Thursday, 2 July 1998
Seanad Éireann Debate
Minister for Finance (Mr. McCreevy): The impetus towards EMU is gathering pace. As the House will be aware, over the weekend of 1-3 May the Heads of State of Governments of the EU member states confirmed that 11 member states qualify to join EMU and adopt the euro from 1 January 1999. Ireland is one of the 11; the others are Belgium, France, Germany, Italy, the Netherlands, Luxembourg, Portugal, Finland, Austria and Spain.
Over the same weekend, as was widely expected, ECOFIN Ministers announced that the current ERM bilateral central rates will be used in determining the irrevocable conversion rates on 1 January 1999. This announcement provides a clear message to the markets and will assist financial market stability in the run up to EMU. The decision to use ERM central rates is consistent with economic fundamentals and the sustainable convergence of the member states concerned. I am satisfied that, after the revaluation of the IR£'s ERM central rate on 14 March last, the economy is well placed to participate in EMU from the outset.
Indeed, Ireland faces into EMU from a position of economic strength, very strong growth, rapid employment creation, moderate inflation, a budget comfortably in surplus and a rapidly declining debt ratio. The launch of the euro presents us with a historic opportunity to build on the economic and social progress we have achieved over recent years by promoting accelerated economic convergence and integration of the economy with our EU partners. Furthermore, economic recovery is becoming well established in Europe strengthening the opportunities which EMU presents.
Confirmation of the member states qualifying for EMU and the pre-announcement of the bilateral exchange rates to apply from 1 January 1999 was followed by the establishment of the European Central Bank. Obviously, the ECB will have a crucial role to play in ensuring the ongoing success and stability of the euro. With these historic events so recent, it is appropriate that we should now discuss the Economic and Monetary Union Bill, 1998. This is the third Bill containing provisions relating to EMU and the euro to come before the House this year.
The Central Bank Act, 1998, provided for the compatibility of Central Bank legislation with Articles 107 and 108 of the Maastricht Treaty, while the Finance Act, 1998, addressed taxation issues relating to the introduction of the euro. This Bill, as promised in the national changeover plan, is designed to provide for the other changes in monetary law and other changes necessary for the introduction of the euro.
 While the Bill is generally technical in nature, it nevertheless marks the historic nature of the decision to enter EMU by declaring that, by virtue of the relevant EU regulation, from 1 January 1999 the euro is the currency of the State. We consulted widely in the preparation of the Bill, and I want to put on record my appreciation to all the organisations involved in that consultation, including those represented on the Euro Changeover Board of Ireland, for their valuable contributions.
Any consideration of the provisions of the Bill must take as its starting point the legal framework which has been set down at EU level for the use of the euro. Accordingly, I will outline this legal framework. I will then describe the provisions of the Bill before dealing with a subject in which I know Senators take a keen interest, the practical preparations which are in train for the changeover to the euro.
Two EU regulations together comprise the EU legal framework. The first is Council Regulation 1103/97 on certain provisions relating to the introduction of the euro which was adopted by the Council on 17 June 1997. This regulation provides for continuity of contracts and other legal instruments and for the technical rules, including rounding rules, for conversions between participating currencies and the euro. It also provides that, from 1 January 1999, the euro will replace the ECU at a rate of one to one.
The second regulation is Council Regulation 974/98 on the introduction of the euro which was formally adopted on 3 May 1998. This regulation provides that, from 1 January 1999, the euro will be the currency of the participating member states and sets out the rules governing the three year transitional period which begins on 1 January 1999 and ends on 31 December 2001.
During the transitional period, national currencies will continue to exist as subdivisions of the euro and since euro notes and coins will not be available until 1 January 2002, all cash transactions will remain in national currency. Until then, the principle of “no compulsion/no prohibition” will apply, whereby economic agents will be free to use the euro but will not be compelled to do so.
During the transitional period, unless parties agree otherwise, contracts and other legal instruments denominated in national currency will continue to be performed in national currency, while those denominated in euro will be performed in euro. However, the regulation contains an important provision about payments made by crediting an account. It provides that where a payment can be made by crediting an account, a debtor may pay either in euro or in the national currency of the member state where the creditor has his or her account.
The payment must be credited by the financial institution to the account in the denomination of the account, that is, whether it is in the national currency or the euro. Therefore, a payment in euro credited to an IR£ account in Ireland will  automatically be converted into IR£s and a payment in IR£s credited to a euro account in Ireland will be converted into euro.
In addition, the regulation provides that member states may take measures for the redenomination of debt into euro and for redenomination of the unit of account of organised markets, for example, stock markets, and of payment systems. Section 23 of the Bill contains measures relating to the redenomination of debt.
Council Regulation 974/98 also deals with the final changeover to the euro, which will take place from 1 January 2002. From that date euro notes and coins will be put into circulation and will be legal tender across all the participating member states and references in contracts and legal instruments to participating currencies will be read as references to the euro at the relevant conversion rate. Thus, on 1 January 2002 the legal changeover will be complete and all IR£ denominated bank accounts, laws and contracts will be read as if they were in euro according to the conversion rate.
Mr. McCreevy: This was debated at length on Committee Stage in the other House. There is provision in the Bill to allow it to be shortened but it cannot be said at this stage whether that will happen.
The EU legal framework comprises the core monetary law of the euro area and the two regulations are binding in their entirety and directly applicable in Ireland. However, some national legislation is still necessary, both for the sake of clarity in national law and to avail of options in the legal framework, and that is essentially the purpose of this Bill.
I should mention at this point that the heads of the Bill which were circulated for consultation to interested parties last March contained a more extensive reflection of the terms of the EU legal framework than is now in the Bill. However, the European Monetary Institute, in its opinion on the heads, expressed a legal concern about such an approach as EU regulations have direct effect in national law. Accordingly, the Bill now adopts a narrower approach, essentially declaring that by virtue of Council Regulation 974/98, from 1 January 1999 the currency of the State is the euro and the Irish pound is a subdivision of it. The EMI accepted the need to refer in national legislation to the lawful currency of the State.
The EMI's opinion also raised some other points which have been reflected in the Bill, notably as regards two imperfections in Central Bank legislation which were raised in its legal convergence report in March, and the desirability  of a reference to the fact that DIBOR — the Dublin Interbank Offered Rate — will be replaced from 1 January 1999 by EURIBOR — the Euro Interbank Offered Rate. The EMI also offered some valuable drafting suggestions which have been taken on board.
As I have already said, the Bill declares that, by virtue of Council Regulation 974/98, from 1 January 1999 the currency of the State will be the euro and the Irish pound will be a subdivision of it. Second, the Bill removes incompatibilities between Irish monetary law and the EU legal framework for the use of the euro; it also recognises the role of the European Central Bank as regards the issue of notes and as regards the volume of coins to be issued. Third, the Bill stares that as of 1 January 1999, DIBOR will be replaced by EURIBOR. Fourth, the Bill makes provision in relation to the redenomination into euro of outstanding Government debt.
In addition, at the request of the Tánaiste and Minister for Enterprise, Trade and Employment, I have included three provisions relating to the redenomination of company share capital into euro. These provisions will facilitate companies which wish to redenominate their capital structure into euro before 1 January 2002. Finally, the Bill provides for the design, issue and sale of commemorative legal tender coinage.
I now turn to the specific provisions of the Bill. Sections 1 to 4 contain standard provisions as regards short title and commencement, interpretation, expenses and the laying of regulations and orders before the Oireachtas. Section 5 is a definitions section.
Section 6 declares that, by virtue of Council Regulation 974/98, from 1 January 1999 the currency of the State will be the euro and the Irish pound will be a subdivision of it. In so doing, it amends section 24 of the Central Bank Act, 1989, which defines the Irish pound as the monetary unit of the State. The section also amends the statement in the Decimal Currency Act, 1969, that the Irish pound and penny are the only legal denominations of the currency of the State, because obviously that will no longer be true with the advent of the euro.
Section 7 declares that contracts may be denominated in euro during the transitional period by virtue of Regulation 974/98, despite the fact that euro notes and coins will not be in circulation. This provision overrides section 25 of the Central Bank, 1989: briefly, that section requires contracts to be either in legal tender or in a currency other than the currency of the State. As the euro will be neither during the transitional period, it is necessary to override the 1989 Act provision.
Sections 8 to 14 deal with legal tender and legal tender amounts, and with the provision and issue of euro coins and their costs and proceeds.  Section 9 gives the Minister for Finance power to set a date for the withdrawal of legal tender status from Irish pound notes and coins before 30 June 2002. It is too early to set a date for withdrawal of legal tender status, so the section gives the Minister power to withdraw that status by order. An order under this section must be laid in draft before each House of the Oireachtas and will require a resolution of each House to approve it before it is made.
Section 10 provides that no one other than the Central Bank and persons designated by ministerial order will be obliged to accept more than 50 euro coins in any single transaction. Article 11 of Regulation 974/98 sets this general limit of 50 coins. Section 10 also provides for the repeal, from the date of withdrawal of legal tender status from Irish pound notes and coins, of the present rules about legal tender of coins.
Section 11 empowers the Minister for Finance to provide and issue euro coins and to set out by order their technical specifications, subject to the requirements of the Maastricht Treaty. The Treaty provides that the specifications of euro coins must comply with the technical specifications which the EU Council of Ministers lays down. It also provides that the issuance of such coins will be subject to the approval by the European Central Bank of the volume of issue, as will issuance of commemorative coins provided under Part III of the Bill.
