Central Bank Bill, 1997: Second Stage.

Thursday, 12 March 1998

Seanad Éireann Debate
Vol. 154 No. 13

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Question proposed: “That the Bill be now read a Second Time.”

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

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

Before I go into the details of the Bill, I wish to place the legislation in its proper context by reminding Senators not only of the institutional aspects of EMU with which this legislation is directly concerned, but also the timetable for EMU and the background. The Treaty envisages EMU being reached in three stages. Stage one involved the completion of the Single Market and closer co-ordination of the economic policies of member states.

Stage Two, which began on 1 January 1994, involved intensifying the co-ordination of member states' economic policies, based on multilateral surveillance within the context of broad guidelines laid down by the Council of Economic and Finance Ministers, or ECOFIN. Most importantly, stage two brought into operation the excessive deficit procedure set out in Article 104c of the Treaty which requires an annual examination of each member state's budgetary performance to see if it meets the deficit rules laid down in the Treaty, with the Council making a recommendation for ending the excessive deficit of any member state which does not meet them. Ireland has never been the subject of such a recommendation. Stage two also saw the establishment of the EMI. The EMI is the forerunner of the European Central Bank and has, inter alia, the task of developing the regulatory, logistical and organisational framework for the ECB to perform its task, as well as assessing the readiness of member states for participation in the third stage.

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

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

The European Council also concluded that the organisation of an ongoing and fruitful dialogue between the Council and the European Central Bank, respecting the independence of the bank, is an important factor in the proper functioning [887] of EMU. I will return to the matter of dialogue with the ECB.

The decision on who will participate in the third stage of EMU is to be made at the beginning of May this year in accordance with the procedures laid down in Article 109j of the Treaty. The ECOFIN Council will assess whether each member state fulfils the necessary conditions for the adoption of a single currency on the basis of convergence reports from the European Commission and the EMI. On the basis of these reports ECOFIN, acting by a qualified majority on a recommendation from the Commission, will recommend its findings to the Council meeting in the composition of the Heads of State or Government. The Council will then, after receiving the opinion of the European Parliament, confirm which member states fulfil the conditions.

It is expected that the Commission and the EMI will produce their convergence reports on 25 March next, allowing time for the Council and the European Parliament to examine them in detail before their formal decisions. The changes included in this Bill, which will make our legislation compatible with the Treaty, must be passed by both Houses of the Oireachtas in time to be taken on board by the Commission and the EMI when they are finalising their convergence reports.

There will be a pre-announcement of the bilateral exchange rates of currencies of participating member states during the first week-end of May 1998 once the decision is taken on which member states will adopt the euro. These rates will become effective on 1 January 1999 and, in line with the Treaty, the actual setting of the conversion rates against the euro can only take place on that date.

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

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

While the euro will become a currency in its own right on 1 January 1999, euro notes and coins will not be introduced into circulation until 1 January [888] 2002. Legal tender status will have been withdrawn from national currencies at the latest by 1 July that year.

The European system of central banks is one of the three core elements of EMU. The other two are the establishment of a single currency among participating member states and the intensified co-ordination of economic and budgetary policies among participating member states.

Article 4a of the Treaty provides for the establishment of a European system of central banks, or ESCB. The primary objective of the ESCB, which will comprise the ECB and the national central banks of the member states, is to maintain price stability. Without prejudice to the objective of price stability, the Treaty requires that the ESCB shall support the general economic policies in the Community with a view to contributing to the objectives of the Community. These include the promotion of harmonious, balanced and sustainable development of economic activities, sustainable and non-inflationary growth, a high level of employment and of social protection and economic and social cohesion and solidarity among member states. In carrying out this function the ESCB shall act in accordance with the principle of an open market economy with free competition favouring an efficient allocation of resources.

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

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

The executive board must be appointed from among persons of recognized standing and professional experience in monetary or banking matters by common accord of the governments of the participating member states. The members of the executive board will be appointed for eight year terms — with some exceptions for the first round of appointments to ensure that subsequent vacancies do not all arise at the same time — and appointments will not be renewable. The governing council comprises the members of the executive board together with the governors of the national central banks of participating member [889] states — whose independence in turn is guaranteed by the Treaty provisions with which this Bill is concerned. This independence will ensure that the ESCB focuses on its primary objective of price stability. This independence will generate confidence in the euro as a stable and secure currency. It will also ensure that in deciding issues the ECB will be guided by the interests of the Community as a whole rather than being unduly influenced by the views of a particular member state. Of course, this independence must be complemented by appropriate arrangements for accountability, and the Minister is personally very conscious of this fact.

In that regard the ECB must present an annual report on the activities of the ESCB to the European Parliament, the Council of Ministers and the European Commission as well as to the European Council of Heads of State or Government. The report must cover the monetary policy of the previous and the current year. It will be presented by the ECB President to the Council and the European Parliament who may hold a general debate on that basis. The President of the ECB and the other members of the executive board may be heard by the competent Committees of the European Parliament, either on their own initiative or at the Parliament's request. Of course, whatever arrangements are in place at national level, under which national central banks are accountable to national parliaments, will remain in place so long as they are not in conflict with the provisions of the Treaty which guarantee their independence and that of the ECB, and this is as it should be.

In this respect, Senators will be interested to note that section 17 of this Bill provides that the Governor of the Central Bank will attend, if so requested, before a Joint Committee of the Oireachtas. Unlike the previous provision which related to a Committee of the Dáil only, this brings Senators into the process. The Governor shall furnish to that Committee such information as it may request, while having due regard to the independence of the Bank and the provisions of the Treaty. These would include the independence fo the ECB and of the national central banks in relation to the decisions taken on monetary policy issues and in particular the fact that, in making such decisions, instructions are not sought or taken from any outside bodies including the Parliaments or Governments of the member states. Also, the governor will be constrained, for confidentiality purposes, in relation to the extent and type of information on ECB decisions which he or she may be entitled to make public.

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

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

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

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

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

When the Maastricht Treaty received the endorsement of the Irish people, it did so without qualification or any provision for Ireland to opt out from the provisions for EMU. Ireland at present meets all of the convergence criteria laid down in the Treaty for qualification for EMU and is in a strong position for participation in the Third Stage of EMU.

There has been enhanced integration of the Irish economy with the continental EU countries over the past two decades, a trend that should continue to be reinforced as the full potential of the European single currency is realised. Irish based firms can continue to exploit new opportunities [891] for market and product diversification in the euro zone. Ireland's capacity to participate successfully in EMU is also supported by our strong convergence performance over recent years, including growth in per capita income levels relative to the EU average, strong growth in employment and the reduction of unemployment, while maintaining low inflation and low budget deficits and achieving continued reductions in the debt ratio. The launch of the euro presents us with an historic opportunity to build on the economic and social progress which we have achieved over recent years by promoting accelerated economic convergence and integration of the Irish economy with our EU partners.

According to the autumn economic forecasts published by the EU Commission on 14 October 1997, the Commission view is that a majority of member states should be capable of meeting the necessary conditions to participate in the euro from 1 January 1999. Enhanced internal flexibility of the economy has a crucial role to play in underpinning Ireland's international competitiveness in EMU. This applies equally to those sectors of the economy likely to benefit from the expected lower trend in interest rates in EMU, but also likely to be sheltered from the direct impact of any competitiveness shock that may arise.

A key concern of many Irish firms is that sterling might be volatile against the euro. Irish industry that might be particularly exposed in the event of such an occurrence must prepare appropriately for it. Potential problems would exist not only for those companies which are largely dependent on UK markets but also for those who are in competition in the Irish market with UK producers and those who are competing with UK producers in the markets of third world countries. Clearly the sterling issue is important but we must be careful not to overstate its importance. When we talk about a sterling shock we are talking about a sharp fall from its equilibrium level. At present sterling is well above what most commentators, including the Bank of England, consider to be its equilibrium level. Therefore, sterling would have to fall a very long way before it could be considered to represent an economic shock.

Private sector preparation for possible shocks in an EMU scenario is, like all issues of competitiveness in the market place, primarily a matter for the individual companies. The most obvious measures to concentrate on are to maintain as much flexibility as possible in their cost base and to take steps to minimise their exposure to sterling. For example, they could examine their sources of supply and their opportunities for hedging.

We have seen over recent years how policies designed for EMU qualification have helped secure our exceptional economic performance. The challenge presented to us from l January 1999 is to ensure the best return for the economy and for employment from our membership of the [892] euro zone and to deliver on the Government's commitment in its Action Programme for the Millennium to share the benefits of Ireland's EMU participation among all sectors of the workforce.

It will be evident that costs associated with the changeover to the euro, and their timing, will vary from company to company according to various factors, including the nature of the company's business. A reliable estimate of such costs is not available. It will be in companies' own interests to minimise such costs by appropriate planning and by making changes arising from the changeover in conjunction with other changes which would arise in the normal course of events. It should be borne in mind in this context that EMU should bring significant benefits to companies. Furthermore, such benefits will be ongoing, while of their nature changeover costs will be once off.

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

I will now turn to the specific provisions of the Bill which, as I have previously indicated, we must introduce in order to comply with our Treaty obligations. In order to be able to participate in the ESCB or the ECB other member states are involved in similar legislative exercises.

Section 1 contains the short title, construction and commencement provisions. While these do not normally require special mention, the commencement provision in section 1(3) allows the Minister for Finance to commence any provision or part, thereof, on any day. This is necessary in that, as decisions are taken at EU level, each of the relevant provisions in this Bill can be commenced at the appropriate time. Section 2 is an interpretation section which defines certain terms used in the Bill.

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

Section 4 inserts, as I said, a new section 5A in the Central Bank Act, 1942, and provides that the Central Bank of Ireland shall perform any function or duty or exercise any power required by, or under, the provisions of the Treaty or the Statute. The section also provides that sole authority and responsibility for the implementation of ESCB/ECB tasks and duties in Ireland shall rest with the Governor of the Central Bank. This is a significant change and I would like to take some time to explain where it came from.

As I explained earlier, the EMI was consulted on the terms of the Bill and it was a concern raised by the institute that has led the Minister to propose a change in the policy concerning the voting rights of directors of the Central Bank in relation to ESCB/ECB issues. In previous reports by the EMI on the compatibility of all member [893] states' legislation with the obligation of Central Bank independence, it had been indicated that the presence of the Secretary General of the Department of Finance on the board of the Central Bank of Ireland, with a right to vote on ESCB/ECB related issues, was incompatible with such independence. Accordingly, the Minister had originally intended that the Secretary General would not be empowered to vote on these issues.

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

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

Section 5 deals with the general functions and duties of the bank and its independence in the discharge of its functions as set out in section 6 of the Central Bank Act, 1942. Under section 6, the bank is given a role independent of the Government in the discharge of its general functions and duties. Article 105 of the Treaty provides that the primary objective of the ESCB shall be price stability. Section 6(1) of the 1942 Act will be amended to unambiguously reflect this primary objective. The opportunity is also being taken to specify the Central Bank's other main objectives given the expansion in its responsibilities since 1942.

Article 107 of the Treaty provides that, when exercising ESCB/ECB related tasks, members of national central bank decision making bodies shall not seek or take instructions from any outside organisation whether governmental or otherwise. It also contains a declaration by the Treaty [894] signatories, namely, the member state Governments, that they will not attempt to influence decision makers in national central banks. Section 6(2) of the 1942 Act, however, allows the Minister for Finance to request the bank to “consult and advise with him” in regard to the execution and performance by the bank of its general function and duty and it must comply with every such request.

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

Accordingly, it is proposed to replace this section with a provision which allows the Minister to continue to require the bank to consult with him on the execution and performance of all its tasks, with the exception of those related to the duties conferred on it by the Treaty. In such cases the bank shall only be obliged to keep the Minister informed.

The amendments proposed will not affect the right of the Minister to seek information and advice from the bank and it is not envisaged that there should be any change of substance in existing practice. The exercise of the Minister's right will be a matter for sensible and prudent judgment so as not to overstep the line laid down by Article 107 of the Treaty. There is no reason whatever to believe that the bank will not act in an entirely reasonable manner in this regard.

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

Section 21(2) of the Central Bank Act, 1942, provides that the President may, on the advice of the Government, remove the Governor from office for cause stated if the directors of the Central Bank, by unanimous vote, ask the President to do so. Article 14 of the statute of the ESCB/ECB requires that the Governor may only be removed in such cases if he has been guilty of “serious misconduct” and provides that he may appeal to the Court of Justice. The wording of section 21(2) is being amended to bring it into conformity with the provisions of the Treaty and, accordingly, it is proposed in section 7 to amend the section by substituting the words “on stated [895] grounds of serious misconduct” for the phrase “cause stated”. The section also provides for the right of appeal, afforded in Article 14(2) of the statute, to the Court of Justice by the Governor against a dismissal.

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

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

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

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

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

Section 13 deletes subsections (2) and (3) of section 24 of the Central Bank Act, 1989, which give the Minister for Finance powers in relation to the exchange rate of the Irish pound, and require any exercise of those powers to be made public. Once Ireland joins the single currency, the exchange rate of the Irish pound vis-a -vis the [896] euro will be irrevocably fixed in accordance with the Treaty, and subsections (2) and (3) can no longer apply.

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

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

Section 16 amends section 118 of the Central Bank Act, 1989, to accommodate the fact that article 105a(1) of the Treaty gives the European Central Bank the exclusive competence to authorise the issue of all banknotes from 1 January 1999, and to provide for the issue by the Central Bank of Ireland of euro notes for which the ECB has authorised the issue.

The section also provides that all euro notes for which the ECB has authorised the issue will be legal tender in Ireland, whether those notes have been issued by the Central Bank of Ireland, by the ECB itself, or by the other participating national central banks.

Section 24 of the Central Bank Act, 1997, provides for the attendance by the Governor of the Central Bank, if so requested, before a Select Committee of Dáil Éireann and for the furnishing to that committee of such information as it may request, while having due regard to the independence of the bank. In practice, this was the Select Committee on Finance and General Affairs. As that committee has now essentially been replaced by the Joint Oireachtas Committee on Finance and the Public Service, section 17 amends section 24 to have the effect of ensuring that the Governor will be obliged to attend before a committee of the Oireachtas rather than a Dáil committee. Also, to be consistent with article 107 of the Treaty, section 17 provides that such attendance and provision of information shall have due regard to the provisions of the Treaty.

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

Section 19 substitutes a new section for section 134 of the Central Bank Act, 1989, which empowers the Minister for Finance, after consultation with the Central Bank of Ireland, to direct [897] that certain business transactions be suspended if he considers it necessary “in the national interest or for the purpose of safeguarding the currency of the State”. The new section recognises the competence of the European system of central banks in the field of monetary policy and the transfer to Community level of all monetary powers of member states participating in Economic and Monetary Union by deleting the reference to the Minister, in exercising this power, having regard to “the safeguarding of the currency of the State”.

Section 20 is an enabling provision which allows the replacement of the current pay-as-you-go arrangements under the bank's superannuation scheme with a funded system.

I commend the Bill to the House.

I must inform the House of a misprint in the text of the Bill. This relates to the reference in section 10 to “section 7”. This should, of course, read “section 5”. I request the Cathaoirleach to ask the House to agree that a correction to this effect be made in accordance with Standing Order 103.

An Leas-Chathaoirleach: Is that agreed?

Mr. Ross: Information on Shane Peter Nathaniel Ross Zoom on Shane Peter Nathaniel Ross Will the Minister of State explain the significance of the correction?

Dr. Moffatt: Information on Tom Moffatt Zoom on Tom Moffatt It is just a misprint in the text.

Mr. Ross: Information on Shane Peter Nathaniel Ross Zoom on Shane Peter Nathaniel Ross What does it say?

Dr. Moffatt: Information on Tom Moffatt Zoom on Tom Moffatt It says “replace '7' with '5”'.

Mr. Ross: Information on Shane Peter Nathaniel Ross Zoom on Shane Peter Nathaniel Ross What does that mean?

Dr. Moffatt: Information on Tom Moffatt Zoom on Tom Moffatt It is a cross reference.

