Thank you, Brendan, for your warm introduction and thank you to everyone at the IIEA for organising today’s timely discussion.
I have for long been aware of the Institute’s excellent research work, while of course events like this bring people together and offer the opportunity for some high-quality debate. It is every politician’s duty – but above all every government’s duty – to take time to listen to the views of others and to be open to ideas at all times. This is even more the case when talking about Europe, especially these days with events moving so fast.
I have been Minister for Finance now for almost 8 months, with the honour of representing this country internationally at EU and other multilateral economic fora. I’ve had a keen interest in Europe throughout my career and even prior to entering government last March, I had my own network of contacts in Europe including those made through my party and the EPP. As you can imagine, I have found changes in the culture of the Council of Ministers since last there in the 1990s – the relative informality of the Eurogroup with its members on first-name terms, the increasingly central role of Heads of State or government, the Commission under some pressure and of course the total dominance of economic and financial issues at the top of the EU agenda.
Today, I will naturally concentrate some time on the agreement reached by Heads of State or Government in Brussels last week and on next steps. We are to some extent still in crisis management mode and the focus remains – a little too much, at times – on tomorrow’s markets and tomorrow’s newspaper columns. I might also speak, therefore, about where we are and where we want Ireland and the EU to end up when the dust settles, as we need it to do. I will speak too about how the government has already reformed Ireland’s engagement with Europe as we seek to rebuild our reputation with our partners. We have the 2013 Irish EU Presidency coming up; that too provides a context in which to enhance our standing.
On last week’s agreement in Brussels, I see it as a quantum leap forward and not just yet another instalment. The threats - of further downgrades, of contagion, of credit events and all they would bring – were real and immediate.
What the Taoiseach and his colleagues agreed is familiar to all of you and can be summarised as follows:
· Restoring stability to Greece and developing a firewall around its unique situation;
· Recapitalising Europe’s banks;
· Increasing the firepower of the euro area’s stability fund through leveraging;
· Enhancing economic growth though structural reforms;
· Improved economic governance.
Growth was an area where both I and the Taoiseach intervened at our respective meetings to ensure it was placed at the core of any recovery strategy. We ensured focus on the Single Market and targeted use of existing instruments or entities like the EIB. This is, in the end of the day, about sustainable jobs for our people; nothing more, nothing less.
While political and market reactions were good after the recent summit, there were inevitably those crying “not enough” and so on. And over the weekend we heard of developments from Greece and the proposal for a referendum there. Any Irish politician would be wary of commenting on a possible referendum in another Member State; I would keep my comments in general terms only by saying that what has been needed - and is still needed - is a return to stability, certainty and the avoidance of contagion. We’re all in this together; we’re all attached to the same rope, as I’ve said before. That being said, we are not the same as Greece. We are resolutely facing the challenges and taking decisive action.
Throughout the current crisis, many of the strengths and advantages of the euro have been overlooked. It should be remembered that, since its introduction, the euro has increased trade by 50%, controlled inflation and allowed for the deepening of a successful internal market across the EU.
Ireland and its people have built up significant credibility by now with our European partners, both economically and politically. As we approach the one-year mark in terms of the external assistance, successive quarterly reviews have concluded that programme implementation in Ireland is strong. Ireland is delivering and this has not gone un-noticed in financial markets. We need this to happen to return to those markets and regain full economic sovereignty.
As we all know, policy mistakes were made over a prolonged period of time which resulted in a loss of financial market access. However, the Irish people – families, entrepreneurs, public servants, everyone - have all made sacrifices and responded in a determined and transparent manner to the challenges which now face us. I believe that it is becoming increasingly clear that the policies that we in Ireland have put in place are now bearing fruit; this is perhaps most evident from the improvement in market sentiment towards Ireland in recent months. So, in this sense, the case of Ireland demonstrates that countries experiencing financial market access difficulties need to address their own structural problems if they wish to eventually stand on their own two feet. As Charles de Gaulle once said, “Faced with crisis, a man of character falls back on himself. He imposes his own stamp of action, takes responsibility for it, makes it his own”.
While there are very considerable challenges to be faced, both domestically and internationally, we are taking steps to put our economy back on track. Turning firstly to the macro-economic situation, the latest figures show that GDP increased by 1.6 per cent in the second quarter of this year. This follows on from a relatively robust expansion in the first quarter – so the Irish economy is growing once again.
The external sector is leading the recovery. This demonstrates that the improvement in competitiveness, which has been evident in recent years, is yielding results. This demonstrates the inherent flexibility of the Irish economy – prices and costs in Ireland have fallen significantly, and further improvements are in the pipeline. The strong export performance also means that our balance of payments with the rest of the world moved into surplus last year for the first time in over a decade. The lesson from this is that economic growth is possible even with consolidation, provided the exporting sector is sufficiently robust and competitive.
