With the foundation laid for a completion of the Internal Market by 1 January 1993, the EC turned its attention to a logical extension, a single currency for a Single Market. Jacques Delors in April 1989 proposed a three stage process for achievement of economic and monetary union. Stage one consists of the drawing up of new rules and procedures for voluntarily achieving a higher degree of convergence in terms of economic policy among member states, to facilitate an emerging monetary union. It also proposes closer co-operation and consultation between member states' central banks. Stage two deepens this process to settling specific policy targets and enforcement rules. Stage three consists of the irrevocable fixing of exchange rates against the central ECU rate from which emerges the new single European currency.
The substance of the Delors plan matured through an intergovernmental conference over a two year period ending last December in Maastricht in the proposed new Treaty on economic and monetary union. From an Irish point of view our essential interests are best served by an early and full achievement of economic and monetary union. Ours is a small open economy, one of the most trade dependent economies in the EC. The vast bulk of our trade in imports and exports is intra-Community trade. Economic and monetary union would eliminate all the exchange risks on all our trade with other EC countries, assuming all are in. The transaction costs of Irish business would disappear as would such trade in respect of currency convergence charges and hedging operations. Perhaps as significant as all of that, from an investment point of view, is the strong expectation that Irish interest rates would diminish towards a lower EC norm over a period. Indeed, it sets to one side the considerable dynamic effects on the Irish economy of belonging fully to a one speed economic community. These include increased overseas investment, more jobs, extraordinary growth rates in export volumes and values and a huge growth in the willingness of non-Irish residents to hold Irish gilts. The absence of any of these dynamic elements would be catastrophic for the future of the Irish economy. The implications of a "no" vote should not by any means be under-estimated in this regard.
The real task of Maastricht on economic and monetary union was to spell out how to get from where we are to where we want to be. Four key criteria have been set to determine the level of required economic convergence consistent with economic and monetary union. These relate to inflation rates, exchange rates, interest rates and excessive Government deficits.
To enter stage three a member state is required to establish a capacity to sustain a reasonable level of price stability, such that its average rate of inflation or consumer price index over a period of a year prior to examination, shall not exceed the best real inflation rates within the EC by more than 1.5 per cent. Our current performance means that will not present any problem for Ireland which already meets the criteria. Countries must be full members of the exchange rate mechanism which Ireland has been since the foundation of the European Monetary System. In addition, a member state must have respected the normal fluctuation margins without severe economic tensions for at least two years before examination, and in particular, no other valuation at the states' own initiative is permitted over the same period. This, too, is a criteria which, given the Central Bank's prudent policy on exchange rate management, should present no problem to Ireland and is one which we already fit.
Interest rates are to be measured with reference to long term Government bonds or comparable securities. To qualify, a member state must have an average nominal long term interest rate that does not exceed that of the three best member states in price stability terms, by more than 2 per cent. Again, following from our participation in the narrow band of the EMS, Ireland currently makes the cut on this measure.
The excessive Government deficit criteria is double barrelled, relating both to actual budget deficit and to debt — GNP ratio. The Maastricht Protocol defines reference values for both — 3 per cent of gross domestic product being an outer acceptable limit for budget deficits, and 60 per cent of gross domestic product being the ratio for total debt to annual national incomes allowed. On current and recent performance Ireland should have no problem in producing annual budgets with deficits of 3 per cent or less.
There is a problem in relation to the second criteria that has been laid down because Ireland's debt to gross domestic product currently stands at approximately 95 per cent. One could not expect Ireland to get it down to the 60 per cent ratio within a short period. It is estimated in that regard that a ratio of approximately 8 per cent would be the target that Ireland could meet. If Ireland could be shown to be very serious about trying to reduce this debt we would not be excluded.
