EMU deadlines will keep Minister busy this autumn

Are you right there, Charlie? The Minister for Finance, Mr McCreevy, is in for a difficult and possibly turbulent autumn. And framing the Budget - tricky and all as that will be - will be the least of his worries. For the balance of the year is set to be dominated by the run-up to monetary union.

The Government will be forced to confront some of the extraordinarily tricky decisions which this will bring for Ireland, never mind reacting to the inevitable turbulence in international markets which the move to the single currency will entail.

The first big date will be the mid-September meeting of EU finance ministers, where the move to monetary union is up for serious discussion. Some commentators even expect that this meeting may decide the mechanism by which exchange rates will be fixed inside monetary union.

Whatever the precise decisions at the September meeting, a positive tone gathering would give a strong indication to the markets that monetary union is definitely going ahead. This, in turn, would kick-off an intense period of market activity in the foreign exchange and interest rate markets based on the expected participants in the new union.

On the other hand, if new doubts are raised about monetary union in the months ahead - by, for example, a hardening of opposition among the German public - market turbulence is guaranteed.

As he attempts to chart Ireland through these choppy waters, Mr McCreevy faces a couple of problems.

One will come in negotiating the entry rates for monetary union. At the moment, the pound stands way above its central ERM rate and the Government would presumably not want to go along with an early indication that this central rate would be used to fix currency values. This would lead to heavy selling pressure on the pound and risk adding fuel to inflation by increasing import prices. The Minister will hope that the entry rate decision is delayed until next year, by which time sterling may have slipped back, which would allow the pound to fall back in the ERM band.

In passing, it might be noted that even if this makes the decision on a rate of entry easier, it still leaves unanswered major questions about how Irish policymakers will deal with swings in the sterling exchange rate after monetary union. This autumn could also highlight another dilemma. Irish short-term interest rates remain well above levels elsewhere in Europe. By the time we enter monetary union, short-term rates across the single currency area will have to be the same. This means that Irish rates will fall from current levels. At the moment, Irish rates are around three percentage points above German levels. German rates themselves may rise modestly over the coming months - the markets are already resuming the fortnightly watch of council meetings. And rates in the new euro area may in any case be slightly above core German levels, particularly if a wide group enters in the first wave.

But, at a time when the Central Bank might prefer higher interest rates, indications that Ireland will join monetary union will increasingly convince investors to push wholesale money market rates in Dublin lower.

When this downward pressure on rates will come is not clear - an upward move in German rates might delay the process - but come it will. Lower interest rates and downward pressure on the currency is precisely the combination Irish policymakers do not want at a time when a surging economy is already leading to forecasts of higher inflation.

Of course, this autumn's first course is just a taster of the new policy-making environment which the Government will face once inside monetary union. So far the attitude of the coalition, in common with the former administration, appears to be that we will deal with whatever problems emerge inside monetary union once they appear. To say that this is a risky strategy is a grave understatement.