Seanad Éireann díospóireacht -
Thursday, 16 Oct 1997

Vol. 152 No. 5

Economic and Monetary Union: Statements (Resumed).

Mr. Dardis

I support a point made by Senator Quinn relating to the engagement of the citizen in the process. I accept the Department of Finance and the financial institutions have been active in the lead up to the single currency and I noted what the Minister said about the various structures which have been put in place to prepare us. However, the Minister did not refer to the role of the citizen and small business. There was a notable absence of public debate on Maastricht and other aspects of European Union, which is one of the reasons this debate today is desirable. EMU is one of the most important things to happen fiscally for many years, certainly since decimalisation. It is important that citizens are aware of what is involved.

One negative associated with preparation for the single currency was also evident during decimalisation. The single currency creates an opportunity for retailers to increase prices during the transition period. In other words, they could avail of the confusion in relation to exchange rates to make hay. A consequence of that would be an increase in the level of inflation. If retail prices increased as a result of just the technical aspects of entering the exchange rate, there would be a negative effect on inflation which would be undesirable. Reference was made to the possibility of overheating the economy in the present circumstances and the Minister's fears in that regard were quoted in this morning's newspapers. This is one aspect of EMU of which we should be aware.

Citizens need to be engaged in this process and the media has some responsibility in this regard. They are only waking up to some of these issues as we move closer to the event and when most decisions have been made and the debate, in many respects, is virtually over.

In their preparations for entry into the single currency, the financial institutions, the ESRI and others have looked at the effects on various sizes of business. We must concede there will be significant compliance costs for some people. There will be implications even for the simple cash register. Implications for banking machines and toll bridge machines also come into play as does the question of accounting and book-keeping for small companies. There will be costs associated with EMU. The banks, in their analysis of some of these situations, have shown there are more minuses than pluses for certain sections. Allied Irish Banks, Bank of Ireland and the other major financial institutions have prepared valuable documents on EMU. We must be aware of the impact on small businesses, for example, the corner shop. Much preparation and detail has gone into aspects of Departments. The Minister said payments would be made by and to Departments. I am concerned about the degree of advice and information available to smaller countries.

A critical issue is the rate at which we enter. Obviously, it would be imprudent to state a rate which would restrict the Government's positioning leading up to entering. However, it would be reasonable to suggest that the currency should be somewhere at its mid-rate on entry. Recently, it has been very much at the top of the band which would have implications for us but perhaps not as significant as might be perceived at first because of the strength of the economy. Perhaps we may take whatever little jolt might be associated with that. However, it comes back to the point that once the rate is fixed we will not have to worry about currency fluctuations. Exporters will not have to worry about the rate moving against them in the period between the quotation and the delivery of goods to an export market. From a competitiveness viewpoint, this is desirable.

Turning to the United Kingdom and its approach, there has been a detectable shift in the attitude of the UK Government which has been even more noticeable since the Labour Party came into power. It was the perception of the former Tory Government that the UK would stay out. It is not certain what the UK will do, but the chances of it joining, though not at the start, are better than they were several months ago. I agree with the Minister that the clear priority for Ireland is to ensure, whatever happens, we qualify for EMU.

There is also the question of what we would do in the absence of EMU. The point was made that a continuation of the status quo is not an option and that there must be a degree of common currency or, at the very least, a structure whereby the currencies are linked. Deputy Quinn, as Minister, said there had been benefits to us in terms of our fiscal and economic policy by abiding by the Maastricht criteria. The Minister spoke about the debt-GDP ratio, the exchange rate, interest rate and the deficit and the fact that we qualify. At the start, we were well outside the parameters in respect of the debt-GDP ratio but the trend has been in the right direction, more significantly than might have been expected at the outset of the process when we were well outside of what was required.

Reference was made to the ESRI and the net benefits which will accrue. It was suggested that this would be the case even if the United Kingdom remained outside, although I contest that to some extent. I would be interested to know if the disadvantages outweigh the advantages. This brings us back to the level of trade and the degree to which we are dependent on the UK as a trade partner.

Another reservation I have relates to the creation of the European Central Bank. The system of central banks is fine but we are ceding part of our sovereignty to the European Central Bank. Sacrifices will obviously have to be made in sovereignty, and we have made several such sacrifices since joining the then Common Market. Those sacrifices have brought more benefits than disadvantages. However, the degree to which the European Central Bank could dictate our fiscal and economic policy is worrying. If the Bundes-bank makes a statement it can have a very serious negative effect on, for example, exchange rates. If we are locked into an exchange rate that would not arise, but questions arise on the issue of centralised influence. Senator Quinn raised the issue of the degree to which Brussels assumes it is right. If the European Union stands for anything, it should stand for flexibility, which it frequently proclaims it does. There will have to be a flexible approach to the European Central Bank.

Enlargement, Structural Funds and Agenda 2000 are issues that lead us away from the central subject of this debate, but they are nevertheless related to it. I disagree with Senator Quinn's assertion that the gravy train has stopped. It is wrong to describe these funds as a gravy train, but if it is a train, it has not come to a stop but is slowing down; it will slow down increasingly as Agenda 2000 is adopted, but it will not stop. Under GDP criteria, we will not qualify for Objective 1 status, which would entitle us to maximum accrual of EU funds. There would also be very advantageous co-funding arrangements in that status. However, there is now discussion of Objective 1 in transition, which leads to the suspicion that we will have to argue that the infrastructural and general economic benefits have been such as to warrant continued transfer of funds from Europe to Ireland.

It would be wrong, however, to overstate the degree to which our economic boom has been contingent upon those European funds. Most analyses suggests that perhaps 1 or 1.5 per cent of the 6 per cent growth rate accrues from the transfer of Structural and Cohesion Funds. Our management of the economy has been very good, and it has not just been the contribution of Structural Funds that has caused growth in Ireland. Those funds have helped, but not to the extent that some EU enthusiasts believe.

Exchange rate management will be very important leading to entry. I am content to leave it to the Minister and his officials to form a coherent strategy to get us to enter at a desirable rate.

Senator Finneran made an important point when he raised the question of changes in the Common Agricultural Policy, a matter to which Agenda 2000 is related. That may be more significant to Irish agriculture and the economy generally than EMU. While it is desirable to remove those exchange rate fluctuations which have caused problems for exporters of beef and other food products, the changes in the CAP will be very significant for the individual farmer. There will be other significant changes because of European enlargement. One of the biggest battles we will have to wage in the next five years will relate to protection of the CAP and farm incomes. That will dominate our approach to the World Trade Organisation talks, as it will be difficult to ensure that our interests are served. Trade liberalisation is a very attractive idea as it presents a package of removing trade barriers to create a world economy. I profess myself a liberal, and that doctrine is very attractive to a liberal. However, it has as much to do with American dominance of world trade as any other factor. American manufacturing and agriculture are so competitive as to give that country an edge in circumstances where trade barriers are removed.

Mechanisms will have to be put in place to ensure that retail customers are not exploited. It is an issue that will have to be examined, though I am content with the public sector's approach to EMU.

