Quinn says joining EMU carries fiscal policy implications

EUROPEAN governments must consider the longer term implications for fiscal policy of membership of European Monetary Union, according to the Minister for Finance, Mr Quinn.

Speaking at the Sixth European Banking Congress in Frankfurt, Mr Quinn said that governments would have to try to maximise their fiscal effectiveness within budgetary constraints set under EMU rules. But he warned that much more attention must be paid to emphasising "the pro employment agenda" of EMU.

"The contribution which intensified economic integration and accelerated economic convergence can make to employment and the reduction of unemployment is, for many citizens of the European Union, a litmus test of the desirability of the whole EMU project," he said.

Lower interest rates would help to deliver higher economic growth rates throughout Europe, he forecast.

As growth in the EU recovered, the rise in European unemployment should be reversed with a downward trend being established as growth accelerated, Mr Quinn said.

But he accepted that while economic growth was a necessary condition for a fall in unemployment, it was not the only factor involved.

Economic recovery could not be expected to reduce the level of unemployment much below 9 per cent on a sustainable basis, according to Mr Quinn.

The challenge was "to reduce permanently this unacceptably high unnatural level of unemployment", he said. This required "a consistent set of pro employment measures", Mr Quinn suggested.

Agreeing that governments have to focus sharply on short term budgetary goals in the run up to the critical decisions on EMU participation, he warned that all the participants must remember that the Maastricht 3 per cent deficit limit will operate "as an enduring guideline for the prudent conduct of national fiscal policies".

The Stability Pact proposal currently under consideration is intended to ensure that budgetary policies make a positive contribution to creating the right conditions for a stable economic environment.

The pact would aim to ensure that member states "deliver deficits close to balance in normal economic circumstances so as to be able to stay within the Maastricht ceiling at all times across a normal economic cycle", he explained.

"The opportunity which EMU represents for the European economy should not obscure appreciation of the significant challenges which entry into EMU will entail", Mr Quinn warned the bankers.

But he said he believed that the goal of achieving EMU by January 1st, 1999 would be achieved "if we keep sight of the real and permanent benefits which sound public finances and stability oriented policies can deliver for our economies and our citizens".