text:
European Monetary System: Motion.
Tuesday, 17 October 1978
Dáil Eireann Debate
That Dáil Éireann takes note of the Conclusions of the Presidency presented by the Taoiseach to the Dáil on 18th July, 1978, following the meeting of the European Council in Bremen, and, in particular, the conclusions on closer monetary co-operation.
Both this House and the Seanad were in recess when the European Council was held last summer in Bremen. Because it was, therefore, not possible to present, orally, the conclusions of the Council, I arranged in July that they should be laid before the Houses and these have been available since to Deputies and Senators.
The purpose of this debate is to discuss the conclusions and to afford the House an opportunity of considering and expressing views on the proposals put forward there for a European Monetary System. A fair amount of work has been done on these proposals but this work is as yet incomplete. It is, therefore, not possible to come to firm decisions. I will discuss them in general terms and the Ministers mainly responsible will go into more detail, particularly [405] on progress so far. We will deal as far as we can at this stage with the implications of the scheme for Ireland. I will be particularly glad to have the views of Deputies at this formative stage. As I said here on 11 October, there can be a further debate when the issues are clearer. Before that debate takes place a paper will be provided giving further information on the proposals.
The conclusions of the Bremen Council relate essentially to the economic and social situation and the Community strategy for dealing with it. There was general agreement that countries without inflation and balance of payments problems should seek to increase domestic demand and the rate of economic growth. Countries with steeply rising prices undertook first to concentrate on undesirable inflationary developments. Measures on these lines have since been announced in a number of countries and I think that in fact recently there has been some quickening in world trade and prospects internationally seem better than they have been for some time.
The Bremen Council affirmed its determination to strengthen the open international trading system and emphasised the importance it attached to substantial and balanced results in the multilateral trade negotiations. The aim of the negotiations is to liberalise world trade further by reducing tariff and non-tariff barriers. Although considerable difficulties remain to be resolved, it is now hoped that an acceptable package will be agreed by 15 December this year.
Generalised policies to deal with economic growth cannot, of themselves, solve one of the major problems of this generation. I mean youth unemployment. By 1985, the population of the Community will grow by an estimated six million. The labour force will grow by approximately nine million. In other words, the Community faces a massive increase in the number of young workers. In Ireland, a recent survey showed that though people under 25 constitute 30 per cent of the work force they number 44 per cent of the unemployed. At the Bremen Council, I [406] stressed the need to speed up the special measures which had been in contemplation to deal with the problem. The Council agreed to ask the Council of Labour and Social Affairs Ministers for special measures to combat youth unemployment within the framework of the European Social Fund. In making that request, the Council sought to break a deadlock which had occurred at a meeting of the Social Affairs Council a week earlier, on 29 June.
Acting on the Council's request, the German Presidency has been conducting and arranging informal discussions. Some progress towards agreement has been made. While there are still differences to be overcome, we are hopeful that final agreement will be reached at a Social Affairs Council due to be held on 27 November so that the new measures, which are very important for the whole Community and for this country in particular, will take effect from 1 January next, as envisaged by the Council at Bremen.
Similarly, economic growth, in itself, will never achieve the convergence as between the different regions which is one of the basic aims of the Community. In fact, unregulated growth could well accentuate regional differences by pulling investment and labour even more irresistibly towards the central areas. Indeed, this influence is probably working strongly even now. In 1972, gross domestic product per head in this country was about 64 per cent of the average for the Community. In 1976 it was 60 per cent. This decline—which is on the basis of figures corrected for purchasing power parities—contrasts with the rise which has taken place in the major central economies. Obviously, influences other than membership of the Community contribute to this disparity in economic performance. Sometimes fiscal policy may not have contributed to growth. Sometimes we may have paid ourselves, as a nation, too much for what we were producing. But in all this we had the support which flows from membership of a rich and integrating Community. Indeed, I hate to think what our position would have been outside the Community. But the essential [407] point is that notwithstanding the regional fund and budget transfers to Ireland under the present system, we appear, on these statistics, which are admittedly out of date, to be diverging economically from rather than converging with the more prosperous areas of the Community. For these reasons, I advocated again the need for a strong and coherent regional policy. The Bremen Conclusions specifically acknowledged that the envisaged common approach in economic policy should embrace the reduction of regional disparities.
The Bremen Council called for continued consideration of special agricultural problems in the Mediterranean regions and in other less favoured regions. The reference to "other less favoured regions" was included at my insistence. I regard this emphasis as particularly important. It is intended to cover further Community action to improve the structure of agriculture in the west of Ireland. Discussions have been taking place in Brussels between the Commission and officials of the Department of Agriculture about new Community measures in this respect and we hope for a substantial and favourable outcome.
The increase in oil prices aggravated the world recession. In Ireland, the cost of imported oil in 1972 was approximately 2.4 per cent of GNP. In 1977, it was 6.5 per cent of GNP—or more than £350 million. Depletion of world reserves and economic growth will accentuate this trend. Indeed, every 1 per cent by which growth increases, increases the demand for energy here by substantially more than 1 per cent. We are thus faced, before we start, in every programme for economic expansion with a strong in-built brake on growth. Every time we push up our growth rate, our oil imports rise. This is the reason for the special attention being given by the Minister for Industry, Commerce and Energy to measures which could counteract these adverse effects. The Bremen Council agreed on the need for a logical and concerted policy on energy. In essence, this means measures to [408] reduce the relationship in the Community between the increases in energy consumption and economic growth from its present high level to approximately .8 per cent for every 1 per cent of growth. This will have obvious implications for energy policy here. It could, for example, mean special EEC aid for exploration and for measures to increase efficiency in the use of energy, including an inter-connector between this country and Britain, so as to permit of access to the continental grid and of the more economical use of generating capacity both here and abroad. Economic growth, unemployment, regional disparities, agricultural policies and energy are all aspects of the same central issue.
All of these policies seek to achieve the better functioning of the economic system. If there is one element common to them all it is the medium in which economic values are expressed. Currency is that medium. It is the means by which trade is financed; through which investment can take place and in which the returns on investment are made. Over the last 30 years, international economic interdependence has emerged as a fundamental and pervasive fact of life, affecting every economy in the world. In these circumstances, disorder in the international relationship between currencies can have and has had the most extensive and pernicious effects. It was for this reason, particularly, that the European Council, first in Copenhagen last April and then in Bremen, discussed ideas on how the Community could make a contribution to world-wide monetary stability that would be commensurate with its importance as the world's major trading bloc.
Deputies will probably be aware from newspaper reports that we had before us in Bremen proposals jointly sponsored by Chancellor Schmidt and President Giscard d'Estaing which had been developed in the interval following the Copenhagen meeting. These proposals gave rise to prolonged and intense discussion. They resulted in the conclusions which are summarised in the text and the annex of the document issued by the Presidency immediately following the meeting. That document has been before [409] the House since July but it may be helpful if I refer briefly to some of its main features.
They are concerned essentially with two issues—
first, the monetary arrangements which should govern parity changes with particular reference to the need to create a zone of monetary stability in Europe, and
secondly, studies of the measures needed to strengthen the economies of the less prosperous member countries of the Community in the context of these arrangements.
The Bremen Council envisaged a durable and effective scheme. Here, we had in mind the need to avoid a recurrence of the pattern of events in 1972 when within seven weeks of joining the Community exchange system, massive pressure on sterling led to the withdrawal of the British and Irish pounds from the system, followed very quickly by the Italian lira and, in January 1974, by the French franc. We agreed that measures to strengthen the economies of the less prosperous member states would be essential if the zone of monetary stability is to succeed. Studies of the measures were to be concurrent with further studies we also commissioned on the detailed working of the monetary scheme. In Bremen I pressed the need for these concurrent studies which have been under way since July and the Government attach considerable importance to the outcome. The conclusions note that following the two sets of studies, a decision can be taken and commitments made at the meeting of the European Council on 4/5 December.
The annex to the conclusions document sets out the proposals we had before us. These were very much in outline form and left many questions to be answered. The subsequent studies under the aegis of the Community's Monetary Committee and the Committee of Central Bank Governors have been concerned with the answers to these questions. The Tánaiste and the Minister for Economic Planning and Development will be bringing Deputies fully up to date on developments both in relation to the [410] discussions in Europe and the likely effect of the various options on the prospects for this country.
The basic thinking remains largely as proposed at Bremen. The proposals there envisaged essentially a system of management of exchange rates at least as strict as the present "Snake" system in which, as Deputies will be aware, fluctuations of up to 2¼ per cent on either side of central rates are permissible. It was envisaged that for a short initial period, countries not now in the "Snake" might opt for somewhat wider margins.
The creation of a zone of monetary stability in Europe is a desirable objective. This conclusion is based on the experience of the past seven years since the international monetary system established at Bretton Woods after the war received a mortal blow when dollar convertibility was suspended. New rules have been drawn up to codify the practice and the regime of floating exchange rates but the conviction has gradually gained ground that a new approach, based on greater stability, is needed.
What is then the background to the proposals? The major reserve currency in the world now is the United States dollar: it is through the dollar that most trade is financed. Other currencies also play a major role in this area but it will simplify things if we concentrate purely for the sake of illustration and without any other significance than that of achieving simplicity on what has happened to the dollar since fixed parities were abandoned.
The figures I quote relate to the relationship between the dollar and the "Snake" currencies but, of at least equal importance, certainly for important interests of this country, have been the variations between Community currencies. During the second half of 1973, the dollar rose by about 20 per cent against European currencies within the Snake: then fell by about 10 per cent during the first months of 1974. After a brief rally, it fell again by about 15 per cent until March 1975. In August 1975 it increased by 15 per cent. Between August 1975 and October 1976 it stayed more or less constant and then fell after the adjustment of currency values within the Snake. Over the year from August [411] 1977 to August 1978 the rate of appreciation of European currencies in relation to the dollar was approximately 15 per cent for the currencies of the "Snake", 13 per cent for the French franc, 11 per cent for the pound sterling, and 5.5 per cent for the Italian lira. All of these figures are of necessity approximations. I give them to explain to the House the order of magnitude of the instabilities which have been affecting currencies.
The fact that most of our trade is in sterling does not take from the destabilising effect of the changes I have mentioned. Indeed, in this decade sterling has gone from a parity of $2.40 to the £ to under $1.60 to the £: and recently rose briefly to over $2 to the £. These changes affect in the most fundamental way the competitiveness with which we can sell, our rates of inflation, and ultimately the levels of economic growth and employment we can attain.
The basic idea behind the proposed EMS is greatly to reduce such fluctuations by building up the monetary influence of the Community to be more commensurate with its collective economic weight. Stability of exchange rates between all the currencies of member states would itself contribute to this.
What, it might be asked, are the disadvantages that flow from instability and what gains could be expected from ending it? First, there are the consequences for trade. These arise directly in the difficulty of gauging the costs in national currency of buying from abroad or of the return on exports. It is, of course, possible to obtain forward exchange cover but it must be remembered that for many firms, exporting is already a venture into unfamiliar markets, subject to sufficient unknowns and uncertainties and that the effects of exchange rate shifts may be enough to discourage such firms. The ordinary person can understand this, perhaps, if he thinks of his reaction to being asked at the airport for an unexpected currency surcharge on the price of his carefully budgeted holiday abroad. There is also an indirect influence through the spur given to protectionist [412] tendencies when growth slows up.
There are, of course, reasons other than currency, why international trade has not been growing as fast in recent years as it had been; but the fluctuations I have mentioned are an additional and substantial hazard to anyone thinking of buying or selling across monetary boundaries. These boundaries have, in fact, been as effective a form of protectionism as any customs barrier.
The Community cannot flourish if trade does not flourish and individual member states are affected in the same way to a greater or lesser extent. We, with imports and exports equivalent to more than 90 per cent of gross national product, are particularly vulnerable. Other things being equal, the greater the expansion in international trade, the greater the benefit to us.
Monetary instability is one of the elements which hinders a resumption of growth at a satisfactory rate. Countries whose currency is appreciating excessively find that exporting becomes difficult as profits in export industries are squeezed. Countries whose currency is depreciating find that the cost of buying essential materials abroad is rising and these suffer inflation from which domestic measures alone cannot relieve them. This acts as a brake on any stimulation of the economy, due to fear of balance of payments pressures causing further depreciation, leading to a vicious downward cycle. We in Ireland have had ample experience of this sequence. Indeed, because of the extreme openness of our economy, any transitory gains from depreciation of our pound were negated more rapidly than in larger economies, less dependent on trade. It is now generally accepted that rapid inflation is not only bad in itself, but thoroughly inimical to growth. By the same token, the relative stability of our pound, in line with sterling, last year and this year, has facilitated a reduction in the rate of inflation in this country and in the UK.