The competitiveness of the Irish economy has been mentioned in this debate, and EMU will improve that competitiveness. It is sometimes suggested that we are relatively uncompetitive from a labour viewpoint in comparison with economies such as Taiwan in the Far East. Their labour costs are much lower than ours, but a senior American industrialist I met suggested that Ireland is extremely competitive. His view was that while our labour costs on the unit cost of production were high relative to the Far East, our educated and productive workforce meant that the labour factor in the unit cost of production was less here in certain circumstances than in the Far East. That applies particularly to hi-tech industries such as Intel and Hewlett Packard, which we are fortunate to have in Kildare.

It is important that this process be seamless, from entry to the locking of rates and then to production of notes and coins. That is where difficulties may lie in establishing the ideas of the single currency and economic and monetary union. Hiccups may occur, and it is critical to meet targets on time so that there is international confidence in European determination to meet those targets. Several leading experts in this field have made this point, and it was emphasised at a Philip Morris Institute conference on Europe's global currency in Rome last year.

Regarding the euro, we will create a critical mass in currency by balancing the dollar and, to a lesser extent, the yen. However, experts will probably suggest that the dollar will be the dominant currency and that there is a danger that the euro will become a regional currency. A co-operative relationship between the yen, dollar and euro rather than a contest has been suggested as a remedy to that. We would then be in the fiscal equivalent of the World Trade Organisation.

We must stick to the timetable so that the system has credibility. It has long been the case that Ireland is committed to entry. There is a caveat about the UK, but that is no longer as serious as it was. One hopes that the positive forecasts of the long-term benefits to the Irish economy are correct and that the growth we have experienced will continue into the future.

Mr. Costello

I welcome the Minister to the House and welcome this debate on economic and monetary union. We always complain that there is not enough debating of European matters in this House, the other House or by the public at large. We have been preparing for the internal market since 1990 and we are coming to the end of the century; there was almost a decade of preparation for its initial implementation in 1999 and its final implementation in 2002. Nevertheless there is very little knowledge abroad of EMU and its implications for the country. From that point of view this debate is welcome.

Of all the countries in the European Union, EMU will have more implications for and a greater impact on Ireland as it is on the perimeter of Britain, which would qualify for entry but has expressed reluctance to enter initially. An enormous amount of our exports go to Britain. A third of our economic activity is related to that country so clearly we will have to analyse carefully the implications of the single market, what bearing it would have if we enter in 1999 and how it will affect us.

From that point of view I am disappointed with the Minister's contribution. He has focused entirely on the narrow fiscal elements of the Union. Remember, this is not simply monetary union, it is economic and monetary union. There are many elements to be discussed besides the rigid criteria for entry and whether we conform to the convergence criteria. These matters concern small businesses about which Senator Quinn spoke, farming organisations about which Senator Finneran spoke, the labour market, long-term unemployment and youth unemployment, problems which, ironically, the rest of the European Union is experiencing to a greater degree than Ireland. We are fortunate that we are looking at entry to EMU at the end of the 1990s as opposed to the end of the 1980s. There would have been riots on the streets if we had contemplated the full implementation of this ten years ago.

We are fortunate that we have been beneficiaries of a booming economy for the entire 1990s. Remember the developments of the other countries have been quite modest. They are, in many cases, experiencing increased unemployment. Germany, which has always been the great engineroom of the European Union, is experiencing considerable difficulties in this area. A country that would be expected to be at the forefront of the convergence criteria is now facing difficulties. A couple of years ago Germany said that Ireland was unlikely to enter the first tier, that there would be two separate tiers of entry. Now Ireland will be in the first line of entry by all accounts.

France is likewise experiencing considerable difficulties in terms of employment. There are problems with the Italian economy. There are other economies such as Britain, Denmark and Sweden, which are voluntarily opting to remain outside initially. We are fortunate that we can speak from a position of strength in relation to the European Union.

We are discussing a fait accompli. All the major political parties have indicated their support for entry to EMU at the earliest opportunity. Undoubtedly that will happen in May of next year when the decision will be made who fulfils the criteria for entry. We will be there. It is unlikely that the economy will suffer an earthquake between now and May. It suits us to be able to present a rosy picture of criteria that have been fulfilled.

The question remains whether the benefits of entry exceed the problems it will cause. There are many people at the coalface of economic activity in this country, the Small Businesses Association for example or those organising labour, who have reservations about what is going to happen. Are we going to experience a setback in unemployment figures for the first time in a considerable period. The ESRI report indicates approximately 28,000 jobs will be lost initially. That is a substantial number in one fell swoop. Last year in excess of 50,000 new jobs were created. We are talking about the loss of 50 per cent of jobs created annually. We have had a tremendous job creation record over the last four or five years — in excess of 200,000 jobs. Nevertheless, many industries have not benefited from the transfer of European funds, particularly in the small business sector. Small industries could find themselves in difficulty because of the greater competition the single market will create. Many people in the labour market where remuneration is not high could find their employment at risk. These are extremely important factors.

Nobody knows the implications of Britain not joining. Thankfully the new Labour Government in Britain has indicated a greater degree of flexibility compared to the Conservative Government. Mr. Major, the previous Prime Minister, was hidebound by the Euro sceptics. At least the new Labour Government has indicated it will not enter in 1999 but will leave the option open for entry at a future date. That is an important step forward and gives us a glimmer of light. A third of our products are exported to Britain and another 10 per cent to the United States and if we include Japan and other countries we export in excess of 50 per cent of our products. France, Germany, Italy, Denmark and other member states have land borders and their natural markets are across these borders but we are an island and we must transport our goods by plane and sea. As a result our markets are more diffuse than those in Europe.

I am in favour of economic and monetary union. Stage one began in 1990 and we have been preparing for the single market since that time. As I understand it, we will be better off inside the single market than we would be outside. We must be cognisant of the difficulties this will present and ensure we identify such difficulties and prepare for them.

The concept of a union of European states is excellent. In the aftermath of World War ll, when the coal and steel pact was agreed between the Benelux countries, an attempt was made to move the most competitive countries in the European market away from strict competition towards co-ordination of economic activity. Since 1973 the Common Market has been a major boon to Irish people, particularly farmers who have benefited enormously from the Common Agricultural Policy. Farmers have been fortunate that the Common Market provided an alternative to the British market where beef and agricultural produce prices were always determined by the policy to provide cheap food for the UK's large working population. Ireland proved to be an easily accessible source in this regard but we were dependent on British market forces and prices. Thankfully, however, our farmers have prospered.

Political candidates canvassing for votes throughout Ireland at present can see the signs of prosperity, namely, new housing developments and improvements to the appearance of many towns and villages. Membership of the European Union has been very beneficial in this respect. Ironically, it may prove difficult for farmers to adapt to the EU in the future with the end of the Common Agricultural Policy. Farmers are already complaining about the difficulties they are experiencing in respect of the amount of funds being transferred. The extension of the European Union to countries on the Eastern bloc fringe, including Poland and Romania, with mainly agricultural economies — Russia has also indicated an interest in joining — will result in the greatest threat to the transfer of funds. I do not doubt that farmers, who are not slow in coming forward, will have something to say when this comes to pass.