Section 12 provides for protection against counterfeiting for coins — including commemorative coins — issued under this legislation, and for euro coins issued by other member states. Sections 13 and 14 deal with the costs of providing, and the proceeds of issuing, euro coins.
Chapter IV of Part II of the Bill, sections 15 to 19, deals with the calling in and redemption of notes and coins. The expression “to call in” means to demonetise or put out of currency. Redemption involves the replacement of notes and coins by giving value for them by the issue of other coins or of currency notes, or by crediting their face value against an account at the Central Bank.
Sections 15 and 16, respectively, provide for the calling in and redemption of coins issued under this Bill, and euro coins issued by other participating member states which will be legal tender in Ireland. In addition, section 15 limits the Minister's calling-in power by requiring the consent of the European Central Bank to any order under that section relating to matters within its competence.
Section 17 extends the existing prohibition on melting down of coins to include coins issued under this Bill and euro coins issued by other participating member states which will be legal tender in Ireland.
Section 18 provides that the Central Bank may continue to redeem Irish pound notes, even after they have ceased to be legal tender. Section 19 provides that the Central Bank must have the  authority of the European Central Bank to call in notes.
Sections 20 to 30 are a miscellaneous collection of sections. The main provisions in them relate to the substitution of EURIBOR for DIBOR, redenomination of debt and redenomination of company share capital.
Section 20 amends section 57 of the Copyright Act, 1963, to reflect the copyright of the European Central Bank in relation to euro notes, and the copyright of the Minister for Finance in relation to the national face of euro coins issued under Section 11. As Senators will be aware, euro coins will have a national face: in our case the national face will show the 12 stars of the EU flag, the year, the harp and the word “Éire”.
Section 21 allows the issuing authority for statutory forms which contain references to sums in Irish pounds, or which are designed to accommodate references to such sums, to change the forms, or allow them to be changed, to show also the corresponding amounts in euro or to accommodate references to sums in euro.
Section 22 states that from 1 January 1999, the Dublin Interbank Offered Rate — DIBOR — will be replaced by the Euro Interbank Offered Rate — EURIBOR. A statement to this effect has already been made in the national changeover plan.
Section 23 governs the arrangements for the redenomination of tradeable debt instruments during the transitional period. The transitional period runs from 1 January 1999 to 31 December 2001. Section 23 also contains certain provisions for facilitating the redenomination of the non-tradeable debt of State bodies.
All the member states that will participate in EMU, including Ireland, have indicated they intend to redenominate their “own currency” tradeable debt instruments in the first week of 1999. For Ireland, it is particularly important to redenominate our domestic currency debt into the euro as soon as it becomes feasible. We will be a small issuer in a large euro bond market, so we will need to ensure the liquidity and attractiveness of our bonds from the very outset to secure our place in that market.
Obviously, the markets should be crystal clear as to how bonds and Exchequer notes issued by me, or by the National Treasury Management Agency on my behalf, will be redenominated. It would be inappropriate to use primary legislation to this end, so I intend later this year to issue an order under section 23(1) which will set out the method of redenomination.
In that order I will be specifying what is called a bottom up method of redenomination. This is designed to redenominate the debt with the least possible inconvenience to bond holders, the NTMA and the Central Bank. The bottom up method simply involves changing the denomination of each individual holding of a bond using the conversion rate, and issuing or withdrawing small amounts of that bond to ensure that the sum of the individual holdings of the bond will  equal the euro value of the total Irish pound amount of the bond.
I understand the NTMA has no current intention to redenominate Irish Government debt issued under the law of another participating member state and denominated in currencies to be replaced by the euro. If circumstances arise in which it might be necessary or desirable to redenominate this debt, subsection (2) provides that the method used should comply with the law of the member state which governs the debt in question. The NTMA will, of course, be keeping the question of redenominating this category of debt under active review.
I am also providing in subsection (2) that, where other issuers of tradeable debt choose to use the method envisaged for redenominating Government debt which I will set out in the order I will be making later in the year, they will have the authority of law to do so unilaterally: use of any other method will be subject to the applicable contract.
Finally, section 23(3) has been included to facilitate the redenomination of the non-tradeable debt of State bodies. Essentially, my aim in that subsection is to remove a potential administrative obstacle to such redenomination.
Sections 24, 25 and 26 have been included at the request of the Tánaiste and Minister for Enterprise, Trade and Employment. They are designed to set out how redenomination of company share capital will be effected when, on 1 January 2002, references to national currencies in legal instruments are to be read as references to the euro at the conversion rate. They also provide a mechanism whereby companies wishing to redenominate their share capital into euro during the transitional period will be able to do so.
To redenominate or redenominalise its share capital during the transitional period, a company will have to have the necessary resolution passed by its shareholders. The redenomination must occur at the level of the total share capital authorised or issued, or at the level of the total class of share. The individual nominal share par value will then be determined by dividing the redenominated amount by the number of shares involved, and the nominal share par value will be expressed in an unrounded amount.
Many companies are likely to want to express their nominal share value in even euro amounts, and section 26 will facilitate such companies. It deals with situations where the renominalisation involves an increase in capital, as well as situations where it involves a decrease. If an increase is involved, use may be made of distributable reserves or the introduction of additional capital, while if there is a decrease, an amount equal to the decrease — which cannot amount to more than 10 per cent of the reduced capital — will have to be paid into a fund to be known as a capital conversion reserve fund. In essence, where the renominalisation involves a decrease in nominal value, the actual total amount of the  company's capital will remain unchanged, but will be expressed in different ways.
Renominalisation in this way will be available during the transitional period and for an 18 month period after the end of the transitional period. After that, companies wishing to adjust their capital will have to operate under the existing company law provisions.
Sections 27 and 28 relate to two legal imperfections which were identified by the European Monetary Institute in its assessment of Ireland's legal convergence in March 1998. I undertook to address these imperfections at an early date and these two sections do so. Section 27 amends section 134 of the Central Bank Act, 1989, to confirm that the Minister for Finance's ability to suspend certain transactions in the national interest under that section will be without prejudice to the performance by the Central Bank of any function, duty or power required under the Treaty or the Statute of the European System of Central Banks — the ESCB.
The second imperfection identified by the EMI is dealt with by section 28, which amends sections 10 and 13 of the Central Bank Act, 1997, to confirm that the requirement that the Minister for Finance's consent be obtained before the Central Bank refuses to approve the rules of a payment system or subsequently revokes such approval will not extend to the ESCB related activities of the Central Bank.
Section 29 empowers the Minister for Finance to make regulations for enabling Part II of the Bill to have full effect. Sections 30 to 34 provide for the design, issue and sale of commemorative legal tender coinage and for the cost of their provision and the proceeds of their issue, and applies the Copyright Act, 1963, to them. Commemorative coins have been only a rare feature of Irish coinage over the years but essentially the Bill codifies the practice which has been followed up to now in relation to the issuance of such coins when it has occurred.
Regarding practical preparations for the changeover to the euro, Senators will be aware that in January I published the second edition of the national changeover plan. This sets out the arrangements that will be made by the public sector, the banks and building societies and the Irish Stock Exchange for the changeover to the euro. It also contains an appendix which describes the changeover work being done by various public and private sector bodies and lists contact points for further information. I aim to publish a third edition of the plan in the run-up to the start of EMU.
On 5 May 1998, I established the Euro Changeover Board of Ireland, which has two tasks: to oversee the implementation of the changeover to the euro and to provide public and consumer information about it. In early June I launched an information campaign by the board aimed at the general public. This included an information leaflet which is being distributed to all households  and an advertising campaign on television and radio and in the print media.
Regarding information for business, Senators will be aware of the excellent information pack which has been prepared by the Forfás Business Awareness Campaign. Over 35,000 copies of this pack have been circulated. In addition, over 80,000 copies of a short brochure summarising the key issues for small and medium enterprises have been distributed by Forfás, while over 140,000 copies of a summary leaflet about EMU and the euro have been distributed in conjunction with the Revenue Commissioners. Forfás has also organised two radio advertising campaigns offering businesses the opportunity to phone a dedicated euro-line for information.
The campaign has conducted two surveys on awareness and preparedness levels in the enterprise sector — a benchmark survey in June 1997 and a follow-up survey earlier this year. The surveys were conducted among 600 businesses and reflect the broad structure of Irish industry. Overall, small and medium enterprises — that is, businesses with less than £1 million in turnover — are less well prepared for EMU than larger firms. However, the more recent survey results indicated a greater level of awareness among small and medium enterprises. The message for all companies remains the same: if you have not already begun to prepare, then you should start immediately.
I would also point out that as well as the Forfás campaign, many other organisations such as the banks, the accountancy profession and also the representative organisations of business are also providing information and advice on the changeover to the euro.
EMU and the changeover to the euro will require much preparation across the economy. This Bill, while generally technical in nature, represents an important third step, after the Central Bank Act, 1998, and the Finance Act, 1998, in our domestic legislative preparations for the introduction of the euro. Indeed, it marks a historic change in our monetary law by declaring that from 1 January 1999 the euro is the currency of the State, as well as providing for redenomination of debt into euro and facilitating the redenomination and renominalisation of company share capital.