Mr. Ross: Information on Shane Peter Nathaniel Ross Zoom on Shane Peter Nathaniel Ross Will the Minister of State explain the significance of this? Perhaps it is just a misprint but I have not been able to find it in the Bill.

Mrs. A. Doyle: Information on Avril Doyle Zoom on Avril Doyle What is the line reference?

Mr. Ross: Information on Shane Peter Nathaniel Ross Zoom on Shane Peter Nathaniel Ross What is being deleted and what is being put in?

An Leas-Chathaoirleach: Would it not be more appropriate to deal with this when we come to section 10?

Mr. Ross: Information on Shane Peter Nathaniel Ross Zoom on Shane Peter Nathaniel Ross No.

Dr. Moffatt: Information on Tom Moffatt Zoom on Tom Moffatt The section currently reads “the Bank's activities in respect of the pursuit of its objectives as set out in section 6 (as amended by section 7 of the Central Bank Act, 1998) of the Central Bank Act, 1942”.

Mrs. A. Doyle: Information on Avril Doyle Zoom on Avril Doyle What is the line reference?

Dr. Moffatt: Information on Tom Moffatt Zoom on Tom Moffatt Section 10, line 31.

[898]Mr. Ross: Information on Shane Peter Nathaniel Ross Zoom on Shane Peter Nathaniel Ross On a point of order, what the Minister of State has said is mumbo jumbo. Perhaps if we——

Dr. Moffatt: Information on Tom Moffatt Zoom on Tom Moffatt Perhaps we could come back to it on Committee Stage.

Mr. Ross: Information on Shane Peter Nathaniel Ross Zoom on Shane Peter Nathaniel Ross It is important to deal with this on Second Stage if there is any significance in the change. It would help the House if an explanation for the change could be given in layman's language. It is very easy to say it is a misprint but misprints can be extremely important.

An Leas-Chathaoirleach: I understand there is a misprint in the Bill.

Mr. Ross: Information on Shane Peter Nathaniel Ross Zoom on Shane Peter Nathaniel Ross Yes, but what alterations are we agreeing to make? What is the misprint?

Dr. Moffatt: Information on Tom Moffatt Zoom on Tom Moffatt I do not think it has any significance. It relates to the reference in section 10 to section 7, which should have referred to section 5 instead. It is a misprint.

Mr. Ross: Information on Shane Peter Nathaniel Ross Zoom on Shane Peter Nathaniel Ross So it has no other significance?

Dr. Moffatt: Information on Tom Moffatt Zoom on Tom Moffatt As far as I can see, although I am not an economist.

Mrs. A. Doyle: Information on Avril Doyle Zoom on Avril Doyle Was this misprint in the Bill as it went through the Dáil or has it just cropped up here?

Dr. Moffatt: Information on Tom Moffatt Zoom on Tom Moffatt It is a typing error.

Mrs. A. Doyle: Information on Avril Doyle Zoom on Avril Doyle Was the misprint in the Bill as it went through the Dáil?

Dr. Moffatt: Information on Tom Moffatt Zoom on Tom Moffatt I could not say.

An Leas-Chathaoirleach: Is the House agreed that we will return to this matter later?

Mr. Ross: Information on Shane Peter Nathaniel Ross Zoom on Shane Peter Nathaniel Ross Will the Minister of State provide an explanation on Committee Stage?

An Leas-Chathaoirleach: An explanation will be given on Committee Stage.

Mrs. A. Doyle: Information on Avril Doyle Zoom on Avril Doyle This Bill was well debated in the other House and much of what we say here is by nature of the function of this House repetitive, but nonetheless, I hope, important. Our economic position is unique by European standards. Economic growth continues to exceed expectations, the rate of growth being well over double the European average, regardless of whether the forecast is optimistic or pessimistic. At the same time we are maintaining low inflation and low budget deficits. Internationally the economic outlook remains generally good. While the Asia crisis recently reduced forecasts, the general outlook of reasonable growth with low inflation prevails.

[899] It is against this background that we debate this Bill, which effectively requires us to hand over control of our monetary policy to the governing council of the European Central Bank from the 1 January 1999 start to economic and monetary union. The Bill also deals with giving legal tender status in this country to the euro currency.

While monetary policy has been under our nominal control, inflation and exchange rates have been effectively controlled as much if not more by external factors rather than domestic policies. This has been especially the case during good times. For example, at the last devaluation there was a challenge to the exchange rate mechanism when the smaller countries, such as Ireland, which did not have the reserve or muscle to withstand the challenge, were picked off.

While we have had nominal control over interest rates, external pressures, including sterling and the general European situation, means they are effectively directed from abroad. While we broke with sterling some time ago, Ireland is viewed globally, and especially within the European markets, as continuing to have a link with sterling.

Given that the Bill provides for the ceding of control of monetary policy to the governing council of the European Central Bank, we will no longer be able to adjust exchange rates or interest rates to correct domestic problems or economic shocks. While I support the move to economic and monetary union, we need a realistic debate. The Government may have to be optimistic and positive and not allude to the down side or risks involved. However, greater brains than anything gathered in this House or these institutions, both in the European and international scene, are warning of the risks of economic and monetary union for countries like Ireland.

The debate on the lack of economic convergence is interesting. For example, will Ireland, with its economy in overdrive and its experience of high growth rates and given the state of economic cycles, especially in France and Germany, be suited to the type of monetary policy that Europe will demand when we are part of EMU? Economists have serious concerns about these aspects. In view of this and while supporting EMU, we should be realistic about its impact, because there will be a down side. A slight devil's advocacy from me and others on this side of the House regarding the negatives may do a service in preparing us to cope as much as possible with them if they should arise.

The British Treasury decided it was not ready to consider economic and monetary union at this stage because of the lack of economic convergence. The argument applicable to Britain applies equally to us. Many eminent economists — for example, 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 cycle vis-a -vis general economic [900] convergence. While this measure is not directly applicable here, Terry Baker of the ESRI has commented on this to the effect that the divergence in economic cycles between Ireland and Germany or France is clear from both growth rates and interest rates, whatever measurement is used. According to the latest EU figures, our economy will grow by between 7 and 10 per cent this year while Germany's will grow by approximately 2.5 per cent and France's by 2 to 2.3 per cent. Our short-term interest rates are approximately 6 per cent compared to 3 per cent in Germany. According to Chris Johns, economic and monetary union will mean monetary polices that suit Germany and France but will not be appropriate for us. It will mean we will have to operate with interest rates levels which are too low, which raises questions about the potential overheating of the economy.

The second test which the British Treasury applied when 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, for which this Bill provides. This question was also addressed by the ESRI in its 1996 analysis of economic and monetary union. The previous Government and this Government have used this report to justify our entry to EMU. While I support the report's conclusion, that does not mean we can ignore the difficulties involved. The report concluded that once monetary policy was ceded and following any serious economic shock, it may take three years for prices to adjust and approximately four years for wages to adjust. This raises the question of flexibility in prices and in the labour market and whether we are flexible enough to cope and adjust. According to the report, the result of an economic shock would mean that Irish firms would become less competitive and some firms may not be able to survive through the adjustment period. Have we considered what that will mean?

The level of flexibility in the economy was highlighted as a problem by the National Economic and Social Council which carried out an analysis some time ago. The bodies whose reports are used to justify our moves contain much information that is not highlighted. If we are to be honest with the main players in the economy and everybody who depends on a correct decision, the small print must also be considered.

Mr. Peter Neary and Mr. Rodney Thom of University College, Dublin, two of the country's most respected economists, argue that the lack of flexibility in the labour market makes it unwise for Ireland to participate in EMU if Britain remains outside because of the risk of sterling related shocks. The position of sterling vis-a -vis monetary union makes the call much more difficult for Ireland. This point has been made for some time and while I consider that, on balance, Ireland is doing the right thing, I am not sure about this aspect. There have been volumes of [901] prints and an acreage of coverage about monetary union. I do not agree with people who say there is insufficient debate about this matter. There is plenty of information but people are not reading it.

Volumes of information have been issued on the impact of monetary union but I am not sure that we can have a clear idea about Ireland's position if it is a member of EMU and Britain is outside it, particularly in the initial years. I ask the Minister to develop the current thinking in the Department of Finance on this issue. How will Ireland cope in the event of a sterling related economic shock?

An interesting aspect is that sterling has strengthened while the IR£ has gone from parity to 81p today. An analysis and forecast must be carried out on the impact of sterling when Ireland is a member of EMU and Britain is outside. Sterling will be the strongest currency in Europe outside the euro. Many institutions and international investors will use investments in sterling as a hedge against the euro. It will be used to spread risk. Sterling could keep strengthening outside EMU and I ask the Minister to develop the point about Ireland's reaction if that was the position after monetary union. Sterling will be used because it is a relatively safe currency. It will be the strongest non-euro currency in Europe and many south-east Asian people, whose fingers were burned because of historic reasons and links, are using sterling as a safe haven for investment at present; this is in addition to the fact that it is being used as a hedge against any problems with monetary union. We need to know more about the Minister's thinking in this area because a sterling related economic shock of any type would impact enormously on Ireland after monetary union.

The third test the British Treasury used in considering whether Britain should join EMU was the impact it would have on investment. Its conclusion was that participation in a monetary union system that functions well would promote investment in Britain. The same holds for Ireland. However, a monetary union system that did not work for Ireland because of the lack of convergence between the economy and those of other member states would be damaging in terms of inward investment. This relates to the importance of economic convergence, a point to which the Minister alluded, and whether the monetary policy operated by the European Central Bank will suit the Irish economy. All monetary policy control will have been ceded to the European Central Bank so the issue is what will be the fall out for Ireland. I ask the Minister to develop this point further.

Reference was made to Ireland's strong convergence performance in recent years. However, the Minister did not develop Ireland's position vis-a -vis the current stage of development of the French and German economies. When the Minister is responding to the issue of sterling related economic shocks, I ask him to also deal with how [902] the lack of convergence on economic cycles in Europe could be addressed. Are there any concerns at present, given the buoyancy of the economy, that European monetary policy will not suit Ireland as a result of the stage of development other countries have reached?

A monetary union system that did not work because of a lack of convergence between the economy and those of other member states would damage investment. However, when one is supporting the case for joining EMU, it is easy to argue that being a member of EMU will attract investment to Ireland. There is much confusion on this issue. There is a saying that “doctors differ and patients die” and I am sure the Minister of State has heard that before in a different context. In this instance, economic doctors differ and I hope that Ireland as their patient will not die. One of the biggest problems is to whom one should listen.

Mr. Finneran: Information on Michael Finneran Zoom on Michael Finneran None of them.

Mrs. A. Doyle: Information on Avril Doyle Zoom on Avril Doyle We must listen to some of them. We cannot put ourselves forward as experts in this area. If one is interested in this subject, it is confusing because the signals differ dramatically depending on what one reads.

Mr. Jim O'Leary, a leading economist with Davy Stockbrokers, supports the case that if monetary union did not work because of lack of convergence, it could drive out investment. He argued:

Fearing the prospect of frequent and protracted misalignments of the real exchange rate vis-a -vis sterling, some domestic firms, whose principal export market is the UK, may well decide to diversify the risk by moving part of their production to Britain and Northern Ireland from Ireland.

It is easy to understand that scenario if economic convergence caused major problems. It is similar to using sterling to hedge against a dysfunctional European monetary policy in the future.

The fourth test the British Treasury used related to the impact on financial services in Britain. One gets a different response when one considers the Irish situation vis-a -vis the British position. The British Treasury believes, even at this stage, that it would be good for British financial services if the country took part in EMU. It would make it easier to tap into the European capital market. However, the ESRI calculated that monetary union will seriously threaten the Irish industry. Its bond and money markets would all but cease to exist. In addition, the banks would lose £100 million a year in income from foreign exchange trading. The ESRI also estimated that monetary union will cost Irish banks £130 million in a one off cost and could lead to a 7 per cent job loss in the banks.

The final Treasury test related to the impact on unemployment under EMU. It was deemed to narrowly pass the test. Their report found that [903] monetary union would result in an increase in jobs and a marginal impact of an 0.5 per cent increase on GNP. However, it was pointed out that these figures are within the margin of error in economic models used by the institute to calculate the impact of monetary union. Therefore, we cannot be sure.

Outlining the tests used by the British Treasury to consider whether Britain should pursue monetary union at this time and applying them directly to Ireland's economic performance and monetary policy must engender some doubt as to whether we are making the right move. I noted carefully the Minister's comments and I read the Minister for Finance's contribution in the other House. Many Members have followed Ireland's move towards monetary union for some time. On balance, I support what is being done, but we must be honest with Irish punters and institutions and international investors in Ireland. They must be aware that while we make these moves we are not talking about certainties. We cannot prepare ourselves for all eventualities because monetary policy will be outside our control. The real question is how much further outside our control it will be now that we have ceded control to the European Central Bank. This is different from recent years when it has been effectively, if not nominally, outside our control due to external influences having a greater effect on exchange and interest rates than any internal Government policy.

The area of private sector credit has been the subject of much recent comment. This directly reflects the excellent performance of the economy. Private sector credit has grown by over 50 per cent in the last three years and is increasing at an annual rate of 20 per cent. The Governor of the Central Bank is of the view that, as we started from a level of indebtedness that was relatively low by international standards, growth on this scale may not cause immediate alarm. However, he warns that on all previous experience growth of this level in private sector credit is unsustainable in the longer term without inflationary consequences.

The availability of credit at relatively low interest rates has been a major contributory factor to the increase in house prices, which are at historically high levels with reference to average earnings. House prices have risen by 50 per cent since 1994 and there are predictions of further substantial price rises for which evidence already exists. Home ownership is important to Irish people compared to continental Europe, where most people never aspire to owning their home and where rental of private property is the norm. This could become an issue in Ireland and there have been calls for the Central Bank to restrict credit, presumably on the understanding that this will somehow control prices. The Governor of the Central Bank has pointed out that the bank has no authority to restrict credit. In any case, such restriction would be inconsistent with the European [904] Union. It should be made clear that given our ceding of control of monetary policy to the European Central Bank, there will be no question of our Central Bank intervening to restrict credit. It would be unworkable because there will be even greater access to overseas lenders in the future. For some years increasing numbers of Irish people have looked offshore when seeking to borrow money. The Central Bank continues to monitor the conditions applied by various credit institutions in relation to house purchase, and it has warned those institutions of the dangers inherent in high rates of credit growth and the relaxation of lending standards.

The figures returned by Irish financial institutions show consistently strong growth in profits in these areas. This is not surprising in view of the favourable conditions for lending at present. Whatever we say about the rate of private sector credit, conditions for lending and the minimalisation of bad debts are very favourable. The Central Bank suggests that all indications point to competition in the credit area intensifying further in coming years. There will be expensive technological developments and competition from outside which will be facilitated by the single currency and economic and monetary union. The Central Bank also states that it is reasonable to predict significant rationalisation in our financial system in the period ahead. Are we clear about what this will mean? Some feel it would be disappointing if this resulted in a large proportion of Irish banking being controlled from outside, but we are looking at that possibility.

There has been impressive overseas expansion by a number of Irish financial institutions. It is well known that we live in a world of large scale movement of funds across borders, and Ireland is no exception. We have an open exporting economy and it is no surprise that cross-border holdings of funds are relatively high in our case. I find the Central Bank's figures startling. The total volume of deposits with banks and building societies in Ireland, excluding interbank deposits, is estimated to be approximately £60 billion. Approximately one third of that figure, £20 billion, is held by non-resident companies and individuals. One assumes that the vast majority of these accounts are in order. This proportion is high by international standards. On the other hand, deposits held abroad by Irish residents, again excluding figures, amount to approximately £11 billion. Again, this figure is high by any international comparison. I presume that legitimate offshore accounts are the only ones measured by the Central Bank. This figure has quadrupled in the last ten years, reflecting the growth in Irish trade, the removal of exchange controls in the context of the single European market and the development of the International Financial Services Centre.