Ireland has benefited enormously from the transfer of funds to other areas. If one travels through the country one will witness the major changes that have occurred during the past 20 years as a result of European funding, which has fuelled developments in our infrastructure — roads, bridges and bypasses — and improved transport facilities. There are proposals to put in place the light rail system, LUAS, which will hopefully proceed before the funding is taken away, and a tunnel from Whitehall to Dublin port to relieve congestion.

In the environmental context, funding has been provided to provide tertiary and secondary treatment in respect of sewage and improve waste disposal methods. These are welcome developments and they have had an environmental and social impact. In terms of education and training for young people, FÁS programmes, community employment schemes, VTOS, third level education and post-second level skills training have benefited considerably through ESF funding, etc.

To a large extent, these developments have contributed to the transformation of Ireland during our lifetime. The majority of Members will remember the difficulties of living in Ireland in the early 1960s. One can only imagine what it must have been like to live in the period between the 1920s and the 1950s, when emigration was at its height. Following the oil crisis in 1973, the numbers emigrating rose again and this continued until the 1980s.

We must focus on the downside of EMU. Employment has not been dealt with in a coherent fashion on a European level. There are no effective policies in place to deal with long-term unemployment, which is one of the great cancers of modern society. The Celtic tiger may be roaring, but that roar is insignificant in many of the ghetto areas located in Ballyfermot, the north inner city, Ballymun and Blanchardstown, which are situated in my constituency. Uniform development has not taken place. While our criteria, in terms of figures and percentages, have been excellent in their theoretical framework, an adequate effort has not been made to focus attention on unemployment blackspots and large areas affected by the problems of drug abuse and crime. This has created poverty and prevented the social inclusion of a common economic social and monetary market where cohesion would be based on a broad humanitarian and egalitarian model, and where people could have the freedom to control their lives.

People have no freedom to control their lives if they are dependent on the State from birth until death — particularly if everything they possess, such as their houses and money, are given to them by the State — and have no prospect of gaining employment. The ghettos must be eliminated. I am not satisfied with European action in this regard. One could state that part of the problem lies with our failure as a nation to target resources and funding from the EU into these areas to ensure that the level of social cohesion we expect from a united Europe would be put in place.

Another downside of EMU is the prospect of further unemployment being created in the short term. I would like to hear the Minister's views on this but the general conclusion of the ESRI report is that we will experience initial difficulties in respect of unemployment. To look at the long-term picture, which is similar to gazing into a crystal ball because our vision is limited, we must consider whether Britain will join EMU and the effect its decision in that regard will have on our trade with that country.

The businesses which trade with Britain are, by and large, small indigenous concerns. The multinationals operate on a global level and their markets are more diffuse as a result. Because of limited resources, research and development opportunities and capital, small businesses are likely to opt for the nearest large market, namely, Britain, to which it is cheap to export. For this reason, I am concerned that many small businesses could go to the wall in the short term unless we put in place support measures to lessen the impact of EMU. Funds should be made available from the European Investment Bank for such supports. We should argue the case in Europe that we have a unique problem in terms of our economic relationship with Britain and that nothing should be allowed to destabilise the present success of our economy, which is a model for development for the EU and for applicant states.

A number of speakers have raised the duty free issue. Senator Quinn spoke disparagingly about the notion that the Commission would allow a continuation of the duty free status at our airports and ferry ports. I take a different view. In theory he is right that in an internal market there should be no perks in any one area. However, I would view the matter in terms of Ireland having introduced the principle of duty free status, in Shannon originally and then in the other air and sea ports.

The concept has great capacity to generate employment; indeed, it is estimated that over 140,000 people in Europe are employed in the duty free business and its removal would have a major impact. Duty free sales in Europe increased from £2.7 billion in 1991 to £4.2 billion in 1996. Ending duty free status would impact on employment and on travel and airport costs. It is a concept which helps people to enjoy travelling and encourages them to do so because they have an opportunity to obtain goods at a reduced cost.

The trade unions and the business community are in favour of its retention. It would not undermine the internal market. It is a valuable incentive but one which does not distort economies. With that in mind we should adopt a sympathetic approach to its retention. My main concern with EMU is the expectation of an initial growth in unemployment in virtually all the member states, although in the long term the benefits outweigh the costs.

The Minister for Finance should indicate his support for retaining duty free status. As Minister for Finance in 1991, the Taoiseach agreed to its abolition. The Minister for Public Enterprise, Deputy O'Rourke, has enthusiastically supported its retention at EU level. I do not know the Government's policy on the matter at present but if it is in favour of duty free status it should campaign in favour of it. After all, Ireland created the concept of duty free. To counteract the possible restrictions in Europe Aer Rianta has sought new duty free markets in Russia, Pakistan, India and elsewhere with a measure of success. However, while that has been happening in other countries it seems to be a contradiction that the EU should abolish duty free within its market area. That is one area I should like the Minister to address sympathetically.

The impact of EMU needs careful analysis because it is important not to destabilise our economy. EMU will bring substantial benefits. For example, our interest rates may be halved from their present low level and this must be of long-term benefit to the economy. People will be able to travel anywhere in the EMU area without the cost and inconvenience of changing currency, which will make tourism easier and cheaper.

The economic disciplines of EMU have been of benefit to date and will continue to be of benefit in the future. We have had to keep the national finances in strict control which has meant that the large public debts are a thing of the past. When we began to prepare for EMU our debt to GDP ratio was about 130 per cent and that has been reduced to about 74 per cent; it is reducing at about 8 per cent a year bringing us almost to the convergence criterion of 60 per cent. That is an indication of the beneficial effects of the disciplines of EMU.

This debate on EMU is timely. EMU will have a considerable impact in the next few years and continuous assessment and monitoring of developments will be important, particularly to gauge the reactions of neighbouring countries and changes in the political climate, and to consider how best we can use capital supports to assist the sectors of the economy which will be affected in the initial stages.

Ms Cox

Before offering some of my thoughts on the subject being discussed, I wish to express the sense of pride and honour I feel in addressing Seanad Éireann for the very first time. It is a privilege given to few people and I am conscious of the obligations and responsibilities it imposes. The sense of tradition that pervades this Chamber generates feelings that are both uplifting and humbling. I am all too aware that many great people have stood here in the past, and still do, and in a variety of ways they have helped to influence and shape the destiny of Ireland and its society. I hope that, in some small way, I will be able to live up to the ideals they gave voice to in this House and that my voice will be listened to as the voice of the people I represent.

As we approach the historic moment when we will enter economic and monetary union, we might do well to reflect on an old saying: "if money is not your servant, it will be your master". This is a very wise and appropriate thought at this juncture of modern European affairs. Money must not be allowed to control us, we must control money. I suppose I am talking about money in the new shape and form in which it will manifest itself, which will be very strange and unfamiliar to us all. It will take a lot of getting used to. In just about 15 months' time, the process of introducing the single currency into Ireland and the other EU countries that meet the convergence criteria, will begin. There is no doubt that Ireland will meet these stringent criteria. Indeed we have already done so thanks to that opulently virile creature that now bestrides our economy, the Celtic tiger. Perhaps a more appropriate image would be that of a benign but powerful Irish wolfhound streaking ahead of the pack. However, we are doing very well and can no longer be looked on as a backward country with an unpromising future. Our economy is setting a shining example for the rest of Europe, and we can be forgiven if we unashamedly revel in that fact. We can take pride in the fact that at this moment it looks as though Ireland, in terms of economic health, will be leading the countries entering EMU. This was reiterated this morning by the Minister for Finance, Deputy McCreevy.

