THIS weekend's meeting of EU finance ministers must give a clear political direction towards deciding the relationship of currencies within monetary union and those which will remain outside, the Minister for Finance, Mr Quinn, has said.
This is a vital issue for Ireland which could be exposed to swings in the value of sterling if the pound joined a single currency and Britain stayed out.
The relationship between the "ins" and "outs" is one of the key issues to be discussed at the informal meeting in Verona, Italy. While no final decisions will be made, Mr Quinn said the meeting must give political guidance to the EU monetary committee, which would work on the issue in the months ahead. If progress is not made soon, then it will fall to the Irish presidency in the second half of the year to tackle the issue, he said.
Ahead of this weekend's meeting, the British government has made it clear that it would not accept the idea of compulsory membership of a new exchange rate mechanism for currencies not participating in monetary union. This idea had been floated as a way of stopping currencies outside the system from gaining a competitive advantage by devaluing against the single currency.
The suggestion now is that states not joining the monetary union would have to make reports on economic policies to the EU, to ensure that policies do not diverge too dramatically.
A new ERM may still be put in place, leaving it open for states outside monetary union to participate in it if they wished.
Mr Quinn told The Irish Times it was in everyone's interest to make progress on the issue and to develop a system which ensures stability and discourages speculation. While Ireland was concerned about what would happen to sterling if Britain stayed out, big states such as France, and Germany were also concerned, he said.
Ireland welcomed the idea of a revived ERM for those not joining, said Mr Quinn. The old ERM had functioned relatively well up to the time of the currency crisis, he said.
The sooner the Government knew, the likely relationship between the "ins" and "outs", the easier it would be to sell the idea to business, the Minister said.
French officials believed the Verona gathering would reach "a quasi consensus" on the need for a new exchange rate system to limit "serious fluctuations" between "in" and "out" currencies. They are also hoping there will be enough support for this to allow technical work on such a system to start immediately after the meeting.
But French officials yesterday seemed to be at pains to play down suggestions they wanted a compulsory ERM. They stressed there was no question of "locking parities" between the "ins" and the "outs", or of compelling anyone to join. Officials also noted the "very difficult" position of Britain.
The meeting will also discuss the rules to which states will have to adhere to after joining monetary union. Germany has led the push for so called "stability pact", to keep the budget deficits of those joining the single currency at a low level. While Germany may be prepared to accept a compromise on earlier demands that deficits should be generally limited to 1 per cent of national output, it is expected to push for some progress on the issue in Verona.
Mr Quinn said that whatever rules are put in place, there was "no reason why it cannot be done within the existing treaty".
He said the interests of smaller states would be served by a system based on European Union institutions such as the Commission and ultimately the European Court. This should provide the framework for monitoring the economic performance of member states and deciding what sanctions to impose, he said.
The Irish position is that decisions should be based on such procedures, rather than being imposed by the Council of Ministers, which is dominated by the bigger states.
