The weekend meeting of EU finance ministers sent out an important message. The ministers announced that the member-states joining monetary union and the exchange rates at which their currencies will be locked together will be announced at the same time next spring. While monetary union will not commence until January 1st, 1999, EU governments hope that announcing this information eight months earlier will lead to a stable run-in to the formal launch date and build on market confidence that the process is now irreversible.
The clear decision from the meeting is welcome. It sends a signal to the financial markets that the move to monetary union is on track and that the key decisions on which currencies will join and at what rate will not be left until the last minute. The ministers are thus attempting to set the agenda, rather than letting market speculators try to prosper from a vacuum.
The Government and the Central Bank will also breathe a quiet sigh of relief. It is clearly in Ireland's interest that a decision on how member-currencies are to be tied together be delayed for as long as possible. By announcing that this decision will not be taken until next spring, EU finance ministers have removed any pressure on the Government here to give an early signal of the rate at which it believes the pound should lock in. This issue is particularly tricky for Ireland, as the pound has risen sharply against the other ERM currencies in recent months, because of the strength of sterling. However the entry rate will still be a difficult decision for the Government when the time comes and one to which our partners will also have to agree.
The other welcome development for the Government came from indications that the Labour government in Britain may decide sooner rather than later to put the issue of monetary union membership to the British people. Sterling will certainly not join with the first group on January 1st, 1999. But if it were to enter the single currency within a few years of this date, it would certainly remove a lot of the risks for the Irish economy.
There are, of course, still some difficult hurdles to cross on the path to the single currency. The debate on who will join could yet lead to severe political tensions. The financial markets may decide to test the nerve of the authorities; at the very least some turbulent trading can be expected. And even though the rates at which the member-currencies will be locked together will be announced next spring, the rate at which the new euro will trade against the rest of the world currencies will not be struck until the end of 1998.
However this weekend the EU finance ministers have set the clock ticking. In less than eight months' time, EU governments will be sitting down to make the key remaining decisions on monetary union. And once these decisions are made, there will be no going back.