1. Introduction
I am delighted to speak to you this evening on the eve of your seminar on the Future of the Irish Economy and to welcome you all to Dublin. As a Minister in both the Department of Finance and the Department of Public Expenditure and Reform I welcome this opportunity to share with you what the Irish people have achieved in recent years and how the Irish Government sees the way forward for the economy over the period to 2020.
Ireland has come a long way over the last three years. During that very challenging period swift and decisive Government action was necessary, and resulted in great hardship for the people of Ireland. Programme entry gave Ireland the time and opportunity to manage the crises in a more measured and less drastic manner.
I salute the resoluteness of the Irish people and acknowledge their forbearance which has inspired and sustained me and colleagues in Government through the difficult international negotiations and decisions that have brought us to this point.
For example, the measures we have taken to correct our fiscal imbalances have been enormous by any standards, involving great sacrifice from the Irish people. Wages have fallen significantly for many and services have been cut and new charges introduced. Most acutely, unemployment and emigration have been a grim reality for many families.
These efforts and sacrifices have been recognised by international observers and this has been reflected in the reduction of around 10 percentage points in Irish bond yields - a fall that has facilitated our return to the market with bond issuances up to and including a ten-year maturity.
Last Tuesday we saw very healthy demand for ten-year Irish bonds in the successful issue by our Treasury Management Agency of a €3.75bn new 10 year Irish benchmark bond. This attracted in excess of €14bn of orders at a yield of 3.543% further underlining the continuing confidence of investors in Ireland.
The correction in Ireland’s underlying primary balance, projected to fall to 2.7% in 2013, is nearly 7 percentage points below its 2009 peak. The impact of our demonstrated commitment to meeting in full our deficit targets, as well as myriad other reforms and targets in the Troika support programme, have helped to restore trust in the Irish Government amongst our European partners and international observers.
2. Exiting the Troika Programme
Following a careful and thorough assessment of all available options, and broad consultation, the Government decided on 14 November to exit the EU/IMF programme without a pre-arranged backstop.
Our decision to exit without a pre-arranged backstop, while finely balanced, was the best option for Ireland because:
· Market and sovereign conditions are favourable, with the country returning to the markets in 2012, holding over €20 billion in cash reserves at year end (2013).
· Market confidence in Ireland is high as demonstrated by the aforementioned 10-year benchmark bond issuance.
· The public finances are under control; as reflected in our recent 2013 Exchequer figures;
· Our 2014 Budget targets a deficit of 4.8% and a primary surplus and the Government is committed to reducing the deficit to less than 3% in 2015 as well as putting the debt ratio on a downward path from this year on;
· Investors are assured by the comprehensive fiscal governance framework in Ireland and in Europe as well as from the ESM having been established and by last year’s statement of support from the ECB for the euro area;
· Domestic and international economic conditions are improving, monetary policy decisions are conducive to exit and confidence and sentiment towards Ireland has improved considerably in recent months.
We have demonstrated our commitment to getting our country back on track and exiting the programme. We have completed 290 programme actions, undergone 12 quarterly reviews, and will have drawn down €67.5 billion. Successful implementation paved the way for our exit.
3. Medium-Term Economic Strategy
The restoration of trust and goodwill towards Ireland has helped us to achieve important concessions from our international partners, including a lowering of the interest rate on our EU programme funding, the extension of maturities on lending and - most notably - the successful restructuring of the Promissory Note. Collectively, these reduce the repayment burden on Ireland and greatly reduce re-financing risk, decreasing our exposure to external stresses in the bond market over the medium term.
So it is clear the sacrifices and determination of the Irish people are bearing fruit. We can again look towards having the type of stable, productive and sustainable economy we all want to bequeath to the following generations.
While appropriate to acknowledge the progress made we remain acutely aware of the challenges that remain. We must not waste such hard-won progress.