The final stage of economic and monetary union will begin at the latest, on 1 January 1999 and may begin as early as 1997 provided a majority of member states meet the convergence criteria set. It is characterised by the establishment of a powerful and independent European Central Bank with the full range of monetary instruments and policies appropriate to such a bank, and by the irrevocable fixing of the value of the ECU from the outset. Once agreed to, this process is irrevocable. It is clear from the analysis of the convergence conditions dealing with inflation, exchange rates, interest rates and excessive public deficits, that preconditions have been set for participating member states to enhance the overall ability of the European Community to sustain an effective monetary union based on price stability and economic growth. No one wants runaway inflation; no one wants unsustainable or unstable exchange rates; no one wants high nominal and real interest rates and it is not in anyones interest to see runaway Government deficits and excessive national debt. We will see a continued emphasis on low inflation, stable exchange rate policy and an interest rate policy that, subject to a "yes" vote will be designed to protect the external nature of our currency, showing some real differential with the key continental interest rates.
There is no choice but to continue with strict public expenditure control policies in order to achieve the acceptable debt — GNP ratio. However, looking at the effects of our accumulated debt over the past number of years and the poor impact of expansionary fiscal policy in Ireland as a small open economy, I could come to the conclusion that it is a great pity we did not have a Maastricht Accord 20 years ago before we inflicted all of the damage on ourselves.
In the event of a "no" vote, the most immediate likely effect would be a significant rise in interest rates. Up to £3 billion of Irish Government bonds are already held by non-nationals. A "no" vote would trigger an immediate capital outflow. The only way to counter this would be to increase interest rates as a reason for inducing this money to stay. Such a policy would be disastrous for Ireland, but inevitable, to avoid greater problems. Ireland is suffering the worst unemployment crisis in the European Community, at a rate twice the Community average, in spite of a creditable overall economic performance. Moreover, there are fears that a strong single market with full economic and monetary union and the four freedoms of movement in relation to goods, services, capital and people, will result in a concentration of growth in the central areas, perhaps at a cost to the peripheries.
We are all familiar with the controversy surrounding Articles 2 and 3 of our Constitution, Bunreacht na hÉireann, which sets out the territorial claim in respect of the definition of the Irish territory and causes such sensitivity and difficulties with sectors of the population both North and South. In this context, it is amusing to an extent, that Articles 2 and 3 of the Maastricht Treaty prove to be of no less interest to Ireland than their domestic equivalent, and they indeed constitute the basis on which we lay claim to a right to protect our strategic economic interests, especially in so far as they relate to matters of real as distinct from financial economy. Article 2 of the Draft Treaty reads:
The Community shall have as its task, by establishing a common market and an economic monetary union and by implementing the common policies or activities referred to in Article 3 and 3a, to promote throughout the Community a harmonious and balanced development of economic activities, sustainable and non-inflationary growth respecting the environment, a high degree of convergence of economic performance, a high level of employment and of social protection, the raising of the standard of living and quality of life, and economic and social cohesion and solidarity among Member States.
The proposed Article 3 enumerates a large number of Community activities which shall be engaged in to achieve the objectives set out in Article 2. Among these is "the strengthening of economic and social cohesion". These policy objectives were keenly pursued by the Irish Government from the outset of both Intergovernmental Conferences, and we played a leading role among the so-called cohesion countries in advancing our claims to ensure that these matters would be accorded due priority in terms of the Community's new legal base. The general references in Articles 2 and 3 are an important springboard but needed to be developed in a more detailed form. Thus two additional features of the political union treaty were born.
A second major emphasis by the Commission is on partnership. This has tended in Ireland to concentrate on a Dublin/Brussels decision-making axis because of the centralisation in Ireland and not because of any EC preference. I would hope, in this regard, that much of the decision-making and allocation of funds would be based on a regional basis within the country rather than by a single decision at central Government level. I know there are moves afoot to involve a number of the regions in Ireland in a decision-making process by forming certain types of committees. I hope that decision will be taken and structures established sooner rather than later.
