rates of the currencies of the member states which will adopt the euro as their single currency on 1 January 1999 will be used in determining the irrevocable conversion rates. ECOFIN adopted the joint declaration on budgetary policy, which went to the Heads of State or Government with the recommendations on which member states qualify for EMU, reflecting the existing framework of the Stability and Growth Pact and the Treaty. ECOFIN also agreed a declaration noting the substantial progress made by Greece towards meeting the convergence criteria. Finally, ECOFIN Ministers adopted various proposals on the legal aspects of the euro and noted Commission recommendations in respect of the practical preparations for the changeover to the euro.

To review these significant decisions in turn, I am pleased that the Heads of State or Government were able to confirm that 11 member states should adopt the euro from 1 January 1999. This decision was soundly based and made with the benefit of detailed convergence reports from the European Monetary Institute and the European Commission and on the basis of the recommendations of the European Commission and ECOFIN, with the opinion of the European Parliament.

As regards the decision on the composition of the executive board of the ECB and its presidency, these were obviously very important issues and I am very pleased that we now have arrangements in place for two eminently qualified candidates to take up in succession the position of president. These arrangements are totally consistent with the provisions of the Treaty on European Union, and in particular regarding the independence of the ECB. I must point out that Mr Duisenberg's wish not to serve the full eight year term is voluntary. He said in his statement:

I wish to emphasise that this is my decision and my decision alone and it is entirely of my own free will and mine alone and not under pressure from anyone that I have decided not to serve the full term. Also in future the decision to resign will be my decision alone.

Mrs. Owen

Was there a "couteau" in his back?

Mr. McCreevy

Since the appointments to this important position are resolved for at least the next ten years, and well after the early period of the ECB's existence, this important position will have a longer period of predictability than the eight year term envisaged by the Treaty.

Any concerns in relation to the credibility of the European Central Bank are totally without foundation since the framework established for it by the Treaty makes it one of the most independent central banks worldwide and makes it clear that its primary objective is the maintenance of price stability. I am confident that this arrangement will provide the euro with a credible basis for its existence as a strong and stable currency.

To turn now to the decisions taken by ECOFIN Ministers, I am pleased that, as widely expected, ECOFIN Ministers announced that the current exchange rate mechanism bilateral central rates of the currencies of the member states which will adopt the euro as their single currency on 1 January 1999 will be used in determining the irrevocable conversion rates. This announcement provides a clear message to the markets and, by eliminating uncertainty, will assist financial market stability in the run-up to EMU. The decision to use ERM central rates is consistent with economic fundamentals and the sustainable convergence of the member states concerned.

What this means for the Irish pound is that from the start of EMU on 1 January 1999 its bilateral exchange rate with all other EMU participants will be locked at the rates agreed last weekend. In line with the Treaty, the actual setting of the conversion rates of the participating currencies against the euro can only take place on 1 January 1999. This is because the ECU is a notional EU currency which contains elements of currencies, such as sterling, which will not participate in the euro.

In accordance with the Stability and Growth Pact, ECOFIN Ministers also adopted a joint declaration which reflects the existing framework of the Pact and the Treaty, agreeing to start to implement the regulation on "the strengthening of the surveillance of budgetary positions and the surveillance and co-ordination of economic policies" on 1 July 1998. ECOFIN Ministers agreed to ensure that the national budget objectives set for 1998 are fully met, if necessary by taking timely corrective action.

Mrs. Owen

There goes Luas.

Mr. McCreevy

It was also agreed that the ECOFIN Council would engage in an early consideration of member states' budgetary intentions for 1999 in light of the framework and objectives of the Stability and Growth Pact. In addition, we agreed that if economic conditions develop better than expected, member states will use the opportunity to reinforce budgetary consolidation to reach the medium-term objective of government financial positions close to balance or in surplus, as embodied in the commitments of the Stability and Growth Pact.

ECOFIN also recognised that the higher the debt to GDP ratios of participating member states, the greater must be their efforts to reduce them rapidly. To that end, in addition to maintaining appropriate levels of primary surpluses in compliance with the commitments and the objectives of the Stability and Growth Pact, other measures to reduce gross debt should be put in place. Furthermore, debt management strategies should reduce the vulnerability of budgets to adverse developments. ECOFIN Ministers also undertook to submit, at the latest by the end of 1998, national stability or convergence programmes which will reflect these important elements.

I was glad to agree to this declaration which makes sense from an EMU perspective. It also reflects what was already being done in Ireland in respect of budgetary policy. The Government's economic and budgetary stance is already in line with these commitments on budgetary policy. This stance, cited in the communiqué issued in Brussels on 14 March when the Irish pound's central rate was revalued, includes the elements of the revaluation itself, our budgetary policy for 1998 and 1999, and the Irish Central Bank's intention to continue its present monetary policy orientation which is aimed at price stability.

As regards the legal aspects of the euro, the House will recall that two Council regulations will together form the legal framework for the use of the euro. One of these was adopted last June; the text of the other was settled, but it could not be adopted until the identity of the member states participating in EMU was known. Accordingly, ECOFIN formally adopted this second regulation at the weekend. ECOFIN also formally adopted a regulation on the technical specifications of the euro coins. Again, the text of this regulation had been settled some time ago.

