merrion street

Ladies and Gentlemen:

I am very pleased to speak to you today at the Financial Services Ireland Annual Members’ Lunch. The Financial Services Industry is a key industry in Ireland and this is an annual event that I am also very happy to attend. Within my Department, the Financial Services Division makes up about 25% of staff and it is often not realised the amount of work that is dedicated to this sector – not to mention the work of the Regulator and the Enterprise Agencies. As you will be aware over the past 6 months I have had the honour to Chair the ECOFIN council as part of the Irish Presidency. In our Presidency, we made significant progress in particular on the Financial Service folios, brokering agreement on eleven key financial services files – a return of one or two files would be considered as normal. In particular we brokered significant breakthroughs on the major banking union files – CRD IV, Single Supervisory Mechanism and Banking Recovery & Resolution.

Delivering on a successful presidency was a key priority for us and the work and dedication of the team in the Department of Finance – both in Dublin & Brussels - the Central Bank and other Departments ensured that we delivered. However, as the Presidency is now over, I would like to talk to you about the other key priorities we set ourselves this year and the challenges we face over the next six months to deliver on these objectives.

Rebuilding the Economy

The first priority was to continue with the re-building of the economy. The economy returned to growth in 2011, continued to grow in 2012 and my Department are forecasting continued growth in 2013. In my two Budgets I introduced a number of sector specific initiatives to support this recovery and I am pleased to say that we are starting to see a number of these bearing fruit. Take the commercial property sector for example, recent reports show activity in the first half of this year surpassing transaction in 12 months of 2012. Interestingly, over 50% of the investment is international money coming into the country. We have also just seen the launch of Ireland’s first REIT and I would expect more activity in this area in the years ahead. This is welcome and is supported by Capital Gains Tax incentives in Budget 2012 and the legislation underpinning REITs introduced in Finance Bill 2013

The tourism sector is also benefitting from the reduced rate of VAT on tourism products and services and also the Gathering, which is drawing visitors, with the best numbers for January to May in five years.

Looking at your own sector, there is no doubt that the Financial Services Industry is a key contributor to Ireland’s economic recovery and a major employer in the State. The industry already employs approximately 33,000 people throughout Ireland in 500 separate companies and contributes over €1 billion to the Exchequer in corporation and payroll taxes.

Jobs are the key barometer for this Government. It is clear that your industry, like many industries, is going through a period of transition. On the traditional banking front we have unfortunately seen the announcement of significant restructuring, most recently this week in Ulster Bank. On the positive side, we have had recent announcements by Zurich, BNP Paribus, OmniPay and I myself recently had the pleasure of attending an announcement of 800 new jobs by Capita in Dublin in May.

This mirrors what is also happening in the broader labour market. The ultimate challenge is sustaining and creating jobs. There is a transition ongoing across the economy and we must work to ensure nobody is left behind. Yesterday’s live register figures and the recent employment numbers for the first quarter show that we are making progress on this front. The standardised unemployment rate stood at 13.6% in June this year and this is a three-year low and down from a high of 15.1%. The most recent employment numbers show that 20,000 additional people were at work in quarter one 2013 compared with the same period last year. Looking deeper into the numbers, the private sector is adding about 2,000 jobs per month. However, the unemployment numbers remain unacceptably high, much more work is required and we will continue to prioritise jobs creation across all our policies, including the Action Plan for Jobs.

We have targeted an increase of 10,000 employees in the International Financial Services Centre by 2016. Given the skills of employees working in the Irish banks, there should be opportunities for employees of these banks in the International Financial Services sector.

We continue to take measures to support job creation in the industry. Just this week proposals that enable the Central Bank to consider applications from non-EU credit institutions to operate in Ireland on a branch basis were passed by the Dáil this morning.

This allows the Central Bank to authorise a branch of a third country credit institution where the parent credit institution is subject to authorisation and supervisory rules broadly equivalent to those in the State, and where any depositors have protections similar to that offered under the EU deposit guarantee regime.

There have been discussions already between the IDA and non-EU banks that have indicated a strong interest in opening new businesses in Ireland on this basis, with the associated employment dividend.

However, while many sectors are showing real signs of recovery and growth, the most recent GDP figures from the CSO, while only one set of numbers, highlight the scale of the challenge economy wide. As a small, exporting economy we are reliant on growth in our customer countries.

