The pound's yo-yo performance against sterling, the deutschmark and the French franc in recent weeks was dramatised yesterday when it reached 90.5p against the British currency. This brings home forcefully how exposed Ireland has become to international currency movements and associated political events - all the more so as fresh speculation erupts about the credibility and sustainability of the single currency that is intended to stabilise them. It was timely yesterday to have the political parties addressing the currency issue, which will be a major management task for whichever Government is elected on Friday.
Recent events in Germany and France suggest the run-up to the creation of the single currency could be turbulent. The row between the German government and the Bundesbank over the revaluation of gold reserves has been smoothed over but only to face the Government once again with the problem of how to adhere to the Maastricht criteria this year. The new government in France remains committed to monetary union, but raises a significant new agenda about how it should be realised and politically overseen.
The financial markets have reacted nervously to the latest developments. Most investors still believe monetary union will go ahead on schedule, but they are not as confident as they were a few weeks ago. There is also rising speculation about the implications of the latest events on the likely composition of the group moving to monetary union and the strength of the new euro currency. It is too early yet to draw firm conclusions on the implications of the latest events. In particular, it will be some time before the new French government finds its feet and asserts itself internationally., By later this year, speculation about the membership of monetary union and the entry terms is likely to reach fever pitch. It will be a time when cool heads will be needed in governments across Europe.
There has been limited debate on monetary union during the election campaign. Yesterday's decision by Fianna Fail to outline its views in some detail was, therefore, welcome. The party has again underlined its commitment to Ireland's membership of the first wave of monetary union. Its potential coalition partners, the Progressive Democrats, said in their manifesto that Ireland should keep its options open. However, subsequently the party has said it is committed to Irish membership, but that the correct entry terms must be struck and the interests of the exposed sectors of industry taken into account. Given the need for clarity and firmness in handling such a central and sensitive issue, it is disturbing that the Progressive Democrats should have so varied their policy during the course of the campaign.
Nonetheless, it seems that whichever government takes office, policy will quite correctly be to keep Ireland on track to join monetary union in the first wave. Fianna Fail yesterday raised some important issues, including the need to control Exchequer spending and borrowing to give room for manoeuvre inside monetary union and the possibility that certain sectors may run into difficulties once inside monetary union. The former EU Commissioner, Mr Ray MacSharry, said his view was that it would be better to postpone the project than to proceed if enough member-states did not fully meet the Maastricht criteria. If Germany and France continue to struggle to meet the rules, then this issue is likely to be a major area of debate in the months ahead.