Growth is also adversely affected by the effects of currency fluctuations on investment. A person considering the erection of a factory, an office, a hotel or anything else requiring substantial [413] capital must look with care at where he is investing. Will the currency which he is using appreciate or depreciate? This is no mere academic exercise. Success depends on the correctness of the answer. If currencies fluctuate widely, the risks of international investment are intensified and investment is, to say the least, discouraged. We, like most countries, depend on investment for the success of our economic programmes. We must, therefore, look with favour on any proposals which would lessen these disabilities.
A point of particular importance to us is that monetary instability has had serious effects on the functioning of the common agricultural policy almost since we joined the Community. It has led to the development of the system of monetary compensatory amounts which has broken the unity of the market, impeded trade, penalised our exports and, worse, created anomalies which have threatened serious adverse effects on employment here. The cost of MCAs to the Community has added to the pressure for basic changes in the CAP which, if it were ever successful, could gravely harm our interests.
On a more political note, success in the implementation of the proposed system would represent a significant step towards closer economic integration in the Community. Further steps along that road cannot but have profound implications for the political development of the Community.
We are in Europe. In 1972, the people of this country voted overwhelmingly for membership of the European Community. Although in some respects developments since then have not been as favourable as many wished, and this feeling could be reflected in a poll now, there is no denying that membership has brought immense benefits, both economically and politically: and the Community has been a stabilising force in the world, often regarded with a great deal more respect by those outside it than by member countries themselves.
We want to see this Community grow and prosper, but monetary instability as between the different member countries [414] can pull it apart. The proposals which we are discussing now will, if they are successful, be a powerful force in the opposite direction. They can help to achieve further integration. Indeed it is axiomatic that in a monetary union, to which the proposals are leading, there can be only one monetary authority. Such an authority connotes also a degree of political authority. For this reason alone we must look with a little more than sympathy at the proposals. While safeguarding the national interest, we must play our part in any development which promises to further the cause of Europe.
There is another aspect. In what I have been saying, I have been referring to the effect here of events outside this country. These effects cannot be totally avoided. Interdependence is a fact of life, but, we must also ask ourselves the degree to which we find it acceptable that our currency should depreciate as a result of totally fortuitous events elsewhere. It is one thing if we manage our own affairs in such a way that the value of our money depreciates. We have only ourselves to blame for the consequences of our folly. It is altogether a different thing to find that the value of our money has depreciated because of events or policies in other countries which, however natural to their home environment, do not match our requirements. As a small open economy, our freedom of action in currency matters is inevitably restricted. A new monetary system will not change this fact of life but it could certainly weaken the adverse influences from which we have suffered.
It was recognised in Bremen that an essential condition for success is action to strengthen the economies of the less prosperous member states. This aspect will be covered in greater detail by the Tánaiste and the Minister for Economic Planning and Development. There are, however, some broad considerations I should mention.
In this country's case, action both by the Community and by ourselves is required. The need for Community action arises from the policy stance which the Government are compelled to adopt in the face of this country's low level of [415] development and the employment challenge facing us. This stance has implications for our ability, without Community aid, to sustain the obligations of participation in the system.
The Irish economy is in the process of a fundamental restructuring of the sort which happened long ago in the other countries of Europe. There the proportion of the population engaged in agriculture is, on average, less than half what it is here. They have gone through the many stages of the industrialisation which we are only now engaging in on a significant scale. It could be that without the strains imposed by this restructuring we would, in fact, have no unemployment problems, instead of having one of the highest rates in the Community. For example, more people have left the land over the past 15 years than are now numbered in our unemployment registers.
Our structural problems are aggravated by the strong demographic pressures which have emerged in recent years. Even if we did not have the problems of industrialisation, we would still have to face the extraordinary difficulties—or opportunities—created for us by the fact that the proportion of young people moving into the labour force here in the next few years is likely to be about three times the proportion for the Community as a whole. In other words, as well as the problems of restructuring and of one of the highest unemployment rates in the Community we have the problem of a very high proportionate inflow of young workers to the labour market.
We are not in European terms a rich country. Our gross domestic product per head is the lowest in the Community. There are no regions here of sufficient size or wealth to enable us to dispose quickly of these problems and achieve convergence with the economies of Continental Europe. We here, as a nation, must ourselves make an immense effort. That is the basis of the programmes on which the Government are working. We must expand our economy by our own efforts and make investment here attractive and profitable. That is the reason [416] why we are committed to a level of expenditure which creates for us possibly the highest public sector borrowing requirement in the Community. And that is why we tolerate a deficit on our current balance of payments which is also extraordinarily high by Community standards though not when measured in relation to our reserves. It is the reason why we must continue to aim for and achieve some of the highest rates of economic growth in Europe.
Participation in a European Monetary System could raise difficulties for three reasons.
First, the greater degree of economic integration within the Community could mean an accentuation of the strong tendency for the central areas to draw wealth and resources towards them. The new system if it succeeds will be a step towards economic and monetary union: and on all experience, unions of this type have meant an intensification of the pull of the central areas of the union.
Our second concern is that in the initial period of operation of the system the parity of our currency may be higher than it would otherwise be. This could impose severe strains on our competitiveness, and the necessary adjustments would take time.
Our third concern is that the balance of payments deficit on current account may have to be reduced to lower levels more rapidly than is at present envisaged, if we are to maintain generally stable parities without an excessive loss of reserves. We have made the case that in our circumstances it would be quite wrong to do this by deflation. Far from considering measures to reduce investment, every effort should be made to increase it. This would lead, over time, to a reduction in the trade deficit as an expansion of capacity led to an accelerated increase in exports and the abatement of some imports. Community aid would promote such an adjustment over the medium-term: in the short term, it would relieve difficulties in financing the public capital programme on which the necessary investment, including private investment, is heavily dependent but which is constrained by the need to reduce the public sector borrowing requirement and [417] to avoid increased taxation. It would also cushion the effect on our reserves of the increased imports which would initially be induced by the necessary acceleration of investment.
Apart from Community aid, we are also seeking to ensure that the design of the system itself will not impart an excessively deflationary bias to the conduct of economic policy. The Tánaiste and the Minister for Economic Planning and Development will be expanding on our case on these respects.
Essentially, we require Community action to avoid a situation in which our membership of the system would lead either to an even greater flow of resources away from the peripheral regions, or to the necessity of measures to slow or reverse the economic growth we have managed to achieve in recent years. This was recognised at Bremen and as I have said specifically mentioned in the Presidency conclusions.
Our interests in Europe and in this island are such that our first preference, by a long stretch, is in seeking that all countries of the Community go into the new system. I want to stress, however, that our decision will be based on an assessment of the balance of advantage for this country. If the circumstances are right, we will be joining the system.
An important element in our assessment will concern the implications of participation in the system on relations with Northern Ireland and progress towards the objective of national unity by consent. The most favourable outcome from this viewpoint would clearly be the establishment of a durable system on a basis that would embrace both the United Kingdom and Ireland and would have a beneficial impact on both economies.
An acceleration of economic development in this part of the country would enhance the economic attractions of cross-Border economic co-operation and of eventual national unity. With both countries in the system the disadvantages for trade and business relations with Northern Ireland which could flow from a departure from the one-for-one exchange rate between the Irish pound and sterling would be avoided.
[418] If the British Government were to decide against joining the system, our participation could give rise to such disadvantages, although they might not be so extensive as is often supposed. The Government would, in these circumstances, have to assess the implications for people's consciousness of the country as a unit and the weight of these implications relative to other elements affecting people's consciousness and attitudes towards unification.
Among these other elements would be included, of course, the effects of participation on this basis on our economic development. Deputies may be assured that, if the question arises, these considerations will receive the most careful attention.
I said earlier that our successful participation in the system requires Community action and national action. I have briefly outlined our case for Community assistance. I now want to deal with the implications for economic behaviour here in Ireland. There is no point in going along with the belief that any mechanism to safeguard a currency can of itself protect us from the effects of folly. The value of a currency is fixed by the strength and vitality of the economy on which it is based. Arrangements to safeguard parities can never succeed of themselves unless they are backed by sound policies and actions.
Even as things stand now we must govern our affairs with foresight and responsibility. If the new system comes, the need for discipline will be even greater. The Government will have to operate fiscal and monetary policies which will sustain growth, encourage employment and keep down costs. The social partners will be under an inescapable obligation to complement these efforts. In particular, it will be essential to ensure that the rate of increase in incomes does not outstrip productivity. Expectations must be rapidly adjusted to the sharply lower rate of inflation that may be expected to rule in the EMS. We all want a stop to the gallop of inflation; and certainly within the scheme the rate of price increase in the different countries of the Community must converge if the value of currencies is to remain stable in relation to each other. [419] Failure to observe the disciplines inherent in the system will result inevitably in lower growth and less jobs.
The new system can increase investment and trade. It can reduce unemployment and inflation. But it is equally true that none of these things will happen if we diverge too widely from the standard of practices which have ensured the success of the major continental economies. In particular, we cannot maintain and increase employment if we pay ourselves more than our production warrants and allow our costs to get out of line with those of other countries within the system. That is why the forthcoming negotiations on wages and the economic and financial policies of the next year will be crucial. If the new system works, investment in this country can flourish at a rate never before experienced. Inflation can be reduced and employment, on which in our circumstances the success or failure of all policies must be judged, can grow so that no one is ever of his own volition without suitable work in his own country.
Minister for Finance (Mr. Colley): The Taoiseach has outlined the reasons why, both at the European Council at Bremen and in subsequent discussions at Community level, Ireland has strongly endorsed in principle the moves towards achieving a new European Monetary System. The underlying objective of greater monetary stability is one which the Government fully support. It is, in fact, now generally accepted, not only in the Community but also on a wider international front. Indeed the need for greater stability was a major talking point at the annual meeting of the International Monetary Fund, which I attended recently. There has been widspread disenchantment with the currency instability of the past few years under the system of floating exchange rates.
While changes in exchange rates can be an essential part of the balance of payment adjustment process, wide variations in rates at frequent intervals pose problems for producers, traders and investors for the servicing of external borrowing [420] and also for the general public. Fluctuating rates create a climate of uncertainty which is not conductive to the expansion of trade and investment and which complicates the operation of demand management policies. This is not, of course, to say that all the blame for the sluggish growth of the world economy in recent years should be placed on exchange rate fluctuations. But instability in exchange rates has, undoubtedly, been an important factor.
The proposed new European Monetary System would be a significant step towards increased currency stability—not only within the Community but also in Europe generally and in the international monetary system as a whole, with real benefits for international trade, investment and growth. This is the economic reason why the Community is placing such emphasis on the proposals. There is, of course, also the political aspect. The new system, if it is a success, could mark a major step towards further integration in the Community.
The system discussed at Bremen was an outline one and was subject to amendment. Since the start of July there has been intensive activity aimed at teasing out precisely how it would operate and elaborating firm proposals. The expert Community bodies—specifically the Monetary Committee and the Committee of Central Bank Governors—have been undertaking the necessary technical work. On the basis of their reports discussions have taken place in the Economic and Finance Council. The most recent discussion by the council was held yesterday. While a number of important issues still remain to be settled, it will be useful if I summarise the system as it is now emerging, though I should stress that there is no final agreement at this stage.
The system would be based on the combined use of the "parity-grid" approach used in the present scheme —known as the "snake"— operated by Belgium, Denmark, Germany, Luxembourg and the Netherlands, and of a currency basket formula. The system would limit, within a specified margin, the movement of each participating currency against each of the [421] other currencies. The starting point would be that each currency would have a central rate expressed in terms of the proposed European Unit of Account or ECU. I should explain that the ECU would be a basket consisting, like the European Unit of Account, of a specified amount of each of the Community currencies. The weighting of each currency in the basket would broadly reflect its share of Community GNP and of trade. There would be a procedure for reviewing the weights of the currencies in the basket.
The central rates expressed in ECU would then be used to calculate bilateral central rates, as well as upper and lower fluctuation limits, for each currency in terms of each other currency. The width of the fluctuation margin has not yet been settled; it may be 2.25 per cent as in the present "snake", though in the initial stage countries not at present in the "snake" could opt for somewhat wider margins.