That is the deposit side of the picture. Borrowing by Irish residents from overseas banks has experienced rampant growth in recent years and is now estimated to be of a similar order of magnitude as overseas deposits: £11 billion. Access to [905] credit abroad at competitive interest rates, growth in the multinational sector and the IFSC have all contributed to this development. This picture is not comprehensive; we are not discussing cross-border flows in securities and other investments such as equities, for which specific information is not available.

This gives an idea of the openness of the Irish banking sector. Given recent difficulties that have come to light, it indicates how difficult it is for the Central Bank to be aware of what is happening. I mentioned overheating and, given the lack of economic convergence in Europe, the reduction of interest rates is an area of concern. There will be considerable reductions in interest rates but there is great coyness from the Minister, the Department of Finance and the financial institutions in attempting to identify the exchange rate figure we will join at or how our interest rates will be affected. I understand this. The Governor of the Central Bank had a relatively innocuous discussion with the Joint Committee on Finance and the Public Service but it impacted on the Irish market when it was picked up by analysts. A vague suggestion of intent from the Minister was reported in the business sections of various newspapers. He clearly said at the committee meeting that he could not make a clearer statement for the obvious reason that it would impact on the market. However, even a broad discussion on where we were going and the range band at which we might join impacted on our markets.

Although I chide the Minister for his coyness and the lack of directness about specific questions in this area, I understand the nervousness in certain official quarters about letting the Minister out with a figure in his mitt or an indication as to how inflation might be impacted or what the short term impact might be. There is a general consensus that inflation will be reduced and that we will all join at the same band which is half our rate at present, so our inflation will come down.

How will that impact on the overheating of our economy, one which is very buoyant? I do not believe it will impact as adversely as some commentators indicate because there are certain functions in the equation in this country which are quite different to those in other countries. We can absorb a certain amount of overheating because of our high young population. Many people coming on to the labour market want to set up homes and want to establish themselves. They have either returned from abroad or are literally coming through our population figures. That will help absorb what otherwise might be some inflationary pressure. We can also increase growth, which we have been doing substantially in recent years. Growth could be anything between 7 per cent to 10 per cent this year depending on who one listens to. The intensive competitiveness in this country keeps prices down, otherwise we would have price inflation.

I already mentioned price sector credit. Asset price inflation is a serious issue. The main problem with it is that it could damage the social consensus. [906] The social consensus, as outlined in Partnership 2000, is an intrinsic function in the success of our economy and in attracting investment. Although asset price inflation is not measured in the CPI, it will cause concern, particularly in terms of the relationship between house prices and the average industrial wage. Inflation in this country is more a social than an economic issue.

We still have control of our income tax policy. This will be the one policy weapon we will have to enable us impact on inflation at home. A reduction in taxes could mean an increased disposable income without an increased pay. It will continue to become an even more important direction in relation to tax policy. Increased production with increased growth in this country is largely for the export market and does not have to be consumed by the home market. Again, this is a hedge against inflation which may not be available to other countries where increased production is largely for their consumers. This way we spread our risks in terms of the different export markets.

I welcomed the Bill at the outset and spent much, if not most, of my time underlining some of the areas where people who would not support, as enthusiastically as many of us in the Houses, the Department of Finance and advisers to the Minister, the concept of Ireland joining EMU at this point. I believe that on balance, it is the right thing to do. We do no service to individuals or institutions if we pretend we accept all the upsides of monetary union without having our eyes open in relation to the downsides, because there can and may be downsides. We will face a huge challenge in managing our economy having ceded control of monetary policy to the Central Bank, as this Bill requires us to do if we are to be up and running on 1 January 1999.

The benefits of monetary union are unlikely to be distributed evenly and there will be winners and losers among the various economies which join, whether now or later. To end on an upbeat note, there will be a reduction in transaction costs for business and individuals and this will be apparent almost immediately. The benefits are estimated at 0.5 per cent of GDP for the EU as a whole and up to 1 per cent for the smaller states which are heavily engaged in export to within the euro area. There will also be an improvement in the investment climate as currency volatility goes and interest rates decline.

I mentioned some concerns I had in relation to the lack of economic convergence among the euro participants and how that might upset the attraction of investment; but, on balance, I believe it should be good for investment in this country. There will be intensification of competition through greater transparency of cost and price structures together with a move towards a generally more level playing field in this area. There will be a general enhancement of EU performance relative to other global markets. As an economic bloc, we will have solidified and I hope the euro will become one of the reserve currencies [907] of the world. There will be strength in the sheer size and control which will be exerted by the European Central Bank on our economic performance as a group.

There will be other benefits to individual countries depending from where they are coming at monetary union, especially countries with poorer track records in the areas of inflation, control of budget deficit and devaluation through having to continue to meet the Maastricht convergence criteria and signing up for the fuller discipline by way of the stability and growth pact, about which we have not heard much. We sign up to that on an ongoing basis. In other words, the whole Bundesbank financial discipline has been and will continue to be good for us all as we join monetary union on 1 January 1999.

Mr. Finneran: Information on Michael Finneran Zoom on Michael Finneran We welcome this necessary legislation. The main reason for the Bill is not to revise Central Bank legislation or regulation but to adjust that legislation so it will conform and not conflict with the new European Central Bank and our membership of that body. As a nation, we can look back with a certain amount of pride on decisions we took in the past, particularly those taken in 1987 on the country's finances, and on our performance since then. The creditors were at the door in 1987 and a deep financial crisis loomed over the economy at that time. Measures were put in place and were continued in subsequent years.

The Central Bank Bill, 1997, is the next logical step in our involvement in the EU and enables us to be among the first tier of countries to adopt the euro, the new single currency for the states of Europe. While our nearest neighbour does not intend to join on 1 January 1999, it is clear that measures are being taken there to move in that direction. Even the British Government's declaring an interest in the independence of the Bank of England is an indicator of its intentions as regards the single currency.

There are a number of reasons the Irish economy finds itself in the healthy situation it is in today, among them are the policies adopted by the former Minister for Finance in the minority Fianna Fáil Government in 1987, Mr. Ray MacSharry. However, they are not the sole reason. The agreement of the social partners and the consensus of opinion between the different sectors of the economy is another. It was agreed that it was important to work together so that economic growth could be generated which would allow us to become further involved in the EU and avail of its benefits.

It should also be remembered that we have been in receipt of massive European funding from different programmes. The proper and integrated use of those funds has contributed to the situation in which we are today with high economic growth and employment creation which could not have been predicted seven, eight or ten years ago. It is generally expected that an extra [908] 50,000 people will be employed in 1998. That is a great indicator of the forward march of the Irish economy and its industry and services.

We should also appreciate the investment in education over the past ten years. The decision of Governments of the past ten years and earlier to invest in education is now producing benefits and added value for the economy. It is pleasing to see the graduates who left this country in the late 1980s and early 1990s returning in great numbers. Some of them have their own businesses and bring those skills back with them. New graduates are getting top class employment in many modern industries. This is one of many healthy signs in the Irish economy at this time. Others are low inflation and what for us are low interest rates, though they are not such by European standards. There will be economic growth of between 7 per cent and 10 per cent this year and the national debt has been reduced from 130 per cent to 60 per cent of GNP. These are the type of developments which have taken place and which have put us in the position in which we are today.

The next logical step is to adopt the Amsterdam Treaty and become part of the first group of nations to make the euro their national currency. People will point to our neighbours across the Irish Sea and state that there will be great dangers if the United Kingdom Government does not join EMU now. I read with interest the ESRI report on this matter and I have read many other documents but I am always bewildered by economists. I remember some of their statements over the past six to eight months. They conflicted so much that an eminent Member of this House told the Minister for Finance to ignore them and to continue with his current policy. The Minister was right to hold his nerve and not to allow himself be drawn into a public debate on matters which would do nothing but undermine and cause speculation in the economy. The Minister for Finance and his officials are to be complimented on their steady approach to this matter in recent times. Change always presents an opportunity for the speculator so I am pleased the Minister for Finance and his Department refused to give any indication of what the exchange rate of the Irish pound will be when we join the euro. They were right to do that. That matter will be dealt with at the appropriate time and the rate will be that considered to be in the best interests of the economy and agreement will have been reached with other currencies which will be joining. This will prevent speculators making a killing.

Those of us who have lived here for the past 20 years will be conscious of the great advances in our standard of living. The countryside has been transformed. The evidence of economic activity is there to be seen. Unemployment is falling at a reasonable rate and it will be soon under 10 per cent; some predict it could go as low as 5 per cent within a number of years. That is a very healthy sign and our involvement in the euro will enhance that. [909] The UK's non-entry could have detrimental effects. The ESRI said there could be a loss of 20,000 jobs. I do not know if that will happen, but there is bound to be some knock-on effects if the British Government does not enter EMU now. Regardless of whether it did or not, there would be effects anyway.

I have a number of queries regarding the legislation and its effects on people and institutions. I am not an expert in this area but I understand the Central Bank has surpluses, some of which may be very large — I am not certain how large. What will be done with these surpluses? Are they to become part of Exchequer funds or part of a nest egg for the rainy day? Has the Minister or the Government any proposals in this regard? We should have a system for using or adding to those funds so that we have protection in the event of something going wrong. We should not use those funds in a way which would clear them out in a year and leave us with no reserve. I do not know how that could be achieved as I am not an expert in the area but in the interests of good economic and financial husbandry, it is important that we use them to the best advantage of the nation, not necessarily now but in the medium to long term.

How does the Central Bank stand as regards gold reserves? Do they play an important part or any part in our overall reserves? In the USA great dependence is placed on gold reserves as a back-up. The euro will be tested against the other great currencies such as the US dollar and the yen and its success will be measured by how favourably it competes against the dollar. Some American economists predict that it will not do well against the dollar but that may not be the case. The EU is a strong trading and economic bloc, a progressive and highly developed region, and there is no reason it should not be in a position to compete favourably against the dollar.

Our level of exports to and imports from the UK must be addressed and perhaps the Minister could indicate in his reply if he sees a difficulty in that area. The ESRI report said that 20,000 jobs could be lost. Some 30 per cent of our imports come from the UK and 20 per cent of exports go there, which indicates we are still heavily involved with them. We cannot simply ignore this, we must consider our options and ask whether there are detrimental effects or dangers in this. Such problems may not materialise but we should not let legislation such as this pass without raising and debating these matters and receiving a response from the Minister and his officials. The public wants to know if there are pitfalls to be avoided and if measures should be put in place now to cushion us against major problems.

Sections 14 to 16, inclusive, deal with coins and notes, which has been a hobby horse of mine for a number of years. Other European countries did not change notes into coins to the extent that we did. People in Ireland have the lining falling out of their pockets with the weight of coins they have had to carry in the last ten years. Instead of the 50 pence and £1 coins we should still have the [910] ten shilling and £1 notes. There is no advantage to the public in changing notes to coins. I do not know the proposals for euro notes and coins but we should stick with notes as far as possible. We seem to have followed the British decisions about coinage which was not in our best interests. Perhaps the Minister could outline the proposed euro notes and coins. Many European countries have stuck with notes and I hope their influence will be felt in this matter.

We could not discuss this Bill without mentioning banks and I am perturbed about their charges and profits. We want to see them do well and to be sure that the money deposited with them is safe but we do not want them to make obscene profits — one commercial bank made a profit of £500 million in recent times. Bank charges have gone so far that a customer would want to quicken his step when passing the door of a bank, because if he goes in he will have to pay a charge. If he goes into the manager's office he can be assured that £20 or £30 will be deducted from his account, whether he takes the manager's advice or not. Cheque transactions can also cost a colossal amount. Bank charges have gone so high that it may be time to legislate to curb them.

I am disturbed by how many opportunities banks have to pick as much as possible out of customers accounts for various reasons — every transaction costs money. I was in a bank the other day with my 13 year old daughter who is going on a school trip to France. She was given a card so that she could withdraw money from a French bank, for which she was charged £3.50. That may not be a huge sum but it is a lot to a 13 year old student. If your account does not meet the demand placed upon it, you will be charged double, because referral is now the order of the day and that costs money. In some case a double referral can cost as much as £15. The opportunity for banks to impose charges should not be ignored. I know this legislation is not the place to address this matter. It may be that it could be dealt with under consumer affairs or credit legislation. It is an area which needs to be highlighted and I would like to see legislation introduced to regulate it. The public should be protected from the scavenging of banks through their imposed referral charges.

What is the situation regarding the security of a person's money in a bank? How secure is it? I am not talking about someone robbing the bank with a sawn off shotgun, I mean in the event of a bank becoming insolvent? What protection is there? It has been brought to my attention that protection is limited. That should not be the case. The Minister could address that in his reply.

Price stability and convergence will be part and parcel of a successful Europe. I am worried that if we compare Europe to the United States, there would be a sea change needed to deal with a situation where there is depression in one state. The American public would have no difficulty in uprooting and moving to a state where there was a successful economy and job opportunity. That [911] may not be as easy to do in the European states. There could be linguistic and cultural difficulties. If something went wrong, I would be concerned about labour flexibility. The Minister might also address that.

The euro will bring major benefits, to industry in particular, because the cost of currency exchange is enormous. In a debate in the last Seanad of which I was a Member it was said if a person had £100 and flew round the then 12 capital cities of the EU and exchanged that £100 into the currency of each country at each airport, that person would arrive back in Dublin to find they had only £30 in their pocket.

Mr. B. Ryan: Information on Brendan Ryan Zoom on Brendan Ryan If you did not spend any of it you would not need to change it.

Mr. Finneran: Information on Michael Finneran Zoom on Michael Finneran Senator Ryan has not grasped the point I am making. Exchange rates are costly for industry. With the elimination of exchange rates the cost which exists should be eliminated. Senator Ryan was absent when that point was made in the last Seanad.

Mr. B. Ryan: Information on Brendan Ryan Zoom on Brendan Ryan An unfortunate accident.

Mr. Finneran: Information on Michael Finneran Zoom on Michael Finneran It was pointed out if a citizen travelled to each of the 12 EU capitals of the time and exchanged £100 into the currency of each capital, by the time that person arrived back in Dublin, with cost and commission, instead of having £100, even though nothing apart from the currency of each country was bought, there would only be around £30 remaining. There is a massive transaction cost involved between countries presently and that will be eliminated for industry, tourists and the frequent traveller.

I welcome the legislation. It is necessary not to revise any regulations we have dealing with the European Central Bank but to adjust them so they do not conflict with our membership of the new bank. I am positive about our involvement with the euro and that this country will progress in a positive way and avail of our involvement in the European Union.

Mr. Ross: Information on Shane Peter Nathaniel Ross Zoom on Shane Peter Nathaniel Ross I am suspicious of political consensus on issues of this sort. It is striking that the debate about EMU and the European Central Bank has taken place outside these Houses. That is not necessarily a criticism of the Oireachtas. The reason this has happened is because all political parties, for reasons I do not understand, are in favour of European monetary union. I suggest none of them, individually or collectively, understands it. That is not meant to be patronising or condescending in any way. We have been so indoctrinated by now with the belief that Europe is good for us and we have done well out of Europe, that we must therefore grasp anything going as another gift to Ireland from the European ideal. It is true we have done well financially [912] out of the European Union. We are the greatest net beneficiaries in terms of grants.

There is a belief throughout the State that anything to do with Europe is good for Ireland. To some extent we are on the take and this is part of the same philosophy. I believe nothing is further from the truth, but all political parties are frightened to take on that consensus, partly out of ignorance, partly out of laziness and partly out of a belief that joining the bigger entity will protect us. It is ironic that the little green man from Mayo came in to fly the white flag today. As a Prod from Wicklow I am flying the flag for independence, to hold on to Ireland's independence when the most Nationalist party has always been to one to fly that green flag.

This debate is not about the technical issues involved in the small print, it is about the sacrifice of Ireland's economic independence. Every party in this and the other House is in favour of surrendering Ireland's economic independence. If they put it that way I would not argue with them. I would have no quarrel with the Minister if he told the House that Ireland is going to sacrifice its economic independence and that this is the first legislation which recognises that fact. However, his speech was couched in such extraordinarily dissembling language that one would think we were joining an elitist club which was going to benefit us. I will give one or two examples.

