This weekend's report from the Economic and Social Research Institute on the implications of economic and monetary union membership for Ireland is an important document. It is the first comprehensive analysis of what the move to a single currency could mean for the economy. It will form a key input both into Government policy making and into debate on the single currency in the months ahead.
The broad conclusion of the report is that it is in Ireland's interests to join the single currency, even if Britain stays out. There will be winners and losers in the economy, according to the report, particularly if Britain does not join and sterling is volatile on foreign exchange markets. The ideal scenario for Ireland would be to join along with Britain, although at the moment it appears that sterling will not be a founder member of the single currency.
The ESRI team believes that the quantifiable gains to the economy still outweigh the potential losses, even if Britain stays out. Taking into account the likely volatility of sterling on the markets, the ESRI calculates that the net effect on the economy of joining EMU would be to boost the level of national output by around 0.4 per cent in the medium term and increase employment by 10,000. If Britain were also to join, then the potential job gains could double.
As the report points out, the impact on the economy of EMU is not as significant as might have been expected. The introduction of the EU single market and the impact of the structural funds would both have had a greater impact, it calculates. However, its results "indicate that Ireland can expect to benefit modestly in terms of income and employment through membership of EMU." The ESRI also points to other important but unquantifiable gains in areas such as business confidence and inward investment.
The Minister for Finance, Mr Quinn, said he hoped the report would provide a solid basis for policy making in the months ahead, as well as leading to more informed debate. It should help to achieve both these goals, although the technical nature of much of the report does not make it easy reading. Mr Quinn has a particularly onerous responsibility over the months ahead. He is must chart the final preparations for EMU being conducted under the Irish presidency and ensure that the Irish policy takes into account the issues raised in the ESRI report. While pointing to the sectors at risk in EMU and particularly from sterling volatility if Britain stays out the report does not make detailed policy recommendations on how the Government should prepare for this.
Clearly, there is a responsibility on industry to prepare itself both through diversifying markets and examining how it manages its foreign exchange exposures. But there is also an onus on the Government to examine how the economy could cope with the pressures of a single currency. If there is to be a successor to the Programme for Competitiveness and Work, then it must take into account the move to EMU and the need to preserve jobs in exposed sectors.
The ESRI researchers point to the recent strong performance of the economy as evidence that Ireland can last the pace inside monetary union. But there is no doubt that the removal of the exchange rate as a policy instrument will make it all the more important to maintain and build on the competitive gains of recent years. Ensuring we qualifying for EMU has been the Government's priority, but it must now start to examine how we can prosper inside the single currency club.