FINANCIAL market confidence in Ireland's membership of the first wave moving to monetary union has increased again, after a period of nervousness, according to the latest results from the J P Morgan index. Based on interest rate markets, it calculates that Ireland's chances of joining monetary union on time have jumped by 14 percentage points over the past week to 71 per cent.
Mr Avinash Persaud, currency strategist at J P Morgan, who devised the index, said it is notable that the markets have increased the chances of most countries joining monetary union. Ireland's rating had fallen in the index in recent weeks as doubts grew about, the project going ahead, but has now recovered again.
One of the main reasons for the renewed confidence in EMU starting on time is yesterday's confirmation that Chancellor Helmut Kohl will stand for re election in the next German elections. "Rightly or wrongly, the markets view Chancellor Kohl as critical to the process," Mr Persaud said.
"He is seen as staking his personal as well as his party's reputation on the whole project going forward successfully."
There had also been "more positive noises" from German officials about keeping to the existing timetable, he noted.
Ireland, he added, had a more sensitive response in the index to a change in position on EMU than other countries. This was because, if the project was decided purely on the criteria, Ireland should definitely be in the calculation.
The index calculates the market's expectation on which states will join Germany as members of monetary union in 1999.
The probabilities are taken from the interest rate swaps market, in which investors swap floating rate payments for fixed ones. Germany is automatically given a 100 per cent chance of joining, France also achieves a 100 per cent chance while Belgium is just behind on 99 per cent.
Finland is next on 78 per cent while Ireland has leaped into fourth position at 71 per cent, from 57 per cent a week earlier.
Of course, the measure is only one indicator for potential monetary union membership. It is based on the interest rate investors use when they are receiving interest payments on an investment at a floating rate but would prefer a fixed rate or the other way around.
The probability of Ireland joining can be calculated form comparing the post 1999 difference between the pound and mark, swap rates, the zero level implied by monetary union and the level expected if Ireland did not participate.
