Tomorrow, at midnight, the pound will cease to exist as an independent currency and the euro will be born. The familiar Irish notes and coins will continue in circulation until mid-2002, but our currency will exist only as a sub-division of the new single currency. Less than 20 years after the pound's link with sterling was broken, its life as an independent currency comes to an end, as we pool our fortunes with ten of our EU partners.
It is an historic moment and the decision to join is arguably the most significant economic policy decision taken by any Irish government. Once we enter the single currency, there can be no going back. The changes which the euro will bring will be far-reaching, if not entirely predictable. The Economic and Social Research Institute has estimated that joining the single currency will be beneficial to the economy, although the gains will be fairly modest. However, what is more difficult to predict, are the dynamic changes which the single currency will trigger.
The move to the euro has already had a significant impact through the sharp fall in interest rates in the second half of the year. All the signs are that interest rates will remain low throughout 1999, although Mr Wim Duisenberg, the president of the European Central Bank, has played down expectations of further reductions. Even at current levels, however, low interest rates are leading to fundamental changes in the market for both savings and borrowings.
Other changes will flow from the euro's introduction. It will lead to extra competition for many businesses as new entrants are attracted to the Irish market. It will become more convenient for consumers to compare prices across Europe, maintaining pressure on Irish companies to keep their prices in line. The issues for business and consumers are further explored in a special section on the euro, published with today's newspaper.
But the immediate impact on consumers will be limited. Euro notes and coins will not become available until January 2002 and, until then, most people will continue to use pounds for the bulk of their transactions. However, we will all become increasingly familiar with the euro over the next couple of years. In some areas the change will be immediate; from next Monday share prices on the Irish Stock Exchange will be quoted only in euros. The cost of foreign exchange transactions between euro-zone currencies is also falling although the banks have pushed up the commission on these transactions to partly compensate for the loss of profits.
In most cases the switch to the euro will be gradual. Increasingly, goods will be priced in both euros and pounds until full dual pricing starts in January 2002. It will also take some time for consumers to become comfortable in comparing prices and judging value in the new currency. Business is likely to lead the way and many exporting companies will quickly move to conducting much of their business in euros.
The longer-term impacts of the switch are more difficult to predict. The introduction of the single currency will, inevitably, bring with it pressures for further economic and political changes in the years ahead, posing new challenges for Europe's policymakers at a time when they are also planning to enlarge the union. The great experiment will start tomorrow at midnight, but its full implications will take years to emerge.