In this regard I sound a note of caution. Despite being in the full flush of economic health, Ireland has some way to go before reaching the level of development of the more prosperous regions of the European Union, as pointed out recently by the Minister for Finance. Even after entering EMU, we will still need significant levels of structural and cohesion funding, especially in regions such as the west of Ireland where we have yet to benefit fully and equitably from EU funding already received. We must continue to attract high levels of investment, not only to complete the developments under way but to wrestle with the new challenges thrown up by our economic resurgence. Our new found prosperity must be secured, sustained and made permanent. This means that investment must continue. The European Commission must bear in mind that the various incentives Ireland and other member states have put in place to attract investment are of benefit not just to one country but to the whole European Union. Did we ever believe that employers in Ireland would be recruiting people in Europe and the UK to fill job vacancies here? There has been a marked globalisation of industrial activity in recent times and a fierce intensification of competition among all countries. Because of these altered circumstances, if outside investment is not drawn to Europe it will go to other parts of the world and the European community will be the loser.

The coming of the new currency will necessitate a complete change in our monetary mind-set. By the year 2002 the punt, which so many people have spent a lifetime struggling for, will sadly have gone from our purse and our pockets and will already be disappearing into the mists of nostalgia. We will be hiding the £1 coins under the mattresses and bringing them out to show to our grandchildren in the future. The punt will be replaced by the euro, a denomination that has not a very inspiring sound to it but will become the hard cash currency of day-to-day living. By July 2002, the punt and the national currencies of all the countries participating in EMU will completely changeover to the euro. That does not mean there will be a risk of anyone being stuck with their old notes and coins because they can continue to change them for the euro, free of charge, in banks and building societies. The changeover may come as something of a shock to the system. That is fair to say when we look around at people shopping and doing business. They have not realised that a time of change is ahead of us and we will soon have to confront it. We should not be fearful of what is ahead. Many thought the change to the decimal system in the seventies would cause something close to chaos, but as we know it went very smoothly. I have only vague memories of it.

The change to the euro currency will have implications for everybody — businesses large and small, workers, housewives, students, the unemployed and for Government. We should take a very positive stance in looking ahead to the transformation that will take place. Of course there will be difficulties, but I believe they will be outweighed by the benefits that will accrue to Ireland in the fullness of time. Above all, we should bear in mind that we, being the resourceful and imaginative people we are, will be well able to adapt to the new order of things provided we prepare carefully and meticulously for the changeover.

It is important that we concentrate on the benefits to this country from being a participant in EMU. Unlike our nearest neighbour, we should not be nervous about becoming a more integral part of Europe. It is a matter of regret that the UK seems to have forgotten the injunction of one of its greatest statesmen, Gladstone, who, long before the idea of the European Union was mooted, said: "We are part of the community of Europe, and we must do our duty as such." As the Minister said earlier, that is a matter for the British Government. For our own part, we should never forget that our connection to the Continent stretches back to the time when Irish missionaries kindled the flame of learning and civilisation there. We are not exactly strangers to Europe and the part we have played in its history is a preeminently honourable one.

The implications of membership of EMU will be widespread, none more so than in the business sector. The currency change will impact on existing markets in a way that at present is not entirely predictable. Looking at it positively, the advent of EMU will no doubt enable many businesses to expand into new markets in the euro sphere. It is important that Irish business people should seek to identify in advance any opportunities that may arise and plan to take advantage of them. For instance, they should study their production lines and consider the desirability of diversifying in order to avail of new market opportunities. The coming of EMU will also mean sharper competition and it is vital that Irish business takes steps to respond to the competitive threats that will arise.

Large businesses will be able to assign senior managers, or even form special committees, to take responsibility for stimulating and co-ordinating preparations for entry into EMU. However, small business people will not have any such luxury and, as is so often the case, may well have to figure out the complexity of the changeover on their own. We should keep small business people in our mind at this time, and I call on the Minister to do so. They are always under pressure of which many people are unaware. They do the marketing, management, selling and the financial work of a business. We should never forget their significant contribution to the life and economy of the country. If we look at the make-up of businesses, it is true to say that small businesses make a very significant contribution to the wellbeing of the country and to employment. Often companies are owned and managed by one person who must be a very resourceful and versatile individual to survive in a sometimes cut-throat marketplace that invariably is beset by official bureaucracy of all kinds emanating from Dublin and Brussels. In so many cases the success of such firms is due in large measure to a handful of employees who show unstinting commitment and loyalty to their company.

Small businesses can hardly be blamed for thinking that the EMU represents yet another layer of bureaucracy with which to contend. It must be shown that this is not the case, and, in fact, bureaucracy may eventually be diminished in the new regime. Would we not all like to see that happen? Perhaps the Government also will look to the changeover in such a way as to allow bureaucracy and red tape to be reduced.

As all our forms will have to be redesigned to take cognisance of the change in currency, perhaps it is time to look at the information requested on those forms and ask whether we really need it or do we already have it in a different format.

It is easy enough to imagine the kind of problems that will be encountered in the early days of transition by small cash-based retailers such as newsagents, hardware shops and corner grocers. They will have much juggling to do when handling two sets of notes and coins — the old pounds and the new euros — which will be in circulation until the transition period is completed.

Unlike the big outlets they will not be able to afford separate tills for both currencies so they are in for a difficult period of adjustment until the euro takes over fully. In the early days, retailers will also need to be aware of the fixed conversion rates and understand that their bankers will accept euro payments in lodgments and that all their dealings, both with bankers and Government agencies, can be in euros. Paying suppliers may also cause headaches initially, particularly if suppliers have not changed over to working in euros.

A greater sense of urgency should be shown by the Government and European institutions in alerting small business concerns to the necessity of preparing the groundwork in readiness for the profound changes that will take place. They must be assisted in every way to make the necessary adjustments to their operations. That will help to smooth their transition to the new regime.

All bureaucratic obstacles with which, rightly or wrongly, the EU has become identified, must be swept away so that small businesses in particular can gain easy access to all the information and assistance they require in making the changeover. It is important not to underestimate the effort that is necessary or the urgency with which it should be pursued.

Some of the issues that have to be confronted are highly complex, not least in the legal area. The legal framework for the EMU was agreed at the EU summit in Dublin late last year. Businesses would do well to study the implications of the legal provisions, particularly as they affect contracts and the conversion of currency values. This whole area represents a confusing maze to most people, and businesses would be wise to seek professional advice in helping them navigate their way through it.

The impact of EMU entry will vary greatly over a wide spectrum of interests with each sector encountering its own specific problems. Sectors such as retail, agriculture, manufacturing, property, import-export, tourism, financial services, information technology and cross-Border trade will be presented with their own unique problems. Each sector should now take steps to make preparations appropriate to its own particular circumstances.

It is heartening that help is available to all these interests and others, to advise and guide them as we venture into the new territory of EMU. The Government has initiated a euro awareness programme providing information on the euro conversion plans of the public and financial sector. This provides a framework against which other sectors can draw up their strategies more effectively.