There is a matter related to section 27 to which I wish to draw the attention of the House. Section 27 (b) substitutes a new subsection for subsection (7) of section 134 of the Central Bank Act, 1989. Where such substitutions are made in legislation, it is usual to insert the subsection number in the text of the new subsection. In other words, on page 16, line 3, it would be usual to insert, after the double quotation, the number (7). This is the usual practice followed, and it is only due to a clerical omission that it has not been followed in the present text. Accordingly I wish to ask the Cathaoirleach to direct the Clerk of the Seanad to make a versional change, under Standing Order 103, to page 16, line 3, by inserting, after  the double quotation marks, the number 7 in brackets. I stress that this is not a substantive change.
Mrs. A. Doyle: I welcome the Minister and the Bill. During the debate on the Central Bank Bill Members spoke about EMU so I will be relying on my contribution on that occasion, lest anyone think I am plagiarising someone else.
An ESRI study published in July 1996 and a NESC report entitled “EU Integration and Enlargement” both concluded that, on balance, membership of the EMU would be advantageous for Ireland even if the United Kingdom did not join, and that our strategic interest lay in full economic and monetary union. The ESRI conclusions stand up two years later and, according to one of its editors, Mr. Terry Baker, the risks of EMU are now considerably lower than they were in 1996. There are several reasons for this — the strengthening of our public finances, an increase in participants, a massive appreciation in sterling and a major policy change by the UK Government in favour of eventual membership of EMU. Last October the UK Chancellor, Mr. Gordon Brown, said:
He concluded by saying the people will have the final say in a referendum. I refer specifically to the statements by Chancellor Brown and the Prime Minister Tony Blair because one of the great down sides regularly quoted for some years in relation to joining the single currency has been the risk of sterling shock and Britain's failure to join EMU. These issues are mentioned in the context of our dependence on the UK market and our historic links with sterling. One does not have to travel too far beyond these shores to find that most economic commentators effectively consider we are linked with sterling, albeit not officially, in the context of our economy, trading patterns and markets. As such one of the biggest concerns, which is quite legitimate, is that while on balance it is right for us to join, sterling will  be outside EMU. We must measure and understand as carefully and as well as possible the implications of this and how things will pan out in future.
I referred to the fact that the British Chancellor set out a series of tests which Britain would use to measure when it was ready to enter EMU. On discussing the Central Bank Bill I alluded to these tests, which I found extremely helpful in concentrating my mind on the issues and the negatives and positives. There is much I could say for and against EMU if asked to do so. Like many politicians on many issues, we can field arguments on both sides.
The primary reason for Britain not entering, and conversely one of the reasons we have — although I am not sure about this — is the lack of economic convergence. I do not wish to be facetious in suggesting that we must carefully examine this issue as the argument is equally applicable here. Many eminent economists, including Chris Johns of Allied Irish Capital Management Limited, support this approach. The British Treasury measures the difference between the actual and potential output of the economy to compare economic cycles vis-à-vis general economic convergence in Europe. Terry Baker of the ESRI commented on this to the effect that the divergence in economic cycles between Ireland and Germany or France is clear from both growth and interest rates, whatever measurement is used. According to the latest EU figures, our economy will grow by between 7 per cent and 10 per cent this year while Germany's will grow by approximately 2.5 per cent and France's by between 2 per cent and 2.3 per cent. The economic cycles are completely out of synch. Our short term interest rates are approximately 6 per cent, compared to 3 per cent in Germany. Economic and monetary union will mean monetary policies, therefore, which suit Germany and France but which may not be appropriate to us. This is one of the nubs of the matter.
I was interested to read a comment attributed to Mr. Wim Duisenberg, the new president of the European Central Bank, in relation to this issue. In no uncertain terms he made it quite clear that monetary policy in general will be dictated by the larger economies in Europe, namely, France and Germany. He said “because the economic weighting of France and Germany in the Euro zone was high, it would be appropriate for interest rates to converge at a low point”. Either we can expect German interest rates to increase slightly between now and the end of the year, something which seems unlikely according to economists — I take their word for it as I do not have the experience to assess the matter for myself — or rates here to be reduced by 2 per cent. A reduction of 2 per cent in interest rates must impact on our growth and economy and the issue of over eating and inflation must be debated. On the other hand, we can look to the  US where the economy has had low inflation and high growth.
This area, which provided the bible of many economists, appears to need urgent rewriting in terms of interpretation. It is very hard for a lay person in economic matters such as myself to know whom to listen to. There was a time when a drop of 2 per cent in interest rates and the spin off growth almost automatically equated with inflation and overheating. We are now being told this need not be so. I would like the Minister to give assurances in relation to the potential impact of a 2 per cent drop in interest rates by Christmas, something the Taoiseach confirmed would happen. On what basis can we reassure those concerned about the economy that this will not automatically result in overheating and inflation? What are the Government instruments which will ensure we take the path of the US in recent times, making it is possible to have a growth rate, low interest and a non-inflationary economy? This area, which needs to be repeatedly examined, together with the possibility of sterling shock, have been rightly brought to our attention by serious commentators.
Some prominent commentators have stated that EMU will mean monetary policies which suit Germany and France but which will not necessarily be appropriate to us. It will mean we will have to operate with interest rates which may be too low for the particular point in the economic cycle at which we find ourselves.
The second test applied by the British Treasury in considering the issue of economic and monetary union was whether it was flexible enough to deal with unforeseen economic shocks once it had ceded its ability to control monetary policy to the European Central Bank. This issue was addressed by the ESRI in its 1996 analysis, which has been consistently used by the previous and current Governments to justify entry to EMU. It is an excellent report and I support its conclusions. However, we must not ignore the down sides. As I have previously stated, even those of us who are enthusiastic supporters of EMU must as politicians use a little devil's advocacy to prepare the public for the fact that there will be down sides which cannot be ignored, even if on balance we fully approve of what is being done. The ESRI report concluded that once control of monetary policy was ceded, and following any serious economic shock, it would take three years for prices to adjust and approximately four years for wages to adjust. According to the report, the result of an economic shock would mean Irish firms would become less competitive while some may not be able to survive through the adjustment period. Have we really considered what this will mean? Have the implications been spelt out to the relevant sectors? I have not seen a debate at the level which it should take place.
The level of flexibility in the economy was highlighted as a problem by the National, Economic and Social Council in its analysis. The bodies whose reports are used to justify our moves  contain much information yet to be debated. I ask that we try to have a more balanced debate. It behoves those of us who support EMU to push this agenda.
Peter Neary and Rodney Thom of University College, Dublin, argue that the lack of flexibility makes it unwise for Ireland to participate in EMU if Britain remains outside because of the risk of sterling related shocks. This point has been made for some time and I would like the Minister to comment on it in his reply on Second Stage. It is one of the main points on which those who do not support this particular move can claim some high ground.
An interesting aspect of the whole sterling question is the strengthening of sterling in recent times. From the initial reports published in 1996, to which I already referred, and the position in which we find ourselves today, the Irish pound has gone from parity to 81p today. Sterling will find itself the strongest currency in Europe outside the euro. Many institutions and international investors will use investment in sterling as a hedge against the euro. Sterling finding itself initially outside the euro will be beneficial for the British economy as people use it as a hedge while they monitor the stability of the euro and its progress towards a reserve currency.
Sterling could be used to spread risk and could keep strengthening outside the EMU. Again, I would love to hear the Minister comment on how that will impact on our position, given our markets in the UK and yet being a member of EMU. Sterling will find itself the strongest non-euro currency in Europe. Many south east Asian people, whose fingers have recently been burned by the various shocks on the Asian financial markets, use and will continue to use sterling as a safe haven for investment.
Mrs. A. Doyle: Thank you. We are making an ass of the procedures of the House — I am not criticising the Acting Chairman and ask him to bear with me for one moment — if those of us who are prepared to contribute——
Mrs. A. Doyle: I accept that, but there comes a point when we should realise that we have to do justice to an important debate. The idea of having limited time on speeches is to allow as many people as possible speak, but when I suspect one person at most is offering from each side of the House——
Mrs. A. Doyle: I respect it is not the Acting Chairman's decision and he is merely implementing it. I would like to put my point on the record that the House is behaving as an ass on this matter, with respect to all concerned.
I made reference to the different Treasury tests and basically the reasons Britain is staying outside. I will not have time to go through the other points I wanted to make on that and maybe the Minister in responding to Second Stage could dwell on the whole aspect of sterling being outside, the impact on ourselves of that and on our markets and how it might impact on sterling, because that is extremely interesting in itself.
Mrs. A. Doyle: I will make a few points in no particular order of importance. I ask the Minister to comment on the impact of the crisis in Asian financial circles on the euro and how it is being handled by ECOFIN generally. What are the contingencies there? We had a yen crisis during the week and I was told that will only be second to the problems in Korea. The Japanese banks are  among the largest in the world and are huge lenders not only to its own domestic economies but they have substantial exposure in the US and, indeed, Europe. I would like to know the implications of that for us.
Business preparedness is an area I would like developed. It is a most important issue. Are we satisfied business, particularly small and medium sized enterprises, are awake and up and running in terms of the impact the euro will have on their business, from their suppliers right down to their distribution chain? I am not sure the debate is loud enough. I know some excellent work is being done in certain circles on this, including that being done by Forfás and various other groups in the public and private sectors. However, I have a feeling it is not impacting on those who will need to know.
Will there be further revaluation? In the past few days we read that some economists recommend that we should have revalued more in March than we did and that it is not too late now. Again, I cannot develop that point. Is there any question of a further revaluation of the Irish pound at this stage? It is a most important question. Even to float the suggestion has impacts for financial markets and I would like to know the Minister's thinking on it.
