The Government is under intense pressure this weekend to signal the rate at which it wants the pound to enter monetary union. Senior EU officials, members of the Monetary Committee drawn from finance ministries and central banks, have been called at short notice to an emergency meeting today to discuss the Greek drachma's entry to the exchange rate mechanism (ERM).
Whether the pound should be revalued to allow it to enter monetary union at a higher rate is also to be discussed.
The European Commission is believed to be using the surprise meeting to invite any other states seeking a realignment of their currency's value to do so. Sources have indicated that the pound and the Portuguese escudo are both on the agenda of the meeting.
Both currencies have been trading at rates significantly higher than their official "central" rates in the ERM would suggest.
It is unclear, however, whether the Government will take the opportunity to order a revaluation of the pound, and senior sources were last night playing down the likelihood of such a move. A spokeswoman for the Department of Finance declined to comment.
The weekend meeting, called to allow the Greek currency to enter monetary union, most likely at a devalued rate, will be seen as Ireland's last chance to order a revaluation, which would allow the pound to enter the single currency at a higher rate.
If such a move does not materialise, the pound will meet significant selling pressure on Monday, as the markets will assume that questions about our entry level have been resolved. The current central rate is DM2.41, while the most likely option following a revaluation would be DM2.50.
The Irish Congress of Trade Unions, Fine Gael and the Labour Party have all called for the pound to enter monetary union at the higher level.
Such a move would increase the value of Irish people's wages when compared to other EU workers. It would also go some way to head off the inflationary threat of a weak pound.
Those who argue for the current rate to remain say it is important that the economy be as competitive as possible when entering the single currency. It is also the preferred option of farmers and exporters.
The Central Bank yesterday predicted a sharp fall in interest rates once entry levels had been decided. There is currently a 2.9 percentage point gap between Irish and German rates, which will have to be closed by the end of the year.
The Bank's assistant director-general, Dr Michael Casey, insisted that rate cuts are up to the money markets. As the markets speculated that a realignment could be on the way, serious buying of the pound emerged in London. More than £350 million was bought over a couple of hours in the afternoon. The pound rose to DM2.5040 from DM2.4823, and to 82.50p sterling from 81.96p.
According to Mr Jim Power, chief economist at Bank of Ireland, the recent strength of sterling where it is close to DM3.05 would have added pressure for a revaluation. "I think the odds for a revaluation have increased to 25 per cent from 10 per cent just a two weeks ago," he said.