Our public finances are improving with our deficit target for this year on track, as reconfirmed by the EU-IMF-ECB Troika during their visit to Dublin two weeks ago. There is clear evidence that real progress is being made in terms of putting our public finances on a more sustainable path.
For next year, the agreed target is for a further reduction in the deficit to no more than 8.6 per cent of GDP and we are committed to implementing the necessary level of consolidation to ensure that this is achieved. Tomorrow, I will set out our medium-term fiscal consolidation path covering the period 2012 – 2015, in which we will chart the path to future consolidation.
EU-wide banking issues were prominent in recent weeks. We are making progress in resolving the problems in our banking sector, with the measures taken to date helping to rebuild international investor confidence in the Irish banking sector.
In terms of resilience, Irish banks are now very well capitalised and capable of withstanding very distressed scenarios. Progress with regard to restructuring has been significant in recent months. This has involved not only mergers – which are necessary to create the two pillar banks – but also progress on an improved governance framework at the banks.
At the same time, the programme of asset deleveraging is underway, with significant progress expected to be made this year, notwithstanding the difficult environment in international financial markets. In this context, I think it is important to stress that more than 80 per cent of the assets to be disposed of the Irish banking system by end-2013 are located outside of Ireland.
Overall, we are fixing our banking system despite the colossal scale of its problems in proportion to our economy as a whole. Some of the decisions which we have had to make are not very palatable but we have to restore confidence in our banking system and in the broader economy. The practices that went on in the banks are unacceptable and we are all paying the price. We will ensure, through enhanced oversight and improved governance that such events cannot be allowed happen again.
I would note that the recent European Banking Authority capital exercise showed that Irish banks do not need additional capital under the higher standard now required following the recent Euro summit. This outcome reinforces the robust and conservative nature of our PCAR exercise in March of this year. The robustness of PCAR has resulted in €1.7 billion of private sector investment in Bank of Ireland and Irish banks accessing approximately €5.6 billion of wholesale funding from international market participants.
In addition, the cost of external financial assistance is also moving in the right direction. As you know, Heads of State or Government in the euro area last July agreed that the cost of the EFSF facility to beneficiary countries should be close to funding costs. Agreement has also been
reached to reduce the margin to zero on the EFSM facility. In addition, changes are being implemented to both the EFSF and EFSM to allow for longer loan maturities, which will be beneficial from a cash-flow perspective.
All of these developments are having a positive impact; both directly – through lowering the cost of external financial assistance – and indirectly – by helping reassure markets that Ireland remains on a sustainable path. I take this opportunity to acknowledge the support and collegiality of our European partners in this regard.
All of this is familiar to members and supporters of this Institute and we can discuss it a little more during the Q&A session. Before we do, I might reflect somewhat on where the Taoiseach, I and our colleagues in government wish to position Ireland in the European Union. I could dwell on what went wrong before and whose fault that might have been - but I won’t; our focus is on now and on the future.
As some of you are aware, government management of European affairs has been re-organised, just as management of economic issues has been re-organised. We have the Economic Management Council consisting of the Taoiseach, Tánaiste, myself and Minister Howlin. It meets weekly and European issues are on its agenda at every meeting. Since the summer, EU co-ordination staff in the Taoiseach’s department and in the Department of Foreign Affairs & Trade have been effectively merged into one unit reporting to the Taoiseach, the Tánaiste and the whole of government. The bulk of the staff in this unit are seconded from the Department of Foreign Affairs, while I have also agreed with the Tánaiste that some diplomats are seconded to my department’s EU team as well. These complement the economic expertise available to me and add to our existing EU networks, while - in a joined-up way – we are now making better use of Ireland’s network of Embassies across Europe in getting our recovery message out while gathering valuable intelligence to inform our strategy.
For my part, while we already know each other well by now I intend to formally visit my colleagues in London and Berlin in the near future; I visited Paris before the summer and have met other many colleagues here in Dublin and elsewhere. I will also be in close contact other key interlocutors and institutions such as the European Parliament and the Commission. These are the bigger players in the Union but I would stress that the government sees the Union as one of 27 Member States, big and small, in which 17 share the same currency.
Ladies and gentlemen, when it comes to European Affairs this is a joined-up government leading a joined-up Irish public administration, focused on positive engagement with our European partners. Our job is of course to defend Ireland’s interests – but to defend them effectively, we need to understand better the viewpoint of others, even when we disagree with them. We need to listen as well as speak – this is a traditional hallmark of Irish engagement internationally and will be needed especially as we approach our 2013 EU Presidency.
In conclusion, let me say that events like this are just as much about listening as speaking. Ronald Reagan sometimes began his speeches by joking “before I refuse to take your questions, I have an opening statement….”. I’ve made my opening statement, but please be assured I am happy to take questions
Thank you.