Good morning everyone,
I’m delighted to start my programme here in London with an event hosted by our friends in Bloomberg. I’m not just starting this morning with Bloomberg; indeed, I start many days with Bloomberg television whose coverage is always excellent. I very much welcome the chance to discuss Ireland, Europe and other issues with a group such as this from British, Irish and foreign media.
I have been Minister for Finance for the past 10 months, following the election of a new government which enjoys a strong majority and a strong mandate. Since taking office in February this year I, as Minster for Finance, and my colleagues in Government have set about implementing our plan to restore confidence and growth and in the Irish economy.
This plan is designed to provide clarity and certainty to Irish citizens and the international community. From the outset I would like to be clear that this plan is designed to ensure that we meet our targets, we return to growth and we leave the EU/IMF programme and return to the markets at the earliest opportunity.
As the year draws to an end I would like to talk to you today about two key steps in this process - Budget 2012 and the Restructuring of the Banking Sector - the progress that has been made in 2011 and the challenges and opportunities that lie ahead for Ireland in 2012 and later years.
I would also like to talk to you today about Europe and the steps that have been agreed at last weeks summit to tackle the eurozone crisis; although i do think it is a pity that the agreement is not at an EU 27 level. Regardless of what each of us here today think about the outcome, we all agree and understand the importance for individuals, Countries, Europe and indeed the entire world of developing and delivering a credible plan to solve the current crisis.
IRISH ECONOMY
Many of you are familiar with our story so I might focus on what’s new in recent times. In comparison to recent years, 2011 has been a relatively successful year for Ireland. The story of Ireland as 2011 draws to a close is one of a country growing again, with political stability provided by a government with a large majority and economic stability and certainty. Our programme is on track and in some areas ahead of target.
Despite the uncertainty in the eurozone and the global economy, for the first time since 2007 the Irish Economy is forecast to return to growth in 2011. This gradual recovery is forecast to continue into 2012 and subsequent years.
We are making competitiveness gains fast while last year saw the first current account surplus since 1999.
This growth is driven primarily by the exporting sector. As a small open economy Ireland has had to adapt quickly and positively to the severe economic downturn. Our recovery is export-led, and on the back of increases in export levels of 9.4% in 2010 and an estimated 5% increase in 2011, exports are at record levels. The pharmaceuticals, software, financial services, business services and food sectors all performing especially well.
The tourism sector grew also in 2011 also with the number of overseas trips to Ireland increasing by 9.4% to 1,948,800 in the period May to July 2011. Ireland has a world class product to offer overseas visitors and we anticipate that this level of growth will continue into 2012.
The Irish economy is one of the most open in the world. Exports account for over 100% of GDP compared to just 40% in the euro area and we have the third highest trade surplus in the European Union. This means that the economy is better placed to withstand the contractionary effects of budgetary consolidation. However, it also means we have a heightened interest in the performance of our trading partners in Europe and across the world. This is why we needed immediate action at last week’s summit to deal with the instability that affects the Euro zone.
While there are many positive performances in key sectors in the Economy, I am fully aware of the challenges that lie ahead for Ireland or for Europe and the World. In my time in politics, I’ve see too many recessions and I know very well what the scale of the challenge is this time. Extremely challenging and tough times lie ahead for Ireland as we continue to close the gap between our income and our expenditure and to restore confidence in Ireland’s fiscal position.
As you are all well aware, our international obligation under the EU/IMF Programme of Financial Support and under the Stability and Growth pack require us to make measurable progress in reducing the budget deficit.
Ireland’s path to sustainable recovery is set out clearly in our medium-term fiscal statement which envisages further budgetary adjustment amounting to a total of 12.4 bn over four years. This level of adjustment will cut our deficit to under 3% by 2015, in line with our commitments. However, let me be clear that this adjustment will be introduced in a manner which limits the negative impact on economic growth as far as is possible.
