"We are the first British government to declare for the principle of monetary union."

"If, in the end, a single currency is successful, and the economic case is clear and unambiguous, then the government believes Britain should be part of it."

"It is essential that the government and business prepare intensively dur- ing this parliament, so that Britain will be in a position to join a single currency, should we wish to, early in the next parliament."

- Britain's Chancellor of the Exchequer, 27th October, 1997

The recent statement by the chancellor, Mr Gordon Brown, has been interpreted as improving the prospects for British entry into the single currency and this, in turn, has prompted some commentators to urge that Ireland should wait and join with them.

It will be clear from the quotes above, however, that the statement leaves Britain's options very open. UK membership of EMU prior to 2002 was never a realistic prospect. It takes about two and a half years to produce the required volume of euro notes and coins, to make the necessary adjustments to bank computer systems and, above all, to prepare the public administrations. Even if a referendum could be held and won, say, in the middle of 1999, it follows that it would be 2002 before the UK banking system could offer euro services to customers similar to those which will be available in Ireland and the other `in' countries from January 1999.

If, as now appears likely, the UK referendum is held in 2001 after the next election, then it would, on the face of it, be 2004 before sterling could join. An earlier entry date would necessitate that government, banks and businesses would all begin to spend large sums of money in advance of the referendum. In all other countries the referendums were held and won before the preparations commenced. It is likely that a much more definitive statement from the UK government will be required before the banks, for example, start to spend the £2 to £3 billion needed to cover the information technology and other costs of conversion.

At this stage, UK membership prior to 2003 is difficult to envisage in the absence of an early election followed by a referendum. The bulk of the chancellor's statement was devoted to an analysis of five economic tests against which he measured the UK's current readiness for EMU and which, in turn, has prompted commentators here to attempt to similarly assess Ireland's prospects. We will now briefly examine each of them. "Our economic cycle is not in line with others. Although there should be some convergence, it is not yet safe to assume that it will be sufficient for some time."

It is easy to demonstrate that the UK business cycle is out of line with their European partners - UK interest rates are 7 per cent compared with little more than 3 per cent on the Continent. The real question, which is not addressed, is what will the situation be in the early part of the next century. Even more fundamentally, there is the question of whether economic cycles can ever be made convergent.

The UK will, for the foreseeable future, remain the only net oil exporter in the EU and will continue to react differently to shocks in this and other areas. Even if business convergence could be assured at one particular point in time it is likely that countries and cycles would diverge subsequently.

It was presumably for this reason that convergence of economic cycles does not figure as one of the convergence criteria in the Maastricht Treaty. The chancellor described this as the first and most critical test - if he means this then the prospects of the UK ever joining are slim.

Ireland, too appears to be out of synch with our European neighbours. Much of our growth is, however, due to population changes and other factors which have limited or no knock-on effects on inflation which remains low and shows no sign of accelerating.

"In the UK, persistent long-term unemployment, lack of skills and in some areas insufficient competition indicates insufficient flexibility to adapt to change and to meet the new challenges and adjustments that a single currency would bring." The treasury analysis which accompanied the chancellor's statement indicates, however, that the UK labour market is relatively flexible when compared with the rest of Europe and, indeed, long-term unemployment, which is used as a measure of flexibility, is below that in many European countries. The Irish labour market is also relatively flexible and this has been underlined by the recent surge in net immigration in response to our growth and the consequent demand for labour. It is not clear that inflexibility is a barrier to entry for either country

"In sum, the quantity and quality of UK investment should benefit from membership of a successful single currency." This is a fairly straightforward one though the chancellor nuances it by noting thatthe premature entry, ahead of durable and sustainable convergence, could prove damaging to investment. The moral for Ireland is that delay, along with the UK, would be harmful to investment.

"EMU offers benefits to the UK financial sector, whether the UK is in or out. But the benefits and the opportunities from the single currency will probably be easier to tap from within the euro zone."

This refers to the City of London. It is clear that London will do well whether the UK is in or out. The conclusion that it would fare better if the UK were to join is not surprising. The financial sector in Ireland, by contrast, is at the other end of the spectrum. It is clear that membership would be detrimental to it but this is one of the swings and roundabouts in a situation where membership is expected to yield an overall net benefit.

"Joining EMU undoubtedly has the potential to enhance both growth and employment prospects provided the UK economy is in a state to be able to meet the challenges that membership will bring."

This last, general, test receives a surprisingly positive response from the chancellor. He has not, however, attempted to quantify the benefits unlike our ESRI which concluded that there would be modest but positive net benefits from membership. The main reason for the modest nature of these benefits was the fairly extreme assumption that sterling would depreciate by 20 per cent over a short period. Recent policy initiatives in the UK and, indeed, the chancellor's statement make this much less likely and, in turn, the potential benefits from Irish membership correspondingly greater.

The economic considerations in both the UK and Ireland are, however, secondary to the underlying political motivations. UK political considerations dictate that early membership is not on; in Ireland the reverse is the case and the chancellor's statement does little to affect the balance of considerations regarding membership by us.

Pat McArdle is responsible for EMU Planning in Ulster Bank Markets. The views expressed in this article are personal.