What I have been asked to talk about is Irish economic recovery in a European context. I hope you don’t think I am being rude when I say that there is a level of redundancy in the title – there can be no Irish economic recovery
except in a European context.
I am not going to spend time talking about how we got here, we all know the story. I will talk about what is being done and what needs to be done to move us into a real growth trajectory. It is somewhat of a balancing act because the government is operating in a number of different timelines – we have a lot to do to deal with the legacy of the past few years, systematically and as quickly as possible; we also have to live in the present because schools still need to be built, hospitals run and a social welfare system operated efficiently and fairly. At the same time we need to plan for the future, because we need to drive growth and foster the conditions to create jobs.
The Government does not create jobs – entrepreneurs and businesses do. However, if we are going to address the jobs crisis, every part of Government and society must turn its attention to the no. 1 priority of creating employment.
All of the actions that we have taken since coming into office have focused on developing the conditions which will support the creation of jobs across all regions of the country.
We are working to restore sustainability to the public finances. We are on target on that, and we are on target to meet all the objectives which were laid on us as part of the Troika agreements. It is crucial that we do this, because it is crucial that we stabilise our debt to GDP ratio. Current estimates are that this will peak in about 2013 and then reduce. It is essential that this happens, because so much of our tax revenue is currently going on debt servicing, which leaves much less for public services for citizens.
Domestic demand remains a real problem, because households are paying-down high debts accumulated during the boom and, inevitably, precautionary savings remain high in a very uncertain environment. Lending institutions working with clients to deal with distressed mortgages is taking place, even if it is painfully slow. The new bankruptcy legislation will also lead to a quicker resolution for those who find themselves with an unsustainable personal debt level.
There are two ways to reduce the debt to GDP ratio – one is to pay down debt, which will always be essential. The other of course is to grow GDP. That GDP growth is what will bring us increased revenues, reduced unemployment and greater opportunities for young Irish people, so many of which are now leaving the country.
There is no doubt that the economy is poised for growth. Tourism is improving and according to Bord Bia, food and drink exports in 2011 were up 25% by volume. We also know from the IDA that a record number of new investments were won in 2011. I found particularly interesting a talk given recently by Danny McCoy of IBEC about the strengths of industry in this country. He sees a potential for growth in the economy equal in some cases to what we saw in the late ‘nineties. We have the elements needed for growth and most of them are falling into place. Last week’s growth figures were good – we grew our economy for the first time since 2007. We know that confidence was affected throughout the Eurozone towards the end of last year, which affected our ability to export.
Interesting, too, is the recent NESC report on Promoting Economic Recovery and Employment in Ireland. It makes clear that there are many policy steps still necessary to build up our growth and our employment. But it does describe an industrial sector which has responded with amazing agility to the crisis. Companies are actively seeking new opportunities, but in a way which shows great flexibility. They are seeking out networks, and asking open-ended questions: it is focused on what opportunities and markets are available, not on how to do more of the same. NESC makes clear that this is a challenge to the state and state-agencies to respond appropriately and flexibly enough.
It is within the European context that these changes need to take place. The Europe 2020 programme is central to the planning which we will be undertaking in enterprise policy. This objective is fully in keeping with the EU’s Europe 2020 strategy which is all about developing a smart, sustainable and inclusive economy. This will be dependent on constantly improving competitiveness and productivity. But the targets for Europe 2020 are coherent and aim to improve more than just industrial policy. They are a range of interlinked objectives which define a healthy society as well as economy: they include high levels of employment, a commitment to Research and Development, a real improvement in how we produce and use energy, keeping more young people in education and for longer and at least 20 million people fewer at risk of poverty and social exclusion.
The European Union has recently found a way to structure the necessary on-going discussions about policy coordination. With its normal ability to find a snappy phrase, it calls this the European Semester. It means that the EU and the euro zone will coordinate ex ante their budgetary and economic policies, in line with both the Stability and Growth Pact and the Europe 2020 strategy. This idea of the European Semester means that there is a standard calendar for deliberation and for decision making, so that from year to year progress can be monitored.
The most recent European Council earlier this month undertook a number of priorities for 2012. At this level too, the European Council is operating in both the present and the future: its objectives are to work on financial stability and fiscal consolidation as well as working to bring forward policies which will foster growth, competitiveness and employment.
To drive growth, in particular for a country with a domestic market of only 4.5 million consumers, the full value of the European Single Market must be leveraged. It is a market of 500 million, with all the benefits that can bring. Ireland can be one of the principal beneficiaries of the Single Market, so we have a real interest in ensuring its success.
The current programme for policy measures to enhance the Single Market are all currently in sectors in which Ireland has a particular interest. The Digital Single Market is top of the agenda with proposals to make on-line trading more secure from a consumer point of view, improving the availability of high-speed broadband and dealing with the issues of copyright.
Ireland, as I say, is so well placed to benefit from these policy measures being implemented, which underlines yet again the fact that the Single Market is one the EU’s real success stories. It is something which Ireland needs to do all it can to support and promote, because we are among the big winners from it.
Ireland is rebuilding its competitiveness and reprioritising trade and investment. Our policies
are complementary to and inter connected with the Europe 2020 strategy, completion of the Single Market, Europe’s external competitiveness and industrial policies.
As a small player we need to attract different forms of investment from global players. Therefore, continued success in export markets is crucial to the long-term growth of Irish business and the Irish economy. It is essential to pursue open and free trade and to avoid protectionist tendencies. In that regard, the need to accelerate and finalise the Union's negotiations on Free Trade Agreements is a priority and especially trade related agreements with strategic partners. The EU – US Jobs and Growth agenda is an exciting project to increase productivity and to recharge and revitalise the economies on both shores of the Atlantic to our mutual advantage. Europe’s Digital Agenda should be a part of this.