As regards the practical aspects, on 23 April 1998 the European Commission issued three recommendations relating to the introduction of the euro — on bank charges for conversion to the euro, on dual display of prices and on dialogue and monitoring to facilitate the transition to the euro. ECOFIN welcomed the attention paid to these practical aspects, in so far as they support a voluntary approach to the questions of bank charges and dual display, while respecting member states' freedom to take whatever measures they consider necessary; and said the recommended standards of good practice can facilitate the transition to the euro in these areas. The ECOFIN Council also noted the recommendation regarding monitoring of preparations and information provisions.

There is a need for everyone to appreciate the extent to which we will be operating in a very different environment from 1 January 1999. Our membership of the single currency is not simply a technical transition; it is a move to a new and more challenging environment. In that environment, it is imperative for everyone to examine their strategies and structures and see how fit they are for the new Europe. In doing so, we need to assess not just our weaknesses but also our strengths.

Now that these decisions have been taken, the practical preparations for the changeover to the euro move to centre stage. My Department has responsibility for co-ordinating the preparations of the Irish public administration and has a key role in helping the rest of the economy to prepare itself for the changeover. Much work has already been done in this area. As long ago as 1995, my Department set up the single currency officers' team, which consists of a representative from every Government Department as well as from the Revenue Commissioners, the Office of the Comptroller and Auditor General, the Central Statistics Office and the National Treasury Management Agency. Its remit is to co-ordinate preparations for the changeover to the euro in the public sector.

The euro changeover group was established in 1996 and it included representatives from ICTU, IBEC and a wide range of private sector bodies. Its remit was to aid the co-ordination of the changeover throughout the country. The single currency officers and the euro changeover group were centrally involved in the preparation of the National Changeover Plan, the second edition of which I published in January. The plan outlines the changeover arrangements that will be made by the public sector, as well as by banks, building societies and the Stock Exchange. It also includes an extensive appendix which describes the changeover work being done by various public, trade and professional bodies and lists contact points for further information.

All Members of the Oireachtas have received copies of the plan so I do not propose to describe it in detail.

The National Changeover Plan aimed, among other things, to provide businesses with the certainty they need for planning for the changeover. Information for businesses about the changeover is provided by the Forfás Business Awareness Campaign.

Over the coming weeks, Forfás will issue a guide on information technology and the euro, and a guide for retailers. Forfás will also launch a document for its information pack to summarise the results of a consultancy study commissioned by the campaign to identify actions in the fields of finance, marketing, distribution, etc. that firms could consider as part of their planning for the possible contingency of sterling falling below its equilibrium level.

Turning to law, EMU and the adoption of the euro require a number of changes to Irish legislation. Already, the Central Bank Act, 1998, has ensured that our Central Bank legislation is compatible with the requirements of the Maastricht Treaty, while the Finance Act, 1998, provides for the taxation changes required for the introduction of the euro on 1 January 1999.

In addition to these changes, the Government has approved the drafting of the Economic and Monetary Union (EMU) Bill, 1998, to cater for the other legislative changes necessary for the introduction of the euro from 1 January 1999.

The purpose of the Bill is to ensure a clear and comprehensible framework in Irish monetary law following the introduction of the euro; to remove incompatibilities between monetary law and the legal framework for the use of the euro; and to give effect to enabling provisions within the legal framework, for example, in relation to the rede-nomination of outstanding debt. The Bill is also designed to facilitate companies which wish to redenominate and renominalise their capital structure in euro even before euro notes and coins are put into circulation on 1 January 2002. It is intended to have the Bill enacted by summer 1998.

It will be clear from what I have already said that extensive preparations have already been made for the changeover to the euro, but more remains to be done. The National Changeover Plan made it clear that a changeover board would be set up after the decision on which member states would be founder members of EMU. Because of the importance of the work to be done, we launched the Euro Changeover Board of Ireland yesterday, the first working day after the EMU decision.

The board includes representatives from organisations across a wide cross-section of life, including consumers, trade unions, business, accountants, farmers, financial institutions, the European Commission and the European Parliament, as well as the Central Bank and Government Departments. The board will be chaired by a senior official from the Department of Finance. It will have two basic tasks: to oversee the implementation of the changeover and ensure it runs as smoothly as possible, and to provide information for the public and consumers to facilitate that objective. As regards the first of these tasks, the board will prepare a third edition of the National Changeover Plan for issue before the beginning of EMU on 1 January next.

As regards public information, an information programme will begin in June, after the two referendums. Its main objective will be to provide the public with appropriate and timely information about the changeover to the euro, particularly about the timetable, and to reassure the public that the changeover will be manageable for them.

The Euro Changeover Board of Ireland has an important task to fulfil. I am very grateful to the organisations represented on it for helping us to carry out this task and I wish the board every success in its work.

The House will agree that the agreements made last weekend have set in train the arrangements for Ireland's participation in a unique economic environment. Our economy is well placed to successfully participate in the EMU project from the outset. We look forward to the challenges and opportunities which EMU will pose.

Mrs. Owen

Will the Minister tell them about the little "plus"? That is not good budgetary policy.