Irish membership of EMU could bring more unemployment unless the labour market becomes more flexible, a director of the Irish Business and Employers Confederation (IBEC) has said

Mr Turlough O'Sullivan, speaking at the European regional congress of the International Industrial Relations Association, said, while EMU would reduce inflation and interest rates, it would also increase competition for Irish firms as foreign companies would be able to operate more easily in the Irish market.

He said if Britain remained outside EMU, it would seriously impinge on Irish competitiveness.

"What we gain on the swings of opportunity, expansion and diversification, we will lose on the roundabout of our trade dependency on the British market," Mr O'Sullivan said.

He added that local economic slowdowns could no longer be dealt with by local monetary policies, and only in a limited way "by local fiscal measures".

Once monetary union starts, interest rates will be set centrally by the European Central Bank and budgetary policy will have to comply with EU rules.

This has led to warnings from IBEC and some economists that the economy will have to be much more flexible once we join monetary union as Irish policy makers will no longer be able to adjust interest rates in try to influence the overall level of economic activity.

Meanwhile, a new poll shows a majority of business leaders favour joining European economic and monetary union (EMU) on January 1st, 1999. A survey by Reuters of leading Irish business people and analysts showed that almost all believed the pound to be undervalued.

The survey, conducted last week, showed that those in favour of joining in the first wave of a EMU outweighed those against by more than two-to-one.

Of the 17 who replied to the poll, 14 said they thought the pound was undervalued and three said it was currently trading at a sustainable rate.

Six of the 17 thought the government would revalue the currency within the European exchange rate mechanism. Their predictions for the size and timing of the revaluation ranged up to 10 per cent by the middle of next year.

"Assuming monetary union goes ahead, the Republic cannot afford to remain outside, particularly in view of the open nature of our economy, our peripheral location and the significant level of multinational company investment in Ireland," said Mr Ray Gray, head of EMU services, Price Waterhouse Ireland.