THE Government must urgently develop a strategy for dealing with any sharp fall in the value of sterling after monetary union, according to a National Economic and Social Council report.
The urgent need to address this issue has also been highlighted by further strong signals from Britain that even if the Labour Party wins the next election, it is unlikely to join the single currency in the first wave. Conservative Party policy on monetary union is in disarray and at the centre of a damaging pre election row.
A late draft of new research being prepared by NESC on European monetary union, seen by The Irish Times, backs Irish membership even if Britain remains outside. It says the debate should now focus on how to manage the economy within EMU, rather than concentrating on arguments about whether or not we should join.
The NESC, a research council on which the social partners are represented, says that as well as bringing economic advantages, joining monetary union will also be politically beneficial. "To suggest otherwise would require a reassessment of the major plank of Irish foreign policy, and much of domestic policy, as it has been held for the past 25 years of so."
However, the report says that considerable work remains to be done to prepare Ireland for EMU membership. It emphasises particularly the risk to Irish industry which could be posed by a rapid depreciation of sterling.
"There is a need to articulate a strategy now for such an event, rather than delaying until problems are manifest," according to the EMU research, which is part of a wider NESC study on Ireland and Europe. The report says there is a strong case for a fund at EU level to compensate member states in the monetary union which are hit by economic shocks, such as a sharp fall in sterling might pose for Ireland.
The NESC also warns of the danger of currency instability in the run up to the final locking of currencies, scheduled for January 1, 1999. It points to a number of key issues to be decided at European level which will be of crucial interest to Ireland, such as the exchange rate at which currencies will be locked, and the economic rules for states outside the single currency.
It looks increasingly likely that Britain will be one of the states remaining outside monetary union, at least initially. The Financial Times reports today on a decision by the British Labour party to set new hurdles for participation in European monetary union, if it forms the next government.
Labour's move, disclosed by Mr Gordon Brown, its shadow chancellor of the exchequer, involves the establishment of five "British economic tests" to be applied before making the decision on whether to sign up for monetary union. These included the impact on employment, on inward investment into Europe and on the UK financial sector; an assessment of whether EU countries are at different stages of their economic cycle and of whether there is sufficient stability in EMU rules to respond to economic shocks.
Mr Brown, a strong pro European, insisted that Britain retained the option of participating in the first group moving to monetary union, but it now appears most unlikely that Labour would join in 1999.
Meanwhile, Mr John Major's European policy was in chaos last night, as tensions in his Cabinet over the single currency exploded in a pre election row. His Chancellor and Foreign Secretary publicly contradicted each other, after Mr Malcolm Rifkind said the government was "hostile" to the single currency.
The Chancellor, Mr Kenneth Clarke, reacted swiftly, telling reporters that Mr Rifkind had made "a slip of the tongue under pressure from a very skilful interviewer".