Approaching monetary union with confidence


THE Government has not yet named the day, but Ruairi Quinn does not deny that the election campaign is already under way.

"The initial skirmishes have started," he says, pointing out that this is inevitable as the Dail moves towards the end of its term.

"We haven't been in this situation recently, when an election is inevitable. The last couple of elections have been surprise mid term ones," he points out.

Crime may be grabbing the headlines at the moment - and will be a major issue in the election, Mr Quinn agrees - but the economy is also bound to be a crunch issue. And Mr Quinn finds himself presiding over the most successful period in our economic history, but with the feeling that the public is not giving the Government full credit.

"There is an extent to which people now take economic improvements for granted," he says. And then there is the old question of why the polls suggest that the Labour Party, in particular, are not getting the kudos for the booming economy.

"I would not pretend for a minute that we (the Government) should take all the credit," he says. "But under our stewardship the economy has growth at a record pace and now a new national programme is in place."

Mr Quinn is a strong advocate of the planned approach to economic development. He speaks of the need to set longer term targets, broken down into five year plans, and is one of the few politicians to have ventured what society might look like in 15 years. His strong advocacy of successive national programmes is thus little surprise and he was centrally involved in the negotiation of Programme 2000. A stable environment for future investment is one of its key advantages, he believes.

It offers certainty to international investors, certainty as regards wage costs and as regards Government capital spending plans. And investors also have certainty over the tax rate to the year 2010. No other state can offer that," he argues.

But what of criticism of the terms of the deal and particularly of the public sector pay elements? Mr Quinn is not openly critical of this aspect of the deal, despite it being reliably understood that he was unhappy with the final negotiations of the public pay element. But he is outspoken about the need for further public sector reform.

This will be one of the key challenges facing the next Government," he says. As Minister he oversaw the recent publication of the Public Service Management Bill, a piece of draft legislation he identified as a priority when entering office, but took much longer than expected to complete.

IN PILOTING the proposals to introduce modern management practices into the Civil Service, Mr Quinn has clearly had time to think through the whole subject. And he favours major change.

"The whole structure was based on the British army, when they were setting up the Civil Service they did not know any other way, so the British army structure was adopted." The result is layer upon layer of management and middle management grades, leading down to clerical officers and clerical assistants.

"Modern organisations have moved towards a much flatter structure," he points out. Civil servants also have to get used to the idea of setting clear objectives and being paid on the basis of performance, he believes.

And in the shorter term he has no doubt that the Government must stand firm against the wave of public sector pay demands for special pay increases which are following the nurses settlement. "We cannot get into another round of `specials', that was one of the reasons that the public finances got into such a state in the 1980s." He is clear that the line must he held this time around, or else the future of the whole partnership process will be called into question.

THE other main economic issue facing the new Government will, of course, be the move to monetary union. There was a flurry in the markets a few weeks ago when an interview given by the Minister to a news agency appeared to cast doubt on whether the Government had fully committed itself to membership of the first wave moving to monetary union. In the news agency interview he repeated the official Department line that the final decision will be made next year. But he insists that politically the decision is already made.

Will Ireland join if Britain does not? "Yes," he responds. "We had a study done (by the ESRI) and it came out in favour. The single currency will bring low inflation and low interest rates and we have already seen in recent years what success that can bring to the economy."

By way of elaboration he continues: "I had three business people in with me yesterday and they said they didn't know whether they were manufacturers or currency traders." Their profit margins could be wiped out by a currency moving against the pound and much of their time was spent trying to guard against this danger. "A move of 3 or 4 per cent is a lot to expect a business to make up from cost savings or wherever."

He acknowledges that it would be better for Ireland if Britain too. He does not believe that Britain "will be there on day one" But he knows she current Chancellor, Ken Clarke, well from EU meetings and is close to the shadow, and probably incoming Chancellor, Gordon Brown. And he believes that whatever administration is in power will try to keep the value of sterling fairly stable against the euro. Ian the longer term sterling is likely to join, "because it is definitely in the interests of British business to be in."

Labour in Britain will hedge its bets during the election campaign on the issue, he believes. "Labour are not going to offer a firm view until after the election for fear of damaging their electoral prospects. They need to win a lot of seats in middle England and middle England has still to come to terms with its place in the world." The issue for Britain, he believes, is not economic advantage but sovereignty and Labour is just as divided as the Tories on the issue, although it has managed to keep its dissidents quiet.

