The coming months will be crucial for the plans to create monetary union across the EU. All the major players continue to emphasise their determination that the move to currency union should go ahead on schedule on January 1st, 1999. It remains to be seen whether enough states will meet the Maastricht criteria, with doubts expressed about whether even Germany can keep its budget deficit below the 3 per cent ceiling.
For Irish policymakers there are two priorities. One is to ensure that we meet the Maastricht rules, which at the moment looks likely, though not certain. The second task, and one which has been largely ignored until very recently, is to ensure that policies are put in place which will allow the economy to continue to perform strongly once monetary union commences.
There are some signs that the crucial issues are beginning to be addressed. For example, the Minister for Trade, Mr Kenny, has announced the establishment of a new currency task force to examine the impact of exchange rate movements on companies and, through the work of the Trade Board and other agencies, help them to adjust. With currency volatility quite likely to continue right up to the final locking of currencies, this group could play an important role, although much of the onus will remain on companies themselves to adjust.
Even after monetary union, Irish industry could still face considerable swings on the currency markets if, as appears likely, we are members of the initial group moving to monetary union and Britain remains outside. Mr Kenny's currency group could usefully also consider this issue. Separately, the Minister for Finance, Mr Quinn, has indicated that his Department is going to look at the potential impact of the swings in sterling after monetary union.
A draft report from the National Economic and Social Council, reported in last week's Irish Times identified the risk of a sharp sterling depreciation after monetary union as one which policymakers and industry must get to grips with now, rather than waiting for it to happen. With an election in the offing, it is vital that this issue is now given the study it deserves, rather than being put on the back burner in favour of more pressing concerns.
The NESC report also points to the importance of competitiveness once we move inside monetary union. The Irish economy would effectively be irrevocably linked to the most productive economies in the EU, with all the challenges that implies. Competitiveness has improved significantly in recent years but much remains to be done.
The Government must also be careful that new policy measures directed at achieving other goals do not damage competitiveness. In this regard there has been much discussion of the working time Bill, which will again be debated by an Oireachtas committee this week. Clearly this Bill must strike a balance between protecting employees and maintaining competitiveness. Given the strong objections of important sections of industry, the Government should consider whether further changes to the proposed legislation would be appropriate.