This changeover plan is gradually being extended to other sectors. The EMU business awareness campaign, launched earlier, has been useful in helping businesses to prepare for transition. It is doing a good job. A number of banks and other financial institutions are also making information available on the correct approaches to the changeover.

I compliment the Minister and his officials on the good work that has been done to date. I welcome the Minister's undertaking to conduct an end of year review as well as his commitment to broaden the focus on the information campaign.

The emerging EMU can be likened in many ways to the United States of America and, indeed, Senator Quinn has already done so. The USA is a large, brilliantly successful nation made up of many states, each of which still holds on to its own rights and autonomy in many areas. I am confident that full economic and monetary union will not mean the end of our country's right to determine its own economic policies. I am convinced that smaller countries like Ireland will have a far greater say in the economies of the larger member states. After all, each country will have a single vote on decisions affecting monetary policy taken by the European Central Bank. If anyone makes a wrong move, perhaps they will hear the growl of the Celtic tiger.

No matter what some British politicians may think, the advantages of a single currency are many. To take just one such advantage, think of the convenience it will afford travellers and tourists who will no longer have to change money, at a price, when they go from one member state to the next. Exchange margins and commission fees paid to banks will simply disappear. Last night I drove from Dublin to Newry, and it was only when I discovered I had no sterling in a Northern shop that I realised I had moved into a different jurisdiction with a different currency. EMU will make a big difference to us, particularly as we move around Europe.

A single currency will also take away the uncertainty surrounding the prices at which goods are sold. The danger of sudden exchange movements wiping out profit margins in a matter of hours will be removed. We all know the trouble such fluctuations caused the punt some time ago. The fact that goods and services will be priced in the same currency should strengthen the competitive effect of the single market considerably and this will benefit the Community as a whole. I will not be surprised if this helps to stimulate growth and employment.

I hope the euro will find its way into the pockets of those who work hard as well as the pockets of the less well off in ever increasing amounts.

An Leas-Chathaoirleach

I congratulate Senator Cox on her maiden speech.

Mr. Connor

I welcome the Minister of State to the House. He and I served on the last Select Committee on Finance and General Affairs that examined this subject in some detail. To that extent we have been through the rounds of the subject before.

I support the concept of economic and monetary union along with the idea of a single currency and the economies of the EU becoming more integrated. It is a natural progression of the situation from which we have evolved on the continent of Europe in this age of enlightenment. It has been the greatest period of enlightenment in terms of giving us peace on this continent. We pride ourselves as being in the most civilised part of the world, yet this century alone we have had the greatest level of mass slaughter seen on any continent.

I spent my holidays this year in Belgium and visited the little town of Ypres where over half a million people were slaughtered between 1914 and 1918 because of the conflict on this continent. We continue to move on from that, however. The progress of the movement of these positive events is the greater integration of the economies and, indeed, of the politics of the Governments which form what we now call the European Union. One hopes that in the not too distant future we will be able to take in other countries on the continent with which we have a great deal in common, that is, Poland, the Czech Republic and the Baltic Republics, and that Norway and Switzerland will join eventually.

The idea of a monetary union is not new. I am old enough to remember most of the debates on Ireland's entry into the European Economic Community between 1970 and 1972. The lengthy Werner report brought forward this idea of a single currency and it was the subject of considerable discussion that preceded Ireland's entry into the Common Market or European Economic Community.

In 1989 Jacques Delors, the President of the European Commission with the greatest vision, brought forward a report which became known as the Delors committee report. Then the Commission brought forward its report, which was published in 1990, prior to the drafting of the Maastricht Treaty and it was called One market, one money. Effectively, that found its way into Articles 102a to 109 of the Maastricht Treaty on which this project is based.

There are three elements to economic and monetary union and I intend to examine each in detail because, while one supports the concept, there are still a few unanswered questions and while some questions have been answered, we wish to raise them again. First, there is the single currency between the participating states; second, is the single monetary policy implemented by an independent European Central Bank and the European system of central banks and, third, closer co-ordination of economic and monetary policies among the member states — that is what we call the convergence and perhaps eventual fusion of all the economies in the European Union.

The criteria for convergence is that the deficit must not exceed 3 per cent of GDP. If it exceeds the 3 per cent by only a small amount, then this must be for exceptional reasons and the excess must be temporary in nature. The ratio of Government debt to GDP must be 60 per cent. If it is more than that, it must be diminishing to 60 per cent at a satisfactory rate.

Ireland's deficit does not exceed the 3 per cent criterion. There was much debate on this and I accept that we fulfil that criteria. However, Ireland still does not meet the criteria relating to the ratio of Government debt to GDP; it still has not been reduced to 60 per cent. We may argue that we are reducing the ratio at a satisfactory rate, but I want the Minister to deal with this in some detail and say how he sees the ratio of Government debt to GDP on 1 January 1999 or when the final decisions must be made. That is important.

I want the Minister to comment on the situation in other member states also. He may say it is not for an Irish Minister for Finance to comment but that is not good enough. He should be able to express his concerns or make positive remarks about other member states. They do it about us and we can do it about them. If we are to have a fully informed debate, it is important that we hear not only what concerns the Irish people but also how other economies will affect us. I want the Minister to feel free to comment.

There are requirements to be met in relation to interest rates, the stability of the currency and inflation. Inflation must not exceed 1.5 per cent of the three best performing member states and average long-term interest rates must not exceed more than 2 per cent of the three best performing member states. These, I am sure, are good criteria.

A member state's currency must not have fluctuated by more than the normal fluctuation margins in the last two years and a currency must not have been devalued on the initiative of a member state against the currency of another member state. There has been hardly a decade since the war in which the British currency in particular or, indeed, Ireland's currency has not devalued voluntarily or involuntarily.

There has been much debate today about whether Britain will join EMU. The prevailing mood in Britain is that they will enter on the first day, 1 January 1999 and I think the Blair Government will work toward that. They are not saying that at present but I believe they will. We cannot understate the problem for Ireland if Britain stays out and Ireland goes in. Such a high proportion of Irish trade will still be with the United Kingdom and Ireland's biggest fear would be that the British Government would unilaterally devalue its currency — what is called predatory devaluation. That would have a serious effect on Ireland, and it has been the subject of considerable discussion. There is not a great deal that this Government or any other can do about it. We can only hope that the British will see the common sense of joining because in the long-term interest of the British economy — and I feel free to lecture them on this — it is better that they be a part of this project from the outset than that they stay out. Fortunately the little Englandism of the Tory Party is not part of policymaking.

Mr. B. Ryan

The Senator's allies in Europe.

Mr. Connor

Little Englandism is still prevalant in the United Kingdom. The Administration of John Major M.P., a man for whom I had a great admiration, was destroyed by nothing else.

The second point deals with the discipline within an economy, managing deficits, etc. We must ask how the French are dealing with their current economic problems. Is it not true that they are running an excessive deficit and that it will continue? One can be creative with figures, but the Maastricht criteria are clear as to the rules one must obey. Nevertheless, I am worried about the French and how they must deal with their economy. Is there the political will in the light of the political configuration of the present French Government to face up to and take the hard economic decisions? That has to do with running a tight deficit programme.