Thus the Ministers for Finance and for Public Expenditure and Reform were tasked by Government to prepare a Medium-Term Economic Strategy for the post-Troika period. This Strategy, published before Christmas, underpins a range of policy efforts across the whole of Government. It serves to provide financial market stability to underpin consumer and business confidence, and ensure a focus on job creation. Its primary aims are:
(i) to ensure that the mistakes of the past are not repeated;
(ii) to set out a path for economic growth, from high unemployment to full employment;
(iii) to provide an overarching whole-of-Government strategy to which all other sectoral and horizontal policies and strategies are aligned; and
(iv) to identify new strategic priorities that will have the biggest impact on increasing the economy’s potential growth.
Making this a reality involves the Government adopting policies across several headings.
Priority objective of growing employment
The Strategy focuses on the priority objective of growing employment through further improvements in competitiveness and ensuring the unemployed are supported to take up new work opportunities. The overarching aim is to make Ireland the best small country in which to do business and to return to full employment. The key action areas to make this a reality are through creating an environment conducive to job creation and innovation; helping the unemployed back to work; meeting the future skill needs of the economy and increasing competition through better regulation.
Tax system
The Strategy will ensure the tax system meets the twofold objectives of funding the provision of efficient and targeted public services while encouraging well-balanced economic growth. To this end, a number of specific overriding guidelines and principles will be observed over the next seven years including: the avoidance of increases in income tax rates to the greatest extent possible consistent with meeting our fiscal obligations; ensuring that work pays and maintaining our steadfast commitment to the Corporate Tax rate of 12.5%.
Financing Growth
In relation to Financing Growth, the key Pillars and Strategies to achieve a well-financed Economy include completing the restructuring of the Irish banking sector and the restoration of public trust in and relationships between banks and their personal and business customers and strengthening its role in providing finance. In addition, the key intermediary and transmission roles of banks and encouraging activities in partnership with other financial institutions and technology companies will be reasserted.
Deleveraging of Household Debt
In relation to the need for deleveraging of household Debt the Strategy provides for full and swift implementation of the Government’s mortgage arrears strategy incorporating four distinct but interrelated areas – Personal Insolvency, a Mortgage Advisory Service, the Mortgage to Rent Scheme, and engagement with the Banks. More generally, the economic growth and increasing employment levels resulting from the Strategy will stabilise and increase household incomes to allow for deleveraging of excessive debt levels.
Non-Bank Funding
In relation to Non-Bank Funding the Strategy will promote and support initiatives to expand the number of lenders in the Irish market and to kick-start securitisation and aggregation of loan pools. It will also encourage private sector investment as the predominant source of seed capital, venture capital and growth funding as well as ensure that SMEs operating in Ireland can source funding to grow to scale leveraging capacities on stock markets locally and internationally.
Ireland Strategic Investment Fund / Supranational Banks
Following the enactment of legislation to put the Irish Strategic Investment Fund (ISIF) and NewERA on a statutory footing, additional financing will become available for SMEs and strategic infrastructure. Provided sufficiently competitive funding can be secured, this additional source of financing will be further developed to establish a Strategic Investment Bank tailored to meet the financing needs of a dynamic innovation orientated economy. A platform will also be developed to provide finance for the growth of the export sector.
Debt Restructuring
In relation to Debt Restructuring the Strategy will provide for an improved bankruptcy and corporate insolvency framework for companies with a reasonable prospect of survival, including providing easier
access to the courts. This should enable more viable businesses to restructure their debts and grow in the future. As well as this, it will introduce standardised debt restructuring options for SMEs and provide for an SME Equity Investment Fund to repair the balance sheets of viable but constrained businesses through a combination of equity investment and debt restructuring.
Infrastructure Project Pipeline
Under the Strategy the Government will continue to operate a multi-annual budgeting approach to infrastructure investment and publish 5-year Exchequer investment envelopes. A new infrastructure investment framework will be published in 2015 following a review of Exchequer infrastructure requirements. This will include consideration of the use of Public Private Partnerships as a delivery mechanism where appropriate.