Mrs. A. Doyle: It was with some concern that I read in this morning's papers comments attributed to the Governor of the Bank of Ireland, Mr. Howard Kilroy, at its AGM. I mention in passing that we are talking about the loss to banks in relation to the introduction of the euro — £25 million in profits every year after the year 2002 to the Bank of Ireland. Rather ominously, Mr. Kilroy goes on to say it is hurtful, not life threatening, and that they have plans to replace it. Given the particular climate through which we have lived in relation to charges, interest rates and overcharging and promises to introduce an independent financial services authority — may that come on stream quickly — I ask the Minister what plans might the banks have to replace their losses in this area.
Mrs. A. Doyle: What road are the banks moving down in relation to replacing their losses because of the introduction of the euro and on  the whole exchange rate story in relation to them? I ask the Minister to comment on the changeover period. Six months would be a recipe for chaos. What plans has the Minister in place and how will he assess whether we can move to a three month or a one month period? What are the tests in terms of the length of time of that period?
I thank the Acting Chairman and have stretched his patience further than I should have, but I appreciate it. On the second last day of term and on extremely important legislation, when there are but one or two offering on either side of the House and when in theory we could sit until 8 p.m. tonight, it does not do justice to limit people if they want to continue on this issue.
Mr. Finneran: I am pleased to have the opportunity to contribute to the debate on the Economic and Monetary Union Bill, 1998. As has been said, it is to a great extent a technical Bill and is necessary to put in place the measures which will allow us to change over to the euro on 1 January 1999, but it will not become effective until three years later.
It would be appropriate to say that decisions taken by Government over the past ten years are responsible for the position in which we find ourselves today. Some of the economic decisions taken possibly as far back as 1987 by the then Government and subsequent ones have meant this country is in a position to join with other member states in a single currency. It has shown a progressive approach by successive Governments over the past ten years. It also demonstrates the success of industrial relations over the past ten years. The national interest was put first and we have now converged with the other states of Europe in joining a single currency.
This technical legislation is a a necessary follow on from the Central Bank Act, 1998, which implemented measures required by the Maastricht Treaty. In addition, the Finance Act, 1998, harmonised the taxation position. This is a historic day for the country because we are enacting in legislation our decision to join the single currency.
The public will not be unduly annoyed about the developments leading to the single currency. Ireland is one of the few countries to experience a currency changeover when decimalisation was introduced in 1971. Most people took that in their stride, although some took the liberty to hike prices. Those who remember argue it amounted to a great con job because there was abuse and a levelling of prices. I ask the Minister and his  Department to be conscious of that on this occasion. There should be a watchdog to ensure similar opportunities do not arise. Does the Minister see any difficulties in the period when Britain will stay out of the single currency, especially with regard to our commercial, financial and monetary interaction with Northern Ireland?
Much has been written and said about the European Central Bank. It is said that the larger countries will decide on interest rates while factors affecting the smaller countries, such as Ireland, will not take precedence. Some economists take the view this could be dangerous in a European context. For example, there is free movement of labour in the US. By contrast, in practical terms this is not the case in Europe to any great extent for various reasons, including language barriers. If problems arise in Ireland there are few opportunities for labour to move, other than to the UK. This is not an issue in the US, where people can and do move, Given this, the overall US economy has not been affected by the varying performances of individual states.
What will be the position of the Central Bank and what will happen to its reserves? What will happen to Irish currency replaced by the euro? For example, how would the discovery of a box of £20 notes in 2010 be treated? Would they still be legal tender and, if so, what rate of exchange would apply? Practical problems such as this are likely to arise, especially given the tendency to hoard money in this country.
The public is by and large conditioned to the euro. It is a historic time and it shows us as a mature nation on the move that has taken its rightful place with its partners in Europe. The introduction of this legislation shows where we have come to.
Our decision to join the then EEC in 1973 has brought major benefits and helped the nation to progress in leaps and bounds. The single currency is a further step in the integration of Europe. The Irish people have embraced Europe and have been good Europeans.
I do not like the view that we are recipients from the EU and that we are always extending a bowl to be filled. I do not accept that. For example, the amount taken from our coastline and our seas and put into EU coffers represents a massive amount of money. On balance, it might just equal our receipts from Structural, Cohesion, Social and agricultural funds.
Mr. Ross: I am grateful for the opportunity to speak on this subject for the second time in this House. The more I listen to those in favour of the euro the more strongly I am against it. That is no insult to those who spoke here. Senator Doyle made a speech which was, she said, balanced. She then proceeded to put a very strong case against  the euro and answered it with a very weak case in favour.
Mr. Ross: I would not say it was deliberate, but it was interesting. She said the great argument against us entering the euro, that Britain would not go in, was now countered by statements from the British Prime Minister and the British Chancellor of the Exchequer from which she quoted. However, these left it open for Britain to take a decision which would be in the best interests of the British people; the issue will be decided by referendum there. I suspect a referendum should also have been held on the specific issue of the single currency here. We should have entered into a much greater debate on the issue than has been the case.
There is something very odd about the incredible consensus in favour of the euro in Ireland. It is absolutely unique, even in a situation where we have political agreement on virtually everything, that on the major economic issue facing the country this century, not only are all the political parties in agreement but so too are the social partners. It is incredible that those who, to a large extent, have sold out on the people they represent, such as IBEC and the trade unions, are also agreed on the issue. There does not seem to be any dissenting voice on this issue to which there are two very definite sides. The only two opposing voices I have heard in the Oireachtas are my own and that of the Sinn Féin Member in the Dáil.
Mr. Ross: I am examining the logic of my thoughts. It is very odd that there seems to be an extraordinary consensus on this issue inside the loop of official Irish society although there are some dissenting voices among economists and academics outside it. It may sound arrogant to say it but I believe the reason for that is simple, namely, most people do not understand what is involved. I carried out a written survey among some business people on this issue some time ago. When I asked them if they were in favour of EMU, virtually all of them replied they were. The standard form also posed a number of other questions, one of which asked whether the respondents had considered the implications of EMU on their businesses, to which they all answered no. They did not understand the issue but were told it was an inevitably good thing. That is worrying.
There is a kind of propaganda machine in operation on this issue, led by Europe, the Civil Service and politicians, which seeks to convince  people monetary union is something we must accept. Part of that is psychological because of the extraordinary benefits we have reaped from Europe. There is a feeling in Ireland that everything which relates to Europe is good. Senator Finneran said Ireland does not have a begging bowl mentality. We may not have, but we have been given money on a plate by Europe for many years and seem to think we must be good Europeans in return.
The other reason for the consensus on EMU is a political one. There is still a massive inferiority complex in operation in this country, motivated by our desire to prove we can survive without Britain and our economy is not dependent on the British one. We want to prove we can enter the single currency even when the British do not. The Irish economy is dependent on the British one whether we like it or not. If the British economy was cut off, we would face extremely serious problems and, whatever happens, we will face such problems in Europe because of our relationship with the British economy.
Senator Finneran boldly stated he believed the euro would be a strong currency. Perhaps he should get a job as a foreign exchange dealer. I do not know whether the euro will be a strong currency and neither does anyone else. Whatever happens, Ireland will face difficulties. The Minister will be aware that, because of recent pressures, the weakness of the punt against sterling will put inflationary pressures on the economy which may, or may not, be possible to withstand and may make it very difficult for the Minister to resist wage claims. Alternatively, the Minister may be faced with serious problems from exporters who are currently experiencing a bonanza. When we join EMU, we will have no control over our relationship with sterling and I believe we are cutting off that link mainly for political reasons.
People regularly quote the ESRI and NESC reports. It is very easy to quote economists because they all say different things all the time and one need only choose the view with which one politically agrees. The ESRI report came down only marginally in favour of EMU. We must bear in mind the report is commissioned and paid for by the Government, a fact which calls its independence into question. I do not believe it deserves as much credence as those who take an independent approach to the issue.
The Minister's behaviour on the foreign exchange markets has been absolutely superb. The Opposition's attempt to make him say something foolish about foreign exchanges in the period prior to revaluation was utterly irresponsible and the Minister quite rightly resisted the temptation to do so. He attended the ECOFIN meeting in March and surprised everyone by revaluing the punt. The idea he should somehow have signalled his intentions to the foreign exchange markets in advance of that is possibly the most ridiculous one I have ever heard from any political  party in this country. I hope the Minister continues to behave in that manner until 1 January. After that date, unfortunately, his attitude to foreign exchange will not matter very much because we are giving up the great leverage which many economists say forms the basis of the economic boom we are currently experiencing.
It is impossible to know why the country is experiencing its current boom. There are four or five possible reasons, one of which is that it resulted from the devaluation of 1993. That devaluation may have been forced upon us but there is nothing particularly wrong with that as it is merely market forces at work. However, we are giving away that particular option. Not only are we giving it away, we are giving it to someone else. Senator Finneran acknowledged that interest rates and foreign exchanges would be decided elsewhere after 1 January 1999. Surely, Senator Doyle was correct when she said interest rates will converge and will be set by Germany and France. Those countries will not give two hoots about the Irish economy and have as much as acknowledged that. I visited Frankfurt last week and asked a German banker what would happen in regard to Ireland and interest rates. He acknowledged we would not be in a position to do anything as a smaller country and that interest rates would not be fixed with Ireland in mind but in the interests of Germany and France. The consequences of this are very serious.