It is not clear what will happen in Germany. For generations Germany had the largest and most successful economy in Europe but the knock-on effect of German unification has been a serious economic down turn. Of course there are indications of recovery but there will always be the temptation to use the old Keynesian principle of spending one's way out of a recession. Excessive spending in recessions has caused problems for many countries. We suffered them after 1977. Will the Minister comment on the handling of economic difficulties in France, Germany, Sweden and other member states? Concerns are being expressed by many economists and there is nothing wrong with the Minister telling us what he, the Government and the Department of Finance think about how these countries are dealing with their excessive deficits. The Minister may quote Article 104, which provides that a country which does not follow the rules has no come back, but I would not be too sure of that.

The job of the European system of central banks, or the European Central Bank as it will be known, will be powerful. We will have a say and will appoint a director like all other member states. The ECB will operate the single monetary policy and single currency, will maintain price stability and will support, in a general way, the economic policies of the Community with a view to achieving Community objectives — the promotion of non-inflationary growth with increasing employment, better social protection and social solidarity, and giving citizens a better sense of cohesion and belonging to this ambitious experiment. Many citizens have difficulty understanding this great historical movement and when they do not know enough about it they are inclined not to support it.

My concern about the European Central Bank is that I am not sure how it will be accountable. The Maastricht Treaty states it will be accountable to the European Parliament but, while not wishing to denigrate that body, it is a rather toothless institution. Despite the changes brought about under the Maastricht Treaty and the other changes to come, the European Parliament will not be one of the major decision making institutions of the EU. The new bank will be much more powerful.

The control of monetary policy is crucial. If times are hard and money must be squeezed from the system by the European Central Bank, countries on the periphery where the economic structure is weakest will suffer the greatest. That happens not only in countries but in unions of states such as the USA and India. Senator Finneran, Senator Ryan and I represent the most peripheral areas of the most peripheral country in the Union and I am not satisfied that an official of the European Central Bank will be held accountable in the sense of reporting to a committee of the Oireachtas. They will come here and tell us what monetary policy will be. We will still have domestic budgets, as individual states of the US do, but the monetary policy of the EU will have a major effect on those budgets. It is important that people elected from all the regions have a voice.

The directors of the European Central Bank will be unelected and while I value their independence I do not like the level of accountability which will apply to them. This small nation calls itself peripheral, and has done well as a result in the sense of receiving transfers. However, those transfers have not helped the more peripheral areas of Ireland but they have had a tremendous effect in the better developed regions. It is most important that we are satisfied that the European Central Bank is accountable. It should not only be the director whom we appoint who is or she will have equal status with the directors appointed by Germany and France, countries far larger than ours.

The Minister of State, Deputy Cullen, was present when the director of the Central Bank of Ireland reported on several occasions to the Select Committee on Finance and General Affairs. The director informed us about what he told the Government on monetary policy. I hope an official of the ECB will be amenable to such examinations in national parliaments. Those parliaments will not fade away, despite the lengths to which the Maastricht Treaty goes to establish a federal Europe. They stand for national sovereignty, and national interests are best expressed in national parliaments.

On that select committee the Minister of State also expressed interest in the period before the irrevocable fixing of exchange rates. Will there be speculation against certain currencies in that period? The day on which the link will take place will be known and speculators may make a predatory attack — we saw what happened some years ago. At a meeting of that select committee in this Chamber, the current Minister, Deputy McCreevy, put an interesting question to Mr. John Fitzgerald of the ESRI:

In the lead-up to that date, what is to stop widespread speculation against certain currencies? We are in for an interesting two-month period, maybe less, in the lead-up, particularly regarding the French franc. The lead-up to this date will be littered with dangers, particularly for a small economy such as Ireland which is not a significant player as far as exchange rates are concerned. In 1992 and 1993 the bigger currencies such as UK could do little when the markets turned against them. Even a strong currency like the deutschmark would have difficulty in defending itself from a concerted attack.

Mr. Fitzgerald took that point but he had no satisfactory answer to it. The question remains unanswered and more than a year has elapsed since it was asked. There may have been developments and perhaps the Minister could address them in his reply.

Mr. B. Ryan

As always, Senator Connor's remarks were a good deal more thoughtful than those of many more politically eminent advocates of EMU. I am happy to describe myself as a European in a cultural sense and take delight in regarding western and northern Europe as the centre of civilisation, with the United States a poor second. Europe has been successful in achieving economic growth and using it to do something for its citizens on a large scale and with a degree of compassion which the US has singularly failed to do. In terms of how the world is to develop in the future, Europe is a far more wholesome model than the US will ever be.

However, there are still problems in Europe and it is an indication of a profound lack of confidence on the part of those who advocate further European integration and have set the pace on this issue over the last 25 years, that they find it impossible to address the deficits, the losses and the things we gave up. They must portray our involvement in Europe as entirely positive.

It is difficult, for example, to get people to accept that since we joined the EU, between £14 billion and £20 billion worth of fish have been caught in the Irish zone of economic interest by foreign trawlers. One could argue forever about what we would have done about that matter if we had not joined the EU. However, it is a significant sum of money, representing the best part of half our gross domestic product. That sum, which we gave away, bears comparison with the amount of transfers to us.

I am not saying it was not worth it. I always say we gave away fisheries, which was a growth industry, in return for agriculture, which was, and still is, a declining industry. I am not sure the sum was ever calculated. There was an ideological rigidity, perhaps in the Minister's Department or in politics, which did not appreciate the possibilities which existed for the fishing industry 25 years ago.

The common agricultural policy is probably the most elaborate welfare system in the developed world dressed up as an economic policy. It has probably hindered the development of our food industry and has made people in the area of cold storage rich over the past 20 years from doing nothing but providing storage facilities. It is impossible to discuss this, even with people who are otherwise passionate supporters of a competitive market economy as they have different views when it comes to agriculture. We cannot have a serious debate if both sides do not engage the negatives and positives. The same applies to economic and monetary union.

We do not have much choice about EMU now. I am astonished by the emergence in the last 12 months of a large number of economists who apparently now believe we should perhaps not enter a single currency. It is a little late for the economics profession to discover its reservations when it was collectively as meek as mice during the serious debate on the Maastricht referendum.

The economic side of the Maastricht Treaty was barely mentioned during that debate. We were obsessed, yet again, by the abortion issue during that time. That which claims to be our newspaper of record saw the Maastricht referendum victory as a defeat for the forces of the Catholic right, in one of its finer flights of imagination in terms of headline generation. Whatever the Maastricht Treaty was, it was neither a victory nor a defeat for either side of the abortion debate. The second issue which arose at that time, which was important but not nearly as central, was neutrality.

However, the implications of economic and monetary union were never discussed. An economist in one of the banks raised a few doubts but, beyond that, doubt was either ignored or suppressed, depending on one's point of view. Ample doubt was expressed, however. A report for the National Economic and Social Council, written by Rory O'Donnell, the economist, dealt at considerable length with many of the possible negative effects of EMU.