In his speech the Minister's stated: “The provisions of the Bill are designed to cater for the streamlining of the independence of the Central Bank.” What does “streamlining” mean? It means giving up almost all of the Central Bank's independence but the Minister will not say so. It is put in these favourable terms which are meant to fool us that there is something good about it. The Bill is about the Central Bank giving up its greatest powers, the only powers which matter in the long run; supervision is another matter.

The Minister went on to speak in the European mumbo jumbo to which we have become accustomed. This confuses people, they do not read it because they are turned off by it. Most of the Minister's speech is incomprehensible and will never be read. It was difficult to digest, and deliberately so. I do not know who writes these speeches. It is an art form to be able to confuse punters to the extent that they will not be able to read them properly and they will certainly not be able to understand them. It is no coincidence that a misprint came through to this stage. Even those who are meant to spot these things did not do so because it is so confusing and difficult to understand. However, the message is clear — it is a simple surrender of the Irish pound and Irish economic sovereignty. Let us get that straight. Let us also get it straight that Fianna Fáil, Fine Gael and Labour are in favour of this yet the reasons they give are, virtually, non-existent.

What strikes me about this debate is the feeble nature of the arguments in favour of EMU. The best argument I have heard in favour of it in the [913] House today is the worst I have heard in favour of it outside. Every speaker in favour of EMU has grabbed the ESRI report as a lifeline and stated: “The ESRI came out and said that, only just on balance, EMU might benefit GNP to the extent of 0.4 per cent”. That is the best the ESRI can do. However, this prediction depends on certain assumptions and conditions being met.

I do not wish to insult the ESRI, it is full of extremely bright and hard working people. However, it has two problems. First, it is fallible like all economists. Second, it is the Government's paid economic institute. It is not independent in the purest sense of the word. This is the report relied on by the proponents of this Bill. It is a wafer thin argument and a wafer thin balance in EMU's favour even from the Government's own economists.

I looked elsewhere for arguments in favour of EMU but I could not find any. I understood Senator Finneran's argument about exchange rates. However, that argument is not about the macro economy, it is about us paying less at the airport. This is a fair argument but it does not address the real issue of what is going to be good for the Irish economy. I strongly believe that the day we join EMU will date the beginning of the end of the Irish boom — the day the present Golden Age will start to come to an end and I am here to tell the House why.

First, let me deal with the Minister's speech and why I found it somewhat offensive and, to a certain extent, insulting. The language used by the Minister is full of bland generalisations which explain nothing. It is the sort of language we are used to listening to when talking about EMU. We are listening to a Government which is not convinced of its own arguments. The Minister spoke about the executive board. To reassure us he stated that this board will be made up of efficient people. He stated: “The executive board must be appointed from among persons of recognised standing and professional experience in monetary or banking matters by common accord of the Governments of the participating member states.” That is meaningless. It means anyone the Governments like and judge to be suitable can be a member of the board. There are no specific qualifications. It just means that those who are acceptable to the ECB will be eligible to become members of this body.

The Minister went on the speak about the independence of the European Central Bank. He stated: “This independence will generate confidence in the euro as a stable and secure currency.” This is as subjective a statement as has ever been made by a Minister in this House. How does the Minister know this? It is rash, foolish and a hostage to fortune for Ministers to predict stability and confidence in a currency which does not yet exist and any Government would live to regret such a prediction. One is talking about something about whose fate no one has any idea.

The Minister made a bold statement about the fate of sterling which few Members would make, [914] let alone a Minister. He stated: “Clearly the sterling issue is important but we must be careful not to overstate its importance. When we talk about a sterling shock we are talking about a sharp fall from its equilibrium level”. I do not know what sterling's equilibrium level is and I doubt if the Minister or whoever wrote this speech does either. The Minister continued: “At present sterling is well above what most commentators, including the Bank of England, consider to be its equilibrium level. Therefore, sterling would have to fall a very long way before it could be considered to represent an economic shock”. In other words, to reassure us today the Minister is telling us that sterling will be lower tomorrow. How does he know this? No one knows.

Recently ten economic commentators were asked at what level sterling would stand this time next year. Nine had a shot at answering the question while the tenth gave the only answer which an honest or sensible person could, namely, that he did not have a clue and neither did anybody else. It terrifies me that the Minister supports entry to EMU at a certain level on the basis that sterling is too high as it shows the Government does not know what it is doing. It is not possible to make such a decision on that basis as there is a 50 per cent chance of being wrong.

The remainder of the Minister's speech is full of rhetoric, something we understand in the context of politics. It contains a certain amount of extremely feeble advice which is not reassuring. The Minister offers advice to those who may suffer if sterling is devalued after Ireland joins EMU saying they should take steps in time to address the problem and prepare for the disaster they will encounter. This is sound advice, but the Minister does not tell them what they should do. There is not much they can do. The reality is that once Ireland is in EMU it is a prisoner and the only thing prisoners can do is escape. The Minister is telling the prisoners not to worry, that they should prepare to get out. However, it will not be possible to get out. This is utter foolishness and it is not properly thought out.

Towards the end of his speech the Minister made reference to hedging, but it is only possible to hedge for a short time; is very expensive and can be a complete waste of money. It decreases profit margins and it can only be considered a very short term solution.

I was not only struck by the jargon of the Minister's speech and the failure to think the issue through but by the fact that the Government is bankrupt of ideas about what to do in the event of EMU going wrong. It is going to enter EMU, blindly believing it will be all right. It is a dangerous scenario, the reason for which Senator Doyle touched upon — it is always nice to see Senator Doyle expressing scepticism on the one side and voting with her feet on the other — I suppose it is progress. It is dangerous because the Irish economy, due to its enormous success in recent years — something which should not be undermined [915]— is totally out of step with the rest of Europe.

The worst possible date we could have picked was 1 January 1999 for entering EMU as our growth rates are phenomenal. German and French growth rates — those which matter in Europe — are very low. Upon entering EMU and the merging of the central banks, our economy will be crying out for a rise in interest rates to dampen demand while the German and French economies will be seeking a fall in interest rates in order to generate growth. One does not need to be a genius to know the French and the Germans will win hands down. In such a situation, and all other things being equal, Irish interest rates will further decrease and the economy will simply explode and get completely out of hand, house prices will again double, skills shortages will be uncontrollable, businesses will not be able to meet demand and we will be able to do virtually nothing. Helmut Kohl may be asked to do something but he will say he is sorry, we knew what EMU was about but we did not wish to remain outside with the British as we are keen on proving our independence and therefore we must accept the situation. It is the wrong time to be entering EMU when our economy and growth rates are so out of line. It is fine to speak of the Maastricht criteria but, because we are doing exceptionally well, monetary union of the type being proposed is not suitable. We can do very well without entering — it is totally unnecessary at this time.

This is a time of immense prosperity and success. The economy is booming and we have man-aged it reasonably well. I am one of the few Independents who applaud the Minister's management of the economy and I welcome much of what he has done and the courage he has shown. In particular, I welcome his brilliant and highly successful management of the currency in recent months. He has shown how a Minister for Finance should manage a currency without taking notice of the Opposition, economists, banks, speculators or anybody else. Having shown he can deal with these people, there has been no speculation against the Irish pound as nobody knows what is going to happen. It is extraordinary that, having done do well, he is now saying we will not manage it anymore but leave it to somebody else. Not one good reason has been given for so doing. We have proved our abilities in this area, regardless of sterling so why are we transferring management to somebody else? I do not know, except that for some reason we think Europe is good for us.

We are going to give away control of interest rates, the other vital control on our economy. One speaker said we have not had too much control of interest rates so far, but we have had a fair input into rates which, otherwise, would not be so far above current German rates. They reflect a certain degree of confidence or lack of confidence in the pound, the currency, the economy [916] and various domestic factors and we are going to surrender this weapon.

The most crucial weapon we are surrendering is devaluation. Nobody knows the reason for the current boom. Economists will give four or five reasons, including EU funds, social partnership, multinationals, etc., but one reason given is the devaluation in 1993. Many economists and people in industry, particularly small businesses, say the best thing to happen our economy was the devaluation of 31 January 1993.

There is some truth in the claim that speculators forced that devaluation on us. They only forced it on us for two reasons. First, because they thought the value of the pound was too high and second because they saw us as a sterling currency, which, of course, we are although this Bill fails to recognise that. That devaluation fuelled an export-led boom because we used a weapon which was at our disposal. Without that devaluation against sterling the current boom would not have happened to such an extent. We are deciding today to take the first step in giving up that weapon. We are about to hand it to the Germans, French, Dutch, Austrians, Portuguese and a few others. We are the one nation which will have no say in whether we devalue or not when we are in EMU. We will not matter. The Irish voice will not merely be drowned, it will be irrelevant in the world of European currencies. When the Germans or French decide that the euro should rise or fall in value it will do so. We will have one of the 15 members on the governing council of the European Central Bank, but that will not really matter. The most unsuitable and dislocating factors will come into play. There will be no use in our bleating that we did not know that EMU would be like this. We will be separated from sterling and we will suffer. Ireland's entry into EMU has not been adequately thought out.

The euro will fluctuate wildly against sterling. There are two possible scenarios. I am not foolish enough to say which way it will fluctuate. Predicting currency fluctuations is foolhardy. I know, however, that whichever way it fluctuates will be bad for us. If sterling rises against the euro we will import more inflation from the United Kingdom than any other country in Europe because of our dependency on Britain. It is a mystery why we have not imported more inflation from the United Kingdom in recent months. That currency move will be inflationary. The further sterling rises the more inflationary it will be. We will quickly develop peculiar and identifiable difficulties. We will be unable to do anything about it.

The consequences of this inflation will be particularly interesting for the social partnership and for the various national wage agreements. One economist, using a Central Bank model, has predicted inflation of 6 per cent before the end of the year, even if we do not enter EMU, because of our weakness against sterling. If such inflation occurs, trades unions will seek to break Partnership 2000 before its life span is over. No [917] one will blame them because that agreement is based on much lower inflationary expectations. That is the first scenario; a highly inflationary situation peculiar to Ireland, our Government powerless to do anything about it and the Germans and French laughing at our predicament. That is the first possible consequence of our refusal for political reasons to recognise special link with the British economy.

The second scenario is even more threatening. We all know what the consequences will be if sterling falls against the euro. In the old days we could have devalued to become more competitive against sterling. This is why we devalued in 1993. If such a development occurs in 1999 we will have to take cheap imports from the UK. This will damage much of our indigenous industry and our own exports to the United Kingdom will be too expensive. This will result in losses of jobs, particularly in the Irish indigenous sector, which is the most labour intensive. This sector exports to the UK more than any other. What will the Government do when sterling falls against the euro and the unemployed are marching in the streets saying that EMU put them out of jobs? Will the Government blame the Germans or the French? Will they make the old rash predictions about a resurgence of sterling to comfort people? Will they promise people that they will get their jobs back when sterling recovers? In such a situation, if we were outside of EMU, we could devalue against sterling or any other currency. For a country which is so dependent on exports such control over its currency is vital and we are about to sacrifice this vital weapon. We will be completely and utterly dependent on currency movements around the world.

We are not as dependent today on native, labour intensive industry as we were 20 years ago because we have multinationals and the dangers to these industries are not as apparent today. The wealth created by multinationals disguises some of the difficulties experienced by small Irish businesses. The huge amount of money spent by people employed by these multinationals, although welcome, still leaves it difficult to prove that many indigenous industries are in trouble.

Multinationals will not be here forever and they can leave at dawn in slippered feet. Their loyalty is based solely on who can offer them the best deal. They look for an area which offers them the best tax deal, an educated population, less unionised cheaper labour and skilled labour. Ireland has all those things and that is why they are here. The threat to multinationals is ever present. It is present in eastern Europe, the far east, Africa, everywhere apart from the highly paid labourers of Europe. There will come a day when there will be few multinationals here and indigenous industry will regain its place as the leading force in our economy. If we enter EMU we may decimate that indigenous industry.

Let me explode another myth which was mentioned by the Minister and Senator Finneran. It is assumed that the euro will be a strong currency.

[918] All the great europhiles, like Peter Sutherland and others, have urged us to join the EMU. They say it will result in a stable currency, low inflation rates and the euro will be comparable to the US dollar. There is no guarantee of this. I do not think it will be a strong currency. If I were a speculator I would watch how the euro develops and on 1 January 1999 would look for an opportunity to sell it short. I am sure that is what George Sorrensen and others are doing. If the speculators decide that the euro is overvalued from the beginning they will rapidly start making money. Size is irrelevant when it comes to the strength of a currency. Its strength is determined by the way it relates to the statistics of the economy which it backs. We only have to look at the enormous amount of money made by speculators against the US dollar, the strongest currency in the world, the yen and sterling, a world reserve currency. Currencies of that size backed by so called huge reserves are as vulnerable as smaller currencies. The euro will only be as strong as Europe's weakest currency at the time, which will be the Italian lira. The Italian entry into the EMU will be fudged, as will some of the others, for political reasons. Once the Italians are included in the EMU they will not leave it. The Italian economy will drag the euro down and there will be heavy speculation against it. The Italians should not be included.

If there is a weak euro this time next year there will be a reverse of the situation which has been predicted for so long. The ECB will panic due to a run on European reserves and will raise interest rates to protect the euro. The predicted low interest rates regime would have helped the German and French economies. This might be good for Ireland but the situation will be completely outside our control. The Italians and other weak economies such as Spain, Portugal, etc. will dictate the strength of the euro and the fate of European monetary policy. That is a frightening scenario, but we will not even consider it. That is why I am critical of the Minister's speech and policy because we have such a bland, smug and selfsatisfied approach to this as though there were no real dangers. We are told not to worry about the British because the ESRI said it will be okay by 0.4 per cent. No one accepts the dangers are very serious.

The details of the Bill will be decided on Committee Stage. I am worried by the position of the Governor of the Central Bank. I do not know even from reading this Bill what the composition of the ECB will be. I understand it will comprise of one member from each country and that will be the governor of the central bank of that country. There will also be a higher executive board which will consist of four or five countries. It is still unclear how they will be selected. If Ireland is represented it will be considered to be too small an economy to have any say on issues.

The Governor will be not be accountable for what he does here. He will be answerable to various committees here but not in relation to the [919] ECB. I do not want the Minister to say afterwards that it is contained in the Bill in an explanatory memorandum and in his speech that he has to appear before Dáil committees. I understand that he can appear before Oireachtas committees provided he does not talk about Europe. He can only talk about what is within the remit of the streamlined ECB after EMU. There is an element of camouflage about him being able to do this, that and the other, but in effect he is allowed — and amendments to this effect were tabled in the Dáil - to inform but not consult. That is total emasculation as he can tell people what happened but he cannot ask their opinion. Those who support this would consider this arrangement independence from political interference and those who do not, myself included, would consider it a complete lack of accountability.

The Governor of the Central Bank will supposedly represent our interests in Europe, but in effect will not be accountable to us for representing them. It is a strange contradiction and the Bill contains an even more alarming statement of the objectives of the new European Central Bank. It states:

Without prejudice to the objective of maintaining price stability — [This is a general overall hope to keep inflation down which means raising interest rates if the currency is under pressure] — the Bank shall support the general economic policies in the Community with a view to the achievement of the objectives of the Community as laid down in Article 2 of the Treaty.

This means the European Central Bank, including our representative, would have to pursue general economic policies dictated by Europe, not monetary policies. We are not only giving up our independence with regard to currency and interest rates but also our pursuit of individual, identifiable Irish economic policies.

The Bill is not just anti-independence or about sacrifice, it could oblige the Governor of the Central Bank to work directly against the interests of the Irish people because he and the bank are mandated to support policies in which the general European group of central banks believe. Implementation of those policies could begin this time next year. The Governor of the Central Bank will have to come back this time next year and say he is informing us that interest rates will be reduced and will not listen to what have we have to say. Neither the Minister nor I can approach him to tell him this will drive the economy through the roof. He will not discuss it and will tell us this will be done because it is in the general economic interest of Europe. That is a serious danger. We will be outnumbered 14 to one and when the countries from the East join, we will be even more outnumbered.

