Good morning ladies and gentlemen, and thank you to Lord Mayor Gifford for the invitation to address you here today.
I met the Lord Mayor here at the Mansion House last December, when he invited me to come back and address a gathering such as this. I am delighted that it has come to pass so soon. It is always a pleasure for me to be back in London.
I would also like to thank all of you who have taken time out to be here today. It gives me great pleasure to talk to such an accomplished audience, especially at a time when relations between Britain and Ireland are stronger than ever.
British – Irish Relations
Both our economies are closely tied in so many ways and we want this close relationship to continue and be built on for many generations to come.
Britain remains Ireland’s largest export destination and Ireland is the 5th largest recipient of British exports. While we have individual areas of expertise, when it comes to exports we have shared strengths in sectors such as financial and business services.
When I met Prime Minister Cameron here in London last March, we agreed a joint statement setting out how we see relations between our two countries strengthening and deepening over the coming decade.
We agreed an ambitious programme for cooperation. One year, almost to the day, a substantial programme of work has been developed and results are already crystallising in areas like cooperation in energy, tourism and enterprise support.
We have also jointly commissioned an independent study on the economic relationship to highlight areas where further cooperation and collaboration will bring advantages to both islands.
I look forward to meeting the Prime Minister again later today to review and assess progress with him, one year into our ten year programme.
By any standards, we are experiencing a phase of closer collaboration, the beginning of which was marked in many ways by the extraordinary visit of Queen Elizabeth to Ireland almost 2 years ago, shortly after my Government took office.
Economic Recovery
Reflecting on the period since, I am conscious that Ireland was in a very different place two years ago.
It has been a challenging time since, as we continue to tackle the many legacy problems which my government inherited. However I am glad to say we have made very significant progress towards getting Ireland back on track.
Ireland’s economy is gradually returning to growth and thankfully our deficit is on a downward trajectory. Investment levels, which are vital for growth and the creation of jobs, are also improving. Ireland’s gradual return to the markets is also a very welcome development, one we were concerned about this time last year.
Tackling our public finances has been a considerable challenge.
The actions we have taken have not been easy or pain free, far from it. However we are seeing clear results - our economy is growing - perhaps not as fast as we would like, but GDP has grown by 1.4% in 2011, by a projected 0.9% for 2012 and 1.5% in 2013. This is in contrast with many of our EU partners and a strong indication that Ireland’s economy is on the road to recovery.
Our exports are performing very strongly and this has helped ensure that Ireland’s balance of payments with the rest of the world is set to record a surplus for the third year in a row for 2012.
Ireland is now an exceptionally attractive location for investment. Competitiveness compared to our EU competitors has improved by over 20% since 2009. We are ranked by independent studies as the 2nd most attractive country globally for Foreign Direct Investment. We are ranked 1st in the eurozone for ease of doing business and 1st globally for the availability of skilled labour.
Developments in the Irish Banking Sector
The role of banks in causing the economic crisis, and the banking policies that are required for economic recovery, are – you should be aware – probably far more controversial in Ireland than it is even in this country.
Following years of reckless lending, Irish banks were bailed out at a cost of €64 billion to Irish taxpayers – equivalent to over 40% of GDP or €35,000 for every household in the country – and over ten times the cost of bank rescues in any other eurozone country.
If it hadn’t been for this uniquely onerous burden, Irish public debt levels would now be below the eurozone average.
This policy of socializing the costs of private failure was in the first instance the responsibility of the previous Irish Government but the error was compounded when the continuation of this policy became, in effect, a condition of the 2010 bail-out programme required by Brussels and Frankfurt, where there was fear that a bank failure in Ireland would unleash panic in the financial markets across the eurozone.
This debt now weighs heavily as Ireland seeks to fully re-enter the markets at sustainable interest rates.
A key priority for my Government has been to ease the bank debt burden on Irish taxpayers, and to clean up our banks so as to support economic recovery.
Within weeks of coming into office, we recapitalised and restructured our banks, reducing their number and putting in place new boards and management teams.
These measures have proved credible to international markets and domestic depositors, and have had the effect of stabilising our financial system and reversing the outflow of deposits and other funds that had crippled our economy.
We have taken some additional steps in recent weeks.
In January, the Government sold to private investors €1 billion of Contingent Capital notes in Bank of Ireland for a small profit.
In early, February we sold Irish-Life for €1.3 billion to Canadian life insurer Great-West Lifeco, again for a small profit.
In February also, Irish and Central Bank authorities reached agreement to liquidate the Irish Bank Resolution Corporation and to replace the promissory notes used to recapitalize this institution with long-term bonds, so as to dramatically reduce our market funding requirements until financial stability is fully restored.
The remaining Irish banks are diversifying their funding base and have significantly reduced reliance on ECB funding.
Market funding has increased by €3.9 billion in recent months while deposits in Irish banks increased by 4.8 per cent for the year ended January 2013.
Against this backdrop, in late February we announced the end of the Extended Liabilities Guarantee Scheme. This removes €73 billion of contingent liabilities from the taxpayer and marks a significant step in the normalisation of our banking system.
While we have made progress, more work remains to be done.
