I have been approached recently by numerous people aware of the less-than-positive attitude I have had towards economic and monetary union in the past and who congratulated me on getting it right.

There is a minority view out there that EMU has failed simply because the euro has weakened significantly on the exchanges since it was introduced in January. This is totally missing the point.

It will take at least a decade to find out if EMU has been a success or not and this will be primarily judged by the employment performance of the "euro zone" and not by the currency's performance.

In fact, as Paul Krugman pointed out recently in this newspaper, the exchange rate should be a peripheral concern for Euroland and not a test of virility.

This assertion makes lots of sense. Euroland is a pretty closed economy and the euro's value will only have a modest impact on economic activity.

Granted, the weaker euro is good news for Europe at the moment as it will enhance the price competitiveness of exports from the area.

But exports from the area are not that significant so the weaker currency will only have a modest impact on economic activity and imported inflation.

The level of domestic demand is of much more importance to activity in Euroland and this can only really be enhanced by looser fiscal policy (preferably lower corporate taxes rather than increased expenditure) and lower interest rates.

Both of these issues should be addressed in the coming months.

When the 11 separate currencies existed, exchange rates were a much more important issue for the authorities in the various countries and this was frequently reflected by the emphasis the Bundesbank placed on the value of the deutschmark when setting its interest rate policy.

However, this is no longer the case and the many companies that trade with companies in other Euroland countries are now enjoying the trading benefits associated with the new-found exchange rate certainty.

This was always going to be the major, if not the only real, economic benefit from EMU. It is somewhat unfortunate that the benefit of the exchange rate certainty is currently being more than offset by weak demand conditions.

Provided the correct policies are pursued, demand should eventually recover and then the exchange rate benefits will re-assert themselves.

From the Republic's perspective, sterling's strength has considerably diluted EMU's exchange rate benefits.

Sterling strength is clearly good news for Irish exporters to the UK, but many also import from that market and indeed UK imports in general are a very significant part of overall Irish purchases.

In 1997 for example, Irish exports to Great Britain and Northern Ireland totalled £38.66 billion, whereas imports totalled £38.96 billion.

So from an overall macro-economic point of view, the trend in sterling since the euro's introduction is not particularly helpful to the economy.

Sterling's performance also highlights the hazards of exchange rate forecasting and operating a company's treasury function.

There was a strong consensus at the beginning of the year that the currency would gradually fall in value with the year-end level expected to be about 95p to 98p against the pound.

This view was predicated on falling UK interest rates, a weakening UK economy and generally positive vibes towards the euro.

The first two factors have developed as expected in the first three months of the year. But as we know sentiment towards the euro has been dogged by a less than constructive political background and a subdued European growth performance.

The dollar has been the major beneficiary of negative sentiment towards the fledgling currency, and this dollar strength has lifted sterling in its wake.

When sterling was at 90p late last year, many Irish companies sold it forward in the expectation that it would weaken significantly during 1999. But at the time of going to press, the currency is trading just over 84p. While the UK unit is likely to remain strong and perhaps strengthen further over the next month or two, it should weaken later in the year.

Such a prognosis is based on a view that the dollar has much good news built into its price and the euro has much bad news.

The hope would be that with Lafontaine off the scene, German business confidence would gradually turn around over the coming months and later in the year the green shoots of recovery could emerge in Euroland.

Consequently, sellers of sterling might consider selling the currency forward again over the next month or two at levels under 84p or the euro equivalent.

Jim Power is chief economist at Bank of Ireland Treasury. The views expressed here are personal.