I was interested to hear Senator Doyle's comments on rethinking the economic theory in regard to low interest rates and inflation. However, the traditional wisdom is that if interest rates come down, dictated by France and Europe, the economic boom we are experiencing will turn into a furnace and we do not know what the consequences of that will be. It is certain, however, that there will be inflation. If a house can be sold for £6 million when interest rates are 3 per cent higher than in Germany, what will house prices be when the rate is much lower? It makes sense that they will rise in the short term and that will lead to serious social problems.
Economists say different things about what will happen. Some say there will be an inflation-led slump. If inflation does rise as a result of low interest rates, the Minister will be politically unable to resist demands for higher wages. I do not advocate the social partnership in which the Minister believes but I know that if there is a rise in inflation, Governments have to give in to pressure groups and as a result competitiveness suffers. That will mean the end of Irish economic success, a possible slump and a situation where we will have to go back to the French and the Germans and say, “Look what you have done to us. These are the consequences of shadowing your interest rates and of joining the euro.”. They will reply “Hard luck.”.
It would have been easier if we had said we were not going into the euro yet, we do not know if this will work — just like the Brits. We are a sterling satellite, although we will not accept it,  and we should wait, watch the euro and track sterling. Although we positioned ourselves for a fall in sterling at the meeting on 14 March, exactly the opposite has happened. Sterling has, as happens in foreign exchanges, risen although virtually every expert said it would fall in value. It has continued to rise for reasons which could not be anticipated, but one of the lessons of foreign exchange markets is that the unexpected cannot be anticipated. The Bank of England decided it had no option but to continue to raise interest rates against expectations, which had a downside for British industry, to curb inflation. As a result sterling has risen and the IR£ is not in the position in which it expected to be against sterling. That makes life difficult for us.
I fear for the euro. Contrary to what Senator Finneran said, there are dangers that it could be weak rather than strong. I have no strong views on it, but we should recognise that a currency born of a political fudge — countries which do not qualify have been let into the euro, Italy and Belgium are glaring examples — carries the risk that it may sink to the level of the weakest economy. I do not like a State which has been guided so well economically, by this Minister in particular, sacrificing economic independence and prosperity to join a country like Italy which has been governed recklessly. I oppose the Bill.
Ms Cox: I am delighted to welcome the Minister to the House. I read the speech he made to us on 16 October last year and it was interesting to recall what he predicted would happen. Many of the policies have come to fruition and brought us to where we are today.
As we look toward EMU and its implications for Ireland, we should look at the strengths, opportunities, weaknesses and threats. The benefit of involvement in EMU is the initial elimination of foreign exchange risks. This is important for those trading in Europe, the UK and throughout the world. Any reduction in risk will be beneficial to those in business. If the economy is to continue growing, exports will create the wealth and develop the economy. There will be a reduction in cross-border trading costs and that will benefit our competitiveness. A further threat is greater competition and we must be able to match our competitors in Europe and any reduction in trading costs will help us achieve this.
There will be improved price transparency. Now we can arrange holidays by ringing travel agents in Belfast, London or Paris. Goods are bought and sold on the Internet. We will see a greater need for transparency in pricing. At some stage a magazine published in Britain will not cost a pound extra to buy here. The amount of money we pay additional to publication prices in the UK is scandalous. There will be better access to EU markets. It will be easier for those in the EU and abroad buying Irish goods and services if they pay for them in the one currency.
 Senator Ross seems to be under the impression that lower interest rates will mean we will all be buying £6 million houses. I do not know if that is true but I am looking forward to lower interest rates.
Competition will be greater and that is a threat. Irish companies and Irish based foreign multi-nationals thrive on competition. One of the great aspects of our culture is that if there is a challenge we will face it. Competition will focus our minds, making us concentrate on our export market and work on our competitive advantage.
The difficulty of the UK not joining will cause problems, but that is for it to deal with. London is the centre of a large financial services industry and business there will realise it has to come on board. That is a UK decision and it is not for us to dictate its policy.
The UK is a major market for Irish exports but we must change our mindset and stop looking to it as a big brother. There is a much bigger market. People exporting to the UK should be asking where else they can compete. Traditionally we did not look to France as there was a language barrier. There are now better modes of communication. If they join forces and use the various offices and agencies established to assist them, small companies can enter joint marketing initiatives on the Continent and move away from their reliance on the UK market.
Sterling is strong at present and this gives Irish exporters a competitive advantage. Companies in the clothing, textiles, confectionery, food and furniture sectors are exporting to the UK. These companies must prepare contingency plans as they will face problems if sterling falls and our prices in euros increase. It is too easy to sit back in a booming economy and not realise that times will not always be this good. Anyone planning for the future must keep this scenario in mind, particularly those focusing on the UK market.
We have often discussed the actions which must be taken, yet people are still not prepared. Companies do not realise that they must change their invoicing systems as they will be invoicing in euros — during the changeover, they will be invoicing in both punts and euros. This means that software, pricing machinery, cash registers and all systems which are part of the trading process must be changed.
We do not need to worry about the new currency. The euro will become one of the most widely accepted currencies which will result in it being a strong currency. It will help Ireland decrease its dependency on the UK market, which is important for us as a country. Companies need to be aware of the fact that they will have to change the ways in which they do business and deal with customers and suppliers.
The Minister has established a very good awareness campaign and his officials and Forfás are doing an excellent job in sending out information. The Committee on Enterprise and Small Business recently acknowledged that the campaign had been effective; however, it is not effective  enough. Small businesses do not realise what is happening and what effect the euro will have on their operations. There is a need for greater awareness and for people to realise that business is changing. The year 2000 is approaching. In addition, we are going to have a new currency, changing the way in which we do business.
Large firms have committees and managers with special responsibility for handling the changeover. However, people in small, owner-managed companies think that the euro is something happening in the future. The future is getting closer and we must find something which acts as a catalyst to convince small businesses that they must begin to change their software and cash registers and to start invoicing in euros. This is not happening.
The Minister stated that 51 per cent of small and medium sized enterprises perceived that the overall impact of EMU will have a significant impact on their businesses. That figures compares with 33 per cent in 1997. This indicates an improved awareness, but it also highlights the fact that 49 per cent of these enterprises do not perceive that the overall impact of EMU will have a significant effect. That is very frightening. The figure is improving but we must improve it further. Only 25 per cent of small businesses have prepared functional work plans for the changeover. That is an improvement on 13 per cent last year, but it means that 75 per cent of companies have not prepared such plans.
I had a visually impaired visitor with me today and I told him I was speaking on the euro in the House. He asked me if I could speak to someone about the quality of the paper in the notes. The new £5 note was supposed to have some sort of identification dot but it does not work. It is important that we examine the quality of the paper in the notes and ensure that the currency is suitable for the visually impaired. Other European currencies have different ways of signalling the denomination of notes and this issue needs to be addressed. I would ask the Minister and his officials to take this matter on board.
Ireland is going from strength to strength. The EMU is a challenge and an opportunity. There are difficulties ahead but if we work together and focus our minds we can address these issues and problems. EMU will be an assistance as Ireland continues to grow. I hope that the Celtic tiger is not going to go away.
Mr. Quinn: I welcome this Bill as it is an important stepping stone towards EMU. Unlike Senator Ross, I am an enthusiast of the single currency and I was happy to read that the euro will be the currency of the State.
I join with Senator Ross in congratulating the Minister on the manner in which he handled this issue, particularly events on 14 March. I do not always agree with Senator Ross and I fundamentally disagree with his views on the euro. He disagrees with the concept, but the only alternative  he has suggested is that we establish a link with sterling. However, sterling has a poor record and has failed to maintain its standards over some generations.
The euro and EMU are positive steps for Ireland which offer great potential. However, that potential is not going to be automatically released. How we do in Euroland will be up to ourselves. We will have to work hard. I stress this point because we have recently heard much about the good news concerning the euro. However, we have to realise that we are giving away control. This makes it all the more important that any area of control we have should remain available. We have reduced the number of economic levers so it will be vital to use those that are left to the fullest possible advantage. This should be the focus of public debate.
I am disappointed with the debate today. Senator Doyle stated that she would be the only Fine Gael speaker. If this is such an important issue then Fine Gael should have more than one speaker. There should be a public debate on this matter.
I am concerned about the unrealistic public expectations of what will happen when we enter EMU. All of the talk has been about the advantages, particularly the lower interest rates. As a result, many people are beginning to think of EMU as a free lunch. The cold reality is that we will have to pay for lower interest rates. We should pay serious attention to the words of the President of the European Central Bank, Wim Duisenberg. I compliment him on the clarity of what he said in Frankfurt this week. Unlike some central bankers, President Duisenberg does not speak obliquely or obscurely. He tells it as it is, and this is a good sign for the future. He made it abundantly clear that interest rates in Euroland would be set according to the needs of the big countries. He specifically said that interest rates will converge towards the very low rates that the German economy, in particular, needs right now. He also made it clear that there would be no genuflecting towards the needs of countries like Ireland in setting interest rates. It is very important that this has been clearly stated. He stressed that countries such as Ireland would have to rely on methods other than interest rates to control their economies. To make sure none of us was in any doubt about what he was saying, he said that this means fiscal controls. What we can no longer do with interest rates, we must do through adjusting levels of taxation. This is the tough message which must be put across to Irish people about EMU. It is not a free lunch with advantages only. It is a balance of advantages and disadvantages. Put bluntly, lower interest rates will have to be paid for by higher taxes.
