Chairman, members of the Bundestag, distinguished guests, ladies and gentlemen, good evening.
It is a great pleasure to be here in this historic setting for today’s conference. I wish to thank the Stiftung Marktwirtschaft and the EU Commission Office in Germany for giving me the opportunity to address this Conference which takes place at an important time for Europe.
No other place in Europe symbolises better than this building our continent’s history and its promise for the future. As an Irish parliamentarian for more than 15 years in Ireland – in both our upper and lower houses – I have great interest in our sister parliaments, especially those with so much history like this. During the cold war, it stood alongside the forbidding Wall that divided Berlin, German and Europe. Today this building serves as an icon of a reunited Germany in what is, despite the economic tribulations of recent years, an increasingly united Europe.
For Ireland, membership of the European Union has over the past 38 years has provided great opportunities. It opened up new markets to us, made us a more attractive location for international investment, and gave us the chance to create a new set of relationships with our European neighbours, including Germany. Also, great benefits were provided for our people to travel, work and live throughout Europe.
We have benefited from the experience of membership and also made our own contribution to the evolution of European integration, especially during our six EU presidencies. None was more important than in 1990 when we presided over the EU at a time when German reunification was in the making. I would also mention that we are only 15 months from our next EU presidency and preparations are underway.
I speak to you this evening during a period when we are living in very difficult and very uncertain times. Short-comings in euro area economic governance during the first decade of monetary union have come back to haunt us all. There has been for some time now an atmosphere of heightened nervousness. But there are grounds for optimism and in Germany and Ireland, we need to reach for some good news rather than focus all the time on the bad news. And there is good news that I can report to you, both in Europe and in Ireland.
At a European level, I think we can all welcome what was achieved in the middle of the night in Brussels:
o An outcome on Greece that puts its debt back on a sustainable footing and enables it to start rebuilding its economy
o Making sure we have robust and secure firewalls to prevent contagion spreading from Greece – this as you can imagine was a fundamental point for Ireland; there is correct emphasis on Greece’s unique situation.
o Ensuring that Europe’s banks are on a sound footing – adequately capitalised and with access to funding
o Improving economic governance in the EU, especially in the eurozone, to make sure that when we recover we never again find ourselves in such difficulties
Finally, there was real focus on driving the growth agenda forward with a view to creating jobs for our citizens. As my Taoiseach / Prime Minister said in Brussels last night, the agreement allows us now to focus on the increased opportunities for jobs and jobs creation, business initiatives and getting people back to work. This was a major priority for him and no doubt for Germany as well. Indeed, it is our ultimate priority and one never to lose sight of.
So, this week and over the past eighteen months or so, wide-ranging improvements have taken place at a European level. Witness, for instance, the necessary governance framework that is being put in place, the strict financial regulation and the financial support mechanisms that have been established. Who would have envisaged such developments even two years ago?
Ireland in some respects provides a template for other vulnerable countries and proves that recovery is possible. I think the story of our recovery now underway should be of interest here in Germany – a partner and friend with whom we share the same economic principles of innovation, competitiveness and export-driven growth.
The good news developing in Ireland is specifically good for Germany too and in saying this I’ll limit myself to just one of our many economic statistics that is so encouraging – that of external trade. Irish exports to Germany so far this year are up 8% compared with the same period last year; good news for our exporters….while the news is even better for your exporters; their exports from Germany to Ireland are up 14%. While you’ll forgive me for preferring those figures to be the other way around - in our favour - this is proof of the value and potential our two countries offer to each other within the European single market.
Before proceeding any further, however, let me state clearly that in Ireland’s case, policy mistakes over a prolonged period of time did culminate in a loss of financial market access, and this is a source of considerable regret to all Irish citizens. The biggest of these mistakes was to put too much trust in the property sector as a driver of economic wellbeing. This reliance on property and construction had its roots in Ireland’s history and we tended to forget that sustainable success for an economy of our size requires that our national output can find markets in an increasingly global economic environment. We won’t forget this again.