The Central Bank will still exist as there will still be a building on Dame Street with people going in and out every day looking important and [920] making the right sounds, but probably failing to provide information to the public as it has always done. Although it has improved in that area it is still a very secretive organisation. However, it will maintain a supervisory role looking after banks and building societies and policing various bodies, such as the Stock Exchange. I do not know whether it covers financial intermediaries but it should be acknowledged the bank's role in that area has improved in recent times.

I have been critical in the past of the bank's role in supervision. It was extraordinary that there was not a single prosecution under the exchange control rules even though they were in operation from 1979 to 1992 in a strict form. Nobody was caught or prosecuted for breaches of them, but the evidence that has emerged since is not consistent with there having been no breaches of exchange control during the period or before-hand. However, the Central Bank never initiated a prosecution and its policing role was limited and ineffective at that time.

Banks have gone bust under its supervision, such as the ICI debacle under Allied Irish Banks, the Gallagher bank and the Irish Trust Bank. It was not immaculate or impeccable in its policing of them, but it has taken over the Stock Exchange and appears to be doing an effective job in that role. Whatever its sins in the past, which probably have yet to emerge, it is now doing the financial services industry good, although there is no other body to do it. However, its most important role is now being surrendered as the Irish economy is about to be run from Frankfurt by the European Central Bank. It will be run by somebody else and we are happy with that.

The alternative is simple. We could do what the British are doing. Senator Finneran alluded to the fact that they are making preparations for entry into EMU. That is not the case as they have indicated they will not enter the first tier and nobody seems to harbour illwill for this stance. They have it both ways — they wait until 2002 to see how it works and if they like what they see they will apply for membership and gain admittance. They are keeping their options open while we, who need to keep our options open, are doing the opposite. We do not like the idea of being a sterling satellite and we will enter EMU to prove that we are not. All we had to do, and independent advice supports this, was to stay out to see how it goes and reserve the right to enter later. There would have been no objection from the Germans or the French as they would have understood our position.

Behind the scenes the Germans maintain that Ireland is a sterling satellite and it should do what the British are doing. We do not like to hear that but it is what they are telling us to do. If we insist on entering EMU, the French and Germans will say we must enter with our eyes open because we are a sterling satellite. However, we are saying we want to go in anyway. This is fatal.

We had the option of staying out and linking to sterling while tracking the euro currency. That [921] would be quite feasible and easy to do and it is probably what the British are going to do. If we had done that we would have retained financial independence at a time of unprecedented prosperity and when we have just about proved we are competent to run our economy.

I vehemently oppose this Bill. It is the height of folly, taken by cowardly politicians who have not thought out this issue.

Mr. Bonner: Information on Enda Bonner Zoom on Enda Bonner I welcome the Minister of State who, given the length of the contributions so far, will be here for quite a while.

I compliment Senator Ross on a very fine speech. He has awakened many of the doubts I have had in this area over the years. However, we have gone too far down the path to change now, although I know economists differ on the subject.

I have had grave doubts about this area since seeing the effect decimalisation had on our economy. Perhaps it did not affect the big players but it had serious effects for ordinary people in terms of inflation. In 1974 we joined the European Monetary System and broke the link with sterling. No area knows more about the effects of the break with sterling than the Border counties. As Senator Ross said, we had a devaluation in 1993. A year ago the punt was worth £1.05 sterling but today it is worth 81p sterling. However, having said all that, if one had doubts about everything one would never get up in the morning. We must press forward.

Many issues concerning EMU have been discussed today, not all of which relate to the Bill. Senator Ross disagrees with the use of the word “streamlining” but the Bill is simply rectifying the situation to allow what has already been agreed to take place. Its provisions are designed to cater for the streamlining of the independence of the Central Bank of Ireland, along with its institutional integration into the European system of central banks and the European Central Bank. The amendments introduced in this Bill to the Central Bank Acts, 1942 to 1989, are a necessary part of our preparation for full participation in Economic and Monetary Union.

The legislation is set in the wider context of entry into EMU. The Bill is essentially technical and complex and details the changes necessary to existing Central Bank Acts to allow for our entry into EMU on 1 January 1999 and for the establishment of a European system of central banks and the smooth operation of the new system incorporating the countries of the European Union.

The decision on which countries qualify to enter EMU will be made in May. Most countries will have met the criteria set down for entry. EMU will begin on time on 1 January 1999 and there is no doubt that Ireland will be a member from the outset. We have always supported the process of European integration and EMU will be a substantial step in that process. It is essential, [922] therefore, that this Bill passes through the House quickly, as May is just around the corner.

As the Minister of State said, the Commission and the EMI will produce their convergence reports on 25 March, which is a little over a week away. The changes in this Bill, which will make our legislation compatible with the Treaty, need to be passed by this House in time to be taken on board by the Commission and the EMI when they are finalising their convergence reports. That is how urgent it is.

Many decisions will be made on 1 May — the countries entering EMU will be named, the European Central Bank will be founded and fixed rates of exchange will be pre-announced.

As Senator Ross said, all the main political parties in this and the Lower House support the Bill. While some have small difficulties with its details, it is interesting to note very few amendments have been tabled for Committee Stage; this was also the case in the Dáil. I also note that Senator Ross has not tabled any amendments.

We are merely going through the motions with this Bill as all the necessary decisions were made earlier in the EEC Treaty, as amended by the Treaty on European Union, and with certain provisions contained in the Statute of European System of Central Banks and the European Central Bank contained in Protocol No. (3) to the Treaty establishing the European Communities. Existing Central Bank Acts set out certain specific powers of the Central Bank of Ireland. This Bill confirms that to the extent necessary to give effect to the obligation imposed on it by the Treaty or the Statute. The Central Bank of Ireland can participate in the European Central Bank by pooling its assets and income liabilities and can perform any function required for this purpose.

The decisions to enter EMU have been made. Regardless of whether they were made for political or economic reasons, and regardless of whether the pace is being driven by the larger and more powerful countries, such as Germany and France, which were mentioned by Senator Ross, we are entering on 1 January 1999.

The European Monetary Institute, the forerunner to the European Central Bank, is based in Frankfurt, Germany. In recent days France and Germany have been pushing for a decision before May on who will head the European Central Bank, possibly the most powerful post in Europe under the single currency. The French are pushing for the Governor of the French Central Bank and the Germans are happy to accept the Dutch representative, the existing head of the EMI and is based in Frankfurt. The Germans are totally opposed to splitting the eight year mandate for this job. I understand all positions will be for an eight year period. There could also be further problems down the road if Chancellor Kohl is defeated. We have no say in the wider picture if we wish to be part of a strong Europe.

We should have no fears if the euro follows in the path of the US dollar. The United States has a common currency for all states and an extensive [923] federal budget which is combined with individual state budgets. This is what is proposed for Europe. The creation of a strong European currency, which will compete vigorously with the dollar, must give Europe greater credibility and give Ireland greater opportunities.

We are told the benefits of a single currency are lower interest rates and lower inflation — although one might wonder about that having listened to Senator Ross — the elimination of exchange risks in trading with our fellow Europeans, which would be definitely the case if the British joined EMU; reduction in foreign currency exchange transactions; easier comparability of market prices across Europe; and easier dealing with end customers across Europe.

My main concern is whether we have properly prepared for entry and whether EMU has been set up too quickly without the necessary preparation. I note we have until 2002 for all steps to be integrated. I hope we will be advised and properly prepared in the intervening three or four years.

There are many costs associated with EMU for business people, especially small businesses and there are costs associated with changes to IT systems and accounting procedures. Reorganisation of customer products is needed in terms of pricing, product sizes and specifications. In addition, factors such as the disruption involved in handling two currencies for an interim period, the need to display prices in terms of euros during this period and the staff training costs, both for Government services and for private enterprise, must be considered. There is also the challenge of greater international competition.

Very little is being done by my profession to advise members on the implications of EMU, as has been done when there are changes to company law. As an accountant I deal with them on a regular basis for business people, yet there has been no input by professional bodies in preparing their members despite the fact that company returns and tax revenues can be paid in euros from 1 January 1999.

The EU Commission is slow to accept that mistakes have been made in the past or that certain EU directives should be deleted. We are seeking the abolition of the directive on the elimination of duty free. Implementation of the directive was subject to an impact study, which was not undertaken. All other member states have been opposed to its abolition. However, in recent weeks the Minster has gained the support of the Dutch and Germans. I hope it will be abolished.

Senator Ross referred to the areas in regard to which we all have reservations. Coming from a Border constituency, my biggest fear is sterling. In this regard, I was assured by the comments by the Minister of State. However, Senator Ross pointed out that sterling could fall in value against the euro, which could create difficulties.

The decision by the British Government to stay [924] out of EMU has created difficulties. In view of our break with sterling following our entry into the exchange rate mechanism, it would be better if Britain entered EMU with us. However, in view of its position perhaps we should also stay out in the short-term to see how events will unfold. We are all aware, especially those trading in Border areas, of the difficulties posed by the punt/sterling differential.

The rate at which we enter EMU will have a significant effect on our economy because of our trade links with Europe. However, matters will impact on us to a greater extent because of our trade links with sterling. More than 30 per cent of our imports are from Britain while more than 20 per cent of our exports go to Britain. Its failure to join EMU will create many problems for us. When the punt is weak against sterling our exporters do very well. However, we must introduce a system, similar to that introduced previously by An Bord Tráchtála, to safeguard employment when sterling drops considerably in value against the punt.

Our currency has weakened by over 25 per cent against sterling in the past year alone. If we enter EMU at the suggested exchange rate of £2.41 against the Deutchemark we will face a 12.5 per cent drop in the value of our currency against the Deutchemark in just over a year. I take some solace from the remarks by the Minister of State when he said that the EU Council of Ministers meeting in Luxembourg last December adopted a resolution for setting out principles and arrangements for centreing economic co-ordination among states sharing the single currency and between those and other states not yet in a position to participate in the euro. We should, therefore, be given some safeguards in relation to sterling for a three to five year period until Britain decides its position.

Despite the Central Bank, there have been many abuses of exchange controls by certain banks and their customers. The largest bank in the country recently announced annual profits of approximately £580 million. Some of the smaller banks have also announced huge profit increases. Such profit levels, and the way they are being achieved, are immoral. There should be greater controls on the banking system, especially with regard to bank and referral charges.

Small business people with overdrafts of perhaps £7,000 to £8,000 can incur up to £1,500 in referral charges. The banks blame computerisation. However, surely a bank manager should be in a position to check on customers on a regular basis or to determine if a customer needs an overdraft increase of, say, a few thousand pounds. The banks have customer services departments, yet I have only seen customers receive a service when they meet their bank to discuss a problem. Banks and their personnel are encouraged to maximise profits regardless of the effect on small customers.

Our interest rates will probably converge and drop to possibly 3 or 4 per cent from the present [925] level of approximately 6 per cent. What effect will that have on house prices, which are already out of control? Many young couples, especially in cities, will never be in a position to borrow or finance their own homes. The situation could deteriorate even further. At present, financial institutions are providing funding based on the ability to repay at low interest rates without looking at the wider effects of their policies on young couples.

Will the criminal rates of interest charged on credit cards converge when we enter EMU? Will a rate of 5 or 6 per cent apply compared to the present rate of approximately 24 per cent, which is being charged at present on some credit cards?

We are told that there will be no need to purchase foreign exchange from countries within EMU and that the banks will lose up to £100 million. Will they carry this cost or will they recoup it by passing it on to their customers in the form of extra charges, something they have done on numerous occasions in the past?

I have seen charges levied, perhaps of only £2.21 per annum, on dormant bank accounts. The way in which banks charge their customers irritates me, especially when they have customer services departments. If one has £10,000 deposited in a current account it will not attract interest, yet if one has an overdraft of £100 interest will be charged. The banks must change their ways and assist their small customers much better.

Senator Ross has raised many doubts regarding entry into EMU. I thought the Senator as a former stockbroker who dealt with speculation would be in favour of EMU. Having listened to him I have grave doubts, but we have gone too far down the path. I could speak for 30 minutes about the many mistakes made in Europe. An example is the problems in the fishing industry due to the Common Fisheries Policy and the fact that Ireland has received no redress to date. Positions that were adopted initially may have appeared correct, but they did not take the future of the fishing industry into account. Many areas in terms of our dealings with Europe have not, unfortunately, gone the right way and EMU may or may not be another example.

However, Ireland cannot stand in the wind as an individual and call a halt. Economists vary and as another speaker stated, “doctors differ and patients die”. It will not be too bad if only finance dies rather than the patient. Nevertheless, I support the Bill. I am disappointed that the Minister for Finance is not present for the debate. I attended boarding school with him and only last week at a social function he told me that during our schooldays, I always had a safe pair of hands on the football pitch. On this occasion I hope the Minister has a safe pair of hands and that everything will work out.

Mr. Coghlan: Information on Paul Coghlan Zoom on Paul Coghlan I join Senator Bonner in welcoming the Minister to the House and in complimenting Senator Ross on a fine contribution which was enlightening, entertaining and [926] interesting. His devil's advocacy stirred us all. Senator Bonner said he has doubts and some were reawakened in me when I listened to Senator Ross's contribution.

Senator Ross belled many cats and his comments about what Ireland is accepting were pertinent. He gave vent to his suspicions about EMU and said people had been indoctrinated. He pointed out that because Ireland has done so well from Europe, we are automatically considered pro Europe. The Senator talked about the bigger entity which is protecting us and our blind belief that this will be the case in the future. He stressed the loss of economic independence involved in the measure, but I do not doubt that the legislation recognises this point. The fact that the ESRI is in favour of EMU is comforting and many Members are perhaps over dependent on its view. Senator Ross forecast that the introduction of the euro will be the beginning of the end of the boom in Ireland. I hope he is not prophetic.

The Senator made a great case for Ireland remaining outside EMU at least until Britain decides to join. Everybody accepts that Britain will join and that it wants to time its entry in terms of its best interests. However, I wonder if other issues are involved. It was stated recently that Britain has never warmed to European ideals. It starts from the basis that developments will not happen. When these developments take place, it believes they will not work and when it finds them working, it accepts them and joins. We are heading into the unknown in many respects regarding EMU and we must make an act of faith.

The Bill is a necessary technical measure to bring the law governing the Central Bank into line with European obligations, particularly the provisions relating to the European system of Central Banks and the European Central Bank. It deals with the independence of the bank and its institutional integration into the ESCB and ECB. It also paves the way for Ireland's full participation in economic and monetary union. It covers two aspects — institutional matters and the timetable for EMU.

The final stage of EMU begins on 1 January 1999 with the launch of the euro and the irrevocable fixing of the conversion rates of the various currencies. D Day in that regard is in May and nervousness will set in at that time. It is intended that Ireland will join at an exchange rate that meets the best needs of the economy. This is not an easy call and the Minister would be the first to admit it. He continues to be coy about the preferred rate and, as Senator Ross pointed out when he praised the Minister in that regard, he is right. Speculation has been avoided but that does not allay the concerns of business people and others.

Ireland is pro Europe and pro EMU. Therefore, this side supports the Bill, despite all our reservations. Undoubtedly, there will be major changes and, as other speakers said, EMU will be irreversible. Nevertheless, the common currency [927] will make trade and travel between states easier. Once people acclimatise to the new position they will not want to return to the old ways in terms of all the costs, hassle and time wasting associated with changing currencies when one is travelling.

Britain's intentions remain the big imponderable because it will not be a member of EMU at the beginning. Will it seek competitive advantage through its currency policy or will it quickly adopt a tracking mechanism with a view to easing its membership in due course? The latter would assist stability from the perspective of other member states.