4. European Developments
As we start a new year, it is opportune to take a look at the progress made in Europe over the last year. The year 2013 had a number of highlights in terms of Ireland’s relationships in the EU, not least our very successful Irish Presidency of the EU. Our Presidency programme was based around three pillars that are of crucial importance to all of us – “stability, jobs and growth”. We worked hard and we delivered on all three fronts.
In dossiers relating to the Economic and Financial Affairs Council, we achieved results across a range of financial services files including the Single Supervisory Mechanism, the Capital Requirements Directive (CRD IV) and the Bank Resolution and Recovery legislation.
On economic governance, we reached agreement with the European Parliament on the ‘Two Pack’ measures and ensured the effective operation of the European Semester.
On taxation we made progress, including on the fight against fraud and tax evasion, Financial Transactions Tax (FTT) and savings taxation.
And finally, we oversaw the smooth implementation of the annual EU budget processes and reached an agreement with the European Parliament on the Multi-annual Financial Framework (MFF).
In July, we passed the baton to our Lithuanian colleagues and we congratulate them on the work that they did and for their many achievements over the last six months. I would also like to extend our good wishes to our Greek colleagues as they commence their Presidency, the final part of our trio programme.
In the EU, we have learned lessons from the mistakes of the past. Now it is important that we give due recognition to the steps that we have taken to significantly reform the way we do business, particularly in terms of banking and economic governance.
We have come a long way in terms of the Banking Union project and we welcome that another step was taken just before Christmas when Ecofin agreed a general approach on the Single Resolution Mechanism. It is essential agreed political objectives are delivered and that the link between the sovereign and the banks is broken.
In terms of economic governance, great strides have also been taken. We now have a suite of new rules, introduced through the Six Pack, the Two Pack and the Treaty on Stability, Coordination and Governance. These new rules are being implemented through the European Semester process and are leading to improved decision-making which, in turn, should deliver a more robust Economic and Monetary Union.
We are already seeing the changes in the way policy is developed and implemented in the EU - the special meeting of the Eurogroup in November to discuss the draft budgetary plans of Member States was one very visible example of the advances made. Our task now is to ensure that these new processes are fully embedded into our national and EU systems in order to ensure that the desired and required results are delivered.
5. EU/euro area Economy
As many of you know, the exporting sector is a key source of growth for the Irish economy, especially at present when deleveraging and other headwinds will limit the scope for growth in domestic demand.
In this context, there appears to be light at the end of the tunnel. Economic activity in the UK - a key export market for Ireland, particularly in relation to the agri-food sector - continues to strengthen, with quarterly growth in third quarter of 0.8%, and other data for the final quarter have been reasonably encouraging. Across the Atlantic, the underlying growth dynamics in the US remain reasonably robust with the quarterly pace of GDP growth reaching 1.0% in the third quarter of last year.
In the euro area, growth rates moved back into positive territory in the second and third quarters of last year and the expectation is that activity is set to become more domestically-driven and more robust this year and next. That said, deleveraging, financial market fragmentation, and heightened uncertainty will continue to weigh on economic activity in the near-term.
Notwithstanding the improvement in key regions since the second quarter of last year, risks remain tilted to the downside. In the euro area, in particular, important challenges remain. Structural reforms are urgently needed, and while there has been substantial progress in recent years, further strengthening the architecture of the monetary union is required.
6. Conclusion
As a small open economy Ireland is more exposed than most countries to international economic conditions. We are at once buffered or propelled by economic developments in the UK, US or in our other trading partners. We cannot force a more rapid European pace of recovery. What we can do and must ensure is that, when the prevailing international headwinds abate – as appears to be the case in the UK and US – Ireland will be well-positioned to benefit from the international upturn.
I hope my remarks have given you an appreciation of the substantial progress that Ireland has made and how we are positioning ourselves for significant and, crucially, sustainable economic growth into the future.
In conclusion I thank the European Commission for organising tomorrow’s seminar, one which I trust will provoke stimulating and valuable discussion and deliberation.
Thank you.