THE FRENCH PROTOCOL

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In 1978/9 Ireland joined the European Monetary System and its component the Exchange Rate Mechanism. This involved pegging the Irish Punt to a central European rate of exchange but within certain margins of fluctuation.

This was a big move for Ireland. Apart from imposing a currency discipline which could be costly to the country, it also involved breaking the traditional parity link with sterling as the UK had opted not to join the system at that point.

At EU level, Ireland negotiated a compensation package involving grants, and subsidies on the interest rates on loans from the European Investment Bank (EIB). At the time, drawing down these subsidies was not a problem as we were borrowing heavily from the EIB in any case. The subsidies came from the EU budget and we succeed in capitalising them, allowing us to draw them down in full at the commencement of each loan. This only proved a problem in later years when the State was rationalising (and fully automating) its loan portfolio. But that is another story.

This centralised EU assistance was augmented by some bilateral arrangements negotiated in the course of a tour of capitals by the relevant officer in the Department of Finance.

One of his major achievements was to negotiate a concessionary financing package with the French. This involved a combination of French State and Development Agency loans. The State loans were, if I remember correctly, at about 4%, way below commercial rates at the time, while the balance was at commercial rates. The package was split 40% State and 60% Agency. The net effect of the combined package was a significant subsidy. The principal condition attaching to the loans was that they be spent on additional French goods. The additional bit meant that an order for Dauphin helicopters could not be used to draw down the loans as that order was already in the pipeline.

Anyway the officer concerned was complimented all round on his negotiating skills and on screwing concessional funding out of the parsimonious French. The arrangement became known as the French Protocol. I would not be surprised to see mention of it on the officer's tombstone.

It was many years later, when I was in the section and pursuing purchase of French goods that the French man I was dealing with suggested that the French themselves could provide financing for the purchases. And out of his back pocket he produced a suggested financing arrangement. The French Protocol to a T. Apparently, it was a standard financing arrangement offered by the French to all and sundry. So much for our great EMS coup.

But, deflated and all as we felt, this was not the end of the story.

It subsequently emerged that, contrary to the conditions envisaged under our French Protocol, we had only been drawing down the 4% State loans and had not drawn down any at commercial rates. However, as we were approaching the end of the period and it would have been difficult for both sides to organise a flurry of loans at commercial rates and find relevant purchases to draw them down, it was decided to call time on the French Protocol.

And the moral of the story?

He who laughs last, laughs longest.