I understand why many people would prefer to sweep this unpleasant information under the carpet. Reducing taxes is popular whereas increasing them is not. If a fear of the public reaction prevents the use of that fiscal mechanism until later, the price Irish people will have to pay  will be much higher than was thought. That is why it should be made clear to people that joining EMU will have a price and that part of that is the end of the lowering of taxes which has been attempted over the past ten years. Irish people must be prepared in advance for this reality. If they are not, the political courage to take the necessary steps will be found wanting. We will have to make the most of the levers of control left to us. We have a great deal of control over where we source our goods. My company and its suppliers have been able to source products other than in the sterling area. Many of these products will enable us to fight inflation in a different manner.
I wish to deal with two aspects of the change, especially the changeover. The two aspects are related while also distinct. First is the length and timing of the changeover period in 2002 when euro notes and coins will become available. As an aside, I congratulate the Minister on his use of the word “20-02” rather than “2,002”. It was always 1014 for the Battle of Clontarf and not 1,014. People should use the Minister's turn of phrase.
Regarding the changeover in 2002, the timing is important. It is envisaged that euro notes and coins will become legal tender on 1 January 2002. That is a nice date but it is not practical. The beginning of the year is a dreadful time for retailers for various reasons. It is just after Christmas and after sales so it is not the right time to introduce such a radical change. It was for that reason 15 February and not 1 January was chosen for decimalisation in 1971.
Mr. McCreevy: There were three possible dates: 1 October 2001, 1 January 2002 and a later date in 2002. The second date is unsuitable from an Irish perspective for the reasons outlined by the Senator. In Ireland we turn the Christmas holiday into a long holiday. The rest of Europe has not caught up with our concept of long holidays so it does not regard 1 January as importantly as we do. However, until the rest of Europe adopts our mode of thinking of taking two weeks' holidays around Christmas, we will have to operate by 1 January 2002, which was more acceptable from the point of view of other countries. The problems of retailers regarding sales and a great deal of money being in circulation were taken into account.
Mr. Quinn: I appreciate the Minister's explanation. The length of the period for changeover is more crucial. I have a huge difficulty, as does the retail trade in Europe, with the advice that the changeover should be spread over a six month period. I am glad the Minister said we do not have to use the full six months. I argue strongly that it should be a one day changeover. That was done in 1971. We learned that maintaining the ability to give change in two currencies for weeks is hugely difficult. It is also likely the vast majority of the public will not use the new currency  until they have to. The “big bang” approach should be taken. The freedom to do it is in the legislation. A certain date should be named — I would prefer if it were in February — as the date on which change will only be given in euros and that should be the same as the day the euro is introduced. If it must be 1 January, then so be it. I can imagine a bus driver who, under current thinking, will be required to carry two currencies for weeks in case one person requests change in euros and another requests it in Irish money. That is an impossible situation and we should do what was done in 1971, which was a one day changeover.
Regarding dual pricing, I draw attention to a signed agreement on Tuesday in Brussels between the retail trade — EuroCommerce — and the European Commission which was initiated by the Commission. Its aim is to establish a climate of confidence during the changeover to euro. They agreed not to introduce legislation for dual pricing but to find a way in which it would be done voluntarily. Six principles are involved. First is to apply EU rules for rounding up or down. Second is abstention from charging higher prices. Third is providing practical information. Fourth is displaying both prices in certain conditions. These have been laid down having been voluntarily agreed between the trade and the Commission. Fifth is that staff would be capable of explaining the situation. Sixth is signage informing customers whether retailers accept euros prior to the changeover date. The use of this sign or label will not be enforced but anyone who uses it and does not adhere to it will be liable for legal action. I mention this agreement because achievements can sometimes be made more readily through co-operation and agreement rather than legislation which insists on something being done and which uses the threat of legal action if it is not.
I urge the Minister to give serious attention to two areas. First is the changeover date. It is preferable that there be a quick changeover period and ideally a single day changeover. Second is that he should accept and recognise that the dual pricing agreement made by EuroCommerce in Brussels is the correct approach rather than attempting to enforce dual pricing through legislation, something some have suggested should be done. It will be a difficult period for customers and more so for traders. It is estimated the cost of changeover will be 2 per cent for retailers. In many cases that will comprise 50 per cent if not all their net profit. Therefore, if a cost increase to customers is to be avoided, we must listen to the trade and ensure dual pricing, the changeover date and all other steps happen with co-operation rather than resistance.
Mr. Costello: I also welcome the legislation. There has been a long gestation period since it was first decided in the Maastricht Treaty that we would embark on EMU. Looking at newspaper reports and the photographs of the launch, I hope  it is not a metaphor for things to come when the two top dogs, France and Germany, will be the leaders and the smaller nations will provide a little colour in the form of Riverdance. Mr. Duisenberg has made it clear that the top dogs of the operation are Germany and France. It will be interesting to hear how loud their bark is and how well they keep control of their patch.
This legislation deals with the nuts and bolts of monetary union, the coinage and currency. The establishment of the single currency will have enormous repercussions on economics and politics. We are for the first time moving away from the subsidiarity system. We are about to surrender control over our own currency and pool it in a common European bank with no flexibility. We will have no say in how our currency is used or how financial crises will be dealt with. This is a daring step. We are placing our trust in the European Central Bank as one of the most important elements which will determine our financial and economic future. I hope we are making the right decision. So far as I know, no precautionary measures have been taken to deal with the collapse of the project. It is possible that it will collapse.
We are fortunately enjoying economic success. Our unemployment rate is less than 10 per cent. Spain, on the other hand, has an unemployment rate of more than 20 per cent. That country could find it impossible to cope with the restrictions which will be imposed unilaterally by the European Central Bank. Question marks hang over the establishment of EMU and only a fool would pretend they do not.
I share Senator Quinn's view about the need to introduce the single currency on a particular date. We naturally leave such matters to the last possible moment. Decimalisation should have taught us all a lesson and many of us have not come to terms with decimalisation and metrication. However, I am concerned that we should not leave things to the last moment. A long transition period will give opportunities for abuse and profiteering. During the interim period we will be operating with two currencies. We will be dealing with extra exchanges of currency and the financial institutions may be able to take advantage of this. We are assured that this will be kept to a minimum but I do not for one moment believe that will be the case. The sooner the transition is made the better and the setting of a particular date for the final changeover is a good idea.
This step could be catastrophic or very benign. We are making a leap of faith. We expect the new currency to be strong and capable of rivalling the US dollar — I do not even mention the yen — on world money markets. This will be a stabilising influence on European markets. We all remember the financial crisis of 1993 when interest rates rose rapidly because we are a small open economy subject to predatory speculators. It will be extremely difficult for that to happen in the future.
 Membership of the single currency will place constraints on us to be prudent in our housekeeping. We will be obliged to keep our borrowing and the organisation of our budget within certain constraints. These constraints are healthy. National governments are infamous for avoiding logic and concentrating on the short term reality, sometimes in purely electoral terms. They have been guilty of short term borrowing leading to long term pain.
The expected decline in interest rates will be valuable in the long term. In the short term, because of our strong economy and the easy availablity of money, capital will be poured into the economy and could lead to inflation. This is a real fear. A 3 per cent reduction in interest rates is being talked about. The Central Bank plans to delay the reduction of Irish interest rates in the hope that German rates will increase.
The end of exchange rate charges will be welcomed. We know the old story of the traveller who goes from one European country to another and when he has changed £100 at every border is left with only £50.
The Irish Central Bank have looked after the nation's financial interests on the European scene but they have been found wanting in supervising and regulating financial institutions at home. Now that their international role is diminished they might spend more time ensuring that our domestic banking system operates to the highest standard. That might be a beneficial side effect of the new monetary system.
We are entering a new fiscal mechanism of cohesion. The danger is that we are now involved in a crude fiscal mechanism of cohesion to which we have no alternative. We are lagging behind the Community in other areas but we are out on a limb in the fiscal area.
The countries with the strongest currencies will be the most anxious to maintain that mechanism because they see it as a means of asserting their strength and, in many ways, their sovereignty. However, it should not become a power trip for France and Germany, who will benefit because they have strong currencies which interact to a greater degree with their strong economies. Smaller countries such as Ireland, Spain, Portugal and perhaps Italy, have vulnerable economies which have only recently become, or are in the process of becoming, stable and are anxiously trying to maintain decent levels of employment, low debt and budgetary balance.
There is a danger from the stronger economies. I was worried to hear the new president of the European Central Bank say that France and Germany will dictate interest rates. As Senator Quinn said, they are in effect telling us it is our responsibility to deal with the fallout and are suggesting that we deal with it through our taxation and budgetary system. Basically, this is the way the big boys will play the game. They will play it on their pitch, in their fashion and, even though we are also on the pitch, they intend to keep the ball in their possession. That does not augur well for  a collective approach to the euro. Last May there was an unseemly row between France and Germany over the presidency, a row which has not yet been resolved. A few days ago Mr. Duisenberg said his term would run for the full eight years, contrary to the French assertion that he would serve only half his term to make room for a French president. Clearly, the big boys are still trying to hog the scene.
I was disappointed that Ireland did not secure a place on the managerial team for the European Central Bank. The fact that Ireland does not have a representative at senior decision making level is unfortunate. The Taoiseach said nobody was interested in the job which is ludicrous. It does not matter whether they were interested in the job, somebody should have been put forward for it. I am sure somebody patriotic could have been found to put themselves forward for a well remunerated position in order to protect Irish interests.