It is time for us, particularly politicians, to move away from the totalitarian influence of economists. This country is a democracy and is not run with the totalitarian rigidity about human behaviour which economists would have us accept. Our rates of growth now exceed what economists believed was the possible upper limit possible for this country. Our growth rate is around 7, 8 or 9 per cent but most economists would have argued that our highest possible rate was about 6 per cent. Six months ago an eminent academic wrote in The Irish Times that he does not know why our economy is growing at that rate. If people cannot explain what is happening with our economy today, we should have enormous reservations about listening to what they tell us will happen in five years' time.

As I said, we do not have much choice now because we are heading irreversibly towards a single currency. I am extremely perturbed about the consequences of that when the downturn comes. We could probably survive anything at present because of the state of our economy. We could even survive a dose of increased public expenditure, with considerable social and other benefits, rather than an orgy of tax cuts for already well off people who are paying 48 per cent income tax. We could do a great deal with our resources but we are now constrained.

I am worried about a number of issues which people do not want to address. In 1989, one of our most eminent economists, writing for the Institute of European Affairs, of which I am a member said we should forget about the idea that devaluation was of benefit to a country because it only created inflation. We all remember the crisis in 1992-93 which resulted in devaluation and an earlier crisis in Britain which also resulted in devaluation. The extraordinary aspect is that neither country had an outburst of inflation and both had an outburst of economic growth.

One of the problems of economics is that people like to believe there is only one cause and one effect — although most sophisticated economists do not believe that — such as that devaluation causes inflation. However, devaluation in those two countries operated in parallel with low inflation and high economic growth. It is nonsense to suggest there is one rigid currency valuation which can optimise our performance for the rest of time. We are sacrificing any right to use the value of our currency as a lever or to use domestic interest rates to determine or affect the value of our currency.

I do not know whether that is good or bad, and I do not believe anybody else knows. Nobody can foretell the future. There are no tools available for economic forecasters to foretell the future. There are very sophisticated computer models which predict what the future will be if certain things happen; however, one cannot foretell whether those certain things will happen.

I wish to put on the record, in case somebody might want to engage in this debate, the much quoted ESRI report on the economic implications for Ireland of economic and monetary union. It forecasts the possible implications for Ireland of a number of scenarios. It forecasts that if Ireland joins EMU and the UK stays out, our membership will have a net benefit of 0.4 per cent of GNP. That benefit rises to 1.4 per cent of GNP if Britain enters EMU. I invite any member of the economics profession to explain to me from where that precision came.

The same report, which happily forecast a net benefit of between 0.4 per cent and 1.4 per cent of GNP, said, in the middle of 1996, that gross national product would grow in 1996 by 5.5 per cent. GNP actually grew by 6.75 per cent in 1996. Therefore, while it was wrong in 1996 about economic growth by a figure of 1.25 per cent, it is quite happy to forecast, with all the uncertainties, that our GNP will benefit from EMU by between 0.4 per cent and 1.4 per cent in four years' time. It is true that if its assumptions, model and computer are correct that is what would happen. However, it is no more real than my Granny's guess about what might happen in five years.

The ESRI does not know. It was out on its forecast for economic growth for 1996 by a factor of approximately 20 per cent. In 1996 it forecast a growth rate for 1997 of only 4.5 per cent. Nobody, not even the Central Bank, believes it will be less than 7 per cent while some think it will be closer to 8 or 9 per cent or even 10 per cent, which would be twice the growth rate which most economists believe the economy is capable of without generating massive inflation. If our most eminent economic forecasters can be out by a factor of close to 100 per cent on what the economy will do in 12 months time, what weight can be given to figures such as 0.4 and 1.4 per cent of GNP?

The problem is that we do not know where we are going. Given the assumption that we are going somewhere, we know that if we do not go in the direction on which we are now embarked the consequences could be profoundly serious. We do not have the option of not joining, but that does not mean it is the best option or that what was negotiated is the best deal.

Senator Connor believes that the UK Government will join on time, which is unlikely. Many believe it will join inside two or three years, which is possible but improbable because it will have to make a decision to join following which there will be political and economic reasons it may not. For example, the opposition in the UK will oppose it. We could be left, therefore, with the long-term position where Newry would become perhaps the only place within the EU where citizens in Ireland would have to change their currency. It would be a profound psychological barrier to introduce at a time when we are trying to begin the process of drawing the two parts of the island closer, at least in terms of understanding.

There is a peculiar putting the cart before the horse logic here. One would have thought that an attempt would have been made to ensure that banking and political structures and tax rates would have converged into a generalised European model after which we would move towards a single currency. This would include a form of agreement on political structures, a government to which a central bank could be accountable and a parliament towards which a government could be accountable. I do not advocate these measures but they would appear to be the logical way to build the structures on top of which a single currency would have a logic to it.

However, we have limited political structures, including a virtually powerless European Parliament, a EU Council of Ministers which has a degree of unwieldiness, secrecy and lack of accountability which is undemocratic, and a EU Commission which is accountable to nobody. In the middle of this we are going to plant a European Central Bank which will be more independent than the US Federal Reserve and our own Central Bank and which will operate a policy which it believes is best in terms of the views of central bankers.

If previous Governors of our Central Bank had been listened to, especially in the 1980s, we would have decimated our education system because they would have advocated that too much money was being spent on education in a time of economic crisis. That would have meant that we would not have the educated workforce which is now the basis of our economic growth. We are now handing over extraordinary powers to people without any political accountability.

I do not understand why we do not discuss these matters. We are stuck with the arrangements, but the implications are enormous. It probably amounts to the single biggest change in our capacity to exercise sovereignty since 1921 and we are apparently doing it because it will be easier for tourists to change their money when they travel to Lourdes or wherever.

Nobody is sure what a European Central Bank will do about interest rates. There is a theoretical possibility that they will drop in terms of a convergence towards German rates, but German rates are now increasing. If they increase further and we are forced to follow them what benefit is there? There may be a little more stability, but we do not know.

We are creating a large and dangerous experiment to fulfil a political agenda. It is as if we could not agree on political and democratic structures but were determined to agree on a single currency. The big concern is with what will happen when there is what economists call an asymmetric shock — when something happens in Europe which especially affects this country. For example, if there was an outbreak of a disease which was worse than the BSE crisis and a largely agricultural country such as ours lost all its production, we would find that bankers in Frankfurt would not allow us to take common sense measures. There needs to be a serious revision of the terms of convergence and the stability pact to allow for such possibilities.

Europe is not yet a single market and asymmetric shocks will be part of its experience until the market is integrated. It is daft to impose constraints which are based not on reality but ideology. The future job of the Government is not to take us out of EMU, nor to prevent us from joining, but to deal with problems and negotiate space for us based on our peripherality, on our extraordinary growth rates and on our need to be able to respond to things that may affect us uniquely in the future.

Minister of State at the Department of Finance (Mr. Cullen)

I thank all who contributed to this important debate. I was reminded of the days I was happy to be a Member of this House. Anybody who underestimates the quality of debate here is making a serious mistake. I do not mean that in a patronising way. I also thank Senators, especially my good friend, Senator Finneran, for their warm welcome.

Practically all speakers raised the question of Ireland participating in EMU in the absence of the UK. First, everybody is aware that it was always a possibility that not every country was going to participate in EMU and there was never an expectation that this would be the case; second, the UK negotiated an opt out from the Treaty with regard to EMU and, third, the Maastricht Treaty received endorsement in Ireland without qualification, provision or opt out. Once we meet the qualifying criteria we are obliged and honour bound to participate.