We should not fear free trade and the purging of protectionism – we should embrace it.
All of this brings me back to the central theme of our discussion – Irish economic recovery in the European context. There is no doubt; Europe will never be the same again. We have been through a bruising few years and not just in Ireland. Internationally and in Europe in particular things went wrong in a way which was far more fundamental than rogue North American banks going out of business. Almost every country in Europe was seduced by the availability of cheap money and cheap imports from an emerging China. Ireland was an extreme case, but many European countries lost competitiveness and this had a significant impact on their fiscal position.
The European Stability Treaty is the clear recognition that the initial construction of the euro was flawed. It is worth looking at are the flaws in the project from its inception. We spoke about European Monetary Union, but we didn’t have it. We had monetary union but not economic union. The Stability and Growth Pact, contained in the Treaty of Maastricht, laid down strict rules of budgetary discipline to be observed. These rules were immediately broken – and not by small countries but by both France and Germany. The lack of supporting structures were recognised, including by its architect Jacques Delors, but nothing was done about it.
The Treaty says in its Article 1 that its objective is to strengthen the “economic pillar of the Economic
and Monetary Union”. It will do that by coordinating economic policies and improving governance of the euro area. There has been already so much written and said about the Treaty, but I wonder sometimes whether any of the commentators have read this first article.
It is essential that we move on to a real monetary union. I have no doubt that the final step in this process is some sort of Eurobond and I think it is essential. But in getting to this stage, we need to ensure that the governance of the Eurozone is improved.
Each member of the Eurozone has already given significant powers to the European Commission to review its budgetary policy, in the context of the recent establishment of the different support funds. We need more of this: we need a monetary and economic union which is marked by accountability and transparency. We must ensure that the rules of the Eurozone, including the rules contained in the Fiscal Compact, are observed in the future.
The rules about budget deficit are not for Ireland now, but for when we have exited from the current programme, as overseen by the Troika. It makes real sense for us to commit ourselves to no more budget imbalances – on the clear condition that the other members do the same. Passing the Treaty will mean confidence returning, both for the Eurozone as a whole and for Ireland.
This is a Treaty that will contribute to our recovery, that will ensure economic stability for our country and our currency and that will contribute to the restoration of confidence in Ireland as a good and secure place in which to invest and do business.
It is also about future security, ensuring we have a source of funding available at all times. We are determined to re-enter the markets; this is our insurance policy as if we ratify the Treaty we have access to the European Stability Mechanism.
On a broader note, if we agree to more co-ordination, more oversight from the European Commission and more discussion with our fellow member states, we also need to improve the political context in which this is taking place.
Decision making in the European Union happens across too many levels, it is so complicated that it is virtually incomprehensible. The Union comes across as a bad-tempered continuous meeting of twenty-seven different voices. But as I mentioned already in discussing the single market – if that is all that was there, it is inconceivable that we could have achieved so much. We have monetary union, a single market for goods and services, a common foreign and security policy and joint institutions. But we need to look at these institutions and test whether they have stood up to the demands placed on them.
I would argue that we need institutions which are much more accessible to the citizen and more responsive: and I don’t mean more websites and Q and As. I mean institutions with which the citizen can identify such as a directly elected President. I mean an institutional arrangement so that it is possible to know who does what. Kissinger’s famous problem still remains “if there is an emergency, who in Europe do you phone?” I mean a European Parliament whose members are seen much more in their own constituencies and who are not engaged in what seem to be inter-institutional power struggles in Brussels and Strasbourg, and whose method of working is less technocratic and more political.
The particular genius of the European Union so far has been to define institutions in which the smaller countries are not overwhelmed by the larger. We need to cherish and maintain that strength, but at the same time we need to build on what has been achieved and use the networks which are the result of fifty years – since the Treaty of Rome – of conversation, meetings and trust building. We need to be less nationally oriented, less cautious. The European experience has been good for everyone who took part in it. We have all given up something, but what has been gained has been much greater – and this applies to everyone who participates. There will be an Irish recovery, but it will be very fragile unless it is part of a European relaunch as well.
This will not happen overnight. It will require bold decisions and strong leadership. I am happy to recognise that European leaders have finally begun to grapple with the crisis over the last six months. What is now imperative is that political leaders now focus on leading Europe beyond the crisis to a position where we have a strong, competitive economy across the Union which will underwrite a robust and fair social system.
There is no easy way to get there. There is no magic solution. Utopia, by its very nature, will always be in the future and those who advocate it are not living in reality. Allow me to return to Dr. Kissinger who said:
“Accepting the limits of one’s capacity is one of the true tests of statesmanship; it implies a judgement of the possible. Philosophers are responsible to their intuition. Statesmen are judged by their ability to sustain their concept over time.” This Government deals with the possible, not the fanciful, as demonstrated by the better deal we negotiated on our programme last summer, saving the state over €10 billion. And demonstrated by today’s announcement that that €3.06 billion promissory note instalment due this weekend could be settled by the delivery of a long term Irish Government Bond.
Ladies and Gentlemen, the European project has been sustained and strengthened since the Treaty of Rome in 1953 and it will continue to evolve and benefit us all. Ireland’s economy, Ireland’s society and the Irish way of life are intrinsically tied to our European neighbours. We can only rebuild our economy – and importantly strengthen our society – in the European context, with those neighbours.
Thank you.