Monetary union will undoubtedly be the economic focus of 1998. The single currency will have a profound affect on all our lives. This year will be vital for the project. In the first few months there will be a series of reports on the state of the EU economies. Both the European Commission and the European Monetary Institute are due to report in March. They will be outlining the state of each of the EU's economies for 1997. They will then recommend with a view to recommending which states are suitable for entry to the first wave on January 1st, 1999.

There is almost no doubt that Ireland will qualify. Among the main criteria are deficits, inflation, interest rates and Government debt, and it is only in the latter that the Republic is above the permitted ceiling. However, the debt-to-GDP ratio has been falling and thus even under that heading the booming Irish economy qualifies.

Other states will not be so lucky. It remains to be seen which countries fulfil all the criteria. However, the overwhelming view of almost all those involved is that the criteria will be loosely enough interpreted to allow 11 member-states to join in the first instance. The only EU country which will be excluded by its economic performance is likely to be Greece. However, Britain, Denmark and Sweden have already ruled themselves out.

The reports will be examined by the European Parliament and then, in the first weekend of May 1998, a general meeting of finance ministers will make the final recommendations to the Heads of State. The final announcement will be due on May 3rd, 1998.

At the same time, the Commission will be making an announcement of the method to be used to convert the individual national currencies into the euro. Thus, in effect, monetary union will begin in May 1998.

We will then know our bilateral conversion rate with the other countries. This is widely expected to be the current central parities for most of the currencies in the Exchange Rate Mechanism. The pound's rate would thus be DM2.41 - significantly below where it has been trading in recent years.

The pound is the only currency in the system with this problem and it is mostly due to the recent strength of sterling. Our trading links with Britain are so strong that our currency almost invariably follows the general direction of the British unit.

However, there is another option. The Government and specifically the Minister for Finance, Mr McCreevy, could decide to revalue the central parity upwards and thus Ireland could enter the euro at a rate of around DM2.53.

The proponents of revaluation argue that without it we will effectively undergo a devaluation and thus risk importing a significant degree of inflation into the economy.

The Central Bank and the Department of Finance as well as a few market economists are of this opinion.

On the other side are the powerful lobby groups of farmers and exporters as well as the majority of market economists. They argue that to go in at the lower rate will prove to be a one-off competitive boost to the economy which should not be passed off lightly.

It is not known where Mr McCreevy stands on the issue his now infamous button-lip policy having done the trick. However, it seems quite possible that Mr McCreevy will choose to go with what may be the more politically popular route of opting for the current central rate.

The decision will also have an effect on most consumers and, of course, holiday-makers. A revaluation would make holidays abroad more affordable than they would be if we joined at the central rate and would help to hold down the price of imported goods.

The other major impact in the beginning of 1998 will be the impact on interest rates. One thing is certain Irish interest rates will be close to German levels by the end of the year.

So close in fact that many believe there may only be one-tenth of a percentage point in the difference at that time.

But it is still open to question exactly how far and how fast they will fall. It had appeared likely that the Central Bank which is in charge of interest rates would prefer not to have a dramatic fall and would opt instead for gradually cutting the rates for a couple of months.

This would mean a possible half point cut in January or February followed by another in April. Rates could then have declined from May through September.

However, as Central Bank officials point out, there is no way of knowing what will happen. We are in completely unchartered water and all predictions are guesswork.

On top of that one of the Bank's most senior officials recently said he would personally prefer to let the markets lead the way. This would mean the Bank would not cut rates gradually, but would wait until the wall of money which could hit the Irish market after the May weekend forced rates down by themselves.

The exact amount of the fall is still open to question. At the moment, German short-term "repo" rates are running at 3.3 per cent. Thus, in theory, it is possible for Irish rates to decline from 6.25 per cent, the current one-month inter-bank rate, to close to 3.3 per cent.

However, in recent months the German Bundesbank has been increasing rates and most commentators are expecting a rise towards the 4 per cent level by the middle of next year. Thus Irish rates are more likely to fall by about 2 percentage points next year.

This will provide a significant bonus to homeowners and borrowers with savings on a £65,000 mortgage of about £80 a month.

Of course, the other side of the coin is that rates paid to savers will decline. As a result, pensioners and others who rely heavily on savings could be the most vulnerable next year. A combination of lower interest rates and likely higher inflation could eat into their returns.

This comes back to one of the key questions about the impact of the single currency. The Central Bank will no longer have a hold over interest rates and thus very little control over cooling down what it would see as an overheating economy. With no control over exchange rates either, the possibility of inflation is increased.

Thus, the recent warnings of the Central Bank that vigilance will be needed to combat inflation should be heeded by all involved including the Social Partners, the Government and unions.