In or out? Euro gives grounds for doubt

THE debate on EMU is finally hotting up. The political consensus that moving towards monetary union is in Ireland's economic interests will be challenged this weekend at a meeting of Ireland's most influential economists. A number of leading business figures - many of them strong supporters of monetary union - are warning about some dangers they see on the road and the risks for Ireland if Britain stays out.

Political support for EMU remains solid, with all the main parties arguing that the pound must be a member of monetary union. The electorate strongly supports this view, with 76 per cent of those polled in a recent Irish Times/MRBI poll supporting the single currency.

So far the sceptics have come mainly from the ranks of financial market economists and, lately, some academics. Recently, a few business leaders have also been speaking out.

Reflecting the diverse concerns of business, the employers' organisation, IBEC, has not taken as a formal position on EMU. Mr David Croughan, IBEC's economist, says the indications are that there is a majority in business in favour of entry, even if Britain stays out. But, he adds, there is a considerable number of firms which would have strong reservations about going in, in the event of the British staying out.

The basis for much of the latest debate is the recent ESRI report on Ireland and EMU. It came to a pro EMU conclusion - but only just. The report holds that it is in Ireland's interests to join the single currency, even if Britain stays out.

According to the ESRI, the quantifiable gain to the economy outweighs the potential losses. It calculates that the net effect on the economy of joining EMU would be to boost national output by around 0.4 per cent in the medium term and to increase employment by 10,000, with the main benefits coming from lower interest rates. If Britain were also to join, then the potential job gains could double.

In a book published this week by the Institute for European Affairs Britain's European Question, Mr Lochlann Quinn, deputy chairman of Glen Dimplex and incoming chairman of AIB Group, argues that the ESRI's conclusion is valid. But he warns that if we join and the single currency remains essentially a Franco/German currency zone the outlook must be different.

"If the UK, most Nordic states, and Eastern and Mediterranean Europe remain outside for the long term it is a risky strategy. To remain outside - with the majority - but to continue to operate within the Maastricht criteria and then to join EMU with the second stage entrants could be a very sensible option," he concludes.

Mr Quinn's comments are some of the most outspoken to come from the business sector - particularly coming from the brother of the Minister for Finance. But other leading business figures also have reservations. Jefferson Smurfit Group chairman, Dr Michael Smurfit, warned recently that strict adherence to the Maastricht criteria for monetary union could drive some European economies into severe recession and aggravate unemployment and social problems.

Reflecting the complex debate now emerging about EMU, Unilever's new chairman, Irishman Niall FitzGerald, a harsh critic of Britain's euro sceptics, takes a different view. He argues that monetary union should only go ahead if the economies of Europe are ready and the convergence criteria are hilly met.

Monetary union also has its strong supporters. One is Mr Philip Halpin, chief operating officer at National Irish Bank. Like Mr FitzGerald, however, he stresses that the Maastricht criteria must be rigidly observed.

Mr Halpin concurs with the ESRI that monetary union will lead to a lower inflation regime as well as stable interest rates. This will yield a significant economic gain to the economy, benefitting the consumer, companies as well as the public sector in terms of servicing the national debt.

Nevertheless, Mr Halpin freely admits that whether or not Britain joins is a "key issue" for Ireland. He believes that the interests of British business will mean that sterling will eventually become a member.

Other economists are less sanguine. Professors Rodney Thorn and Peter Neary of UCD, are expected to highlight the dangers of monetary union at the Dublin economics conference in Kenmare this weekend and warn that it could lead to higher unemployment, particularly from small indigenous business sector.

Mr Jim O'Leary, chief economist at Davy Stockbrokers will be speaking at the same session on Saturday morning. Mr O'Leary argues that the new European Central Bank will not automatically deliver the low interest rates of the Bundesbank, as it will effectively be a merging of all the member central banks. He also warns that if Britain remains out, the authorities here will have not control over the euro/sterling exchange rate and this could lead to volatility.

At the same conference the ESRI economists John FitzGerald and Patrick Honohan will strongly defend their conclusions. With the move to a single currency now due in just over two years, battle is finally being joined in the debate on the implications for Ireland.