Our biggest fear is that sterling will be volatile against the euro. As Senator Ross indicated, sterling may fluctuate widely and then much of our industry would be exposed. We are repeatedly told that sterling is over-valued and well above what the Bank of England considers is its equilibrium level. Senator Ross also addressed this matter. One wonders if it was wise for Ireland to break from sterling given our current position. If the IR£ had not broken from sterling, it would be much easier now to remain outside EMU until the countries reached a common position on joining the single currency together. That is not on the menu.

Preparing for EMU has been a good disciplinary measure for Ireland. The policies pursued by successive Governments have helped us by greatly strengthening our economy. The Bill emphasises the absolute independence of the ESCB and the ECB as well as that of our Central Bank. The primary objectives of the ESCB will be to maintain price stability, to find and implement single monetary policy, to conduct foreign exchange policy operations and to hold and manage the official foreign reserves of the member states.

I note that the executive board will all be eminent, well qualified people, but we are not told what their qualifications will be. Each will be appointed for an eight year term which will not be renewable. I wonder about this. National arrangements will remain in place provided that they do not conflict with the independence of the ECB. This is of paramount importance; it is fundamental advice from the European Monetary Institute. However, a member may have to be removed. Governments will not be allowed to interfere, but in the interests of continuity, it might be desirable to have people reappointed and that will not be possible.

Experts tell us Ireland is well qualified for entry given our growth, per capita income, growing employment, low inflation and low budget deficits. The explanatory memorandum states that section 4 provides that—

sole authority and responsibility for the exercise of the powers and the carrying out of the tasks and duties conferred upon the Central Bank of Ireland by or under the Treaty or the Statute shall be vested in the Governor and that the Governor shall keep the Board [928] informed of, and may discuss with it, the discharge by him of these powers, tasks and duties.

This implies that the Governor will be all powerful and the board members largely redundant when this legislation is enacted. The loss of independence is a result of the Minister and all others being precluded from advising the Governor on currency matters, as I understand it. The Minister, according to the explanatory memorandum, will be allowed to continue to require the Central Bank to consult with him on the execution and performance of all its tasks, with the exception of those related to the duties conferred on it by the Treaty or the statute. In such cases, the Memorandum states: “the Central Bank shall only be obliged to keep the Minister informed”. There is a surrender of power and loss of sovereignty here. However, the long-term interests of the Community with which the bank is charged, may outweigh any short term gains. Politicians are notoriously associated with short term gains in decision making, so maybe this is a necessary safeguard.

Section 8 refers to the obligations of the Central Bank regarding certain defined State institutions to provide information and returns to the Central Bank. This is very necessary and I agree with Senator Ross that our Central Bank is performing well on behalf of the State in its regulation of institutions. Its performance in this regard has greatly improved. Given some of the activities which have recently come to light, this section is necessary and very important.

The frightening aspect of this exercise is fixing rates irrevocably in accordance with the Treaty. Section 17 provides that the Governor of the Central Bank may attend any Oireachtas committee but that such attendance and provision of information shall also have due regard to the provisions of the Treaty and the statute. He will simply be informed.

The memorandum states:

... the new section recognises the competence of the European System of Central Banks in the field of monetary policy and the transfer to Community level of all monetary powers of Member States participating in Economic and Monetary Union by deleting the reference to the Minister, in exercising this power, to having regard to the safeguarding of the currency of the State.

We are tying ourselves to Europe irrevocably and we will sink or swim with the rest. There is a large element of trust involved in this but I believe it is the right course. I certainly hope so.

Ms Cox: Information on Margaret Cox Zoom on Margaret Cox In January 1999 Ireland will be one of the EU states joining EMU, which will be a historic moment. We should be proud of Ireland's economic success and ability to meet the strict convergence criteria. We can no longer be looked upon as a backward country with an unpromising future. Our economy sets a shining example for the rest of Europe and I take pride in that. It [929] appears that Ireland will lead the countries entering EMU in terms of its economy and wealth. There will be many benefits from entering EMU — increased employment, lower interest rates, lower export-import exchange costs and increased global competitiveness.

While Ireland has met many of the convergence criteria already, this Bill will bring our legislation into conformity with certain provisions of the EU Treaty and also with certain provisions of the Statute of the European System of Central Banks. This Bill is an important part of our preparation for full participation in EMU. To ensure full participation, there must be compatibility in our Central Bank legislation. This is a technical Bill, and other member states are engaged in similar legislative exercises at present.

Section 1 allows the Minister for Finance to commend any provision on any day. As has been outlined, this is necessary because, as decisions are taken at EU level, each provision in the Bill can commence at the appropriate time.

Section 4 is a significant change. It provides that “the Central Bank of Ireland shall perform any function or duty or exercise any power required by, or under the provisions of the Treaty or the Statute”. This section also provides that the Governor of the Central Bank will have sole authority and responsibility for the implementation of the ECB tasks and duties in Ireland. The Minister explained this change and the reasons behind it in some detail.

Section 5 gives the bank a role independent of the Government and section 6 sets out the specific powers of the bank. Section 7 deals with the ability of the President to remove the Governor from office and the right of appeal. These provisions are necessary to bring the legislation into conformity with the provisions of the Treaty. The Minister already outlined the reasons behind the other sections and the changes proposed. Like many speakers, I welcome the explanation given and support the Bill.

I welcome our continued progress towards EMU. There are many benefits to it and, contrary to what Senator Ross said, I am not holding on to the ESRI report as a lifeline. It is obvious to most people in business and trade that there are tremendous benefits to be gained. For many years our economic policies have been aligned to the German mark and we have continued to move forward. Not to enter EMU at this stage would negate the benefits of the last decade.

There has been much talk about sterling not entering EMU and many people worry about it and quote it as a reason for Ireland to stay out. Approximately 35 per cent of our export trade is with the UK, which means two thirds of our trade is done elsewhere. Staying out because sterling is doing so would be foolish. On a number of occasions the Minister for Finance has said we should not overstate the importance of the issue, and he is correct. Britain's entry to EMU is its business and I wonder if it move quickly along this route when it sees what it is like to be the [930] odd man out. The euro, yen and dollar will become the major currencies in the global market. Sterling will no doubt lose out in the increasing globalisation of the world markets.

I would like to return to the basics and to an issue which has not received due recognition. Many people and businesses are not fully aware of the implications of EMU. If we were to ask 50 or 60 people on Grafton Street and O'Connell Street about EMU, I wonder what they would say and what they know about it. Do people realise the punt, £5 and £10 notes, will be gone? We will hide our £5 and £10 notes under our mattresses so we can show them to our grandchildren. By July 2002 the changeover in terms of currency will be complete.

It is now March 1998 and many people have not yet come to terms with this but, more importantly — this issue must be addressed in the future — businesses have not bought into the concept fully. Large businesses have been able to assign senior managers or form special committees to take responsibility for the changeover. They are well informed and are well on the way to trouble free implementation. Small businesses are a different matter and are not ready or fully aware. They do not have the time, expertise, personnel or finance to handle the changeover effectively. Small businesses are the lifeline of this country and could wipe out unemployment if each increased their workforce by 25 per cent. They provide strong sustainable home grown jobs which are the foundation of our future — a foundation strong enough to support our Celtic tiger economy. These businesses need Government support to assist them in exploiting the opportunities EMU will provide. The Minister and the Department put a good information campaign in place but small businesses need more help and focused attention. We must recognise their unique and extremely valueable contribution to our tiger economy. We cannot let pass this opportunity to cement the success of our indigenous small industries and businesses.

Monetary union will go ahead; it is irreversible. We must accept this and act accordingly. Government must put supports in place for the small organisation. We must try to identify opportunities and assist these organisations in exploiting them so as to create jobs, increase exports and make more money for our economy. EMU will make the euro, yen and dollar less susceptible to currency speculators. It will also dilute a major risk to Irish exporters in that it will eliminate internal European exchange fluctuations which have, on occasions, been a major barrier against our competitiveness as a small country on the western fringes of the European Union.

All these positive features confirm the necessity of EMU. The Minister said the main part of the arrangements necessary for the transition to the single currency are now in place. The national changeover plan published on 14 January sets out the timetable for the changeover. Indeed, the information presented to us by banks and various [931] other institutions has been most helpful. The changeover states there will be cashless transactions from 1 January 1999 and the euro will be used as hard currency from January 2002. Until this happens, people and small businesses will not appreciate the enormity of the move. They will not realise the importance of being prepared and there will be a major scramble to get things done which will mean we will lose out on many of the available opportunities.

On a cautionary note, it is important that continuous reviews take place in the Department and that necessary readjustments are made during the changeover. The Bill deals with the role of the Central Bank and the changes needed to allow us enter EMU. We must enter EMU and are agreed on that. The Bill will do the job outlined by the Minister and I give it my full support.

Mr. B. Ryan: Information on Brendan Ryan Zoom on Brendan Ryan I will oppose the Bill for a variety of reasons. Among others things, it introduces issues which were not discussed or put to the people in the referendum. It has pushed the position of the European Central Bank and its independence far beyond what was suggested to the people in the Maastricht referendum. At the time I pointed out that the ideologically driven definition of EMU in the Maastricht Treaty, which has been elaborated on in the so-called stability pact and which is made more explicit in this Bill, is not based on a good deal of the more recent insights into the nature of trade and international trade, in particular, written by people like Paul Kruggman and other economists who are unfashionable because they do not fit into the convenient position of the dominant ideology. There is always a dominant ideology and this is one which I find difficult to accept.

Before moving to the Bill, I would like to reiterate some of the points made by Senator Ross. It is funny that the two of us, who come from very different positions on the spectrum, have similar reservations about this exercise. I have the benefit of being trained as an engineer and I am therefore, notwithstanding the perceptions people have of me, a pragmatist at heart. I am a great believer in the solution which works and not the one which looks best on paper or which fits best into the economic model. Every engineer knows that no matter what model they use it is based on the assumptions with which they start. I will return to assumptions in a moment.

EMU has not seriously been debated in this country. An entirely redundant debate is taking place in the newspapers which should have taken place in 1992. As I said on the Order of Business last week, we debated the faint possibility that under a series of imaginary circumstances, the Maastricht Treaty might have resulted in the introduction of abortion against the wishes of the people when we should have debated EMU. It was at best a faint possibility and it probably did not exist. There was a debate on neutrality at the time but it was caught up in the other issue. I [932] remember The Irish Times seeing the passing of the Maastricht Treaty as a defeat for social conservatism in Ireland because it saw abortion as the touchstone. That turned out to be nonsense and we have not solved the difficulties of the issue since. EMU is the transfer of sovereignty for many areas normally seen as the prerogative of a sovereign government.

One advantage of our membership of the European Union is the cultural impact of our escape from the shadow of the island which lies between us and the Continent. Although we knew countries such as Denmark, Norway, Austria, Sweden, Switzerland and Finland existed, we knew nothing about them. We took our model of economic growth, order and organisation and our view of what was possible from that island. We have discovered since 1973 that it was a very poor model which had underperformed in comparison with almost every country in Europe and which had a concept of social order which every civilised European abandoned long ago, it being an image of royalty which no other European monarchy felt necessary to preserve. We have since learned the qualities which have made successful the economies of small countries.

I know more now than I did five years ago about Denmark because of my involvement in various environmental research projects with Danish colleagues. The Danes may grumble, but as was seen yesterday, they vote for the status quo, a centre left Government which favours the Amsterdam Treaty but which will not bring Denmark into EMU. It should be remembered that the Swedish and Danish Governments both managed to organise their economies to meet the Maastricht criteria without the requirement of Maastricht for that policy objective. Denmark has a budget surplus of 1 per cent of GDP, an extremely successful growth rate of 3 per cent, given its level of development, and falling unemployment. It has a high level of taxation which has been used to provide a civilised and humane welfare state. The Danish people have decided to continue with that. Their country will not join EMU in January and the roof will not fall in on the Danish economy. They were told by their politicians and parliamentarians that, if they voted “no” to Maastricht, it was not renegotiable. They voted “no” and it was renegotiated. I am not convinced economic and monetary union is irreversible. What I am concerned about is whether anyone has thought about a rational framework for deconstructing the project if it becomes the disaster it has the potential to be.

There are disadvantages to membership of the EU. This is not an argument for not having joined in the first place; it is just that I am a great believer in examining all the figures. I would have thought the Department from which these proposals come and which is very good at looking for hidden costs would have at some stage examined the artificially high food prices in Ireland. If British figures are to be believed, around £15 to £20 per week is added to the food bill of every family [933] because of the difference between food prices in Ireland and those in the world market. A few cynical farmers believe that, if they were to charge world market prices, the retail trade would still charge higher prices. I know this would not be true of Senator Quinn, whatever about others, especially the multinationals. However, it is a consideration because it is an enormous sum of money.

It is fascinating to observe successive Ministers for Finance lecture the trade union movement about competitiveness and semi-State companies about the need to cut costs because of the need to be competitive. Paul Kruggman states that the idea of national competitiveness is a contradiction in economic terms, and he is an eminent American economist who bases his economics on what happens in the world, not what should happen according to books and theory. No one has ever said the Common Agricultural Policy is a major negative factor on competitiveness because it is a major cost which we could do without. One is not supposed to say that.

Another downside is the intriguing question of how much was given away in terms of fisheries. I reiterate this point not because I believe history can be rewritten but because I believe the sums should be done openly and honestly. My figure for the amount of fish caught over the past 25 years in Irish waters by trawlers not registered here is about £15 billion. That could be wrong by £5 billion; the figure could be £20 billion or £10 billion. Whatever it is, it is an enormous amount of money and is similar in size to the figure which is meant to be the net benefit in terms of transfers to this country of membership of the European Union. It is an issue which should be pursued by people with greater skills in the area of economics and costings than myself. However, the fact that it was all given away is ignored.

We should not allow ourselves be pushed into avoiding debate on the difficult aspects of EMU. I have stated frequently since I returned to this House six months ago that, in every debate on the EU, we should be prepared to carry out a proper cost benefit analysis. We have omitted costs and benefits, such as the cultural one, on which the science of economics has difficulty in putting a figure. It omits it although it is probably the greatest benefit we have received.

We are now in a position of having no option but to proceed with EMU. However, it is important to state explicitly that it is probably a bad idea and contains economic bad news and a huge capacity to undermine the belief that democracy is the best way to manage our affairs. I do not believe anyone has a clue about the negative or positive consequences of EMU. People can see possible scenarios but there are many uncertainties. The Minister stated that the ESRI said that, even with sterling staying out, the net annual benefit to the country would be about 0.4 per cent of gross national product. If I were designing a plant for a customer which would produce 1,200 tonnes per day of ammonia — I [934] work in the exact science of chemical engineering with an enormous amount of empirical evidence and a limited number of uncertainties — I would not be able to make a forecast to that level of accuracy, even with the limited uncertainty. If I could get a plant to produce to an accuracy of plus or minus 5 per cent, I would be very happy. If I could get it to plus or minus 2 per cent, I would make a fortune because I would be better than everyone else. Our primary independent forecasting institute has stated the figure is 0.4 per cent. In the budget of January last year, the forecast of the Department of Finance for economic growth was about 6 per cent to 7 per cent. By December, it had been revised to 8 per cent, a difference of 2 per cent in the same year. I am then supposed to believe and put some weight on a forecast, made for the indefinite future and with all the uncertainties, of 0.4 per cent of gross national product. In the immortal words of Jethro Tull, “I don't believe you; you've got the whole damn thing all wrong”. I do not believe a word of it. We are stuck. All one can say is that if we are right one thing will happen and if we are wrong something else will happen, but we do not know whether we are right or wrong.

I could not let the occasion go without referring to the Minister's contribution, which was a wonderful collection of contradictions, even on the issue of EMU. After January 2002 we will be in the extraordinary position that the only land border in Europe which Irish citizens will cross at which they will have to change currency will be the one on this island. I invite the Members of the party opposite, which has a long and honourable tradition of insisting on the integrity of this country as a single unit, to reflect on the peculiar irony of them leading us into these circumstances.

