SELECTING a band of strong economies to participate in monetary union could undermine the single market, Professor Rodney Thom of UCD warned last night.
Speaking at the Jean Monnet Lecture Series, sponsored by Irish Life, Dr Thom warned that the selection of the few could jeopardise the completion of the internal market and undermine the political consensus which underpins legislation.
"It is the internal market rather than EMU per se which has the capacity to transform Europe's over regulated and uncompetitive economy," he said. "But the gains can only be maximised if all EU economies are integrated into one single competitive market."
But according to Dr Thom, Maastricht may, either by design or application, restrict membership of the single currency to a minority of EU economies. "In doing so it may result in a failure to reap the full benefits of the internal market."
Dr Thom also underlined his belief that Ireland should not participate in EMU if Britain remains out.
According to Dr Thom, the European Central Blank may be obliged to set higher interest rates in order to establish its anti-inflationary credentials. This would be more likely if countries such as Spain and Italy with historically weak reputation for credibility were to be among the initial participants, he said.
He also questioned the assumption that Irish interest rates will be close to German or euro rates. Given sterling's importance, it is very possible the risk premium on Irish interest rates will not be eliminated by participation in EMU, he added.
Dr Thom also pointed out that the Swedish government commission on EMU found that on balance the arguments against participation in 1999 were stronger than the arguments in favour of it.
He called for Irish politicians and economists to recall the words of the Bundesbank president, Dr Hans Tietmeyer, in Dublin earlier this year.
At that time, Dr Tietmeyer, said in the event of an asymmetric shock the countries in monetary union must be responsible for achieving the necessary flexibility through internal measures.
