Yesterday's worrying news on manufactured goods price inflation shows that the economy is now at a point where clear Government leadership is needed. As the Asian contagion grips the stock markets, the Government must act to limit uncertainty with a clear statement of medium-term economic and monetary policy.

Mr McCreevy has so far failed to deal adequately with a wide range of issues, all requiring urgent attention. In the first instance, the Government must agree with the social partners some kind of "shock absorbers" for the economy to deal with any turbulence arising in the operation of the euro.

Once the pound-euro exchange rate is locked, we will, in effect, already be in the euro. The change-over of the currencies will be a complex administrative function, stretching over the next few years. But in economic terms the euro will arrive at the latest in May, when the rates are locked between our pound and the euro. Once that happens we will have to be ready to face pressures for which economic shock absorbers may be necessary.

These pressures may be exceptional. In the past 30 years Ireland's normal growth pattern has diverged greatly from that of the continent. A study of the period 1960-1993 shows only a 0.20 correlation between Irish and average European growth patterns, as against 0.63 correlation for Britain and 0.91 correlation for France.

So our economy could have different needs to some of the other participants in the euro. Our business cycle might differ. We are also vulnerable to different external shocks.

One shock we might face could be a falling sterling, following a falling dollar downwards. There are difficulties in Asia, and the United States sends one-third of its exports to East Asia. This could bring the dollar, and then sterling, downwards shortly after the Irish pound had been locked into the euro.

The failure to take steps to cushion our economy against sterling volatility is politically serious because the impact of any divergence between sterling and the euro will be felt most acutely in Border areas. Once the euro starts, the Border between the Republic and the North, and the German/Danish border, will be the only two remaining currency land borders in Western Europe.

Ireland is a small open economy depending, more than others, on foreign investment to create and maintain jobs. The current crisis in South East Asia could, for example, impact on the investment plans of US companies. Ireland would be more vulnerable to this than most euro countries.

If we are to protect our record levels of job creation, we must have a shock absorber to spread the impact of any downturn through a system of wage flexibility, which would also reward wage earners when things are going well. Otherwise the entire shock of any downturn would be absorbed through redundancies in a few exposed sectors.

Such a system, incorporating profit-sharing, was negotiated by the last government in Programme 2000. The present Government has done nothing to advance these structural changes.

We also need to develop a system of financing housing that does not accentuate shocks to household income when the going gets rough and interest rates go up. Home ownership has been an achievable aspiration for most Irish families over the last five decades. Proportionally, twice as many Irish families as German families own their own homes.

But, on average, Irish householders have four to five times as much debt as their German counterparts, and most of the debt is at variable interest rates. Irish firms also tend to borrow more often at variable rates of interest whereas German firms tend to fund themselves through fixed rate bonds. This makes Ireland much more vulnerable to interest rate changes. House prices in urban areas are continuing to spiral to a stage where couples on average incomes can no longer afford a house - or if they can it will involve up to three hours commuting each day.

As EMU approaches, interest rates are expected to fall by a further 2 per cent. Unless housing supply is increased, this will convert directly into increases in house prices, which will benefit those fortunate enough to invest in property but will kill the dream of home ownership for many. The Government has promised action - but the housing market has passed this promise by. There was no initiative in the Budget to help first-time buyers; indeed it seems the Government has no policy in this key area.

The Minister for Finance must also state clearly that he will not allow our currency to drift aimlessly downward in a way that will worsen the inflationary pressures that are already being fuelled by spiralling house prices and mistaken budgetary policies. We expect government, and not speculators, to determine our exchange rate. It is time for the Minister to state the factors which are influencing his decision on the rate at which we should enter the euro. The Minister's only policy at present seems to be to say or do nothing. As the currency weakens, especially against sterling and the dollar, we can see the impact in higher prices in the shops. We need to know what policy factors the Government is considering.

The Minister should state what his target exchange rate of the pound and the euro is. As Michael Noonan has suggested, he should also seek to have all these EMU rates fixed in the next month at Council of Ministers level. We cannot afford to wait until May, as currently planned, giving speculators a field day.

Bank charges will also become a big political issue in the early years of the euro. In practice the pound and the euro will be operating in parallel for a while, and people will need to be able to change cash freely from one form into another. If banks impose a charge each time this happens, this could be exceptionally oppressive for households. The Government should make it clear that it will not allow banks to impose charges for changes from the euro to the pound, and vice-versa.

We must also recognise that the transfer to the euro is logistically a very difficult operation for everyone who deals in money. Big investments of time and equipment will be necessary. It has to be undertaken at the same time that computer programmes have to be adjusted for the year 2000. The Government needs to give a strong lead to small business on this, setting out the steps that have to be taken and estimating the amount of money and time that will have to be set aside. The Government cannot be a spectator in this process. We are indeed going to join the euro. That is not in question. It was decided at Maastricht by the then government. What is lacking, however, is coherent economic policy and logistical follow-up by the Government, of the kind that could give real confidence.

Economic and Monetary Union is in the final analysis a political project. It is happening because of political will. Its purpose is to bind Europe's countries so closely together that they will never again come into conflict with one another, as they did so disastrously twice this century. It is right that Ireland should participate in this vital project. As the euro's only English-speaking member, we will have tremendous job opportunities in financial services. We will attract new investments too.

But we must recognise that political unity of purpose will be vital if the euro is to work. Countries will not be able to dine a la carte at the European table anymore. Europe needs to develop political institutions that have sufficient democratic legitimacy to demand sacrifices of European peoples and to mobilise them for a common cause. The United States, the world's other great and successful currency union, has strong federal political institutions. Europe has yet to develop in that direction, but it will have to do so.

John Bruton is leader of Fine Gael