The third element in reform was to make the Structural Funds consistent with general, national, regional or local development strategies. Improved administration as the fourth principle led to the agreement and publication in November 1988 of the Community's support framework for Ireland 1989-93 which was worth £2.86 billion. The CSF in its turn matured into a series of specialised operational programmes such as peripherality, for example, roads, tourism, rural development and so on. A project focus was replaced with a programme focus for each chosen area of activity and an emphasis was also placed on additionality or the matching of public or private funds provided to enhance the EC structural aid.
The essential purpose of reform aimed to simplify the process and to decentralise as much of the decision-making as possible away from Brussels towards the recipient regions. These revised rules will continue to apply after Maastricht based on the experience gained since 1989. Maastricht has reviewed the Treaty's legal base and amended Article 130 (d) to provide for the establishment before the end of 1993 of a Cohesion Fund which will make financial contributions to projects in the field of the environment and planned European networks in the area of transport infrastructure. There is also a Treaty obligation on the Commission to report formally on the cohesion agenda every three years.
In addition to the new Cohesion Fund a special Protocol is to be annexed to the Treaty on the overall topic of economic and social cohesion which agrees on the need to review the size of the existing Structural Funds as well as evaluating their overall effectiveness in the course of 1992. In addition, an intention is signalled, to allow a greater margin of flexibility in the allocation of such funds for specific needs which are not covered under the existing regulations. That is a very welcome development.
The net effect of the renewed emphasis on economic and social cohesion should see a substantial increase in the level of structural funding available over the years 1994 to 1998. This is certain to happen irrespective of the funding demands for Central and Eastern Europe or the new Commonwealth of Independent States in the former Soviet Union.
The problem of commitment to double Structural Funds spending overall for the four member states, Greece, Portugal, Spain and Ireland should not be taken as a specific commitment to double the funds for any particular country. There is no definite decision that the funds will be doubled after Maastricht. In 1987 Structural Funds amounted to 9.1 billion ECUs out of an EC budget of 49.4 billion ECUs. By 1997 the plan is for such funds to amount to 29.3 billion ECUs out of a budget of 83.2 billion ECUs. Even on that basis the advantages that will accrue to this country in terms of actual funding will be enormous, even if we do not, as is anticipated, reach the doubling of our structural funding.
Unfortunately, too much public debate in Ireland focuses on the monetary amounts and too little is on the evaluation of how the money should be spent and how it has been spent. Far too little attention is given to the economic impact which flows from availability of these funds which are provided to the Irish economy to help us get over our structural impediments and to ease our transition, first, into the Single Market and now, under the new package, towards full economic and monetary union.
The recent Report of the Industrial Policy Review Group comments on, "a widely held perception in both the public and private sectors that Structural Funds represent in some way free money from Brussels." This attitude clearly leads to less rigour in their allocation and evaluation from the point of view of their overall impact.
It is apparent from successive Court of Auditors Annual Reports that the Irish public service is quickest off the mark in the EC when it comes to drawing down allocated funds. While clearly a great credit is due to the administrative skills, this of itself is no substitute for ensuring the most effective use of funds. Properly used, these funds can make very real contributions to growth and development in Ireland but it is vitally necessary to put them in their proper economic perspective.
Were we to receive what is anticipated, £5 billion plus, under the Delors II Package by way of structural expenditure, it would amount at least to the equivalent of about 4 percentage points of GDP in such funds alone. This is a huge amount of money and an enormous contribution from European taxpayers towards the cost of trying to improve and integrate the Irish economy into the wider EC Single Market with a single currency.
Nonetheless, these figures must be set against the stark and unpalatable truth that, this year, and into the foreseeable future the cost of repaying our existing national debt amounts to 10 percentage points of GDP. This is an enormous discrepancy and we have a huge task on our hands to deal with it. That is a huge burden which we have to tackle. The Government have been setting about tackling that problem for the past five years. They are doing an exceptionally good job in trying to reduce the huge debt. Nothing more starkly underlines the necessity for proper management of our own affairs as the key determinant of our economic prospects. It is vital that we tackle it.
