Central bank chief says Ireland ready for Euro

Author: Carmel Linnane (Reuters Magazine

Date: July/August 1998

Maurice O’Connell, the last governor of a sovereign Irish central bank, says Ireland’s economy is in good shape to take on European economic and monetary union (EMU).

“There is never a best time for anything but the Irish economy is in good shape,” O’Connell said in a recent interview. He acknowledged that the state was at a different stage in its economic cycle to its EMU peers and that was a concern.

Central Bank Governor Maurice O’Connell:
“All our words, thoughts and actions are in euro.”

O’Connell, 62, a quiet-spoken Kerryman, will preside over the abolition of the Irish pound and the introduction of the euro to Ireland.

The dark-grey suited O’Connell sat with his back to a panoramic view of central Dublin on the fourth floor of the central bank of Ireland. The Bank was well advanced in its preparations for a single currency, he said. “We are ready to move over to the euro. All our words, thoughts and actions are in euro.”

A former classics student, O’Connell is Ireland’s most senior representative within the new European Central Bank (ECB). A member of the monetary committee, he said the 17-strong ECB team has met for years and gotten to know each other well.

He acknowledged the move to the ECB would be a big change in that he must broaden his focus to encompass Europe and not just Ireland in policy.

He said Irish banks would find gains and losses in entering a single currency. “Losses from transactions in foreign exchange business may not be that great initially because sterling and the dollar are not joining the euro and they would account for 70 percent of the trade.”

Once inside a single currency O’Connell said the same primary issues will dominate. “We will continue to target price stability,” he said.

“Back home it (EMU) has its fiscal implications for the economy and the economy as always has to take account of that,” he added.

O’Connell has repeatedly urged the Irish government to maintain a tight fiscal policy and has warned of the threat of overheating in Ireland’s booming economy. Official figures showed Ireland’s growth rate at 9.5 percent in 1997 and forecasts for 1998 range from 10 to 12 percent growth.

Irish inflation, benign in recent years, started ticking up in the last few months and is forecast to average 2.9 percent by the year end. O’Connell, under pressure to bring Ireland’s high interest rates into line with core Europe before 1999, has been reluctant to make the necessary cuts in case they trigger inflationary pressures.

Ireland’s interest rates are about three percent over equivalent German rates. “We have stated over several months that we would prefer to hold off as long as possible on interest rate cuts,” he said. “We make our decisions on interest rates on the conditions that are prevailing at that time and on that basis we have decided to hold for the moment.”

Asked what was the benefit from holding off interest rate cuts, he said: “The object is to do what we think is right for now and let’s worry about the future later.”

O’Connell said if Ireland was not going into EMU the direction for interest rate moves would be up not down, given the state of the Irish economy.

He was more sanguine about the fact that Britain, Ireland’s closest trading neighbour, was not going into EMU in round one. “We would prefer if sterling was part of the euro currency but it is not and it is not our call,” he said.