Economist warns of the risks in monetary union

IRELAND should be sceptical about the benefits of joining the European Monetary on according to a leading economist.

Prof Brendan Walsh of UCD's Department of Economics, has warned of the risks involved, given this country's special link to Britain.

Many of those enthusiastically urging membership have short term memories, he said.

"They have already repressed the experience of the 1992 currency crisis and the damage inflicted on the economy by a misguided commitment to pegging our currency to the deutschmark in the face of the abrupt depreciation of sterling."

He said those with longer memories "can recall the false hopes of a quick and almost automatic transition to low inflation on which our decision to join the ERM in 1979 was built".

It was for these reasons, Prof Walsh said, that we should be wary about committing ourselves to abandoning the exchange rate as a policy instrument.

"As the UK is almost certain not to be a member of the proposed EMU, fixing our exchange irrevocably to the core continental currencies would be a foolhardy step."

He said it should only be contemplated if guarantees on wage flexibility in the face of sterling fluctuations could be obtained as part of a new national agreement.

"This is the element of preparation for EMU that should preoccupy us," he told the Irish Association of Corporate Treasurers' annual conference in Dublin Castle.

He said failure to reach agreement on EMU at European level would not be a prelude to a disaster. "If EMU is launched in 1999, failure by Ireland to participate in it would not entail dire consequences for the country."

He said Ireland should bear in mind the examples of Norway and New Zealand where "sound domestic policies" can ensure low inflation, interest rates and unemployment, in small countries which are not even contemplating EU membership.

But the IBEC vice president, Mr Tony Kilduff, said yesterday that Ireland had little choice but to join the single currency, if it qualifies.

He told the Institute of Certified Public Accountants (CPA) annual conference in Dublin that staying outside the single currency would cause more problems than if Ireland joined and Britain did not.

"Only a huge devaluation of sterling or some major unforeseen disruption in the run up to the start of the EMU would cause us to consider delaying entry to EMU" he said.

He said Ireland should aim to qualify because the criteria constitute sound economic sense and would ensure the continued confidence of the markets in Ireland's economic performance.