We must begin after Maastricht with other less prosperous states and regions to evaluate all policy areas with regard to their cohesion or catching-up impact. There is a strong danger that the greater our focus and dependency on flows of funds alone, the greater will become our dependency mentality. Nothing will develop the Irish economy except the enterprise and abilty of our people. For that reason it is important to challenge the all too easy and cosy prospect of externalising solutions and waiting for manna from Heaven in the form of EC structural funding. Helpful as this can be as a complement to development, it is no substitute for native enterprise. It is difficult to avoid the conclusion that the constant emphasis on fund dependency rather than market exploitation reinforces our geographical peripherality with an even more pernicious peripherality mentality. Ireland, after two decades of EC membership, must develop a vision of Europe that is more sophisticated than just milking the financial flows. The alternative to such a vision is really to travel blind.
The Commission's White Paper on Industrial Policy 1990 acknowledged the fears that, as trade barriers are dismantled, there is a danger that State aids will be used as an anti-competitive substitute. The Commission argues, further, that a more effective approach to Cohesion Policy at EC level would be served by a progressive reduction of aid incentives in the central and more prosperous regions. The result of this would be to avoid or lessen aid competition of a beggar my neighbour sort which low income, peripheral economies like Ireland are in no position to win. This surely has to be a strategic priority for the Irish policy makers in the future, since the effect is not only a budgetary one in Ireland, but also critical to the employment equation. Of itself, it requires no direct monetary or financial flow from the European Community but operates in an area where the scale and intensity of competing aid is staggering in comparative terms.
Structural funds are an extremely important bonus in development terms to the Irish economy. For so long as they remain, and certainly that will be the case, in an enhanced form, the foreseeable future, we must make the most productive use of them. Nonetheless cohesion is a much better prospect than simply looking for money, beneficial though that is. Our public administrative skills have served us extremely well in the money stakes. They need to be enhanced in terms of our capacity to ex-ante evaluation of spending plans to make sure that they have real economic impact and deliver real value for money. We must also cast a cold eye over a much wider cohesion net.
Maastricht develops, as a matter of Community law, for the first time ever, an emphasis on union citizenship. It confers important new rights on all of us, from the point of view of free movement, rights of residence, access to labour markets and rights to contest, and vote in, local and European elections. The attainment and exercise of these rights is one of the means by which the ordinary Community citizen can and will experience the individual benefits of membership.
For many years local authorities in which, as a member of one such body, I have a particular interest, have been to the forefront in twinning arrangements between our cities and towns and those in other EC States. This is an enriching movement which creates and deepens bonds at a personal and Community level, and one which I would like today to acknowledge, encourage and salute from the point of view of the citizen's Europe.
One of the final topics I wish to raise in relation to local authorities is the issue of landfill waste management and the proposed new EC law. The plan, in that area, is to insist in future on rigorous, and what will prove to be costly, site preparation, supervision, management and aftercare in respect of landfill sites. I do not believe it will be feasible in such a context in the future for individual local authorities is easily afford to meet the criteria set down in these proposals. With all its attendant difficulties, I have no doubt that concentration along regional lines will need to be looked at, because of the huge implications in terms of expense, in the provision of proper facilities and the acquisition of the sites that will be needed to fulfil the obligations laid down by the European Community. It is an enormous task. It is essential that we have a regionalised landfill area with a group of local authorities coming together to try and solve this massive problem.
We do not have an alternative to becoming part of Europe. I know people have different views and misgivings about it but if you cast a cold eye on the alternatives, they involve putting ourselves, in economic terms, outside a Community of 350 million people. It means closing the door on an opportunity of that kind. I do not think we can afford to do that for the generations of Irish people who will come after us. We must afford them that opportunity. I know there are difficulties in the EC. It is not all plain sailing. It is not a land of milk and honey, but for every pound we pay into Europe we are getting £6 in return at the moment. That will be doubled in the future. From that perspective, if we want to be selfish, we do not have any alternative. We owe it to future generations, the business people and the community at large, to become part of Europe and to be true Europeans and we can only do that by way of a resounding "yes" vote on the Maastricht Treaty on 18 June.