The Minister indulged in some of the usual Department of Finance speak: “Private sector preparation for possible shocks in the EMU scenario is, like all issues of competitiveness in the marketplace, primarily a matter for the individual companies”. This is a new one because for the last ten years I have heard every organ of State say that competitiveness is the primary function of every instrument of State policy but when there is a problem, they suddenly say it is not a matter for them, it is up to private individuals in a market economy. Who are they fooling?

The Minister also said: “The most obvious measures to concentrate on are to maintain as much flexibility as possible in their cost base”. I am not a businessman but I am an engineer and have some training in business-oriented economics — not in macro-economics but in how to work out whether a business project will make money. This phrase should be read carefully by the Irish trade union movement because the direct consequence of EMU is that so many other instruments of monetary and fiscal policy will have been taken from us that labour market costs will be our major area of flexibility. When a Minister uses a phrase like “as much flexibility as possible in their cost base”, we should remember [935] that interest rates will not be flexible, exchange rates will not be flexible except in the opposite direction to the way business would like, and capital costs will not be flexible, so we are reduced to the ability to hire and fire labour.

The Minister also advised businesses to take steps to minimise their exposure to sterling. That is great advice to people who had to suffer an incredibly high exchange rate against sterling and are now enjoying the benefits of a lower rate; they are now told to take steps to avoid exposure because something else might happen in the future.

Having advised all this flexibility the Minister mentioned the Government's commitment to share the benefits of Ireland's EMU participation among all sectors of the workforce. This is a case of warning of possible risks and then saying there are not really any risks because benefits will be shared among everyone in the economy. This is a high wire operation and there is no safety net.

The figure quoted for the value to Irish banks of foreign exchange transactions is about £120 million per year, which they will lose in three years' time, perhaps less. They have promised us that not a penny of this loss will be passed on to their customers. Does anyone believe that the Irish banking system, which has moved into spectacular, almost Michael O'Leary/Ryanair style levels of profitability and labour exploitation, will accept a loss of £120 million every year and not try to take it back from their customers some other way? They say they will not charge us for handling euros, which is nice of them, but they currently charge us for handling Irish pounds and they have a long list of figures at the end of every statement to explain how they charge customers even if they do not have a single foreign currency transaction. They still manage to extract a considerable amount from their customers and, as many a small business person has discovered, they still make many mistakes, almost inevitably in their favour, until they are challenged about where the costs arise and then there is a miraculous adjustment downwards. I do not believe they will not find a way to get back the money they will lose and I do not think anyone else does either.

The problem with this legislation is to do with ideology — not mine, because I am a pragmatist, but the one which has driven most modern free market economics for the past 25 years. The craze for deregulation manifested itself in the “Big Bang” in Britain and equivalent events around the world. Out of this we had the American savings and loan disaster, which cost the US authorities hundreds of billions of dollars, the British pensions mis-selling scandal, which may cost £9 billion, and the Asian disaster, because of the limited regulation of many transactions. There is a peculiar irony that having experienced disasters due to sloppy regulation, the ideologues of the IMF have told South Korea, Indonesia and other Asian countries that the solution to their problems [936] is deregulation. It is time reality impinged on these people.

Now that the craze for deregulation has turned out to be the ideological nonsense which it clearly was, we have a new phase of regulation in which regulators must be independent. This leads to the antics of the telecommunications regulator who believes she is accountable to no one — her response to an Oireachtas committee was to say that she submits an annual report. This is interesting because the Minister said the accountability of the European Central Bank consists of submitting an annual report which might be debated in the European Parliament.

In this pursuit of regulation without democratic control we are given this legislation, which is based on the belief that the more independence which the Governor of the Central Bank has the better. Who proved this cause and effect relationship? Both systems have worked extremely well. The Germans had a huge belief in the independence of their Central Bank, and it was successful. We had a far less independent Central Bank but we are now removing the sections of the Central Bank Act which made explicit that the bank had a functional relationship with the democratically elected Government, and we are doing this even though we have had seven or eight years of the best economic growth in the history of the State in which policies on interest rates, exchange rates, the labour market, education and taxation worked together extremely well. Under the current ideology, one is not supposed to say this had something to do with the way democratic Government works.

All through the 1980s the Central Bank led the chorus of demands for slash and burn cuts in public expenditure which, if they had been listened to, would have led to the decimation of our education system, one of our biggest expenses. That, in turn, would have ensured we did not have the well educated labour force which is one of the major reasons we are attracting industry to the State. If the Central Bank had had its way in the 1980s, we would not have our current education system because the bank would have refused to fund it. Let us be careful about this. The democratic political process has not failed as an instrument to achieve the combined goals of good economic growth and a human way of dealing with those who cannot handle that growth. It is a perfectly conceivable balance but it cannot be done, and will not be done, without democratic accountability.

I wonder about the independence of central banks because there is no other institution which is so unaccountable and has so much impact on the marketplace. Even the commercial banks are accountable to their shareholders. In countries less prissy with their company law than we are, they would be seriously accountable. US banks are a good deal more accountable to their shareholders than ours. Our company law is such a magnificent exercise in protecting directors from their shareholders it [937] defies description. Other countries have a different view of the right of shareholders to ask whatever questions they wish for as long as they wish about whatever they consider important in the operation of any commercial body. Admittedly we have some limits but they are at least accountable to their shareholders and their customers.

To whom is the new independent European Central Bank accountable? It is independent of government, the banking sector, the marketplace and the European rate of unemployment? It has a primary function to fulfil under circumstances which make it profoundly difficult to see where it is accountable to anybody other than its own view of what is good for the world. Lets us be careful here; there is no evidence in the history of humanity that if you give people power and they are not clearly accountable for it, they will not abuse it. As the cliché says, power corrupts and absolute power corrupts absolutely. Where did this belief emerge that we could have unaccountable power on this scale which would not be used incorrectly?

I read this Bill with increasing astonishment. Section 4(5A)(2) states:

With effect from the date of the establishment of the European System of Central Banks, sole authority and responsibility for the performance of any function or duty or the exercise of power conferred or imposed upon the Bank by or under the Treaty or Statute shall be vested in the Governor.

I was not told that in 1992. We were told about a pooling of sovereignty. Sovereignty is defined by democratic accountability. If there is another form of sovereignty in Europe not based on democratic accountability I do not want it. Most civilised people do not want it because we believe in democracy. Nobody in a western country voted knowingly to abolish democracy. I am not sure, therefore, what this is about. There is an explanation in the Minister's speech. He said it is intended that the Secretary General of the Department of Finance would have some role in the operations of the European Central Bank and some influence on the Governor as he carried out his functions under the Maastricht Treaty, but the European Monetary Institute told the Government they could not do that. Can somebody tell me where it was written in the Maastricht Treaty that the European Monetary Institute could dictate to the sovereign government of a member state of the EU that they could not have the Secretary General of the Department of Finance involved in any way in decisions to do with the operation of the European Central Bank? Where were we told? When was it said? Find me a script, speech or statement by anyone in Government in 1992 which told us that. It was not said — we were pooling sovereignty. Here we are giving it up because this Governor, with his counterparts from other countries, will not have to consult anybody about what he does. The Governor “...shall keep the Board informed...”, information [938] is post hoc by definition, “... and may discuss with the Board, the discharge by the Governor...”. If he does not want to he does not have to. I do not know what Governors of the Central Bank are like, the people of whom I knew were cultured and sophisticated with a reasonable understanding of the realities of life, but in this case he could come back from every meeting and say that he did this and that would be it. He does not have to discuss it with anybody. That was not in the Maastricht Treaty. That degree of non accountability was not part of the package sold to the people in 1992. That is why I find this hair-raising.

Experience has shown that when people are put in positions like that, they lose the run of themselves. When there is no one to whom they have to explain themselves outside the confines of their own circle, they lose the run of themselves. This why it is a good thing to change governments often; people in government lose the run of themselves remarkably quickly. At least governments are run by politicians who have some sort of antennae for what is happening in the real world. The idea that central bankers be accountable to nobody makes what is left of my hair stand on end. They “may discuss”, arising from the ideological belief that the more independence there is the better. I have no problems about a transparent relationship between central banks and governments which is based on the presumption the central bank should be able to operate independently within a democratic framework, but I have a problem with unaccountable independence.

The Minister treats us to this in great style in his speech. He tells us that the primary objective of the ESCB, which will comprise the ECB and the national central banks, is to maintain price stability. Wonderful stuff, we are all against sin. What is price stability? Is this some daft pursuit of zero inflation? Nobody wants double digit inflation but what is the acceptable level of inflation? The Minister then tries to soften this when he says:

Without prejudice to the objective of price stability, the Treaty requires that the ESCB shall support the general economic policies in the Community with a view to contributing to the objectives of the Community. These include the promotion of harmonious, balanced and sustainable development of economic activities, sustainable and non-inflationary growth, a high level of employment and of social protection and economic and social cohesion and solidarity among member states.

I can imagine the Governors of the European Central Bank having long, deep and detailed discussions about the promotion of social cohesion in Europe, just as I can imagine the Board of the Bank of Ireland or AIB having long discussions about the promotion of social cohesion. Everyone knows bankers believe the primary requisite is price stability and if anything impinges on price [939] stability, in the least, it will always be sacrificed for price stability. That is their view; it has been the view of successive central banks that inflation is always the greatest evil. All the other nonsense of aspirational matters is no more than that.

Mrs. A. Doyle: Information on Avril Doyle Zoom on Avril Doyle Price stability is important for social cohesion.

Mr. B. Ryan: Information on Brendan Ryan Zoom on Brendan Ryan Price stability is a desirable part of the achievement of social cohesion. It is not necessarily a cause and effect relationship as bankers believe. They think the lower the inflation rate the better the economy is performing. I have no reason to believe that central bankers ever believed in social cohesion.

The Minister stated: “In carrying out this function”, this is the function of promoting the wonderful 'We are against sin' objectives, “The ESCB shall act in accordance with the principle of an open market economy with free competition favouring an efficient allocation of resources.” There is hardly a word in that sentence which is not loaded with the assumptions of a particular school of economics which is rapidly running out of favour with many economists. What does the phrase “efficient allocation of resources” mean? It goes back to an understanding that the individual is a rational economic being who maximises his utility. The individual alone knows what that utility is, therefore no one but the individual can ever use resources efficiently. The assumption is that the only way that one can be efficient is by having a market in which people make all these choices themselves. That is nonsense. People do not act rationally, otherwise they would not smoke cigarettes, get drunk, take drugs or drive at 90 miles per hour. People do things for a host of reasons, which is why we must have a cultural context in which economic decisions are taken. There is no understanding in this Bill of the civilising force of social democracy, social cohesion etc. in Europe. We have given people a single objective by which they will be driven.

I wish to draw attention to the extraordinary deference of the Department of Finance, which accepts that the best it can expect from the Governor of the Central Bank in the future is that he should inform the sovereign Government of what he is doing for or to us. That is the limit. Why is there a definition of “Statute” in section 2 and of “the Statute” in section 4? The definition is the same in both sections except for one word. In section 2 the word “Statute” refers to “the Statute on the European System of Central Banks”. In section 4 it means “the Statute of the European System of Central Banks.” Why do we need two definitions and what is the difference between the two? I am confused.

Mr. Quinn: Information on Fergal Quinn Zoom on Fergal Quinn It is a pleasure to speak after listening to Senator Brendan Ryan's words of wisdom. This is the Central Bank Bill, it is not the EMU Bill. However, many Members are using this [940] opportunity to speak on EMU. I listened, in particular, to Senators Ross and Ryan, who have given dire warnings of the likely catastrophes under EMU. I also listened to Senators Finneran and Bonner who spoke about the dangers, threats and difficulties which face us. However, they have accepted that the move towards EMU is irreversible and I support that move.

I am not going to speak on the question of whether Ireland should join EMU other than to say that Senators Ryan and Ross, who oppose such a move, gave no alternative. I have heard the warnings of the catastrophes but I have not heard them say “Here is what we should do instead.” Senator Ross touched on this but what he said did not sound attractive.

Senators Ross and Ryan should go back to the 1780s in Philadelphia when Madison, Jefferson, Franklin and others were trying to form a United States of America comprising 13 states. Suppose they had decided that there should be 13 different currencies? I doubt that individual states would be as successful as they are if they had stayed out. EMU is irreversible because it is the right way to go. Those who have not joined EMU will do so later. The only question is how we manage to make the best deal when we enter and as we progress.

I wish to say a few words on the role of the Central Bank in one area. I have looked at some of the advice given by banks in preparation for EMU. These are very good documents and we should read them if we have time to do so.

This Bill is a necessary part of the countdown to membership of EMU. It is also a timely reminder that the clock is ticking. We do not have much time left to prepare. It is time we gave serious consideration to the practicalities of introducing the new currency. I urge this on the new Central Bank and on the Government in particular. There are two aspects for which we need to plan, computerisation and how cash transactions are to be handled. The switch-over will take place in stages. However, it will involve a great deal of expense and work on the computers which handle these transactions, not just in banks but also in commercial firms and Government Departments. Senator Cox referred to the scramble which will take place at the very end and we need to keep this scenario in mind.

What makes this so challenging is that it is happening at the same time as computers are facing another major change — getting ready for the new millennium. I tabled an Adjournment debate about two years ago to remind us of the challenge of what will happen on the first day of the new millennium. As a nation we are not aware of the serious problems which this will cause. We are working on it and I hope that we will be ready.

The combination of these two enormous computer projects is very daunting, yet neither can be postponed. The millennium cannot be postponed and the introduction of the euro now seems to be cast in stone. That is as it should be. However, it is vital that the work necessary to weather both [941] these changes is done on time. There is not much evidence that the nation, the Government and, in particular, those with responsibility for making sure that we get through this unscathed are facing up to the size of the challenge. Government has a role to play, not just by putting its own house in order but also by increasing the awareness of the size of the problems and the urgency required to tackle them. In its role as a guardian of stability and order in the financial system, the Central Bank also has a role to play.

The other aspect of the transition to the euro which I wish to speak of is how cash transactions are to be handled. The Government and the Central Bank have a most important role to play in addressing this issue in Ireland and the 11 nations which will opt into the euro. Ireland is in a unique position with regard to the handling of cash. With the possible exception of the former East Germany, we are the only one of the 11 which has had a change of currency in our lifetime or in the last 30 years. This occurred with the introduction of decimalisation on 15 February 1991. We are unique among the 11 prospective members because the only other country which did likewise is not joining EMU at this stage.

We have a choice when it comes to introducing the euro as legal tender for cash transactions. The choice is very stark; there is a right way and a wrong way. As has been suggested, if we choose the wrong way the entire event may be a disaster. The choice is between an instant and a long drawn out transition. An instant change is the only one which will work. We have experience of it working painlessly when we introduced decimalisation. We should be sharing this experience with our partners in Europe and convincing them to listen to us because of our experience.

A drawn out transition would mean that over a period both currencies would be in use and that a person could demand change in either currency. Big stores and operators may be able to afford to deal with this. However, what about newsagents and tobacconists? It will be possible for someone to ask for change for their mother's newspaper, for example, in Irish currency but for change for their bar of chocolate in euros. It is an impossible situation for any operator, especially a small operator. Every shop would need two tills as almost every transaction would involve two sets of currency calculations. A bus or taxi driver trying to cope with this situation would have no time to do any driving. At present the suggestion is that we have two currencies over the six month period from 1 January to the end of June 2002. This is an impossible situation and has not been thought through.

The alternative, which proved to workable in the case of decimalisation, is that one day be set for the changeover, from which date businesses would only give change in euros. For a few weeks goods could be paid for using the old currency, but change would only be given in euros. After a very short time everybody would have euros in their pockets at which point businesses would [942] stop taking old money. At that point it should only be possible to exchange the old currency in a bank. This system worked well the last time.

Obviously, this instant change would not be totally without cost to business. A currency calculation would have to be made on receiving old money, which would be kept separate. However, this is relatively simple compared with the chaos which would be created by dealing with two currencies. A period of education is necessary before the day on which the changeover takes place and, for a time, many prices will be displayed in both currencies in order that people become familiar with the change and with making comparisons. However, after the changeover date, change would be no longer given in the old currency.