On the issue of ceding Irish economic sovereignty in monetary union, he is relaxed. "If you ask me am I afraid of losing control of management of the economy, my answer is `No'," he says.

In many ways the Government and the Central Bank already have little room for manoeuvre. "Interest rates are effectively set by the Bundesbank," he argues. At least in monetary union the governor of the Central Bank of Ireland will have a seat on the central council.

Meanwhile, "the idea that we can control the value of the currency is a fallacy." A recent question in the Dail about what happens if Britain decides to competitively devalue against the euro misses the point, he argues: "If Ken Clarke gets up and says he wants sterling 15 per cent weaker there is no guarantee it will happen. It is up to the markets."

And he is also quite content to see the annual Government Budget controlled by rules from Europe. "If the Maastricht rules weren't there we would have had to invent them," the Minister states, arguing that "they have bean gold for the economy and have helped me in my dealings with Cabinet colleagues."

"MUCH of the fear (of the single currency) is fear of the unknown", he argues. He believes that it is a vital step for Europe not only politically but also economically and that the EU also needs to focus on its competitiveness as regards the rest of the world.

Technology is breaking down barriers, he argues, and making the economic management of "nation states" more and more difficult, while at the same time putting the onus on regions to be competitive and flexible to attract investment and jobs.

To compete "we will have to be up earlier in the morning, be more productive." Preparedness for monetary union will also be vital. And here much remains to be done. "Our surveys suggest that only 30 per cent of companies are getting ready."

He readily admits that Government Departments also have a long way to go. There are huge practical issues to be tackled, he points out, instancing the need for the Department of Social Welfare to be ready to deal in the single currency in its payments to the public.

And as Ireland faces economic challenges such as monetary union, what has Labour got to offer? Mr Quinn believes the party has learned a lot about the workings of the mixed market economy, which in many areas involves the State setting the rules and letting the private sector get on with it.

But in managing a modern economy, governments also had to heed the warnings from J.K. Galbraith of the risk of "private affluence and public squalor". Britain under the Tories has got the balance wrong, he believes, arguing that it is in many ways a "dreadful" society.

"I certainly hope Tony. Blair wins," he says, but believes it cannot yet be taken for granted. He points to Harold Wilson's large lead in the polls in 1964 and his subsequent narrow victory over the Conservatives led by Sir Alec Douglas Home.

IN IRELAND, Mr Quinn believes that the market economy is working well and in the election Labour will play heavily on the recent strength of growth and the record levels of new job creation. But he believes that more still needs to be done to tackle long term unemployment, pointing to the success of local partnership schemes which have operated in selected areas of high unemployment. These schemes help people in a very active way, he points out, and can, for example, play a valuable role in stopping younger people from slipping into long term unemployment.

"I do not agree with those who advocate freezing social welfare rates and increasing the financial incentive for work. That might work for some people, but not for all."

Looking at the general economic issues likely to surface during the campaign, he disputes the charge that the Government is letting the economy "overheat".

"How can an economy with 12 per cent unemployment be overheating?" he asks. However, he reiterates his concern about the housing market and the recent sharp increase in prices. Part of the answer may be in changing planning procedures in areas such as population density, he says.

While he does not believe that financial institutions in general are being irreponsible in their lending policies, he urged caution, particularly where brokers are involved in arranging loans. These middle men can "arrange the marriage [between lender and borrower] and walk away with the ring," he says. He welcomed the move by the Director of Consumer affairs, Willie Fagan, to insist that mortgage lenders put a "health warning" on their advertisements.

The other charge from the Opposition parties is that the Government has lost control of spending. Mr Quinn defends the Government's record, pointing out that spending growth has slowed, although conceding that it is still too fast. However, he says there can be no "free lunch". Meeting demands for better public services inevitably involves spending more, he points out. Fianna Fail's demand for "zero tolerance" would require more funding for policing and a massive increase in prison spaces.

Labour is currently talking to its Coalition partners about a programme to put before the electorate. Labour will put forward its own policy platform, he says, and the three parties will agree a common set of priorities to put before the people. As deputy leader of the Labour Party, he will be deeply involved in establishing the programme and in any post election negotiations.

He hopes the electorate will return the three Government parties. Asked whether Labour would consider negotiating with anyone else - such as Fianna Fail - if the numbers for the outgoing Government do not add up, he offers a polite, "No comment."