Ireland sets its sights on EMU

Date: 27/06/1996

By Tim Jones

IRELAND is determined to join a single currency union without sterling - even though it is well aware of the risks.

A report being prepared for Irish Finance Minister Ruairi Quinn spells out the perils which would face the country's exporters if the punt enters into monetary union in 1999 without its biggest single trading partner.

The study by the Economic and Social Research Institute (ESRI) focuses on the impact of introducing the Euro on the Irish economy as a whole, as well as on specific sectors.

It is expected to conclude that Ireland could become part of the single currency zone even if London's scepticism keeps sterling out.

The Irish government would, however, be happier to have the pound inside the Euro fold.

“The nightmare scenario for us is an irresponsibly run or managed British economy generating rapid fluctuations in the value of sterling,” Quinn told European Voice this week. “That would cause problems in the short term for everybody, but particularly for Ireland.”

Dublin's problem is history. Its economic numbers tell one story and its historic links with the UK another.

Ireland is one of only three countries to satisfy the Maastricht budgetary criteria this year, keeping its deficit well below 3&percent; of gross domestic product and reducing public debt to close to 80&percent; of GDP from more than 115&percent; in the late Eighties.

However, its economy was an integral part of the UK only 80 years ago, and the punt was fixed at parity to sterling as recently as 1979.

These are hard habits to break, even though EU membership has helped. Last year, only 25.4&percent; of Ireland's exports went to the UK and 46.8&percent; to the rest of the Union.

But imports tell a different story, with the UK still accounting for 35.5&percent; of goods coming into Ireland and the rest of the EU just 20.9&percent;.

The trend is down but not out. When the punt came under huge speculative pressure in the currency markets in late 1992, Dublin had to come to the rescue of small exporting companies with a 60-million-ecu aid package.

The ESRI report will show that the clothing, footwear, agricultural products and foodstuffs sectors would be the most exposed to a fluctuating sterling outside EMU. These compete largely on price, include a large number of small companies and are labour-intensive.

But Quinn is relatively confident that this nightmare scenario will not materialise.

“Both the present British government and the Labour Party have stated that it would be their intention to ensure that sterling would shadow or track the Euro in a very stable way,” he stressed.