This growth is not yet where we need it to be, and growth in Europe remains particularly sluggish. Nevertheless, there are grounds for optimism and I am pleased to see the latest positive US economic developments. As our friends across the Atlantic today celebrate their independence day today, they do so in an economy that is showing real signs of sustainable growth. For example, in June, US consumer confidence reached its highest level since January 2008, while GDP growth continued in the first quarter of this year at an annualised rate of 1.8 per cent.

This is good news for Ireland as US firms have played an important part in our recovery, with the relative strength in our services exports due in a large part to the growth in US firms here.

In addition, economic conditions in our other major trading partners are expected to improve in the second half of this year. There are tentative signs of this; the latest euro area business confidence indicator rose to a 16-month high in June, and the UK business confidence indicator rose to its highest level in over two years.

Fiscal Position

Restoring order to the public finance is a necessary pre-condition for growth and recovery. In Ireland we are both tackling the debt and tackling the deficit. This has required significant sacrifices from the Irish people.

However, stable public finances are necessary to build international confidence. Taxation and expenditure measures – such as the local property tax and the Haddington road agreement - also reinforce our international image as a mature democracy in which it is safe to invest.

The gap between the income and expenditure of the state is narrowing and we are on track to meet our Budget targets. Tax receipts are continually growing and are becoming solid, stable and not reliant on property based transaction taxes as was the case in the past. The expenditure side of the house is also in good position with Brendan Howlin’s Department reporting that 15 out the 16 Departments are operating within their Budget for this first six months of the year.

As in any business the ability to set out and deliver upon a plan builds confidence and attracts investment. This is what we are doing here – setting out the plan and delivering each year. This consistency builds confidence. Investors are investing again and the yield on Government bonds has recently returned to levels not seen since before the economic crisis. This renewed confidence is also evident in the return of Irish Life to private sector ownership and the recovery of €1 billion of the taxpayers’ investment in Bank of Ireland following sizeable investor interest

We must continue to narrow the gap in our public finances and deliver on our plan. We have a difficult Budget coming up in October. However, once delivered we will be within touching distance of the 3% deficit target and the days of massive Budget adjustments will be behind us.

On the debt side, the first six months of the year we have successfully reduced the NTMA’s funding requirement by €40 billion through the promissory notes deal and the extension of the maturities on our EFSF and EFSM loans. These were major achievements and have dramatically changed our debt profile over the next decade.

My focus is now turning to the ESM and the possibility of using it to retrospectively recapitalise the Irish Banks. By this I mean generating a return to the taxpayer from their investment in AIB, Bank of Ireland and Permanent TSB. The operating framework for the ESM was agreed a fortnight ago in Brussels and through tough negotiation and perseverance we managed to secure a commitment to examine the possibility of retroactive recapitalisation on a case by case basis. This opens up opportunities for Ireland that I intend to fully explore and the objective is to move the Irish debt closer to the EU Average.

Returning to the Markets

Looking forward, focus in the later part of the year will move to making a full return to the markets and exit from the EU/IMF programme. The success of the NTMA earlier in the year in issuing medium and long term bonds puts is in a good position to make a full return. However, as we have seen in the past we are susceptible to shocks elsewhere in the Eurozone and we must ensure that the proper protection is in place to deal with such shocks. Over the last number of months we have open initial discussions with the Troika on the type of supports that may be available post programme.

Conclusion…

So to conclude, I think that we are making real and tangible progress on a number of fronts. There are many challenges remaining but I am confident that we will succeed. A key milestone will be the full return to the financial markets and an exit from the EU/IMF programme. Difficult decisions have been taken and these have helped re-position our economy on a more sustainable, export-led growth path. These difficult decisions are now beginning to bear fruit, as evidenced by two successive years of modest growth. This has begun to have a positive impact on the labour market and as the recovery gains momentum we can expect further positive dividends, including in the labour market.

I thank you for your invitation, and I would like to re-emphasise the priority I place on engaging with the financial services sector on an ongoing basis. Engagement is a two way process and I believe there is great potential for growth and development in your industry. I hope the industry will play its key role in dealing with the problems of the past and overcoming the challenges of the future.