Some months ago, the Minister intervened to set a satisfactory valuation for the Irish pound vis-à-vis the deutsche mark. What is the current situation in that regard? Is there time for a readjustment of the Irish currency before the final plunge is taken?
Mr. O'Toole: I listened with interest and little surprise to the words of wisdom from Senator Ross. It bothers me to hear these people protecting the national interest with their hearts and souls. I did not agree with a single sentence he said. However, it is the great value of the Independent Senators that we give breadth to a debate, even among ourselves. That is extremely important.
It is always entertaining to hear this expression of europhobia and euroscepticism. I am not sure which is which but in the case of Senator Ross much of it is europhobia rather than euroscepticism. He is often worried about the impact of strangers.
There is a view of France and Germany as monolithic structures, as if every politician in Paris and in the Bundestag has the same view and as if Germans will only look after German interests. In my experience, every society has monetarists, free marketeers, leftists, socialists, conservatives, eurosceptics and people who are phobic about anybody who is different. There is the same mix of such people in Europe and when people sit around a table they will be guided by their philosophies, what they are trying to achieve and what they believe is the best way of dealing with the economy. That is what will inform their decisions.
The Minister must knock on its head this poor view of ourselves which indicates a lack of self-esteem, an inferiority complex which suggests that Irish people will be unable to keep their heads above water in the great milieu of Europe. We heard that view many times in the 1970s when we discussed joining the EEC. We were told we would lose our culture, but what happened? Irish  culture is stronger than ever. We have found expression and space for it and there is a new acceptance among Irish people of the importance of being Irish. Being European, far from taking away from our sense of Irishness, has reinforced it. The same will happen in this case.
Irish representatives have never felt less than able to articulate a point of view, to defend themselves, to put forward viewpoints or to progress discussions in Europe. Irish people have always been comfortable in Europe and that is not a phenomenon of this year, last year or since we joined the Community. It dates back to when Ireland sent saints and scholars to Europe to educate its people. Now we will educate them again in the sense that we will give them a share in our experience.
I do not have reservations about this Bill. I am aware that there are risks, but there are risks in every decision on the economy. If something goes wrong in three years time, certain people will blame our participation in the euro. There will always be people who will justify something retrospectively. It would be difficult to find many people who would like Ireland to leave the European Union now even though in the 1970s up to 40 per cent of the population did not want us to join the EEC.
It is extremely important that we remind people about the history of our currency. It is untrue that it takes a generation to adjust to a change in currency. Every generation this century has adjusted to a change in currency. We had the pre-Independence currency, the Saorstát currency, the link between the Irish and British currencies, the change to decimalisation, the break with sterling and now we will change again. What is new about this change? We have changed many times and, while there is a new dimension to this change, it is not a change that people cannot handle.
I share Senator Quinn's views on the supposed need for a six month transition period. People get on airplanes every afternoon at Dublin Airport and travel to various destinations on the Costa del Sol. Within 20 minutes they know the price of a pint or litre and a meal. They have no difficulty making that transition and they do not need people walking behind them with calculators to do it. People will adjust extremely quickly.
I believe 1 January is the worst possible date for the change. I have made that point to the Minister on many occasions. I also pointed out in the Oireachtas Joint Committee on Finance and the Public Service that six months is an unnecessarily long transition period. Perhaps the Minister would explain the importance of the words “not later than 1 January 2002”. What does it mean? Does it mean that euro notes and coins will be introduced before that date? Can he also explain the “not longer than six months” requirement? These decisions were taken in Madrid in 1995. These dates and time spans were established at that time. It should not be necessary to take six months. I know we are committed to the 1 January  2002 deadline but are we constrained to this date? Are all the member states doing the same? I have the impression that Germany wanted to move things in a more telescopic timeframe.
I raised the issue of dual pricing with the Minister on a number of occasions. What is dual pricing? Unfortunately, this country has not completely changed over to decimilisation and we still experience difficulties. People still confuse gallons with litres, pounds with kilogrammes, etc.
Mr. O'Toole: Yes, but we may write on it what portion of a litre it is. We should still call it something else. There are different words for pint in Irish and English but it does not matter as long as we all know what we are doing.
I look forward to next year because commission on currencies convergence will vanish. I get a sense of satisfaction when travelling to Brussels or Paris and I try to make my journey without using currency just to prove it can be done. When a person wants to leave the airport in Paris you can pay for a taxi by credit card, just as you can pay for a hotel room, etc. However, you will still be charged commission at the end of the month.
There is an incorrect view abroad about the reduction in interest rates. People think there will be the same interest rates in every bank and institution in Europe. It should be explained that we are talking about the underlying interest rates or those between banks and that administrative charges and competition between institutions will remain. People believe that as and from 1 January 1999 every institution will reduce its interest rates.
I commend the Minister for his reticence about joining the euro too early and at what rate we should join. He has given us stability which was not there before and it is very much appreciated. We have seven months left and everyone has discounted the fact that we will be joining at a lower rate or at the German interest rate. With the deutschemark moving into the sterling and dollar economies the parliament in Bonn must consider raising their interest rates slightly between now and the end of the year in order to ensure people who have euro unstable accounts do not take their money out of these economies and bank it somewhere else. This fact should be made clear.
I do not have time to deal with convergence. I want to ask the Minister about another issue but he keeps ignoring me time and time again. I would remind him that he is my constituent and I represent him in good places. The Minister will receive a bundle of money from the Central Bank reserves. What will we do with it? I have named Department of Finance officials in the past and they will tell him what to do but he should ignore them. The Minister should work at home, doing a bit of teleworking, and not enter the Department of Finance building at all. He should meet the people, see what they need and then decide  how to spend the money. He should keep his officials busy for a few weeks trying to figure out how to spend the money. Schools need teachers and social services require funding. More and more is demanded from the State and people are demanding more services. We are getting wealthier. It is very important that people at all levels feel the benefit of a stronger economy and a wealthier country. I ask the Minister not to lose his sense of values and the common touch. He should not let the bureaucrats get to him. He should not let them stem his creativity in spending the money. Our national debt is reducing all the time. The more economic investment we make, the more it will reduce. The net GNP ratio is so close to the convergence point that it does not make any difference and we are well within the limit.
The Minister has two sums of money to be given out this year. First, there is the unexpected increased revenue from taxation. I reread the Minister's budget speech so I know he did not expect it. He must do something with it now. Second, the Central Bank reserves produced an amount of money of which a very small amount will have to be given to Europe. What will he do with the remaining reserves? He should give hope to the people running primary schools, etc. He should think how he can make a mark on the future and let us share in the benefits of a growing economy.
I welcome the legislation and look forward with enthusiasm to the introduction of the euro. I will mail my first euro to Senator Ross. I will ask him to spend it in a high class establishment and to enjoy himself. This act will allow him to have the very best food and entertainment at my expense.
Minister for Finance (Mr. McCreevy): I will try to deal with most of the points raised by Senators. Senator O'Toole wants me to become very popular overnight but this popularity would last a very short period. I was not born at the time but when the late Deputy Oliver Flanagan first contested an election in the late 30s he launched that election on the platform of monetary reform. His motto was: “We should print all the money we like and give it to the people”. Fifty or more years later Senator O'Toole wants me to do something similar with the Central Bank reserves.
Mr. McCreevy: I will refer to that point later. A number of Senators raised queries about interest rate convergence and what EUCB President Duisenberg said earlier in the week. To be blunt, the 11 member states will give up two instruments of our financial armoury, namely, our control over interest rates and our right to move our exchange rates. Not alone is Ireland giving up these financial tools but so are the remaining ten states which makes up the Euro 11. On Monday, when the Taoiseach and I were in Frankfurt,  President Duisenberg said that the setting of interest rates will be a matter for the EUCB. He has stated this on numerous occasions. We have been used to an independent Central Bank. Other countries do not have — or have not until now — the totality of independence which the Irish Central Bank enjoyed. The Minister for Finance of the day sets exchange rate policy. The Central Bank implements it as well as setting interest rates. Therefore, the Minister for Finance of the day, not alone myself but my predecessors, has no influence on that area and that laid down under the Acts.
In other countries that position has not always been so clear but it is in Germany. The German model of the Bundesbank has been copied in the EUCB legislation which guarantees the independence of the EUCB from political interference. Members may remember the debate about setting up Euro 11 or the Euro 10 council as it was termed.
There was a divergence of opinion in Europe about the French and the German way of doing things. The legislation relating to the Central Bank followed the German model and guarantees its independence. As President Duisenberg said, the European Central Bank will have the control of inflation and price stability as its main concern. In that context it will consider the totality of the European economies. Ireland is a small player in that regard and, therefore, the interest rate will be set to benefit Europe as a whole.
This will mean, as we have known for some time, that countries such as Ireland will have to rely on its own way of doing things. This boils down in the main to fiscal policy and structural changes in the economy. It will not only involve budgetary policy, because its impact, as we know from experience, is limited. I have always held the view that the structure of a small open economy such as Ireland is important rather than big bang approaches in fiscal policy. The comments of President Duisenberg should not be surprising in that regard.