At European level, we need further assistance to reduce Irish taxpayers’ exposure to our banking system as we try to sustainability return to market financing.
Last June, the European Council resolved to create a banking union to break the vicious circle between the sovereign and banking debt crises in eurozone members and specifically committed to examine the situation of the Irish financial sector.
The work by EU member states, the ECB and the Commission on agreeing the Single Supervisory Mechanism (SSM) and the modalities of direct recapitalization of banks by the European Stability Mechanism (ESM) will be the next major steps in honouring this commitment.
The principle that there can be no shared European taxpayer responsibility for banks without shared control and supervision is reasonable. But the corollary must also be true; where the policy for dealing with bank failures was determined at European – and not national – level, so too must the burden of the legacy costs of those policies.
More work is also needed at the domestic level also to get Irish banks functioning well again and playing a bigger part in our economic recovery.
Irish banks need to accelerate the work-out of mortgage arrears and other non-performing loans, giving confidence to investors and visibility and hope to the tens of thousands of families and small businesses in debt difficulties.
There is also a need for the banks to further cut their own cost base as part of their return to profitability and private ownership.
And after a decade of a property boom and bust, there is a need for the banks to re-skill in order to improve their ability to lend prudently into the real economy.
In this way, by becoming part of the solution to our economic problems, rather than the cause, Irish banks have the capacity to rebuild their reputation at home and abroad.
Europe
Ireland and its future are closely connected to that of the European Union. It has been forty years since Ireland and Britain became members of the EU and 2013 marks a special year for Ireland as we now once again hold the Presidency.
Throughout the Irish Presidency the central themes are Stability, Jobs and Growth – themes which are committed to by Governments across Europe.
As we approach the half way point of our Presidency, we are broadly satisfied with the progress that we have made to date, and while the Irish Government faces a great deal of work during the second half of our term in office, we are looking forward to the challenge and to delivering results for Europe’s citizens.
There is an extensive EU Financial Services agenda for the Irish Presidency. From our own knowledge we know how the financial services sector works.
As we are aware a sufficiently-regulated and well-functioning financial sector is critical to Europe’s future economic growth. This is why making progress on the Banking Union proposals is a major priority for Ireland as Presidency.
In these negotiations, as Presidency, we have had to balance many different interests; the desire to limit bankers pay while maintaining a competitive European banking sector; the need to provide a single but sufficiently flexible rule book across Europe.
So far, we have been making good progress. The compromise package reached with the European Parliament on the Capital Requirements Directive received broad political support at ECOFIN last week.
The Irish Presidency hopes to make progress on outstanding technical issues in discussions with the Parliament over the coming weeks.
We have also seen progress made on the trilogue negotiations on the Single Supervisory Mechanism and on the Bank Resolution file. Intense efforts are continuing to reach agreement on key political issues.
We will review progress following this month’s Ecofin meeting and consider how best to complete the remaining work on these priorities and to progress the wider financial services agenda in the second half of the Presidency.
Financial Transactions Tax
A decision formally authorising enhanced cooperation in the area of financial transaction tax was adopted at the Ecofin meeting on 22 January 2013. A formal Commission proposal for a Directive implementing enhanced cooperation in this area was released on 14 February 2013.
Ireland will not be among the participating countries but will not stand in the way of those who want to introduce an FTT under the "enhanced co-operation" mechanism.
As EU Presidency we will act impartially when dealing with the concerns of the participating and non-participating countries. Given the lack of unanimity on the issues thus far, we must be cognisant of the sensitivities of all Member States.
We will facilitate the discussions and seek to engage in a careful balancing of the desire by the participating Member States to move ahead while respecting the concerns of the non-participating Member States.
I have already spoken about how we, in Ireland, are responding effectively to the financial, banking and Eurozone crisis. Through the range of measures adopted to get the Irish economy working again, we aim to show leadership in helping businesses grow and create jobs for our citizens. In pursuing these goals we also aim to help get the European economy back on track.
While Ireland’s future is closely tied to the EU, it is also closely connected to our nearest neighbours – here in Britain. Having the ability to work together within the European Union on the many issues on which we are of like mind - the single market, trade and so on – amplifies the impact of our excellent relationship generally.
We see the British relationship with the EU as being a two way relationship - Britain benefits from its membership of the EU, and the EU is better off with Britain as a leading member making a valued contribution.
Conclusion
Finally to conclude, I am firm in my view that the most troubled economic period is now behind us.
Ireland is determined to exit the EU-IMF Programme before the end of this year and recent outcomes such as the deal on the Promissory Notes and our phased returning to the bond markets have been met with positive responses from international markets.
I still stand firm on my ambition for Ireland to become the best small country in the world for business by 2016. It is an ambition I believe we will achieve.
As a nation we cannot become submissive to the challenges to be overcome or indeed the challenges that lay ahead – Ireland is still an exceptionally open economy and therefore more exposed than most to the ups and downs of the global economy.
However I am confident that our economy will continue to strengthen and grow. We are also committed to further empowering the excellent relationship and cooperation that we have with Britain to deliver the maximum possible benefits to citizens on both islands.
Thank you.
ENDS