In practical terms there is nothing to be said in favour of a slow transition and much to be said against it. It has been proposed only because the other countries, which have no experience of such a change, think it is the best route to take. We have the experience. The other countries are assuming a slow transition would be more customer friendly. In fact, it will be the opposite of customer friendly as it will cause chaos for customers and traders. The irony is that in the end there will be a sharp transition. On the day for changing over to decimalisation we handed in old money and had to accept change in new money. Had a six month period been provided, most people would have waited until the last day to deal in the new currency. The change will happen on the last day of the changeover period in any case, and we should announce a changeover day. My preference is for the first day of the changeover period, but 1 February has been suggested as it is a less busy period. People will continue using the old currency up to the end of the changeover period, whether it is six months, six weeks or six days and the chaos and confusion will serve no purpose. There seems to be a belief that a long changeover period will facilitate people's gradual transition to the euro. However, we introduced no changeover day for metrication and the vast majority of people are still not using it unless forced to. I think I am the only person in the House who can give his height in metric — 166 cm. I do so as it makes me seem much taller and gives me a great advantage. My weight is down to 78 kilograms, a much smaller figure than under the old system. If we provide an option, people will leave it to the last minute before making the change. I urge the Central Bank to make the change on one day as in the case of decimalisation and to influence the rest of Europe to consider doing the same. We are not obliged to make the change at the same time as other member states.

It has been said that there would be a problem with vending machines if my suggestion was accepted. Every vending machine in Europe could not be changed overnight. However, an exception can be made for vending machines by ring-fencing the business. There is no reason why vending machine operators should be allowed hold Europe to ransom in their own interests. It [943] will be up to each country to make the transition arrangements it chooses.

I urge that, regardless of what other countries decide, we opt for an instant changeover. I also urge the Cental Bank and the Department of Finance to act as missionaries and advocates of this cause by going to their peers in other EU countries and sharing our experience of decimalisation. Clearly, this issue has not been thought through in Europe and, because of our experience, we can make a definite contribution. We still have time to urge other member states to take the necessary steps to avoid the chaos which could happen if a long changeover period of six months, as suggested, is adopted. We have the experience and the record of effecting a changeover on one day. We should consider doing the same on this occasion.

Minister of State at the Department of Tourism, Sport and Recreation (Mr. Flood): Information on Chris Flood Zoom on Chris Flood I thank Senators, most of whom were constructive and supportive in their remarks, for their contributions to this extremely effective debate to which I have listened with great interest. The decision to be part of EMU is, in the final analysis, a political one even though experts, be they economists or others, have a role in assisting politicians in making decisions. Monetary union will proceed and will be irreversible. It is vital that all parties concerned accept this fact, which the Government will continue to press home, and act accordingly. My colleague, the Minister for Finance, is conscious that the economic policy to be adopted following EMU will be vitally important and must be addressed on a strategic basis. I assure Senators that he and the Department are very aware of this issue.

Senator Doyle raised a number of important matters. She drew attention to the UK's economic test. In a statement on EMU to the House of Commons on 27 October last, the Chancellor placed on the record an assessment of the five economic tests. His analysis was based on a UK Treasury paper which concluded that a successful EMU would bring benefit for the UK economy by securing macro-economic stability and underpinning a well functioning Single Market. This in turn would be good for investment, growth and employment in the UK. The Chancellor said, however, that reflecting the cyclical divergences between the UK and continental European economies was the fact that the UK economy was close to or at the peak of its economic cycle while the EU economies are slowly emerging from recession. The Chancellor concluded that it would not be right for sterling to join EMU from the outset. In essence the view of the UK Government is that the inflationary risks in the economy are such that higher rather than lower interest rates would be appropriate for some time. The UK also has concerns in relation to labour market flexibility, the UK labour market [944] being considerably more flexible than those of the core EU economies.

The UK's five economic tests are equally applicable to Ireland. We agree with the Chancellor's assessment that a well functioning EMU would be good for investment, employment and growth. We would agree with the Chancellor's assessment that a well functioning EMU would be good for investment, employment and growth. Our situation differs in relation to the issue of cyclical convergence. There is a significant cyclical divergence in relative economic performance between the UK and continental European economies. As discussed by international organisations such as the IMF and OECD, Ireland's strong economic growth reflects an acceleration in Ireland's trend growth performance or that rate of growth which is sustainable over the medium term. This acceleration in the productive capacity of the Irish economy has been driven by Ireland's economic fundamentals rather than by a temporary and unsustainable cyclical factor.

The second matter raised by Senator Doyle related to the economic shocks and the possible surrender of our policy instruments. Where a single monetary policy will involve some pooling of sovereignty of the participating member states this disadvantage will probably be felt more keenly in the larger member states as the discretion over monetary policy enjoyed by smaller member states is considerably less.

Competitiveness in Ireland is decided by a variety of factors such as skills, costs, infrastructure and quality. It is not the case that it will only be possible to offset competitive losses, in the absence of the economic rate instrument, through wage cuts. It is true to say that flexibility in this and other areas, in response to shocks, will be of greater importance in EMU. The Government, the ICTU and employer organisations have met recently under Partnership 2000 to accelerate the preparation for the competitive impact of EMU. The Partnership 2000 agreement also includes an explicit review mechanism in the case of a disturbance to Ireland's international competitiveness in EMU.

Senator Doyle also referred to the position of sterling. My colleague, the Minister of State at the Department of Health and Children, Deputy Moffat, addressed this matter at some length in his opening statement. While the UK remains our largest single trading partner there has been enhanced integration of the Irish economy with the continental European countries over the past two decades. This trend should continue and be reinforced as the full potential of the European single currency is realised. In fact, the prospective euro area as a whole is already at least as important a trading partner for Ireland as is the UK.

Membership of EMU, irrespective of what the UK does will, on balance, be of benefit to Ireland. This conclusion was reached by the ESRI and supported by the National Economic and Social Council. The Government is not ignoring the [945] need to prepare for the possibility, no matter how remote, of problems for Irish industry as a consequence of sterling weakness. Consultants appointed by Forfás under the auspices of the business awareness campaign to examine the implications for Irish industry of the UK remaining outside EMU are expected to report fairly shortly. The Tánaiste and Minister for Enterprise, Trade and Employment will then initiate a consultative process, involving the social partners, into the issues raised by their findings. It is also important to put concerns about sterling in context. Fears of a sterling shock usually centre around a large fall in the value of sterling. Such a fall would have to be by reference to its equilibrium value. At present, sterling is considered by most experts, including the Governor of the Bank of England, to be well above its equilibrium level. Therefore, a large fall would be required to give rise to a serious economic shock. Volatile behaviour by sterling may be less likely in the future because the Bank of England has been given a greater degree of freedom in the management of the currency.

Senator Doyle expressed concern about house prices. The Government is fully aware of the potential dangers of general inflation arising from an increase in house prices. The Minister for the Environment and Local Government has initiated a consultancy into this matter and the report is expected in the spring. In addition, the Minister has announced a fund of £50 million to assist local authorities to increase the supply of local serviced land which will help to calm the housing market. Local communities will have to decide, through their local representatives and community organisations, whether they wish to participate in the rezoning of additional lands to provide for additional housing.

Senator Doyle referred to bank losses from foreign exchange. Such losses to banks will, of course, represent gains to their customers. Some of these losses would arise whether we entered EMU or not because the euro will replace several European currencies. Banks are gaining from the reduction in corporation tax and, as many speakers have outlined, making significant profits.

Mr. B. Ryan: Information on Brendan Ryan Zoom on Brendan Ryan Are they going to be patriotic for the next three years?

Mr. Flood: Information on Chris Flood Zoom on Chris Flood I hope they will.

Mr. B. Ryan: Information on Brendan Ryan Zoom on Brendan Ryan It will be a big change if they are.

Mr. Flood: Information on Chris Flood Zoom on Chris Flood The question of Central Bank reserves was raised by Senator Finneran and others. There has been much comment about the possibility of surplus reserves of European central banks, including the Central Bank of Ireland, following the establishment of the European Central Bank. May I clarify the position generally? The current Irish contribution to the European Monetary Institute is 0.8 per cent. The initial Irish contribution to the European Central [946] Bank will depend on the final figure for GDP and population in recent years, the member states in EMU in 1999 and the total assets actually called up. It is likely to be around 1 per cent of the total or approximately £350 million, depending on the conversion rate and the actual proportion. In addition, the Central Bank will be subscribing to the capital of the European Central Bank which is to total 5,000 million euro. The Irish subscription is likely to be around £35 million. At this stage it is too early to say what the balance sheet of the Central Bank will look like immediately after 1 January, 1999 in EMU. There are too many unknowns: what countries will participate in the single currency at the start, the approach to be taken by the European Central Bank to the management of foreign assets — its own and those of participating central banks and money market operations — and how the foreign exchange market will initially perceive the euro. We can say with certainty that the overall level of assets and the surplus reserves of a central bank contribute to its credibility. It is not the intention of the Minister for Finance to act in a fashion which could undermine either the credibility of the Central Bank — and indirectly the ESCB — or the credibility of the Irish Government. When there is a clearer picture of the Central Bank's balance sheet in EMU the possibility may arise of there being surplus reserves which could be used by the Exchequer.

The Minister has been given a number of suggestions as to what to do with these funds. He will consider each of these in time. It would not be his preferred option to use such reserves for day to day spending, given the revenue that the reserves currently earn for the State and the one-off nature of any transfer of these reserves to the Exchequer.

Senator Finneran also referred to the gold reserves. A very small proportion of the bank's reserves are in gold. It is, I understand, £75 million out of a total of £5,000 million. Senator Finneran referred to bank charges. The Consumer Credit Acts give the power to regulate bank charges to the Director of Consumer Affairs.

Euro coins will be issued in the following denominations: one, two, five, ten, 20 and 50 cents and one and two euros. We cannot say how much two euros will be worth but it will be less than £2. Euro notes will be issued in the following denominations: five, ten, 20, 50, 100, 200 and 500 euros. Five euros will be less than £5. The national changeover plan shows what the coins and notes will look like. Coins are, of course, longer lasting than notes.

Senator Finneran raised the question of deposit protection. A deposit protection scheme exists on foot of a European Union directive. This gives a depositor £12,000 or 90 per cent of his or her deposit in the event of a bank failure. This amount is due to be raised by the end of next year to around £16,000. The scheme is, essentially, to protect the small depositor rather than the sophisticated investor.

[947] Senator Ross raised the point that our economic cycle was out of sync with the rest of Europe. Independent domestic commentators and international organisations such as the IMF and OECD, share the view that Ireland's recent exceptional economic performance is underpinned by structural economic factors including, for example, strong growth in labour supply and high levels of investment in the economy's infrastructure. These factors have boosted the productive potential of the Irish economy rather than temporary cyclical economic factors relating to the stance of fiscal and monetary policy in the economy. Furthermore, the enhanced integration of the Irish economy with continental EU countries over the past two years should be reinforced as the full potential of the European single currency is realised.

Senator Brendan Ryan raised the issue of the accountability of the ECB. Accountability of the ECB and the Central Bank of Ireland is another issue. As the Minister has said, whatever arrangements are in place at national level, under which national central banks are accountable to national parliaments, will remain in place so long as they are not in conflict with the provisions of the Treaty which guarantee the independence of all central banks and the ECB.

The provisions on independence are quite clear. Article 107 of the Treaty states that:

“When exercising the powers and carrying out the tasks and duties conferred upon them by this treaty and the Statute of the ESCB, neither the ECB nor a national central bank nor any member of their decision making bodies shall seek to take instructions from community institutions or bodies from any government or member state or from any other body. The community institutions and bodies and the governments of the members states undertake to respect this principle and not to seek to influence the members of the decision making bodies of the ECB or of the national central banks in the performance of their tasks”.

The question of influencing the ECB does not enter into it. However, the independence of the ECB must be complemented by accountability. For example, in order for the ECB to do its job within the framework of the Community's economic policy then a dialogue with the Council of Ministers is essential.

The arrangements agreed for accountability and dialogue mean that the ECB must present an annual report on the activities of the ESCB, that is the ECB and the national central banks, to the European Parliament, the Council of Ministers, the European Commission, as well as to the European Council of Heads of State or Government. That report must cover the monetary policy of the previous and the current year.

When the ECB's president presents his report to the Council and the European Parliament they have the right to have a general debate on that [948] basis. The president of the ECB and the other members of the executive board may be heard by the competent committees of the European Parliament either on their own initiative or, perhaps more importantly, in terms of accountability at the request of the Parliament.

The Treaty also provides a framework for continuous dialogue between the Council of Ministers and the ECB. The President of the Council of Ministers can participate in meetings of the ECB's governing council and can submit motions for deliberation although he/she has no vote. In turn the ECB's president shall be invited to participate in Council meetings whenever the Council is discussing matters relating to the objectives and tasks of ESCB. Furthermore, the economic and financial committee to be set up under Article 109(c) of the Treaty will provide opportunities for dialogue at senior official level. Members of that committee will be appointed by the member states, the Commission and the ECB. The key feature of the ECB in this regard is that it is a European institution and as such the ECB's accountability is principally provided for via the European Parliament.

Senator Quinn raised a number of issues including the computer changeover for the euro. Forfás have a special group working on producing advice for businesses about the changeover and it should be available very soon. We are also working on the cash changeover with the relevant parties, including the Central Bank and the banks themselves. Everyone wants the changeover to be as smooth as possible and to take less than six months. Senator Quinn's comments were based on his extensive experience of the issue and I will bring them to the attention of the Minister for Finance.

Senator Brendan Ryan also raised the issue of the definition of the term “the Statute” in the Bill. The definition in section 2 relates to the use of the term in this Bill. The definition in section 4 relates to the use of the term in the 1942 Act, which is being amended by section 7. The Senator should note that a similar definition is used in section 12, which introduces the term into the 1989 Act. Finally, section 17 fulfils the same function in relation the 1997 Act. The definitions are drafting issues to provide for the use of the term “the Statute” in various Acts.

Senator Coghlan and others raised the question of the Governor's role in relation to the ECB and the ESCB related tasks. It was necessary, as was explained, to ensure to the satisfaction of EMI and the Commission that not only was there to be no conflict of interest in relation to the bank's directors, but no potential for conflict. As directors other than the Governor are part-time, the EMI believes that this means that a potential existed for a conflict, however remote. In the circumstances the solution devised was to vest ECB and ESCB powers in the Governor and the EMI and the Commission accepted this proposal. In relation to all other tasks they remain the same. [949] I have answered all the issues raised by Senator during this debate. I thank them for their informative and well researched contributions. I commend the Bill to the House.

An Cathaoirleach: Information on Brian Mullooly Zoom on Brian Mullooly The question is: “That the Bill be now read a Second Time”. Is that agreed?

Mr. B. Ryan: Information on Brendan Ryan Zoom on Brendan Ryan No. Votáil.

An Cathaoirleach: Information on Brian Mullooly Zoom on Brian Mullooly Will the Senators claiming a division please rise in their places?

Senators B. Ryan, Quinn and Ross rose.

An Cathaoirleach: Information on Brian Mullooly Zoom on Brian Mullooly As fewer than five Senators stood in their places I declare the question carried. The names of the Senators who stood will be recorded in the Official Report and the Journal of Proceedings of the Seanad.

Mr. Quinn: Information on Fergal Quinn Zoom on Fergal Quinn On a point of order, I am concerned when you said a record will be taken of those who stood for a vote. I did not wish to record that I was necessarily going to vote against the Bill.

An Cathaoirleach: Information on Brian Mullooly Zoom on Brian Mullooly The names of those who stood will be recorded, but not as having opposed the Bill.

Question put and agreed to.

An Cathaoirleach: Information on Brian Mullooly Zoom on Brian Mullooly When is it proposed to take Committee Stage?

Mr. Cassidy: Information on Donie Cassidy Zoom on Donie Cassidy At 7p.m.

Agreed to take Committee Stage today.

Sitting suspended at 6 p.m. and resumed at 7 p.m.

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