AS the Italian economy's hopes of playing in the EMU single currency super league received a yellow card this week, Ireland's economic long game looks set to succeed in meeting the Maastricht criteria necessary for entry into the elite group of first round qualifiers.
Over the last couple of weeks German officials have been openly casting doubt on some aspiring participants who sought entry in the first stage of monetary union in 1999.
The negative evaluation of Italy and Spain's participation has angered those countries greatly. Ireland, for the most part has escaped the fall out and Government sources here are adamant that we are a different case from the so called "Club Med" countries - Italy, Spain and Portugal - which are struggling to meet the qualification criteria.
To date only one German, Bundesbank member, president for Hesse - Mr Weltke, has questioned Ireland's participation openly. He created some uncertainty by suggesting that Ireland, Finland and Denmark should delay EMU membership for two years, while Spain and Italy should join sometime after that.
Other German officials, including state secretary for finance Jurgen Stark, also questioned the "Club Med" countries credentials but added "other peripheral countries" should also consider their position. Was he referring to Ireland, amongst others?
So far no senior German government official has openly questioned Ireland's aspirations for membership of the first wave moving to monetary union. However, unofficially some German bankers and officials are worried by the pound's volatility because of its links with sterling.
Provided we meet the rules we are unlikely to be stopped but it may be put to us that it is better to wait for sterling before entering EMU. There is even unofficial talk among central bankers that we could be offered transitional funds as a payoff for waiting, although this has not, beers put in any form to the Irish government.
There also now appears to be only limited dissent domestically to the Government's determination to be among the initial members moving to EMU, even if Britain stays out. Calls from some economists for a debate may to be too late. Some sources say that if they had wanted to succeed, they should have attempted to stir up the debate before the ESRI report which recommended Ireland join EMU, even if Britain stays out. Unlike Britain, there is little political opposition to the single currency project. The Minister for Finance, Mr Quinn has been unequivocal in his support for Irish membership, citing both political and economic reasons. In a significant development, in a recent interview with The Irish Times, the leader of the opposition Bertie Ahern stressed his party's commitment to the project, although the Progressive Democrats have expressed some reservations. This may largely remove the whole debate from the election agenda.
Taken with the implicit agreement of the union and employers in signing up for Partnership 2000, EMU consensus means those, who question the wisdom of whether or not we should go ahead will have little chance to air their opinions.
As a result, Ireland's economic policy is now being run on the basis that the Republic will join.
With this in mind interest rate policy is now determined by Ireland's quest lord membership. Without EMU in the background there can be little question but that, the Central Bank would be seeking to raise interest rates in a bid to take a little steam out of the economy. As it is the Central Bank is likely to feel constrained from doing so, because the pound is already very strong in the ERM and because it would not want rates moving in the opposite direction from those of our prospective partners.
Budgetary policy is also now being dictated by the move to the single currency. The Department of Finance is also working on a stability programme to put in place following Ireland's admission to EMU.
However, there is still much to be done. There has been very little research so far on the trading sector and how joining the single currency will impact on it. Whether or not, this is likely to happen is a moot point - some officials believe that the ESRI's sectoral analysis is enough.
About the only cloud on the horizon is, our exchange rate performance. The problem is the pound does not behave like a deutschemark clone. Other countries, particularly Holland and the Benelux states, and to some extent France, track the German economy closely. Not only do the currencies trade in line with one another but they are all mostly at the same stage of the economic cycle.
Ireland is different. We are far closer to Britain and the pound has been relentlessly following sterling's every move up and down against the other currencies. And while other European economies have been slowly pulling out of recession, Ireland has been booming.
The authorities in the European Monetary Institute - the forerunner to the EU Central Bank - in Frankfurt have a "volatility index" which measures the movements of all the currencies in the EMS and the pound comes out as by and away the most volatile. If sterling were still a member, it could well have that honour.
Officials say that the only problem with volatility is for weak currencies and the pound is volatile because it is so strong in the ERM. One official commented. "The problem arises only if a currency is weak and not strong, like the pound is now." But there is also a feeling among some Germans that the pound is a slave to sterling and the economy an extension of Britain's.
However, all in all, it appears we will be going into the single currency - if the project happens.
After that the big question is: At what level? Initial work is being done on this at the EMI in Frankfurt. The decision is likely to rest on choice between a conversion to the euro at our central rate in the ERM - about 2.42 deutschmarks or an average figure over a year or two. The latter could well be higher and would spell continuing problems for our European exporters.
