UK uncertainty sharpens need to `be prepared'

Businesses have been promised a world of currency stability and low interest rates once monetary union starts. But in the run up to the single currency, corporate planners are having a hard time. Not even the most farsighted of corporate treasurers could have foreseen that reports late last week of a changing British attitude to EMU would send sterling tumbling and the Irish pound with it. Any Irish business which decided early last week to hold off from buying deutschmarks or French francs until this week will be counting the cost. In the meantime, the value of the pound has fallen by some 10 pfennigs, or 3.5 per cent. Corporate treasurers will gladly forego the opportunity to take on the dealers and play the markets, in return for the certainties of a single EU currency. And if Britain looks like joining a single currency, then so much the better. But will it? British ministers have spent the weekend scurrying about trying to play down reports that their attitude to monetary union is warming and they have denied outright the prospect of a snap referendum to seek the approval of the British people. Perhaps the British government is warming towards monetary union. It's perhaps a bit too cynical to suggest the latest reports are part of a plot to get British business off the Labour government's back by engineering sterling's market decline.

Tony Blair may indeed want to appear a "good European" in advance of Britain's presidency of the EU in the first half of next year. But having left it too late to join the single currency with the first group on January 1st, 1999, the Blair government will surely not move to seek support from the British people for membership until the project is successfully up and running. This suggests that Irish companies would do well to bank on volatility against sterling continuing both in the run up to the creation of the single currency and for some time thereafter.

That's the bad news. The good news is that with the pound having fallen so sharply against the other EU currencies, it is now at a value not far from where the Government may happily lock it in to monetary union. So volatility against the core EU currencies may become less extreme, unless sterling takes another dive. And provided the whole project remains on track, industry should start to benefit from early next year - at the latest - from lower interest rates.

But business also has some other important responsibilities in the move to monetary union. On the opposite page Donal Forde of AIB writes of the key operational issues facing companies across the State in managing the transition to monetary union. But business must also play a role in tackling other key issues. Put simply, monetary union will impose a whole new range of demands on industry and the economy. Ireland will increasingly become integrated as part of a European market in which interest rate and currency policy is set from Frankfurt and the national budget is monitored from Brussels. This will require new modes of operation at national level in terms of the budget and wage setting policy, and at the level of the firm. And it will mean that the recent improvements in productivity must be built on to allow Irish business a basis to continue prospering. In the past, currency depreciation or a change in interest rates, were ways of helping Irish business to adjust, when the going got tough. From January 1st, 1999, these tools will no longer be available.

It is up to businesses to start considering the implications of this and to start making noise at national level to try to get the Government to address life inside the single currency. Up to now, our policy-makers have been happy that we will qualify for the European team, but have done little to consider whether we have the game to prosper thereafter.