A number of reports have been published and several Senators, including Senator Brendan Ryan, whom I welcome back to the House, mentioned the ESRI publication. Many people were disappointed when he lost his seat some years ago and he has regained his rightful place because he was always a good contributor.

While it is not for me to comment directly on the internal machinations of the United Kingdom Government, we had to focus on ensuring that Ireland met all the criteria for participation in the first round of monetary union. As the Minister for Finance, Deputy McCreevy said earlier, it is worth noting that irrespective of whether we join EMU, the criteria have been good for Ireland. We can see the benefits of the disciplines it imposed. The latest negotiations indicate that a second ERM will evolve with regard to monetary union and the relationships which will exist at that stage. There is a desire in all member states for convergence and the maintenance of stability. That is very much in the interest of the participants in EMU but also of countries which may not join initially in terms of their internal needs, price stability and their relationship with the euro.

From an Irish perspective, I am pleased Senators raised the issue and it is correct that it should be tackled. However, we should not necessarily spend all our time concentrating on it because it is a matter for another country. On balance, the conclusion is that once Ireland is ready for monetary union, it should participate. As Members are aware, this is a view I have always held. It is also the Government's view and given the current performance of the economy, we could and should look forward to it with a degree of confidence as one of the leading countries in the EU.

Senator Taylor-Quinn and others referred to euro notes and coins. They will not be introduced until late 2001 or perhaps early 2002. The final date has not been set but that is the timeframe involved. The Senator also raised the issue of borrowings in foreign currencies but I take the opposite view in terms of the effect of EMU. The Senator said the removal of the option of countries such as Ireland to borrow in foreign currencies will force them to consider using dollars and yen. However, that is not the case. One of the central points of monetary union is that it will allow countries to avoid borrowing in foreign currencies. It will create stability in a one currency unit and avoid the main problem of exchange rate risk. Countries such as Ireland and others which currently borrow in DM will be able to borrow in one currency and avail of lower interest rates, which is one of the reasons countries seek to borrow in other currencies, particularly the DM. When countries join EMU, it will eliminate the need for foreign borrowings.

Senator Finneran and Senator Dardis focused particularly on the issue of information for small retailers and in the marketplace. As Members are aware, Forfás is involved in this area and has established a group which includes representatives of RGDATA and the vintners' association. Forfás constantly monitors and responds to concerns and groups are also well represented in IBEC. In addition, in excess of 25,000 information packs were distributed.

Much information is available and people watching developments on EMU from a business point of view do not have to wait for somebody to arrive at their doors and tell them what is happening. If one is in business, there is plenty of information available on computer systems and for the price of a telephone call. This does not mean the State and its agencies will not play a role in this area but everything does not happen on one side of the fence. I advise companies to use modern technology and communications to access the huge range of information.

Senator Quinn raised the dual circulation of Irish currency and the euro and he mentioned a timeframe of six months which he thought was too long. However, six months is the maximum rather than the minimum timeframe. The general view is that most countries wish to achieve the move from their currencies to the euro in less than six months. This will be a matter for individual Governments but Ireland is anxious to move from the IR£ to the euro as quickly as possible when the changeover occurs.

Senator Dardis raised the changeover period and the issue of the euro being used to raise prices. The Commission is concerned about this matter and is studying it intensely. It has produced reports on various aspects, such as dual pricing and how it will work where national currencies and the euro are in circulation at the same time. The situation is being monitored and countries are aware of it. Those of us who are old enough remember when decimalisation was introduced and the effects it had at that time. Lessons were learned although the position is not exactly the same in terms of EMU. However, there will be ongoing monitoring and preparation in this area.

Other questions were raised regarding information about the changeover for small and medium size enterprises. The comments I made earlier also apply in that regard. A point was raised about how Ireland's trade has evolved with the UK. Our trade with the UK, as a proportion of our total trade, fell from 41 per cent in 1983 to 29 per cent in 1996 and Irish exports to the UK, as a proportion of total exports, declined from 36.9 per cent in 1983 to 24.8 per cent in 1996. Much of that is due to the fact that our exporters, including overseas investors in the context of international companies in Ireland and indigenous companies, have developed new markets. There has been a happy redefining of our markets within Europe. The proportion of our trade with the UK is high and it will always be so because it is our nearest trading neighbour. If that were not the case, we would perhaps have other concerns. However, it is at a more realistic level in the totality of our exports, particularly to European markets.

Senator Connor and I soldiered together for some time on the Select Committee on Finance and General Affairs and we know each other's views. I am sure he is aware that it is not my place to predict or comment on whether other member states meet the criteria for EMU.

Mr. Connor

That is a pity because it affects us.

Mr. Cullen

The Senator would probably fall out of his chair if I went down that road. My colleagues in the Department of Finance would also be shocked so I will not do it.

Mr. Connor

That is regrettable.

Mr. Cullen

It would be unhelpful and premature for me to do so. In terms of Ireland's position, we must concentrate on maintaining our commitments under the various headings and subheadings to achieve the most harmonious transition to monetary union. If we do that, we will be in a strong position to take up all the opportunities available to us as a participant in monetary union. In that regard, it is important to point out that we should look at monetary union more strategically and at the opportunities it presents, and not focus exclusively on the operational aspects of it. It is important that we see both the wood and the trees on this occasion and seize these opportunities.

There was much discussion on the role of the European Central Bank and Members made valid comments. It is important to bear in mind that the basis of the European Central Bank and its primary objective will be to maintain price stability. For this and other economies which will become one great economy as monetary union moves to establish it, that underpinning will be necessary for the maintenance of growth which exists in our economy. The president of the ECB will be answerable to the European Parliament but that is only one element. The President of the Council of Ministers will have hands on involvement in this area as will a member of the governing council of the ECB but they will not have a vote. The president of the ECB will be invited to participate in meetings of the Council of Ministers. Those mechanisms will make clear the thinking of the main players in terms of their national views on how the European economy is doing and what mechanisms or otherwise may be needed in the context of maintaining the pace of growth in Europe.

However, we want independence. Neither I, nor this country want the European Central Bank to be answerable to one part of Europe. It must be independent of political interference but be aware of the developing European economy. A balance has been struck in the way in which it is anticipated it will operate. As the situation evolves and changes, that relationship will be enhanced and looked at if necessary.

I hope I have responded to the points Members raised. This is an important debate and I expect, as time progresses, to be back in the Seanad to discuss this topic. While it is important to keep on top of this issue and keep the points of greatest concern under constant consideration, we should move forward with confidence as we have achieved much. Senator Ryan looks forward with great uncertainty, but we may take great strength from the progress we have made. There is much to engender confidence within us about the future rather than focusing on the minutiae of point something of a percentage of figures. Overall, Ireland has done well and is performing extraordinarily well. This Government will ensure that continued strong performance and will not want to see anything hinder that growth and advancement in a European context.

An Leas-Chathaoirleach

When is it proposed to sit again?

Mr. Finneran

At 2.30 p.m. on Wednesday, 22 October 1997.

The Seanad adjourned at 4.5 p.m. until 2.30 p.m. on Wednesday, 22 October 1997.