The central banks would have to intervene in the foreign exchange markets—by buying or selling their own currencies in exchange for other currencies—to ensure that the agreed fluctuation limits were respected. An obligation to intervene would apply to the two central banks whose currencies had reached the fluctuation limits against each other. Intervention in the market by the central banks will mean that they will acquire balances of each other's currency. Thus, intervention would give rise to debit and credit balances which would have to be settled in due course by transfer of reserve assets between the central banks.
The system does not represent a simple adaptation of the present "snake". The important change is the additional and central role which is envisaged for the European Currency Unit as an indicator of divergent currencies. Movement of member currencies' current rates expressed in ECUs, compared with their central rates expressed in the same terms, would indicate which currency was deviating most from the Community average as reflected in the basket. Where this divergence exceeded a specified percentage, an obligation would arise for the deviant currency. [422] What this obligation should be is one of the main issues still to be resolved. It could be a vital factor in ensuring a fair balance between the weaker and stronger currencies.
It is likely that, as a minimum, the obligation would be to consult with other member states on the reasons for the divergence and how it might be remedied. Alternatively, it has been suggested that the country with the deviant currency should be expected to intervene automatically in the exchange markets at an earlier stage than would otherwise be the case. Also, as part of this alternative, the concept has been put forward that, where a country with an appreciating currency has purchased a currency which is weak but which has not been identified as a deviant currency, the creditor country should not be entitled to repayment of the resulting debt within the normal period of time and might even be expected to forgo interest on the debt.
At the Council of Ministers discussion yesterday a consensus did not emerge in favour of either of these alternatives. However, a will has been expressed by the proponents of the two alternatives to move towards a compromise suggestion which, while not automatically triggering intervention by the deviant currency, would go further than merely requiring the opening of consultations. This compromise has been described as involving a presumption for intervention, with consultations taking place if intervention does not occur. The compromise suggestion has been referred back to the monetary committee and committee of central bank governors for further study.
If a currency diverged persistently beyond a specified point, the country concerned might be expected to take appropriate domestic policy measures. For example, a country with an appreciating currency might be expected to stimulate its economy or, in certain circumstances, to revalue its currency by changing its central rate.
It is important to stress that, in the proposals, the Community is not aiming at permanently-fixed exchange rates. Such an objective is simply not attainable in present circumstances, as is evidenced from the changes announced [423] yesterday for certain currencies in the "snake". There would be a procedure whereby a country could change its central rate—that is, revalue or devalue against other currencies—if the rate no longer reflected its underlying economic circumstances. Clearly, the objective will be to keep such changes to the minimum necessary. Otherwise the whole purpose of the system would be jeopardised.
A further point of interest is that membership of the new system would not be confined to EEC member states. Countries having close economic and financial ties with the Community could become associate members. Such countries might include Norway—which participates in the "snake"—Austria, Sweden and Switzerland.
The underpinning of the exchange rate arrangements by increased support and credit facilities is an essential feature of the Bremen proposals. It is proposed that a European monetary fund will be established not later than two years from the start of the new system. The European Council envisaged that, pending the setting up of this fund, interim arrangements would be made. These comprise arrangements for deposits of reserves and for expansion of credit support facilities.
As regards reserve deposits, it is envisaged that each central bank would deposit 20 per cent of its gold and dollar holdings. In return it would receive a supply of ECUs. These ECUs would be used for settlement of debts between central banks arising from the currency interventions. The total amount of reserves to be deposited would amount to about £17 billion, of which Ireland would deposit about £70 to £80 million. Essentially, this proposal is designed to facilitate the settlements and to promote the role of the ECU pending the creation of the new fund. The reserve deposits would in the first instance be made with the existing European Monetary Co-operation Fund.
The European Council envisaged that in the interim period prior to the setting up of the new fund, a new credit support scheme would be initiated based on contributions of national currency by each [424] member state in an overall amount equivalent to the amount of reserve deposits, namely about £17 billion. It is now probable that, if the exchange rate arrangements are to get under way early in 1979, it will not be possible in the time available to work out all the details of this new scheme. However, there is broad agreement that the credit support envisaged at Bremen should be made available from the start of the new system through expansion of the Community's present balance of payments credit facilities—the short-term monetary support scheme and the medium-term financial aid scheme. The short-term scheme is an inter-central bank agreement under which countries may draw credit for up to six months' duration to cover temporary balance of payments difficulties. The medium-term scheme is an inter-governmental arrangement providing credit for a period of two to five years, subject to compliance with conditions about the conduct of economic policy. The division of the total amount of £17 billion between the two schemes, and various related matters including the possibility of extending the duration of credit under the short-term scheme to a maximum of one year, are still under discussion. There is also a timing problem in that, while the inter-central bank scheme can be amended at short notice, the modification of the medium-term mechanism will require Community legislation and national legislation in some instances.
There is one further arrangement to which I should refer. Under the "Snake" scheme central banks provide very-short-term financing credit facilities for the purposes of the intervention arrangements. It is expected that these would be adapted and applied to the new European Monetary System. It is essential that the credit support available to sustain the new system will be such that, of itself, it will act as a deterrent to speculation. I have stressed in the Council discussions the importance that the Government attach to the existence of an adequate overall amount of credit and to the availability of adequate assistance for any country which experiences serious difficulties.
[425] The Bremen Council recognised that measures to strengthen the economies of the less prosperous member states were necessary if the European Monetary System was to succeed, and instructed that studies should be carried out of the action needed in this regard concurrently with the elaboration of the proposed monetary system. These studies are being carried out by the Community's Economic Policy Committee who submitted preliminary oral reports to the Finance Council in September and again yesterday, and are now preparing a final report.
The Irish members of the committee are participating actively in these studies. They have submitted papers on the criteria that should be adopted in this context for the identification of the less prosperous countries; on the inadequacy of resource transfers under existing Community mechanisms; and on the resource transfers that will be necessary to support Ireland's participation in the system, especially in the light of the Government's employment and growth targets.
While the studies are concerned with the necessary Community action, it is implicit that such action, to be effective, would have to be accompanied by domestic action to reduce inflation and improve competitiveness. The papers concluded that substantial additional capital transfers would be necessary for infrastructural and industrial development, and advanced an estimate of £650 million over five years as a very rough indication of what that increased investment might be. This was intended to indicate to our Community partners our desire to participate in the system from the commencement, while at the same time affording them a measure of the problem it represents for us. I should perhaps emphasise that the estimate is confined to the additional investment required in the immediate and narrow context of entry to the system. It might be argued that it should be very much greater, but it is necessary to have regard to and take a view of the balance of political and tactical realities. We anticipate also that there will be a significant expansion of the separate existing grant and loan mechanisms—the [426] regional fund, FEOGA guidance and social fund—as well as the provision of new mechanisms in the pipeline such as the Ortoli Facility which, hopefully, is passing its final stages of approval. These various mechanisms or instruments will, or course, be accompanied by the massive credit supports to which I have referred already.
At the Economic and Finance Council, I have pressed for the completion of the concurrent studies and I expect that the Economic Policy Committee's report will be available for the Council meeting on 20 November next.
The linking of its currency to that of a major trading partner is a normal arrangement for a small open economy such as ours. It promotes confidence in the currency in other countries and gives an essential element of stability to the terms of a large part of the smaller country's external trade. But this can be at the cost of being subject to undue influence by the economy of the larger country; it is, for example, very difficult for the smaller country to operate effectively an independent monetary policy.
Linking the currency can result in very real net advantages when economic trends in the major country are satisfactory and its currency is stable. This is not the case when the major country is going through a period of difficulty with high inflation and depreciation of its currency. The effects on the Irish economy of the trend in the British economy in the years 1973 to 1976 give rise to serious misgivings about the continuance of the one-for-one parity with sterling, and major reviews were carried out in the Central Bank and in the Department of Finance. The conclusion reached was that if the link with sterling were broken, Ireland could adopt a zero effective exchange rate policy, that is, one based on the weighted average of the exchange rates of the currencies of our major trading partners. These currencies account in total for over 80 per cent of our trade, so in that respect the effective exchange rate would not be very different from the European Monetary System which, if all the EEC countries join, will cover about 70 per cent of our trade. In short, therefore, the new system would meet the objective of linking our currency [427] with most of those of our major trading partners.
In considering the disciplines which membership would entail, I think that we must be realistic. We must not accept uncritically the views of some commentators who see the EMS as an expanded deutschemark zone in which all the member countries would have to follow the dictates of the Deutsche Bundesbank. Neither, of course, should we go to the other extreme and think that we could pursue economic and monetary policies which did not have regard to their effect on the observance of the exchange rate obligations.
The deutschemark is the only major currency in the "snake" at present and trade with Germany is very important to the other member countries, namely the Benelux countries and Denmark. While membership of the "snake" may restrict to a certain extent the freedom of action of these countries in regard to economic and monetary policy, there will, in fact, be important differences between the "snake" and the European Monetary System. The latter will, we hope, have four major countries as members—Germany, France, Italy and the UK—and the proposed "indicator of divergence", that is the imposition of special obligations on the country whose currency is deviating most from the norm, should result in a significant contribution by the strongest currency countries to the lessening of strain on the weaker currencies.
This, of course, is not to deny that the European Monetary System would be a strong currency zone and would require the observance of strict discipline by all the members in regard to their economic policies, particularly balance of payments, incomes and inflation.
Observance of the exchange rate obligations will require strict attention to the balance of payments. The balance of payments constraint arising from the European Monetary System would be eased to some extent by transfers of resources which we have looked for in the context of the concurrent studies of measures to assist the less prosperous [428] member countries, as well as those under other mechanisms. To achieve a real and lasting improvement in the balance of payments, we must increase exports and reduce import penetration of the home market. This, in turn, will require improved productivity and a genuine commitment to the necessary incomes policy from the commencement of the new system. If such a commitment is forthcoming, and is fulfilled, the problem of adjusting to the new system and, in particular, of keeping our inflation rate in line with the average, will be reduced. An important factor in that regard is that the stabilisation of exchange rates should tend to keep down increases in import prices and the absence of green £ adjustments, except in the context of parity changes, should develop stability in agricultural prices. At the same time the cost of imported agricultural inputs would be relatively stable.
I sincerely hope that, when the proposals for the new system have been fully elaborated, the conditions will be such that all member states will be able to support them. If the other eight member states agree to join, it would be almost unthinkable that Ireland should not also decide in favour of participation. Clearly, however, we would have to make our own decision. A decision not to join would make little sense from the standpoint of exchange rate stability to which I have referred. If all the Nine were participating, the new system would represent the optimum zone of stability for Ireland. As well as maintaining a stable currency relationship with Britain and Northern Ireland—which account for almost 50 per cent of our total trade—we would be achieving stability with the currencies of the other member states. Overall, we would, within the framework of the system, be participating in a currency zone covering about 70 per cent of our trade. The Irish £ would also tend to be stronger in relation to third country currencies than it otherwise would be. From what I have said already, the potential advantages of stability of this kind are clear. Moreover, within the new system, we would, as was pointed out by the Joint Oireachtas Committee on Secondary Legislation in their report concerning Economic and [429] Monetary Union, have a say in policy decisions affecting the new system.
If, on the other hand, Ireland were the only country to stay outside the system, this would effectively involve a break with sterling. We would have the problem of deciding on a new exchange rate system and, given the composition of our trade, the options are not too obvious, apart from an effective exchange rate which, in its composition, would not be greatly different from the European Monetary System. All this reinforces the presumption that, if all the other countries joined, the right course for us would be to join also.
The logic of participation with all other member countries would not, of course, be sufficient on its own to ensure the success of our entry into the system. The price to be paid for the potential advantages would be the observance of a greater discipline in the management of our economic affairs, particularly in regard to the control of public expenditure and the operation of monetary and incomes policies. Provided the necessary disciplines were observed, inflation would be further reduced and there would be a firm basis for increased investment and employment. A firm resolve to moderate the growth of nominal incomes would be a critical part of the necessary disciplines. If income expectations did not adjust rapidly to the prospect of lowering inflation, there would be serious adverse repercussions for output and employment in the economy, particularly in the industrial sector.
If Ireland and Britain both decide to participate it will be for decision whether we should maintain the one-for-one parity with sterling or allow the rate to fluctuate within the permitted margin of possibly 2¼ per cent.
The one-for-one parity has many advantages from the practical and operational viewpoints and its replacement by a narrow fluctuation margin of 2¼ per cent would give rise to inconvenience and costs, for industry and commerce and for the tourist sector, that might not be justified. A fluctuation margin might also pose practical problems for the Central Bank, at least in the initial period, given the narrow [430] size and underdeveloped state of the Dublin foreign exchange market.