Senator Doyle and others raised the issue of inflation. As I stated previously on many occasions, what has happened in the economy in recent years, irrespective of the comments of economists now, is a little inexplicable. Does anybody remember any economist predicting six or seven years ago that there would be growth rates of up to 8 per cent on average? The answer is no because no economist made such a prediction.
This proves my point that if one wants to make money on foreign exchange or interest rates, one should listen to the views of economists at the start of the year and then bet in the other direction. Having studied this area for the last 28 years, I can inform the House that if one did so, one would make a fortune. I am sure that in five years all the economists will be able to say why the economy grew at this rate.
There are many reasons, and I have outlined some of them in this and the other House. However, nobody in the Department of Finance,  the Central Bank, the ESRI or the other institutions can explain how, if one is looking at traditional economic textbooks, the economy has grown at an average of more than 6 per cent for the last five or six years and there has been practically no inflation. If one had answered a question on the junior certificate paper seven years ago by stating that the economy could grow by an average of 6 to 7 per cent for a number of years and there would be no inflation, one would definitely have failed the examination.
Mr. McCreevy: One would have received zero marks because, according to the traditional economic textbooks, it could not happen. As somebody who has made innumerable speeches during my 21 years in the Dáil about the dismal state of the economy and how things would get worse — I made a career of this for many years — I must confess that I and others cannot explain the phenomenon.
Nobody can predict with certainty what will happen in this area because nobody can explain how it has been possible to have low inflation of 1 and 2 per cent and colossal growth rates over a number of years. According to basic economic textbooks, it was not supposed to happen. People could be cautious about predicting what will happen if interest rates move in a certain direction.
My policy, which luckily I announced before I took up office, is that the best thing Ministers for Finance or Opposition spokespersons on Finance can do with regard to currency issues is keep their mouths shut and allow the markets to do their business. This policy has worked relatively successfully and, therefore, I will not speculate on what will happen with regard to interest rates in the coming months. However, I predict that the interest rate set by the European Central Bank will be somewhere between the current German and Irish interest rates.
Mr. McCreevy: The Governor of the Central Bank said his intention is to keep Irish interest rates as high as possible for as long as possible. Between now and 1 January, there will be a new converged European central rate. People can work out for themselves the more likely outcome in terms of the two opposite ends of the spectrum. In common with currency matters, one cannot predict interest rates with certainty. Senator Ross is correct that one cannot anticipate the foreign exchange markets. Governments all over the world have wasted huge amounts of money by trying to influence how foreign exchange markets operate.
 I am concerned about inflation getting out of control in the economy. As stated in the revaluation communiqué on 14 March, a point which was repeated in press statements and information from the Commission on the first weekend in May, Ireland will have as its budgetary policy the continuation of low inflation. Undoubtedly, low inflation, in addition to a wide range of other aspects such as education and demographics, has allowed us to become competitive and to reach this point.
The total reversal of the daft economic policies pursued in the 1970s and 1980s and the more sensible policies followed since 1987 also played a significant role. Although it is not popular to refer to him, the former Taoiseach, Mr. Charles Haughey, was one of the architects of that decision. The total reversal of economic policy introduced by the Haughey Government in 1987 definitely led to the current condition of the economy. I have great cause to remember the 1970s and 1980s because I preached that economic philosophy. It was followed and led to the current success of the economy. In a nutshell, it involved common sense.
Mr. McCreevy: The Senator will recall that when Deputy Dukes was still leader of the Fine Gael Party, I complimented him and said I hoped he would not have to pay a heavy price. I did not wait until he was no longer leader of his party to say it. Undoubtedly, it was another factor in the economy's success.
Senators raised the issue of the United Kingdom staying outside the euro. This was the background to the case made by Senator Ross, who has argued consistently for a long time that it is inappropriate for Ireland to join in such circumstances. Senator Ross takes the view that monetary union in Europe is a bad idea in any event. However, since that argument has been lost and there will be monetary union, Senator Ross and others say Ireland should not join because the United Kingdom is staying outside.
This is a legitimate point, but it has been rejected by this Administration and previous Governments. On the balance of advantages that it is considered Ireland can enjoy, it has been decided that it is in our best interests to be in the first wave of participating countries. There is no point arguing the toss with Senator Ross about this matter; Senator Doyle quite rightly referred to some of these doubts as well.
 A number of Senators are business people — and some of them are present in the Chamber. I will wager that whenever they had a good business idea for a new project or enterprise, despite all the analysis and expertise it finally came down to making a decision, yea or nay, in the end. I could not guarantee with 102 per cent certitude that any business decision I made was definitely going to work. I do not mind Senators raising doubts about the single currency because it is the same situation — despite all the analysis and the great work which has been done across Europe to get us to this point, no one can say with 102 per cent certitude that it will be a tremendous success from day one and that everyone will benefit. However, the Irish Administration concluded a long time ago that it was in our best interest to join up from day one, which is what we are going to do.
Various questions were raised about the changeover date. I interjected to explain to Senator Quinn why that date was picked. I recognise the difficulties it poses. However, we have given ourselves power in this Bill to set a date, if necessary, between 1 January 2002 and 30 June 2002 from which all Irish pound notes and coins will be called in. There will be a hoovering up operation from that date and a big logistical operation has been put in place. The dates 1 January and 30 June 2002 were inserted in the Bill because those are the dates in the European legislation. Some countries will need more time than others. Given that it is three and a half years away, it is too early to say what date we will set, if any — the date might end up being 30 June 2002. At least we are giving ourselves the option; we can see how matters develop. However, I take on board the points raised by Senators Quinn and O'Toole in regard to setting a particular date.
Senator O'Toole raised the issue of the Central Bank reserves, which he has mentioned before; I thought I had dealt with it but I must have overlooked it. In the interests of clarity we must differentiate between two forms of reserve. There are reserves which the Irish people own and which we trade on foreign exchanges, which are put aside. The other reserves are the accumulated profits of the Central Bank — the Central Bank makes profits every year from its business. Those accumulated reserves will be in the region of £1.3 billion at the end of this year.
The Central Bank has reserves to back up the currency, such as small amounts of gold, dollars, etc. In the setting up of the European Central Bank, we will have to pay an amount for share capital, based on criteria such as our GNP and population. We will have to subscribe in the order of £35 million. That will appear in the books of the Irish Central Bank as an investment in the European Central Bank.
We will also have to contribute to the ECB reserves, which will be calculated on a percentage basis. We will have to contribute a small amount, possibly in the order of about £350 million of our reserves. There will be no physical movement of  the reserves but they will be designated in the Central Bank's books as the reserves backing up the euro.
The accumulated profits, in which Senator O'Toole is interested, are the profits the Central Bank has built up over the years by buying and selling currency, dealing with the financial institutions and so on. As I said, they will be in the order of £1.3 billion at the end of the year. Senator O'Toole wants me to be very bold with that money, which would make me very popular overnight. I have made no decision in that regard yet.
Mr. McCreevy: Senator O'Toole wants me to work at home for a few months and not listen to the Department of Finance. However, he should remember I preached strict financial discipline when it was not the thing to do before he became a Member of the House. I can say at this stage that I will not be flush with this money — as he appears to want me to be — without saying what we are going to do with it.
Senator Quinn made points about the changeover period, interest rates and dual pricing. I welcome what the EuroCommerce group said recently and we will be studying it further. The Director of Consumer Affairs has also welcomed the points which were made.
I agree with Senator O'Toole that Irish people should not have an inferiority complex; we do not. Europe has done a great deal for Ireland since we joined in the early 1970s. I remember the debate quite well because it was the first political campaign in which I was involved at a very low level. I have seen all the changes which have happened since. We welcome all the money provided for roads, sewerage schemes, water schemes, etc. However, Europe's greatest contribution to Ireland has been to make us more outward looking and grown up as a nation. Politicians sometimes make the mistake of saying we must have a begging bowl approach to Europe because they think that is what their constituents want them to do. However, we now know what we long suspected — we are the best in Europe or anywhere else. Membership of the EU has helped us in that regard, and that cannot be measured in pounds and pence.
Senator Doyle and others raised the question of revaluation and devaluation. I adopted the principle of not speculating in this regard in the past and I am not going to do so now, except to state the very obvious. When the communiqué was issued that weekend it was said that was the last time it was going to be done. People make the mistake of thinking the Minister for Finance of Ireland or anywhere else can wake up one morning and decide to revalue against the deutschemark.  Ministers cannot do that. Revaluation is done by consensus because when one currency moves it affects all other currencies in the grid. I cannot wake up in the morning, decide we have a great rate against the deutschemark, ring my friend, Theo Weigel, and tell him I am going to revalue in the afternoon. That is not how it is done.
Mr. McCreevy: Since 14 March and that weekend in May the markets have taken on board the situation. Technically and legally, there will be a seamless transition from the ECU to the euro between 31 December and 1 January. The ECU is a notional currency made up of a basket of currencies including those of the 11 participating member states, sterling and some other currencies. It was announced on the first weekend in May that the central rates would be used as the mechanism. People can read what they like into that. It is not on the agenda. Some people are speculating in the market for the sake of trying to create some activity in the foreign exchange markets where there has been no activity for some time.
Senators raised many interesting points. One could spend hours discussing them and I may be doing some an injustice by not dealing with their points. Senator Finneran raised the issue of possible problems with Northern Ireland. There will be no more problems than there are at present, except that there will be a currency circulating in the Six Counties which will be different from ours, but that should not present a problem in the medium or long term.
|Last Updated: 20/05/2011 22:24:05||Page of 13|