The latest set of inflation figures show that Ireland is the EU's model economy. No play-off will be needed for Ireland to qualify for the single currency, with a sparkling set of economic figures, ranging from one of the EU's lowest inflation rates to its highest growth rate.
But to conclude from our recent economic success that we are fully prepared for the single currency would be a mistake. At the moment, all our attention is focused on qualification, little thought is being given to the new ball game we will face after entry.
Economic commentators are never slow to spot a cloud in every silver lining. And there is no doubt but that the economy is storming ahead and that the outlook remains strong for the next year or so.
But little consideration is being given to what living in an EU single currency will actually mean for Ireland. Businesses are regularly lectured on "preparing for the euro", but the enormous strategic implications of the move are being given scant consideration.
The argument here is not about whether we should join the euro or not. That decision, we are told, has already been made and we are going in, even though Britain is set to stay out initially. Nor should we ignore the possibility that the whole project may be delayed or derailed. But we have to work on the assumption that it is still likely that monetary union will go ahead, and that we will join.
This will represent a far-reaching change for Irish business and for the Government. Irish policymakers will no longer have any power to set interest rates to reflect the level of economic activity. And the level of the pound will be fixed against all the other member currencies, removing another "shock absorber" which can help the economy adjust when it is performing differently from economies overseas. Finally, future governments will be restrained in their management of the public finances, which will limit the room to adjust the overall level of taxes and spending to influence economic growth.
THE most obvious - though not the only - exposure we will face inside the single currency will be to swings in the value of sterling. Since we broke the link in 1979, the value of the pound has gone as low as 77p sterling and as high as 110p. And once the pound is tied into a single currency, it will be even more exposed to sterling's swings, as it will not be able to move independently of all the other EU currencies.
The only stab at the implications of this exposure was the calculation in the Economic and Social Research Institute report on monetary union, which estimated that the benefits to Ireland of EMU membership would be much smaller if sterling remained outside than if the British currency also joined. But the ESRI was not asked to look at the policy implications surrounding these kinds of issues and nobody else has done so since. Serious consideration needs to be given to how overall economic policy will adjust if sterling falls sharply against the euro after monetary union. This Government - and the previous one - appears to be taking an "it'll be all right on the night" approach - that such problems will be faced when they appear. This is just asking for trouble. The danger is that if the squeeze comes on from a sterling collapse, then it is jobs which will be lost. Detailed assessment is needed on the sectors vulnerable to such sterling swings. These include major areas of Irish industry such as the clothing, engineering and food sectors and much of small business. How will these companies adjust if they come under competitive pressure? Will wages be adjusted or jobs lost? There is no formula in Partnership 2000 to deal with this.
To argue that we can protect against these risks by joining the euro at the "right" rate is erroneous. There is no "right" exchange rate to lock in at, as an appropriate exchange rate for a currency varies in relation to the economy's health, its rate of inflation and its relationships with its trading partners. Swings in non-euro currencies such as sterling and the dollar are only one eventuality for which we must prepare. Overall, having a fixed exchange rate will put a much greater onus on other areas of the economy to become flexible to compensate. And we will be tied to currencies of countries which, while they have had mixed economic performances in recent years, have higher productivity levels in many sectors than Ireland. Reforming areas such as the tax system to become more competitive will become all the more important.
Our EU partners have made it abundantly clear that once we enter the single currency we are on our own.
For the moment, with figures painting an ever brighter picture of the economy, such arguments may appear academic. But sometime after January 1st, 1999, when the single currency is due to start, they will begin to look very real.