The major criticism of the sterling link is that it has been largely responsible for our inability to insulate ourselves from the adverse effects of British economic and monetary policies and this criticism reached a peak during the period of high inflation in 1973 to 1976. It is to be hoped that the greater convergence of economic policies which will be a necessary concomitant of the European Monetary System will prevent a repetition of that experience. A margin of 2¼ per cent might give us somewhat greater freedom to operate an independent monetary policy, particularly in regard to credit, but this might not outweigh the disadvantages which would result from changing our present sterling parity. Furthermore, our ability to avail of greater flexibility in monetary matters would be critically dependent on aligning our inflation rate with the average of the other members. A significantly higher rate of inflation could force us to take measures to restrict domestic credit, including the imposition of relatively high interest rates.
I should, of course, stress that a decision to join the European Monetary System with Britain on the basis of the one-for-one link with sterling would not prevent us from changing this relationship if, for instance, Britain found it necessary to change her central rate in the system.
Participation by Ireland, if Britain stayed out of the system, would inevitably involve a severing of our link with sterling since the pound sterling would be floating independently, while the Irish pound would be tied to the other EEC currencies, subject to the fluctuation margins permitted in the new system. I have no doubt, therefore, that debate will focus primarily on the course Ireland should follow in the event of a decision by Britain not to participate. I should emphasise that there has been no indication that Britain will not adhere to the new system. As I have already indicated, I sincerely hope that all member countries will find it possible to join.
The decision on whether Ireland should enter the system if Britain stays out must be based on a thorough assessment [431] of where the balance of economic advantage would lie. There would be a number of advantages in joining in those circumstances. In the first place, while we would be losing the link with sterling we would be joining a currency zone whose member economies are growing more rapidly than that of Britain. Secondly, the link with the stronger currency zone would assist us in reducing further, and containing, the rate of inflation, provided that the necessary disciplines were observed. Thirdly, there should be an increase in investment from non-British firms, attracted by our membership of the new system, provided we contained our costs sufficiently. Experience has shown that these firms export a greater proportion of their output to the continental EEC countries. Fourthly, there could be greater scope for an independent monetary policy. This could be of importance as regards interest rates. Lastly, Ireland would benefit from the increased credit supports and from any additional Community aid agreed as a result of the concurrent studies. If we were outside the system we could not expect to get the benefit of additional aid.
The principal arguments against joining in these circumstances would include the following. Firstly, Ireland has a stable currency relationship with the UK which accounts for almost 50 per cent of our total trade, or almost 40 per cent if one omits trade in those agricultural goods which are insulated from exchange rate fluctuations through the operation of the common agricultural policy. The other seven EEC countries account for about 24 per cent of our total trade though admittedly this percentage is increasing rapidly.
Secondly, if the Irish pound appreciated relative to sterling there would be a danger that Irish exports to Britain would be placed at a competitive disadvantage and that Irish firms would also lose out in competition with British imports on the home market, with consequential adverse effects on our output, employment and balance of payments. The extent of the problem would depend on the size of the appreciation against [432] sterling and the relative movement of wage costs in the two countries. Although there would be countervailing factors, particularly in the longer term, the initial adverse effects on employment could be considerable, especially for firms in those sectors which are already experiencing difficulties.
Thirdly, investment in Ireland by British and by native Irish firms, whose exports tend to be concentrated on the British market, would be adversely affected. Fourthly, in the tourism sector an appreciation of the Irish pound would make Ireland less attractive to visitors from outside the State, especially those from Britain and Northern Ireland, and would make Ireland less competitive relative to the UK in attracting visitors from third countries. Lastly, an element of uncertainty would be introduced into the financial arrangements between the two countries. It might be necessary to introduce exchange controls in order to restrain currency speculation. This could involve the supervision of current transactions and the restriction of certain capital movements. Furthermore, additional currency charges, administrative costs and inconvenience would arise for the general public, and in particular, for the industrial and commercial sectors as a result of the breaking of the link with sterling. In such circumstances transactions with Northern Ireland, and particularly the circulation of our currency there, would be particularly affected.
The Government are continuing their studies of the economic and sectoral implications of participation without Britain. It is quite clear, however, that the disciplines required in this case—in regard to incomes, fiscal and monetary policy and the balance of payments—would be more severe than if all member states including Britain were in the system. If it is felt that the balance of advantage would lie in our joining the system even without Britain, the real issue will be whether we are prepared to accept the much tighter disciplines on economic policy which this would entail.
If Britain stays out an alternative course would be for Ireland to remain outside with her and to retain the present [433] parity relationship. If sterling were then to depreciate against the currencies in the European monetary system this could complicate our efforts in the struggle against inflation. For this reason, and as a possible move towards participation in the new system at a later stage, we would, even in these circumstances, have to review the appropriateness of maintaining the one-for-one parity. An additional factor to be weighed would be the possibility that, outside the system, we might find ourselves relegated with Britain to the second tier of a two-tier Community, with each tier developing at a different speed.
I referred briefly to the possibility of having to bring in exchange control between Ireland and Britain, if the sterling link were broken, in order to restrain currency speculation. In the normal course I would shortly be bringing before the House an Exchange Control Continuance Bill to maintain the existing arrangements in operation after the end of the year. The Government may avail of the opportunity to ask the House to give power in the Bill for the extension of exchange control to certain transactions with Britain if ever the need should arise. I would stress that what I have in mind would be simply an enabling provision. There is no decision at this stage to apply exchange control to Britain.
Many of the details of the system have not yet been settled. So far the discussion has been mainly carried out in expert committees—the Committee of Central Bank Governors and the Monetary Committee—and there has been little real negotiation at political level. But from the few meetings of Finance Ministers that have been held I have carried away the firm impression that the system will be brought into operation next year.
A further meeting of the Finance Council is to be held on 20 November and they will then report to the European Council. The European Council have undertaken to take decisions and make commitments on the system at their meeting in Brussels on 4/5 December.
I have tried in this statement to set out for Deputies the likely outline of the [434] European Monetary System and the implications the system would have for Ireland, in so far as this can be judged at the present time given the uncompleted state of studies. I hope that Deputies will have found this helpful and that they will be able to participate constructively in the debate, which must necessarily be of a preliminary nature.
Mr. P. Barry: In his speech the Taoiseach made the point which I would like to reiterate on behalf of my party. He said:
We are in Europe....and the Community has been a stabilising force in the world.... We want to see this Community grow and prosper.... While safeguarding the national interest, we must play our part in any development which promises to further the cause of Europe.
We in Fine Gael strongly subscribe to all these sentiments. For well over ten years now this party have been committed to the idea of a united Europe in its many facets and as quickly as possible. As regards the European Monetary System the Minister for Finance has given perhaps as much information as it is possible to give at this stage on its working and possible effects.
There is a point I should like to make about the final debate. As the Taoiseach promised last week, another debate is due to take place on this matter by December. At that stage I hope the document which will be presented or published by the Government will contain their final decisions on this, their final preference in this regard, before the decision has been taken at the next European summit meeting. I hope that document will contain also the conditions under which we are entering, if we are entering, the European Monetary System.
At present for this country there are four possibilities. The first is that every country, all of the nine countries, would join the European Monetary System. The second is that eight countries would join and that Ireland would not join. The third is that eight countries would join and the United Kingdom would not join. Of course, the fourth possibility is that [435] the United Kingdom and Ireland would not join, that the system would be composed of the seven mainland countries. There are of course, other possibilities, although extremely unlikely, that perhaps one or two countries on the mainland of Europe would not join but Ireland and England would go in. I do not think it necessary to talk about them here because, firstly, they would not affect this country and, secondly, there is a very remote possibility that that would happen.
One of the possibilities I have listed falls into the same category, that is, that Ireland would stay out while all other countries would join the system. I do not think that is a realistic option so far as this country is concerned. The option that would cause us most difficulty and present us with a choice is if the United Kingdom decided to stay out, when we would then be presented with a choice of either joining without them or staying out with them. The Minister for Finance has set out the options that are available to us in that regard in his speech. This is not a very simple choice for this country nor is it one on which one could easily come to quick decisions without looking at the economic background of both countries at present, the possible effects of joining or not joining, the amount of assistance that would be given to us if we joined without the United Kingdom or, even if we do join with the United Kingdom, the assistance would be necessary, because assistance would be necessary in that case as well.
I am bound to say that the negotiating stance adopted by the Government in this regard was not very wise. After the Bremen Conference there was a statement issued by the Taoiseach saying that the French/German proposals had not been made available in advance of the meeting and had not been studied by the financial experts. Yet, having come out of that conference, he said that Ireland would be in favour of joining no matter what any other country did. In that regard the United Kingdom Government were more sensible in that they more or less turned their backs on the proposals, said they would not join; [436] of course, subsequently they changed their minds. Now the position about what will happen is in some doubt.
The Taoiseach: I do not like to interrupt the Deputy, but that is not correct. He has quoted me as saying something I did not say.
Mr. P. Barry: I am not quoting the Taoiseach, then. I am quoting from what it was reported in the papers the Taoiseach said.
The Taoiseach: I certainly did not. The Deputy should produce the quotation or the document.
Mr. P. Barry: I will give the Taoiseach the quotation here.
The Taoiseach: The Deputy said that I had said we would join no matter what any other country did. That is what he said.
Mr. P. Barry: I have it here. I am sorry, I do not appear to have it.
Mr. Cluskey: I do not think the Deputy needs quotations. It was fairly obvious to everybody that it was decided to join.
The Taoiseach: The Government have made no decision and I made no statement as alleged by Deputy Barry.
An Leas-Cheann Comhairle: If the Taoiseach states that he did not say something the House accepts it, or any other Member for that matter.
Mr. B. Desmond: We can only go on what was reported.
Mr. M. O'Leary: The question is: have they decided to join?
An Leas-Cheann Comhairle: Deputy Barry is in possession, please.
Mr. P. Barry: It is from The Irish Times of 8 July 1978. It says, in an article on the front page entitled "Ireland backs new monetary plan despite British doubts", that the Franco-German [437] proposal had not been made available in advance of the meeting and had not been studied by financial experts. Then he goes on to say that Ireland would probably join, would be interested in joining, no matter what other decision is agreed.
The Taoiseach: No. Would the Deputy please quote?
Professor O'Donoghue: Is this a reporter's assessment of the meeting?
Mr. P. Barry: It is an assessment of the meeting, yes. The quotation is in fact the bit I read out about the Bremen Conference.
The Taoiseach: Is the Deputy insisting that I said that we would join no matter what any other country did? That is exactly what he said.
Mr. P. Barry: No, I am saying that the Taoiseach said, that the Taoiseach gave the impression, that we would join. But he said that he had adopted a stance that we would join even though he said that the proposal had only come before that meeting and had not been studied by the financial experts.
The Taoiseach: The Deputy is waffling now. Would he please be precise? The Deputy is misquoting and misrepresenting me.
An Leas-Cheann Comhairle: The Deputy should proceed with his speech. If the Taoiseach says he did not say something that must be accepted by the House.
Mr. P. Barry: The impression was certainly given after the Bremen Conference that we would join the European Monetary System——
The Taoiseach: If conditions were right.
Mr. P. Barry: If conditions were right. But the Taoiseach also said that the proposals had not been studied by the financial experts. It is not clear whether it is the financial experts of the EEC or [438] of Ireland. But the fact that we appeared to give the impression at that stage, whether the impression was in the precise words which the Taoiseach says he did not use——
The Taoiseach: That is a long way from the assertion the Deputy made.
Mr. P. Barry: I do not think it matters whether the words were precisely those or not. The impression was given that we would rush in. Every other commentator who has spoken on this since then has agreed with the point of view I am making: that we were unwise to show so much enthusiasm so early on, particularly as the British Government did not do it.
Mr. M. O'Leary: I think the position is that the Taoiseach did indicate his commitment to the "parity-grid" system rather than a basket of currencies. That is the real issue.
An Leas-Cheann Comhairle: Deputy Barry is in possession. Other Deputies will be called in turn.
The Taoiseach: Let the Deputy make his speech and get the quotation from him too.
An Leas-Cheann Comhairle: Deputy Barry is in possession.
The Taoiseach: This business of insinuating statements is a new standard of parliamentary debate.
An Leas-Cheann Comhairle: The Chair has already ruled that if the Taoiseach says he did not say something that is accepted. The same applies to every other Member of the House. Deputy Barry is in possession.
Mr. M. O'Leary: It is a separate thing, I agree.
