EMU should give net gain of 10,000 jobs - ESRI

IRELAND should benefit from a net gain of 10,000 jobs if it joins the single currency and Britain stays out, but the financial services industry could face significant job losses, according to the first major report on Ireland and EMU.

It predicts that the main gains to Ireland would come through lower interests rates. Irish rates would be about one percentage point lower inside EMU than outside, the report finds.

The report, conducted by the Economic and Social Research Institute and commissioned by the Minister for Finance, says overall EMU membership would be goods for Ireland, even if Britain stays out, which appears quite likely. However the economic gains would be limited and the study concludes "that Ireland can expect to benefit modestly in terms of income and employment through membership of EMU".

Sector by sector, there will be winners and losers, but financial services will be the hardest hit between 2,000 and 4,000 jobs could be lost, depending on whether Britain joins.

Mr Patrick Honohan, an ESRI economist, and one of the report's authors, said many of the job losses in banking would occur because of the fall off in foreign exchange dealing.

However, he said it appeared that the financial sector was already preparing itself for such a scenario.

Many of the new jobs would be in the building and construction industry which will be boosted by lower interest rates, according to the report.

The net benefits of lower interest rates, coupled with savings on currency costs, will be more than enough to offset competitiveness losses, it predicts.

"This conclusion holds whether or not Britain joins, it says. The "most favourable scenario is where Britain also joins. This would eliminate the risk of industry being hit by a sharp fall in sterling and allow greater savings on currency costs. "Ignoring unquantifiable effects, joining with the UK should lift GNP by about 1.4 per cent of GNP on average, and entail an additional 20,000 jobs," it adds.

The authors then calculate what might happen if Britain stayed out and sterling was volatile. They say that even allowing for this the gains should run to 10,000 extra jobs in the medium term.

The report's authors said the potential consequences for manufacturing are complex. The high tech industries are unlikely to be affected much by changes in interest rates, variations in the sterling exchange rate or a reduction in transaction costs, but could benefit significantly from the "intangible confidence factor".

They point out that the main winners from lower interest rates are industries which service mainly the domestic markets, especially suppliers to the building sector, and firms which are heavily indebted to the Irish banking system. Those most exposed to the risk of possible sterling depreciation are those which both export a substantial proportion of their output to Britain and have a large and relatively open domestic market, the report says.

It adds that savings in foreign exchange transactions costs are likely to have a limited effect unless Britain also joins the EMU, so reducing the need for currency hedging.

The report predicts that the retail sector will incur once off conversion costs but the longer term effects of membership will be quite limited. It says agriculture will be more affected by changes in the CAP regime, than by EMU, but should gain from lower interest rates.

It predicts tourism will gain modestly from a reduction in the cost and inconvenience of currency transactions and a from lower interest rates.

The report's authors do not advocate taking a specific course of action. They say this was not within their rem it. However, they said yesterday that if Ireland stayed out of the EMU, along with Britain, "Ireland would be seen, as staying out because of Britain.

The Minister for Finance, Mr Quinn, who commissioned the report, said he hoped "it would lead to a more informed debate on the subject, both in Ireland and elsewhere in Europe."