DUBLIN is likely to be relegated to the status of a regional financial market following European Monetary Union, according to the Economic and Social Research Institute. "The introduction of the euro is likely to lead to a greater centralisation of wholesale market activity in one or two financial centres," explains the report.

This process has already been set in train by the Single Market, Programme in financial services, introduced in the mid 1980s. However, the arrival of the single currency will speed it up dramatically.

The losses from the reduction in the size of the Dublin foreign exchange market alone are expected to run at £100 million a year.

However, if Britain opts not to participate in European Monetary Union, this figure could be sharply reduced, the ESRI points out.

The report also states that: "Developments in IT (information technology), particularly in electronic trading, might, however, enable regional money and bond markets to survive to some extent.

The banks, building societies and insurance companies are also expected to incur significant once off costs associated with introducing the new currency. These will primarily be in the area of staff training, marketing and information technology systems. They could be as high as £130 million, and will primarily be incurred by the clearing banks.

There will be substantial changes in the nature of employment in the financial services sector, but major job losses may be avoided. Up to 7 per cent of the jobs currently in the sector "will be in the balance" following EML, the ESRI predicts. This figure will increase to 10 per cent if Britain participates.

"However, assuming that economic activity generally increases as a result of the single currency initiative, much of the income and employment losses can be expected to be offset by the resultant increase in business in the financial services sector so that, eventually, the net change in employment should be relatively small," concludes the report.

The major benefits to the economy of EMU, as they will flow through the financial services sector, will be a significant reduction in foreign exchange and other transaction costs, and in the costs of servicing the public, personal and business sectors debts.

Lower interest rates will affect the banks profitability by reducing margins but is likely to be compensated for by growth in other business.

The major Irish banks are expected to retain their grip on the personal and small to medium business markets after EMU. Foreign based banks are unlikely to seek to expand into Ireland through the establishment of branches but they might use technology to try and penetrate the market from outside Ireland.

The two large banks, AIB and Bank of Ireland, may become takeover targets for large European banks, the report warns. Major British banks would also be expected to show an interest if Britain did not participate in EMU.

The relegation of the two main banks to the status of subsidiary of a international banking group would have serious long term consequences in terms of jobs and for the "future development and training of strategic management class within the Irish financial services sector", argues the report.