Mr. P. Barry: I am making the point that, after the Bremen Summit on 7 July last, whether or not the Taoiseach used the precise words that we would join, the implication certainly was that we were enthusiastic about the system and that [439] we would join even though it was admitted that the proposal had only come before the meeting, had not been available in advance of the meeting, and that it had not been studied by financial experts. In those circumstances to give the impression that we were bursting to get in was not wise—I would put it no stronger than that—and did not help our negotiating position. The Minister for Finance last week, when looking for £650 million as part of our deal for going in, appeared to contradict that the figure of £160 million was his.
The attitude adopted by the United Kingdom has been totally different. Initially at the Bremen conference they appeared to turn their backs on it and subsequently they changed their minds and the Council of Ministers meeting yesterday was almost aborted because the British Government decided that they would go to Bonn later this week, led by their Prime Minister, to seek terms for joining the European Monetary System or to discuss the implications joining the system would have for them. The Minister retaliates by saying that he also will be going to Bonn later this month to discuss the position.
Mr. Colley: That was planned some time ago.
Mr. P. Barry: I accept that. The Minister for Finance is going to Bonn yet the British Government consider the position so serious that their delegation is to be led by the Prime Minister. The Taoiseach should lead three or four senior Ministers to Bonn and other capitals to discuss the implications for us and the assistance we can get. As far as we are concerned the decision is based on what we would do if Britain does not go in. This is the most serious economic decision we have had to make in our entire history. A decision like that cannot be made, for heated, patriotic reasons; it must be looked at coldly, the pros and cons assessed and it must be looked at in relation to the background in which that decision will be made to see how it will affect our economy, the farmers, the [440] work force, particularly those who are unemployed, and the business sector. If we go in and Britain do not, we might find that in severing our dependance on the British monetary system after 60 years we would be putting ourselves under a much more disciplined type of surveillance than has been in operation since the foundation of the State.
The Minister set out the various options but to come to a final decision we would have to know the conditions of entry. At the moment we know how our economy would be affected by joining it in its present state. The thread running through the Minister's speech and the Taoiseach's speech was that if we go in we have to ensure that our competitiveness is not interfered with by excessive growth in wage costs. The Minister said:
It is quite clear, however, that the disciplines required in this case—in regard to incomes, fiscal and monetary policy and the balance of payments—would be more severe than if all member states including Britain were in the system.
It is hard to see how this Government can attempt to impose severe wage restraint given their record over the past 12 months. All indications from their publications, their manifesto, their budget in February and since then, have been that there was a "let rip" mentality and that there was an expectation of a growth of 7 per cent this year and next year. Naturally enough, the unions in negotiating wage settlements looked for that at least and more to compensate for what might happen in the shortfall next year over this year. This is in spite of the fact that one of the legs of Government policy has been that a 5 per cent growth was essential if their strategy for the economy was to succeed. Immediately after the announcement that wealth tax was to be abolished in the February budget, the 5 per cent immediately became 8 per cent and 10 per cent has become the norm.
The Minister for Economic Planning and Development admitted last week that in the private sector many firms are paying as much as 16 per cent and the Government appear to be doing nothing [441] about this nor do they appear to appreciate in what a dangerous position this puts us if we go into the European Monetary System on 1 January with wage costs escalating at this rate. At the moment this 16 per cent is confined to the private sector but it is not possible to keep these wage rates within the private sector without giving the same rate in the public sector and this would have serious budgetary implications in 1979. It would have a deflationary effect on the economy and added to that there will be the deflationary effect of going into the European Monetary System, with consequent unemployment.
If we had contemplated entering this system about 18 months ago the economy would have been in a better position for it but I am not so sure now. There are tremendous problems for the economy if we enter with the present policies of the Government. I hope that this proposition is not being used as a smokescreen by the Government so that they can now tear up the manifesto, the White Paper of last January and the Green Paper of last June, and say that all these options are now off, that we cannot achieve full employment or get our inflation rate down and that all the other targets that were written into those three documents are now being abandoned and the people will be asked to accept high unemployment, a tight wage policy, and curtailment of public expenditure on the basis that these disciplines are necessary if we are to maintain our position inside the European Monetary System. We have already seen that many of the targets in that regard have slipped past the Government who now admit that we will not achieve them, although if we had had a better Government during the last 12 months, it would have been possible to achieve them.
The most obvious is the employment front. Last week the Minister for Economic Planning and Development said that in this area the Government's target would fall short by a few thousand. The Minister's Department have been making the point that although the target will not be achieved totally, the fact that there are near misses is not all that important. However, a shortfall of a few thousand out of a total of 20,000 is [442] a large enough miss when one considers that half of the jobs were to be generated in the private sector and the other half in the public sector. Before the Summer recess the Minister for Finance told us that most of the jobs in the public sector came on stream usually in September or October and that all the jobs listed would be provided.
Mr. Colley: There is no miss in the Government's manifesto target.
Mr. P. Barry: In respect of public sector employment?
Mr. Colley: In that sector we may well exceed our target as set out in the manifesto.
Mr. P. Barry: That is the point I wish to make. It would be all right that the target in public sector employment be exceeded if the same were to happen in respect of the private sector.
Mr. Colley: I am talking of the public sector and also the building and construction area.
Mr. P. Barry: A general up-grading in the private sector is necessary so that that sector can provide the taxes that are used to support workers in the public sector. In the event of failure to achieve targets in the private sector there would follow the necessity for an increase in taxation in order to support people in the public sector. Alternatively, it would be found necessary to cut back on the amount of activity in the public sector with, perhaps the laying off of some of those people who have been employed this year. One cannot have it both ways.
Should we decide to join the EMS in January when the Irish economy would be scrutinised in terms of the available statistics, one wonders what would happen to the punt as it will be called then, I presume.
There is one point on which I disagree strongly with the Minister for Finance. I contend that if we join the EMS we should allow our currency to float independently of the pound, having regard to the experience of the "snake" in 1972 when Britain remained a member for only some months. In a similar sort of [443] situation, if we decided to stay in we would be at the disadvantage of not having experience of dealing with the normal central bank machinery or the intergovernment machinery that is necessary in regard to currencies that are not of parity. Every industrialist and every section of government on the Continent is familiar with such machinery but we have never had to deal with it here in our relations with Britain. To that extent it might be more advisable that in the event of both Britain and ourselves joining, we would allow our currency to float against all the other currencies even within the band of 2 per cent so that we might gain some experience in this regard, experience on which we could draw should Britain decide to pull out afterwards.
We should consider very carefully the question of our joining in the context of the effects of any such move in so far as Northern Ireland is concerned. Both the Taoiseach and the Minister have referred to this. In a situation in which we would be within the EMS while Britain would be outside it, we would have not only the practical problems of dealing with different currencies on both sides of the Border but we would have a very real political national objective kind of policy to which we have been accustomed for hundreds of years, the policy of treating the country as an island. Such a situation might have very long-term consequences for the unity of this country. For me that would be a big factor and one which would influence my judgment should there arise the question of one country joining and the other not joining. People move freely now across the Border but in the sort of situation I am speaking of there would have to be set up certain controls along the Border and these would represent an interference with the everyday life of the people. This situation would hardly be tolerated.
On the other hand the advantage of our joining should Britain decide to stay out is that we would separate ourselves from one currency and become linked with a number of other currencies in a "basket" or in a "grid". On this point, [444] perhaps if the Minister for Economic Planning and Development is speaking later he will explain to us why we did not back the "basket" system rather than the parity system even yesterday in Luxembourg. It apears to me that the "basket" system would suit our currency best in that we would have a basket of currencies against which to measure ourselves rather than having to measure ourselves against individual currencies. Perhaps there are good reasons for our not backing the UK in this regard and, if so, we should be told what the reasons are.
Another consideration in regard to our joining and Britain remaining outside is that in such a situation the relationship between the currencies of both countries would change and if our currency were to become more valuable than sterling it is possible that there would be posed more problems than in a devaluation situation. One obvious area of difficulty would be the tourist industry because Ireland would be more expensive than England from the tourist's point of view. In addition our competitiveness with other European currencies would make us less attractive than England for other Europeans going on holidays. The same would apply in the area of exports. Although we have succeeded in steering a good deal of our trade away from the UK in recent years, almost half our trading is still with that country. There are those who will say that this trade relates largely to agricultural exports which would not be affected by reason of the monetary compensation amounts in the trade with England. However, more than a quarter of our trade with Britain is in the sphere of manufactured goods and this trade would become less competitive on the English market while English goods would become more competitive in Ireland. Despite the "Buy Irish" campaign we have been conducting, figures for the first six months of this year indicate that imports have grown by 26 per cent. The campaign, therefore, would appear to be most ineffective. In addition, we have been losing our competitiveness on the export market. Manufactured exports are reckoned to be only 10 per cent greater this year [445] compared with 1977 as against 27 per cent in 1977 compared with 1976.
The competitive position of our goods in the international market is most important for us. The key factor in growth in the economy is how keenly our goods are priced to compete internally with the goods imported and, when we export them, how they compete externally in markets abroad. The things that have been happening here in the past 12 months do not give any confidence that the Government will be able to guide us into a position where we will be an economy that can take our place among the currencies of Europe. If our costs continue to rise the way they have in the last 12 months we will very quickly price ourselves not alone out of the European markets but even the English market, where we have always been most competitive, even though we nearly priced ourselves out in the latter years in the sixties.
The Government do not appear to have any plans for getting the economy into condition where we can join the system and where we can be sure that our currency and our economy will improve under it. We do not want to join the system on the basis of distracting attention from the Government's problems, their promises and their targets, which are not being met, and allowing it to be said that they cannot be met now because we are in the European Monetary System which demands this, that and the other thing. If we want, whether or not we join the system, to create jobs in the country, we must maintain our exports, we must export more than we are doing now because our goods are competitive in the markets to which we are exporting. Nothing in the Government's strategy in the last 18 months would allow anybody to believe that they appreciate the basic fact of economic life that our goods are in danger of being uncompetitive in the markets in which we want to sell and that that is visibly interfering with our export growth at the moment.
Our exports in 1976 were up 17 per cent in volume over 1975, in 1977 they were up 20 per cent in volume over 1976 and the best projection for this year shows that they will be up only 10 per [446] cent. That is a slowing down in the rate of exports. If that trend continues, either inside or outside the system, with Britain in or out, we will not achieve our target of full employment. We must export to live and our goods must be competitive in price if we are to export successfully. As well as exporting successfully to live we must have our goods here at prices which are competitive with people who want to import here. Yesterday, the Minister of State at the Department of Industry, Commerce and Energy said that the import battle was being won. An advertisement in the newspapers in the past ten days used rather similar words but the Minister for Economic Planning and Development and the Central Bank said that the necessity for the credit squeeze a fortnight ago is that the level of imports is so high.
Professor O'Donoghue: I said that if the suggested credit growth continued it would lead to that situation. I again quote the record.
Mr. Kelly: Is the level too high?
An Leas-Cheann Comhairle: Deputy Barry is in possession.
Professor O'Donoghue: The target this year is not in excess of our expectations.
An Leas-Cheann Comhairle: Deputy Barry is in possession. The Minister and other Deputies will get their opportunity to speak.
Mr. P. Barry: I presume from the Minister's intervention that he does not consider that the level of imports has grown excessive at the moment but he thinks it might do so in the future. Evidently the Central Bank do not agree with that because they certainly said that the level of imports was too high and that this was one of the reasons for the credit squeeze.
There are many questions which should be answered before we come to [447] the full debate. I appreciate that the Minister has probably given us as much information as he can but there are questions which he should answer when the Green Paper is being discussed. I asked a lot of them a fortnight ago when I spoke before the Dáil reassembled. I would like to repeat some of them now so that the Minister for Finance or the Minister for Economic Planning and Development can answer them. I would like answers to those questions before we have a full debate on this matter.
Is it envisaged, if both countries join, that we will have a one for one relationship with sterling then? Is it, as I was advised, envisaged that we should allow our pound to float separately from sterling so that we could gain experience if Britain should come out later on? If the UK do not join and we do will we have a one for one relationship, at least initially, or what will the position be in that regard? Would we immediately tie ourselves, from 1 January next, on to the basket that it is proposed to set up?
We now come on to the major question. If the UK do not join and we join what support system would there be for the Irish pound? Will it be from the fund that has been spoken of, will it be individual Governments, will it be individual central banks or will we be expected to set up the fund ourselves? The Minister said that the fund will not be set up for two years and that the central banks at the moment are agreeing to procedures in the meantime with their fund of £17 billion being set up in this regard. Will that fund be available for all the participating countries to draw on as credits against the danger of their currencies slipping out of the grid or whatever is proposed?