We anticipate that our gross government debt will peak at around 119% of GDP in 2013 and decline thereafter.The decision, taken earlier this year to re-examine the pricing structures of the European funding mechanisms was both welcome and significant since it enhances our sustainability as well as our prospects for growth
Budget 2012, which I presented last week, amounts to a 3.8bn of the required adjustment (over 30% of the required adjustment by 2015) and will see our deficit to GDP ratio reduce to 8.6% in line with commitments. The package includes tax and spending measures which will involve fiscal consolidation worth almost 2.4% of GDP next year. Taking account of Budget 2012, Ireland has implemented tough austerity measures equivalent to around 15½% of GDP since 2008.
The adoption of the budget by a large parliamentary majority demonstrated the new Government’s strong political mandate to restore order to our public finances. It showed we continue to honour the commitments made to our funding partners in the European Union and the IMF and it sent out a strong message to the financial markets that we are determined to stick to the plan.
SUPPORTING INVESTMENT
However, Budget 2012 was not just about fiscal contraction. The budget, aimed at restoring confidence, re-building our economy and providing stability and certainty to investors who continue to invest so strongly in Ireland and Europe. I am fully aware that our 12.5% tax rate and our place in Europe are central to the attractiveness of Ireland for investors.
As part of Budget 2012 I included a number of key elements to further promote international trade, attract inward investment and assist companies to develop into new and emerging markets.
As you are aware Ireland construction and development sector has gone from boom to bust over the last few years with disastrous consequences. All successful economies have a strong construction and development sector. In order to attract inward investment into the Irish construction sector I have reduced stamp duty to a flat rate of 2% on all commercial property and introduced a capital gains tax incentive that runs until 2013.
Ireland is already one year into a three year funding programme agreed with the European Union and the IMF. We have met all of our targets. Our programme is working and is allowing us to take the necessary structural reforms that will underpin future growth prospects. The solidarity shown by our funding partners including the UK has been – and will continue to be – crucial to our progress. It gives us the time and space we need to prepare for our return to the financial markets.
BANKING
I don’t think I need to tell you the extent to which the Irish banking sector was gripped by a crisis, the repercussions of which we still feel. One of my first major tasks the new Government faced was the restructuring of the Irish banking sector. In short we adopted a strategic approach to achieve the aim of creating a banking system that will meet our needs.
Today, I might give you a sense of where we now are in that journey towards creating a banking system that is appropriate to the future needs of the Irish economy.
To save time, I might point you towards a detailed presentation called "Irish Banking Landscape – Moving Forward" available on the Irish Department of Finance website. This outlines in some detail the steps we have taken in the last six months to move in a determined way to put our banking sector back on a stable footing. The central aim of this is to support the growth of the Irish economy and the corporate market – both large and small.
The first building block of this approach relates to bank board Renewals and Mergers.
The second task we set ourselves was that of recapitalization, the cost of which to the State reduced to €16.5 billion while still delivering the €24 billion required by PCAR. As many of you know, the residual amounts were provided by liabilities management exercises for subordinated debt and the successful sale of Bank of Ireland equity to a consortium of international investors.
The third task relates to deleveraging, with the banks set deleveraging targets by reference to a 122.5% loans to deposits ratio.
Our fourth priority relates to the funding and liquidity position of the banks.
Through focus on the implementation of these steps together with a new supervisory framework, we aim to establish sustainable banks that can survive and prosper without the need for ongoing State support. Weaning the banks off State support will take time of course and will require improved profitability and market access. At the same time, we have to ensure that credit is available to the business sector, SMEs and consumers – all of whom will be an important source of future growth. The two pillar banks have been set ambitious lending tarts of 3bn each this year, 3.5bn each in 2012 and 3.5bn each in 2014.
I understand there has been some concern in the financial community here in London and beyond regarding Ireland and the question of debt relief. I might take the opportunity to cover this issue. I would stress that there is no question whatsoever about our sovereign signature.
At present there are very important discussions taking place within the European Union on the "compact fiscal pact". Ireland has been looking to discuss, with its partners, how we can review the significant progress that has been made on the banking sector and, indeed, how that progress maybe reinforced.