Today, what I believe is generally accepted is that the Irish people – families, entrepreneurs, public servants, everyone - have responded in a determined and transparent manner to the challenges which have faced us. What’s more, 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.
In my remarks this evening, I would like to share with you the recent Irish experience, highlighting the key policy initiatives that are helping to restore credibility and to put our economy back on the road to recovery.
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, with exports of goods and services now well in excess of pre-crisis levels. This demonstrates that the improvement in competitiveness, which has been evident in recent years, is standing to us. This, I believe, 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 clear: economic growth is possible even with consolidation provided the exporting sector is sufficiently robust and competitive.
The public finances are on track…
Moving onto the public finances, where our deficit target for this year is on track, as reconfirmed by the EU-IMF-ECB Troika during their visit to Dublin last week. There is clear evidence that real progress is being made in terms of putting our public finances on a more sustainable path. So far, consolidation measures amounting to around 13 per cent of GDP have been implemented since mid-2008. Around two-thirds of this has been on the expenditure side; the remaining one-third has been on the revenue side, and has mostly taken the form of base-broadening. In other words, we are trying to keep marginal tax rates relatively consistent, in order to minimise the impact on the growth potential of the economy. So our approach to consolidation is in line with best international practice. We have made considerable reductions in public expenditure, including reducing the salary levels of public servants on two occasions and have also reduced social security payments and entitlements. These have not been easy decisions. Such decisions cause pain and are not popular, but we are doing the adjustment in a fashion of maintaining social cohesion.
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. We will shortly set out our medium-term fiscal consolidation path covering the period 2012 – 2015, in which we will also provide as much clarity as possible regarding future consolidation. Again, this is in line with best practice as it creates a greater level of certainty for decision-making in the private sector.
Tangible progress is being made in resolving the banking situation…
There are also clear signs of progress in resolving the problems in the banking sector, with the measures taken to date helping to rebuild international investor confidence in the Irish banking sector.
In a nutshell, what we are trying to do is to create a leaner, more resilient banking system centered around two domestic pillar banks whose primary focus is supporting economic recovery in Ireland. These pillar banks will also be assisted by the various foreign banks that continue to operate in the Irish economy.
In terms of resilience, a €24 billion recapitalisation of the banking sector took place in July of this year. And with this additional capital, Irish banks are now very well capitalised and capable of withstanding very distressed scenarios. Crucially, around one-third of this capital was sourced from the private sector, including through Liability Management Exercises with subordinated bondholders in the various banks, anticipated asset sales and the injection of private capital into one major bank. We see the private capital injection - completed successfully last week - as a clear vote of confidence in the Irish banking system and indeed in the future of the Irish economy.
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. Our experience has shown that at a European level, it is important to deliver a very credible approach to the markets. We have tested our banks to extreme scenarios and capitalised them accordingly.
Our programme is on track…
I think it’s fair to say that Ireland has built up significant credibility by now, both economically and politically. Our fiscal consolidation began as soon as difficulties began to emerge, long before the Troika arrived in Dublin. I represent a government elected in February of this year with a large majority and a strong programme through to 2016. Moreover, as we approach the first ‘anniversary’ of the external assistance programme, it is worth pointing out that 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.
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 on the EFSM facility, while the rate on the bilateral loan with the UK is being reduced. 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. We acknowledge the support and collegiality of our European partners in this regard.
Conclusion…
Ladies and gentlemen, yields on Irish government paper fell significantly in recent months after peaking during the summer. The message from this is unambiguous: having the necessary support of partners while pursuing clear, comprehensive, timely and credible policies that are consistently implemented deliver positive dividends. These do, I have to say, have to be underpinned by decisions at a European level that support and do not impede recovery.
We fully recognise, however, that we are not out of the woods yet. I will not deny that challenging times continue to lie ahead for Ireland as it does for Europe. We know that there are further sacrifices that will need to be made in the coming years. We have, however, shown a capacity to deal with our problems and a determination to overcome them. Overcome them we will, in doing so playing our part in the re-emergence of a Europe that is a strong, competitive player on the global economic stage.
Thank you.