There were high hopes held out for the so called "snake" in 1972 when it came together. It is still there but a very much trimmed down version. There are obvious disciplines required by us if we join the European Monetary System. If we join and accept the disciplines in the short term is there a danger that it might fall asunder in one year or two years' time so that, having accepted the disciplines, we will not get the advantage? [448] Have we any contingency plans to deal with that situation? When the Taoiseach and the Minister for Finance spoke they had a lot to say about the necessity for discipline in our wage increases and discipline within the country, but they have not told us exactly what measures they will take to ensure that discipline exists and to ensure that costs do not rise at a faster rate than they do in the other countries inside. If we allowed our costs to rise faster than the costs of the other participants in the system, it would make our membership meaningless.
The Taoiseach or the Minister referred to the Committee on Secondary Legislation which produced a paper on this subject. One of the extraordinary statements in that paper was their reference to press reports. We are all in the same boat in this regard as we do not have documents in front of us for discussion. The impression from reading the newspapers is that one of the conditions the UK are making for their participation is a restructuring of the common agricultural policy. The Government should ensure that there is no interference with the common agricultural policy. We cannot allow any other country to do this, even though it is in their interest, as it has given us important benefits since we joined the EEC.
The Minister said that the sum of £650 million was a notional figure which had been arrived at as an indication for our partners of what it was thought the initial cost would be to us of joining the monetary system and that it would be spread over five years at £130 million per year. This is an inadequate sum of money. We would need ten times this amount of money to offset the disciplines involved in joining the system. If the Council of Ministers at their meeting on November 20 say it is impossible to foot the bill for £650 million, that they will not give us a penny, are we still going to join? If we join a European monetary system in which no effort is made to ensure that the weaker peripheral areas grow at the same rate as the central areas, how can we stop the trend which has been so obvious for a number of years of the capital and jobs flowing to the central Community and not, as is the stated intention of the [449] Treaty of Rome, to give equal growth and employment opportunities throughout the Community.
If our bill is £650 million, which is an indication of what the Government feel is necessary for us in a transitional period, does that mean that the other weak members of the Community are also looking for grants of a comparable amount, say, 20 times as much in the case of Great Britain and Italy? If we get this amount of money does that mean that they cannot claim any or does it mean that pool will be established from which we will draw pro rata and from which we will get much less than £650 million? Where is this £650 million going to come from? In his speech the Minister said it was on top of existing regional aids. Is that correct?
Mr. P. Barry: If I could have answers to those questions before the main debate, we might be in a better position to decide whether or not we should join. If the disciplines and strategies of the Coalition Government had been pursued, the answer would be an unequivocal "yes". After 18 months of Fianna Fáil and their ambitious targets, which have not been achieved, we cannot be sure that joining the system will not damage our economy. If we join and the UK do not, my prior consideration in that situation is the North of Ireland. We must ensure that any decisions we arrive at do not set back by as much as one day the possibility of reunification. The Government do not have the necessary moral authority to impose the disciplines that would be necessary if we join the European Monetary System nor have they thought deeply about the implications of joining it. I hope a final decision will not be taken until we have had time to debate the Government's White Paper on the implications for us and the conditions under which we would be joining.
Mr. Cluskey: I welcome what the Minister has rightfully described as a preliminary debate on the emerging proposals for a new monetary system within the EEC. While the basic concept [450] behind the European Monetary System is clear at this stage, it is also quite clear that we cannot confirm or deny its potential value to the EEC or to the national interest until particular details associated with the proposals are made known.
Over the weekend I noticed that the Minister for Economic Planning and Development stated that the Government had studied and fully understood the implications for Ireland of the proposed new European Monetary System. I find that a mystifying comment. It is understandable only if he is referring to the general outlines of the system as proposed to date. It is difficult to see how we can understand its more specific implications for Ireland when we remember, as we heard both the Taoiseach and the Minister explain to-day, that many of the more fundamental aspects of it have not yet been resolved. Not the least of these is the position of Great Britain and the transfer of resources from the Community to the weaker economies. When you get one senior Minister saying that the Government fully understand the implications of the proposals for Ireland and the following day the Taoiseach and the Minister for Finance, one after the other, explaining to the House and to the country that they are not in a position as yet to understand the full implications of our membership of this new monetary system, one begins to wonder about the competence of the Government to carry out these negotiations.
These proposals originated from a meeting between the heads of state of West Germany and France. One can well understand the interest of both those countries in a monetary system such as this. After a very successful general election, the French Government are now experimenting with their own economy and they would see the disciplinary measures embodied in a system such as this as complimentary to their own monetary and economic policies. The Germans also have a very strong view regarding monetary discipline throughout the Nine and if one has had the experience of listening to the German Chancellor, Herr Schmidt, at any international gathering, one knows that he [451] has been preaching the gospel of restraint among member states of the Community for quite a number of years. In this proposal we see something that has a strong appeal for both these countries at this time. We should be very careful not to assume that what is good for comparatively strong economies such as the German and French economies is necessarily good for our economy. We must look in great detail into these proposals to see precisely what effect they would have on us as a nation.
The Taoiseach, in his opening remarks, and Deputy Barry, on behalf of Fine Gael, spoke of the desirability of being good Europeans and contributing as much as possible to the spirit as well as the letter of the European Community. One accepts that but it does not lessen any Government's obligation to ensure that its vital national interests are protected. I am not convinced that our national interest even at this stage of development in regard to these proposals has been adequately protected by this Government. Deputy Barry said that to a large extent we had sold the pass before the negotiations began and that the impression had been created within all member states of the Community that Ireland were favouring entry into this proposed monetary system irrespective of what Britain did and, apparently, irrespective of what other conditions might be laid down regarding membership of that system and irrespective of the size of the concession, if one could call it that, which would be necessary for this country's future welfare.
Mr. Colley: I suppose it would be too much to ask the Deputy to produce a quotation that would give even a semblance of support to that statement.
Mr. Cluskey: I shall do my best. I shall quote from a newspaper which could not objectively be described as being anti-Fianna Fáil, The Irish Press, and also an article by a political correspondent, who is, I think, universally respected as such on all sides of this House, Mr. Michael Mills. He wrote in [452]The Irish Press on 5 September 1978 under the heading—for which, I am sure, he is not responsible; it was the work of some editor—"Euro Cash Union—We're In". The article refers to a meeting held between the President of the EEC Commission, Mr. Jenkins, and members of the Government, including the Minister for Finance, the Minister for Economic Planning and Development, the Taoiseach and, as far as I know, the Minister for Industry, Commerce and Energy. I shall quote—and this is a quotation from Mr. Jenkins——
Mr. Colley: Mr. Jenkins is not a member of this Government.
Mr. Cluskey: If the Minister wants to repudiate Mr. Jenkins or suggest that he is telling lies to the press, it is up to the Minister.
Mr. Colley: I have no responsibility for statements by Mr. Jenkins nor has he any responsibility for statements by me.
Mr. Jenkins said afterwards he believed Ireland would go into the new system no matter what action was taken by Britain. This position was confirmed by a Government spokesman who said——
has the Minister no responsibility for him either?
Mr. Colley: I want to know precisely what he said.
Mr. Cluskey: If the Minister would allow me, I shall tell him what he said.
Mr. Colley: I should like to explain to the Deputy, without interrupting him any more, the point that I was making. He made a statement which said that this Government, and he mentioned the Taoiseach and the Minister for Finance and so on, had given the impression that so and so——
Mr. Cluskey: I hope the Chair will allow me the same latitude in interruptions as he is allowing the Minister for Finance.
[453]An Ceann Comhairle: I am not allowing interruptions as such.
Mr. Cluskey: The Chair was listening very attentively.
An Ceann Comhairle: I always do.
Mr. Cluskey: To continue the quotation:
This position was confirmed by a Government spokesman who said that on balance the sums were right for Ireland's entry into the European Monetary System but the Government recognised there were technical problems——
that must be the £650 million they cannot get
——which were not insurmountable !——
At least we hope that is true, although the Minister's sudden decision to rush off to Bonn rather belatedly——
Mr. Colley: There was nothing sudden about that. Timing is important in these things.
Mr. Cluskey: ——would not give me the impression that that particular technical difficulty might not be insurmountable. Resuming the quotation:
He emphasised however that no formal decision had yet been taken.
Mr. Colley: Whose side is the Deputy on? Do not take the side of eating out of the hand——
Mr. Cluskey: Sorry, I am on the side——
Mr. Colley: Does the Deputy not know where it is coming from?
Mr. Cluskey: The quotation I was giving, if it is an anti-Irish line, is coming from a Government spokesman.
Mr. Colley: I am talking about what the Deputy said about Bonn.
[454]Mr. Cluskey: This is coming from a reporter who has the universal respect of all politicians in this House so far as I am aware.
Mr. Colley: The Deputy can carry on with his deception if he wishes.
Mr. Cluskey: If we now want to question the Minister or the Fianna Fáil Party, there is a new definition of being anti-Irish.
Mr. Cluskey: The Minister implied it.
Mr. Colley: The Deputy knows I said no such thing.
An Ceann Comhairle: Deputy Cluskey without interruption.
Mr. Colley: I thought we were to have a serious debate.
Mr. Cluskey: During these negotiations, if there is to be a sense of national responsibility on the part of Fianna Fáil, and if they are not to be carried out with the same ineptitude as the negotiations for our entry into the EEC were carried out by Fianna Fáil, if it is necessary in the Minister's opinion for me to be described as anti-Irish, that is the price we will have to pay in the interests of Ireland.
Mr. Colley: Thanks very much. Of course I did not say that, but carry on.
Mr. Cluskey: According to the Minister he, Mr. Jenkins and a Government spokesman did not say a number of things. The fact is that these statements were made on behalf of the Government. There has been widespread public and press comment, all leading to the creation of a climate, rightly or wrongly. People speaking on behalf of the Government have helped to create the climate that we have taken a decision [455] in principle to join the European Monetary System. Anyone who has any experience or knowledge of any type of negotiations, not to speak of negotiations carried on at international level which are ruthless and savage, realises that to sell your position before the real negotiations start can put you in a very weak position to say the least of it.
Unfortunately—and I really mean it because it is definitely not in the national interest—that has been happening in our negotiations to date on joining the European Monetary System. It is impossible for any Deputy to make a value judgment on our joining this scheme because we have not got the information necessary to make a proper judgment. In principle the Labour Party are not opposed to some regulation of the finances of the EEC.
In the past it was assumed that a floating currency could be beneficial but, in the 1970s, we saw what happened with a floating currency. It led to a very substantial rise in unemployment, very high inflation, and balance of payments difficulties. Many politicians have had a very serious rethink on that approach. It may be that this proposal for an EMS properly and competently negotiated could be of benefit to us as a nation. It is not possible to say we are for it or against it at this point. So far the Government have not been able to get commitments or even clarification on many vital issues about which it is necessary to know—not to guess and not to hope for as the Minister did in his opening remarks—before a final decision can be made. This might annoy the Minister for all I know because it is difficult to pre-judge how he will react.
Mr. Colley: When the Deputy sticks to the facts he has no problem with me.
Mr. Cluskey: There is a kind of romantic approach to breaking the link with sterling and breaking our historical dependence on the economy of the UK. We should not be under any illusion about what is embodied in these proposals. It is not a break which would leave us with full monetary control, or in [456] a position where we could determine our own economic future independently and without regard to any other power. It would be exchanging economic dependence on one economy, one currency, for dependence on another.
The proposals have been built up out of all proportion to what is involved in them. So far there is nothing momentous in the proposals as we know them. There is a potential for a momentous decision to be made. There seems to be a tendency on the part of Fianna Fáil Ministers and spokesmen to try to build up the tremendous importance of these decisions. I am not trying to downgrade their importance but, when we are discussing them, we must keep them in their proper perspective. There is an increasing tendency on the part of Fianna Fáil to use them even now at this early stage as an alibi for what they know is to come. They are using them as an excuse for the failure on the domestic front of their own economic policies. This is detrimental to the best interests of the country in the long term.