It is important to remember that Ireland has committed to ensure that there is no PSI for the Irish senior bank paper or Irish sovereign debt. This commitment has been agreed with the EU-IMF Troika and is now the basis on which Ireland’s future financing strategy is built. While the cost to the Irish taxpayer has been and will remain significant, the Irish government recognizes the need to work as part of the Eurozone in order to ensure a return to the funding markets in the future.
In the light of developments over the past week, as well as recognizing the Irish taxpayers’ burden, as you will be aware there have been initial discussions around options that could be considered to underpin the future stability of the Irish banking system. What this involves is a means to lower the funding of the recapitalisation of the Irish banks between now and 2030, not "debt relief" on bonds issued by the Irish government to the market.
LAST WEEK’S EUROPEAN SUMMITS
Later this morning I look forward to meet my colleague Chancellor Osborne at Number 11 Downing Street. Ireland and the Britain are neighbours, important trading partners and fellow members of the European Union. 2011 has been a great year for our bilateral relations, with the historic visit to Ireland by Queen Elizabeth, accompanied by Prime Minister Cameron and I look forward to this relationship continuing in the years ahead. So, as a friend of this country, I would simply say that it was a pity that what was agreed last week in Brussels did not enjoy the support of all 27 EU Member States. Whatever about that particular debate - which is a matter for the government here in London – my focus and most people’s was on the more immediate elements to the package agreed by EU leaders last week.
I suspect the good elements were lost in all the debate about treaties, so I might draw your attention to them again
the increased firewall through the €200 billion made available via the IMF,
the bringing forward of the ESM and -
something particularly welcome from my point of view – greater clarity regarding Private Sector Involvement / PSI.
These are significant steps and there have been welcome steps from the key players beyond EU governments - above all, the co-ordinated actions by central banks and the ECB’s new longer-term facilities for the banking sector. I would add that the global dimension was also reflected in the very helpful engagement of Secretary Geithner during his visits around Europe last week.
Market reactions this week so far have been mixed. I was particularly taken by one analyst who was quoted as saying "this summit deal is not enough to live with…but it is not enough to die from either". The agreement of course isn’t 100% perfect. No-one’s ever going to be 100% happy when a group of nation states hammers out a compromise, but what we have is in many ways better than many have presented it to be.
We have to turn back to doing real business, real trade and work on real growth and recovery in the real economy. If we do that and the wider European and governance issues settle down, the financial community can get its confidence back and money should start moving again in a way which it’s meant to, to the people it’s meant to go to.
CONCLUSION
I want to allow some time for Questions & Answers so I might conclude now. Overall we are determined, as a nation, to grow our way out of the current situation. The Irish economy has grown in 2011 after three consecutive years of decline. Positive signals are beginning to emerge, particularly in the export sector.
The budget which I introduced last week sends a clear signal to investors that Ireland is continuing to take appropriate corrective measures, while also trying to achieve an appropriate balance in terms of assisting the return to economic growth that we are now beginning to see. There are three more tough budgets ahead. Unfortunately such measures are not without pain for Irish people but the Irish people are all playing their part in restoring our economy.
My key message to you is that we want to move out of the EU/IMF programme and return to the markets at the earliest opportunity. Subject to market conditions, the NTMA plans to position itself to step up issuance at the short-end (i.e. treasury bills/commercial paper) in the second half of 2012. Ideally, and if market conditions allowed, the NTMA would hope to follow this up later in the year with some longer-term issuance, once market access has been demonstrated. Full re-entry to the bond market would be targeted by mid-2013.
We are doing what’s needed at home. The challenge for European leaders is to put in place the policies we urgently need to restore confidence in the euro and put all member states, large and small, on a stable trajectory towards growth and prosperity. It is an opportunity we must now grasp and I intend that Ireland will give Europe its first success story as the recessionary cycle moves back in the right direction.
Thank you.