It is important that the Government should come clean with the Dáil and with the public on many of the details which were glossed over here today by the Taoiseach and the Minister. I do not doubt for one moment that they are even now in a better position to inform the Dáil on some of the questions posed in contradistinction to the answers to the questions posed here this afternoon. It is not an issue with which we should attempt to play party politics. It is an issue which should be openly discussed here in the Dáil and in the country at large. That can be done only if the Dáil and the country are given full and accurate current information in the possession of the Government. That has not been the Government's approach here today and I regret that that should be so. We have, however, an assurance that before the final decision is made the Government will come forward with a White Paper which will spell out precisely what their attitude is and the attitude they will adopt in various eventualities. Because of the paucity of information before the House and the country, it is not possible to make a definite decision with regard to the desirability either of entry or of [457] staying out. I hope the Government will accept their responsibility with regard to the furnishing of full information to the House to enable us before a decision is made to assess the position in the full knowledge of the unvarnished facts germane to this proposal.
Though the exercise here this afternoon on the part of the Taoiseach and the Minister for Finance was not as useful as it could have been at least we now have at national level a debate initiated on these proposals and I believe it will serve the purpose of putting considerable pressure on the Government to act in a more responsible manner and approach the negotiations in which they are engaged in a more responsible way than has been apparent up to now. It has also put considerable pressure on the Government to ensure that the House and the country are fully informed as to all the developments and proposals in relation to our entry into the European Monetary System.
As I said, the Labour Party are not opposed to this in principle but we are not prepared to buy a pig in a poke and that is precisely what the Government have offered, a pig in a poke. No one can make a proper value judgment on these proposals because of the lack of information so far. A Government spokesman has said it would appear there are no insurmountable difficulties and it looked as if we would undoubtedly be joining. That is a frightening statement because of the lack of information at the moment which prevents us from making any value judgment as to what position we should take.
Mr. Bruton: As other speakers have said, the main factor in this debate is the fact that it is being carried on almost entirely in the dark because we do not know what the implications of the measures before us will be. Indeed, we do not even know exactly what the measures are. The only definite thing before us is an annexe to the European Council meeting in Bremen. It consists of six or seven very brief paragraphs indicating what the proposal being considered at that stage was. It is not a very clear or full statement of what is intended. [458] Beyond that all we have is a mere opinion on the part of the Government as to what may happen, as to how the gaps in that annexe may be filled out and what the implications of the change might be.
This debate, as I said, is being carried on in the dark. It is not possible to have a very enlightened debate in the circumstances. There are a number of important questions. In his introductory statement the Minister for Finance said in regard to support for our currency:
...The short-term scheme is an inter-central bank agreement under which countries may draw credit for up to six month's duration to cover temporary balance of payments difficulties. The medium-term scheme is an inter-governmental arrangement providing credit for a period of 2 to 5 years, subject to compliance with conditions about the conduct of economic policy.
Have the Government accepted any loans subject to conditions as to the conduct of economic policy? Are the Government prepared to publish in full the precise nature of the conditions imposed? Furthermore, if the Government decide to go in and subsequently accept aid under this medium-term scheme will they publish the conditions that may be imposed on that in regard to the conduct of economic policy?
Secondly, would they indicate here and now what conditions for the conduct of economic policy they would be prepared to accept from such a credit institution and what conditions they would not be prepared to accept? Once we go in we put ourselves in a position where we will have to accept from time to time such credit from this institution. We will at least have to allow for this contingency. Before that contingency becomes a reality, we should be told what conditions the Government would be prepared to accept and what conditions they would refuse to accept. We are discussing this matter in a sovereign Parliament and the Government must, if they are prepared to abrogate some sovereignty in favour of a common endeavour, make very clear to the public [459] exactly what degree of sovereignty they are prepared to abrogate and what degree of sovereignty they will insist should remain entirely within the discretion of an Irish Government responsible to an Irish electorate. We should get this information from the Government before they put themselves in the position of having to accept such conditions. Will the full text of such conditions be published?
The Minister said that in the event of our entering into this medium-term scheme for inter-governmental credit Community legislation and, in some instances, national legislation may be necessary. Will national legislation be necessary in Ireland? If so, then it will be possible for Members of this House to put down amendments seeking clearly to delimit the extent to which the Government may go in accepting conditions for economic management for themselves and succeeding Governments. If this matter is not to be the subject of legislation in this House, through which binding commitments could be imposed on the Government, then we must have cast-iron assurances about what the Government are or are not prepared to accept in this context.
The Bremen Council recognised that measures to strengthen the economies of less prosperous countries were necessary if the European Monetary System was to succeed and instructed that studies should be carried out of the action needed in this regard concurrently with the elaboration of the proposed monetary system. These concurrent studies, we are told, are continuing. We are told that there were oral reports to the Finance Council in September about these studies and about the type of aid we would get to help our economy to meet the strains that might be imposed upon it as a result of adhering to this system. We were told by the Minister that there were oral reports to the Finance Council in September and further oral reports at a meeting yesterday. Having told us that he received an oral report on this matter, one would have expected him to tell us what was in the report and what the Ministers were [460] told. He did not do so. He went on to tell us about the Irish Government's submission to the committee, without telling us a single word about the oral report or what is happening in the area or what the other members think. To tell the House that the Government are in favour of getting more and more money for the Irish economy is not telling us anything at all. Any Irish Government would be in favour of that. What is important is what we will actually get. We might have got some indication if we had been told about the oral report received in September or received yesterday about what is happening in the course of these studies, what ideas are being canvassed and what the possibilities and options are. The Minister did not tell us a single word about this; all he told us was that the Government have made this submission which is obviously favourable to Ireland but which may not be accepted.
The Minister went on to state:
While the studies are concerned with the necessary Community action, it is implicit that such action, to be effective, would have to be accompanied by domestic action to reduce inflation and improve competitiveness.
We know that the Government, by profligate expenditure of public funds in the successful effort to purchase votes at the last election, are now in the situation where they are considering the removal or reduction of food subsidies in order to recoup the money which they have so unproductively wasted, except in the political sense. The Minister said that domestic action would have to be taken to reduce inflation and the only action which the Government are now considering in regard to inflation is one which would actually increase it, namely, the removal or reduction of food subsidies.
We were told by Deputy O'Malley, both before and after the election, that he had submitted special proposals for the National Prices Commission which were dramatically to change the way in which prices would be controlled. He had some inspired idea which he had acquired while in Opposition and we were [461] told within days of his taking office that he had made this dramatic submission to the National Prices Commission, telling them how prices could be better controlled than they had been in the past. All the rest is silence. We have heard nothing since about this submission or about the new measures which the Government propose to deal with inflation and prices.
Mr. M. O'Leary: Trains are running on time.
Mr. Bruton: The only known measure which they are considering in relation to inflation, namely, the reduction of food subsidies, is one which will dramatically increase inflation. Have the Government discussed with their colleagues in the European Community the possibility of removing food subsidies and whether this would strengthen Ireland's position and be in line with the co-ordination of economic policies which, we are told, will be necessary if the system is to work?
At the Economic and Finance Council, I have pressed for the completion of the concurrent studies and I expect that the Economic Policy Committee's report will be available for the Council meeting on 20 November next.
We were told by the Taoiseach that a decision on the final package will be taken on 4 or 5 December within less than a fortnight of the information about the resource transfers being made available to the Council of Ministers. Having been made available to the Council of Ministers, there is not even an indication that it will be made available to this country. Will the public be told immediately after the meeting? Judging from the Minister's reticence in telling us about the contents of the oral report already received regarding studies taking place, it is not in any way to be assumed that the information will be made available to the public.
On the basis of information available on 20 November the most significant decision taken in our economic history as an independent State will have to be made within less than a fortnight of the [462] full information being made available to the Minister for Finance by his colleagues in the Government without any opportunity apparently for an adequate consultation with the elected representatives of this country, with the public of this country. It is no use for the Government to say that they are going to produce a White Paper early in November, because a White Paper published early in November will not contain the information which will be made available at the Council of Ministers meeting on November 20. A White Paper published prior to that date would be a purely speculative document and of no value in allowing the people or their representatives in the Oireachtas to make a decision whether the Government's proposal in the matter is the right one or the wrong one. Should this decision be taken in this manner?
Let me be clear. I know the Minister is not the only Minister involved in this. There are others. The fact that a time scale has been set up which allows for only two weeks from the making available of the full information to a final decision by the Government is not a situation solely of his making, but it is a situation for which he is the only one accountable to the Irish people. From the point of view of the Irish people the fortnight between the making available of the full information to the Minister alone and the making by the Minister in the Council of Ministers, of a major decision affecting our future for many years ahead is far too short. It allows insufficient time for a significant public debate to take place. I would like to know if the Government have any proposals to put to their colleagues in the European Community which will allow for a better debate to take place, not only here but in the other member countries, about the major implications for them as well as for us of this major change in the financial relationships between the different members of the Community.
We have not been told anything about the form that these transfers of resources will take nor have we been told the amount of the transfer. Indeed, the form is as important as the amount, because any transfers that take place must be in [463] a form that will significantly and immediately increase the productive capacity of our economy. It is dangerous for us to become too reliant for our economic well being on transfers of resources which go through governmental or bureaucratic channels and this is probably what is envisaged in this case. More money will be made available for giving grants to this project, grants to that project, with applications to be filled up in triplicate and examined and all the decisions will finally be taken on some desk either in Merrion Street or in Kildare Street. I do not believe that qualitatively that is the best place for decisions to be taken which will lead to increases in the productive capacity of our economy. It would be a dangerous development for this country to become excessively dependent for our economic health or for the expansion of the productive capacity of this economy on money obtained through bureaucratic channels, no matter how significant the quantity of that money may be. I see a danger of our working ourselves into that position.
What we are giving away is something that, in the normal course, takes place through the free flow of commerce, both private and public, and what we are getting back is going to come back solely through public channels. This shift in the way in which resources will be distributed as a result of this giving away of something which is in the total centre of the economy, both private and public, in return for transfers which will come initially to the public sector creates dangers that the most rational use of resources will not necessarily take place. Grants, whether they be EEC grants or Irish grants, divert resources from one form of productive activity to another without necessarily increasing the total production at all. It is essential, in any criteria that are worked out for the use of the money that is made available, that we be told not only what it will be used for but also the opportunity costs which will be incurred by Irish industrialists or Irish farmers or Irish people who will have to put up matching funds to comply with EEC requirements, [464] because they may do one thing to qualify for an EEC grant whereas if there had been no EEC grant they might have done something else which in their private judgment had a better productive potential. There would be an opportunity cost, the cost of the opportunity lost by not having done what they in their own judgment thought the best thing to do, in order to qualify for the grant. There are dangers of economic distortion, of distortion in the competitive distribution of the resources in our economy in an undue dependence on resource transfers of this sort if they are going through official channels.
I am not saying it is impossible—indeed, one hopes it is possible—to devise a criteria in such a way that it will not have any distorting effects. I would like to hear the Government's views on this matter: what precise proposals they have to avoid any distortion in our distribution of resources from the optimum that would achieve the maximum productive growth, growth of production capacity and growth of production within our economy. We must try to ensure that Ireland is in the vanguard of technological innovation. An undue reliance on imported technology, on bringing in industrialists who have developed their technologies outside to set up ready made industries here and who are attracted by very large capital grants does not necessarily mean that we are going to be in the vanguard of technological advance, that our industries will be on the frontiers of achievement in the industrial field, finding new products, finding new markets, leading the economic race. If we are relying on other people's technology, other people's management, industrialists from abroad coming in here to set up industries, we will be getting our technology secondhand.
I would not like to see this money being used merely to bring in capital intensive industry of this sort, which only comes in here perhaps because it gets a better differential grant than it would get in its home country. I am not saying that is not welcome. All industry is welcome. But I would not like to see the major emphasis of any resource transfers we [465] get being used to further that sort of activity when we could be helping native industrialists and native technology to develop. We should be looking elsewhere within our own public sector, within our universities, within our technical institutions, within the IIRS, within An Foras Talúntais. We should be looking there for ideas for technological innovation rather than looking to Frankfurt, Tokyo and Chicago. I hope that whichever grant structure is devised, due account will be taken of the need to develop native resources and talent to the full, because it is only in that way that we will get to the front of the economic race. If we rely on technology imported from elsewhere, which will only be secondhand, obviously we will only get second best.
In that context there is something to be said about the argument against joining in circumstances in which Ireland would enter the system and Britain stayed out. This argument which the Minister mentioned only very briefly needs to be highlighted more. The Minister spoke of the possible disadvantage of our finding ourselves in a different currency situation from that of the UK. He said that investment in Ireland by Britain and by native Irish firms whose exports tend to be concentrated on the British market would be adversely affected.
The reality is that, proportionately, native Irish industry tends to be more reliant on the British market than the type of foreign-owned industry brought in by the IDA: that sort of industry tends to rely on importing through its affiliates in Europe or America and exporting to markets other than the UK. But most native Irish industry tends to have a large dependence on the British market. Therefore, the implications for native industry of the shift which is being considered has not been given due consideration by the Government and I should like to see something more than this cursory reference on page 16 of the speech of the Minister for Finance to-day.
There are two other matters I should like to refer to immediately. In the event of our joining the new currency arrangements and of our currency bouncing off [466] the bottom of this tunnel within which we will be allowed to move, we will be required to borrow money to help to put our currency in order if we have not got sufficient resources of our own to build up our own currency to a healthy position. If there are long running structural problems in our economy there is provision under a medium-term proposal for longer-term arrangements to be made available to us subject to controls on our economic policy being accepted. There are possibilities for substantially increased indebtedness on Ireland's part, extra borrowing that would be necessitated by the requirement to keep our currency within the tunnel or the snake or whatever it will be called. That may well mean substantially increased indebtedness.
Furthermore, we have been told there will be resource transfers. I should like to know if these resource transfers will be in the form of loans or grants. If they are in the form of grants there will be no problem because we will have the money, we can keep it, we will not have to give it back. If they are to be in the form of loans, however, that will increase substantially the level of our indebtedness. Therefore there are two additional factors which would increase our indebtedness. There is the possibility of having to borrow abroad to support our currency and the possibility of having to borrow abroad as part of the resource transfer package to improve the general health of our economy.
We were told in parliamentary questions last week that our level of indebtedness is very high, that in 1982 our level of external repayments and the amount of interest we will be paying will reach a very high level. I should like to know do the Government expect that entering this arrangement will increase our indebtedness substantially more, and are they satisfied that we will have the strength to support not just the repayments, which are not necessarily the most important part of these debts, because so long as our economy is reasonably solvent these debts can be recycled, but will we have the strength to make substantial interest payments that will be necessary? If the level of interest payments on external debt reaches too [467] high a figure it will interfere with our economic solvency. It will reduce the flexibility of the Government in disposing of our resources and it will put us in thrall to foreign bankers and to foreign undertakings. I should like a clear statement from the Minister on the anticipated effect this will have on the level of our external debt in the next five or ten years.
I referred earlier to the medium-term inter-Government arrangements providing credit in a period of two to five years subject to compliance with conditions about the conduct of economic policies. That is one area in which we will have to accept conditions if we are to get the money to support our economy and on the management of our economic policy. There is also the general position that this is a movement towards economic and monetary union, and apart from any specific loans the Government may get, the closer we become enmeshed in a European monetary system the more our economic policy, in any event, will have to reflect the wishes and desires of our colleagues in Europe.
In this context I should like to know what precisely the consultations will mean, how exactly these conditions will be imposed. For instance, will the Minister for Finance have to consult with his colleagues in Europe about the content of his budget before the budget has been announced in the House? Will he have to get their agreement on what he will put into his budget before we know about it? In Britain when, I think, Mr. Dalton was Chancellor of the Exchequer, he had to resign because a few minutes before his budget statement was delivered there was a leak in regard to one matter in it. He had to resign so great was the reverence under the UK system for budget secrecy. This reverence is very significant here: there is no question of the Opposition, or of any Deputy in the House, having notice of what the budget will contain before the Minister has risen to announce its provisions. The Minister gets up, announces his budget and it is only then the Opposition for the first time hear what the budget contains. In these circumstances [468] there is no possibility of a considered debate taking place immediately, so great is our reverence for budget secrecy.
Therefore, I should like to know if as a result of the consultations that will be necessary, the Minister's colleagues in the EEC will have to be briefed about the Government's economic policies. If so, what guarantee will there be of budget secrecy being maintained? We all know there is not the same reverence for budget secrecy in Europe as in Ireland. In France and in most other European countries there is no such thing because the budget is presented in draft form. It is changed as it goes through the various committees and the final budget may be different from that originally presented. However, in this country the budget is kept secret until it is presented to the House as a fait accompli and there is no possibility of a change after that. We will be operating with countries in which there is a different political tradition as regards budget secrecy. There are a few points that need to be raised in this regard. First, is there a guarantee that budget secrecy will be maintained and, secondly, are we going to find that our Government will have to tell people abroad what is contained in our budget when they will not give the same information to the other parties in this House? The House and the people are entitled to the answers to these questions.
Some important points must be made about the various arguments put forward by the Minister for Finance in his statement, about arguments for and against going in in the event of Britain staying out. As he pointed out quite rightly, that is probably the nub of the decision that must be taken by his Government, and indirectly by the Irish people. The most significant factor in the presentation of this issue is the complete absence of any quantitative data. The Minister has not given any figure whatever regarding the relative weight to attach to the different arguments or factors that he puts in the balance on one side as against factors that are put in the balance on the other side. It is a real lawyer's presentation, a presentation of concepts, of abstract ideas. He states there is this and that idea on the one [469] hand and this and that idea on the other hand. There are no qualitative data. There is no way of adding up the various arguments, of coming up with a sum and of saying that, as far as the Government can see, the advantages could be represented as so many millions on this side as against so many millions on the other side.
However, I am quite sure that such quantitative data are available to the Minister in the form of projections. We know that economic forecasting has reached a stage where very significant predictions are being made as a result of various models of the economy based on computer analyses of what would happen in differing circumstances. I am sure that technique is being used by the Irish Government, as it is being used by other governments. Why then are we left with a mere statement of argument in the courtroom fashion without quantified data being made available? One of the major developments in the economic situation in recent years has been an ever-increasing accent on quantified data, on models and on the production of quantified figures of results based on the use of such models? Why has such definite information, to which the Government can be tied if their calculations prove wrong, not been made available to the House? Why have the Government relied on this rather literary or courtroom presentation of the issue, the traditional debating society approach? That is not coming clean with the Irish people and it is not something they should accept from the Government. I have said that this is one of the major decisions we will be taking as a country in the economic sphere in the years ahead and this view has been expressed by other speakers. Therefore, why have the Government not been able to give us proper quantified information as to what will happen?
So far as the possible departure of our rate of exchange from the rate of exchange obtaining in the United Kingdom is concerned, I do not think sufficient weight has been given to another factor, namely, the effect on the partition of this country—although I admit that this is a factor that cannot be quantified—by our having a different rate and having to introduce [470] on the Border exchange controls relating to regulations. Obviously we will create yet another divide on this island. That factor has not been given any attention whatever in the speech of the Minister for Finance. Certainly he has not treated it in an important fashion as I believe he should. I believe it is the single most important issue facing this House and the country. In his speech dealing exclusively with something that will impose a new and novel barrier within this island——
Professor O'Donoghue: That is on the assumption that the UK will stay out?
Mr. Bruton: We were talking about various assumptions. The Minister for Finance devoted a significant portion of his speech to dealing with what would happen in the event of that assumption being fulfilled but he did not devote any time to the implications this would have for the eventual unification of the country.
Dr. Woods: The Taoiseach covered that point.
Mr. Bruton: The Minister did not deal with the effect it would have in the short term on commercial, social and personal relations between people on both sides of the Border. It is not something that can be dismissed lightly in half a sentence by the Taoiseach. It is not something that can be ignored by the Minister for Finance. I am amazed the Government saw fit to ignore this issue in the way they have done.
This is one of the major decisions we must take as a people and one that will affect our economic and, as I have demonstrated, our political future for many years. I have no alternative proposal to make at this juncture but I wonder if the institutional arrangements for considering all the implications are sufficient? I have indicated that I do not believe that the data being made available are sufficient. We have not got quantified data. Issues that should have been covered have not been covered. The diminution in our control of our economic destiny has not been elaborated on to a significant extent and [471] I have asked a number of important questions in that regard.
Even presuming the the Minister for Economic Planning and Development in his reply answers every question, I wonder if the institutional arrangements of a debate of this kind are sufficient? There are set pieces; only Members of this House can make known their views and outside experts are not available. We are not having a Committee Stage type of discussion of this issue. On Committee Stage of a Bill one can tease out an issue. There can be a question and answer session and, gradually, the issue can be refined so that we know what may be the real problems. We know that in a series of statements such as we heard today the real issue is rarely reached. I do not pretend I have reached it in my contribution but if I or any other Member had the opportunity of having a question and answer session of an hour or so with the Minister for Economic Planning and Development we might come much nearer to the real issue than we would if I made an hour-long speech and the Minister in his turn made another speech. In an hour of to-and-fro discussion we could come much nearer to the truth about what will be a major change in our economy and in our sovereignty. Therefore, I wonder if the arrangements for parliamentary consideration of this issue are sufficient?
I wonder also if the arrangements for consultation on this matter with interests outside this House are sufficient. The Minister for Finance in his speech did not indicate, for instance, that this matter was to be discussed at the National Economic and Social Council or that he was initiating discussions with the Irish Farmers' Association or the Confederation of Irish Industry about it. There are apparently no formal arrangements being made, that we are to be told about anyway, for consultation with representatives of the Irish people on this issue. One reason is that the Minister for Finance does not know what he is consulting about because he does not know the full package. We are not going to be able to discuss the matter or to be in possession of the full facts until 20 November, and the Minister for Finance [472] will have to make a decision on 4 December.
How can an issue of this complexity without the existence of either parliamentary or extra-parliamentary special means for consideration and consultation be tackled in that time? I do not believe it can. I believe that ultimately the Minister for Finance will have to make the decision almost alone because most of his colleagues will not understand what he is talking about, and that is not in any sense to denigrate them because this is very complex and they have their own Departments to worry about. Possibly the only man who will understand what he is talking about is the Minister for Economic Planning and Development; maybe the Taoiseach will understand because he has been involved in the discussions and he may know a little more than most of what is involved. The other members of the Government will not really understand it. How could they? They have their own work to do. Ultimately this major decision will be taken effectively by, at most, three men who will be themselves in possession of the full facts. That is not sufficient. That is not the way an issue of this importance should be approached.
I do not wish to go into the business of attributing blame for the creation of this situation. Perhaps it is due to the way in which successive Governments have approached the whole aspect of our involvement in the EEC and democratic control over it and consultation about its implications. Perhaps we need to change our approach to the general matter and examine it in that context as well. This single important decision highlights more than ever the importance of some improvement in the institutional arrangements which exist for considering questions of this sort. As we continue to be involved in Europe to an ever-increasing extent this sort of issue will be coming up in precisely this form. Without such improvement we are going to face again the situation where, without consultation with the public, without the availability of proper data for the purpose and with perhaps only the publication of a cursory White Paper, which may be based on incomplete data and for which fora for proper discussion thereof will not exist, [473] three men will make a major decision. That is not satisfactory and I think that members of the Government in their more reflective moments will consider that it is not satisfactory.
I would like now to talk about the implications that this matter has for agriculture. There are indications that one of the prices the British are seeking for their participation in this economic and monetary system is that there will be a radical overhaul of the common agricultural policy. I understand that consultations in this matter between the British and their Community counter-parts are to take place tomorrow when the British Minister will be in Bonn. We cannot possible make a decision on this matter until we have a clear assurance from the Government that there will be no tampering with the common agricultural policy in return for the British agreeing to go into this system. I want to know if the Irish Government are prepared to use their veto to prevent any change in the common agricultural policy being brought about by virtue of this or any form of blackmail by the British. I will be satisfied with nothing less than a clear and cast-iron assurance from the Government on that.
Secondly, I would like some information about the arrangements that are going to be made for the commodities that are not covered by monetary compensatory amounts. If there is a divergence between British and Irish rates due allowance can be made for these by use of MCAs, such as taxes or subsidies imposed to iron out any differences which occur as a result of our currency diverging from the British currency. But there are no MCAs for horticultural products, for potatoes or for sheep and mutton, to mention but a few commodities. We export those commodities. We have exported significant quantities of them to Britain. With sheep and lambs there has been a diversion mostly to the French market in the recent past, but we will always want to have the option of being able to go into the British market. If British currency depreciates and ours does not we will be at a competitive disadvantage in that market. We have not yet been told of any arrangements being made for meeting that situation and [474] maintaining the Irish competitive position. I would like to know if MCAs will be introduced for the commodities which are not covered at the moment to avoid such a distortion of trade taking place. We need a cast-iron assurance on that subject also before the Irish farmers could be expected to go along with this measure.
I would like some information on the unit of account that is going to be used in a common agricultural policy in future. Up to now we have been using the agricultural unit of account which is valued basically on the "snake" currency. The ECU is based on the "basket" currency. The "basket" is bigger than the "snake".
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