Address by the Tánaiste to the Luxembourg Business Federation (FEDIL)

Speech

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 Address by the Tánaiste to the Luxembourg Business Federation (FEDIL)

23 January 2014

“Ireland’s Path to Recovery”

Prime Minister, Excellencies, Distinguished Guests,

Sincere thanks to you, Mr. Chairman, and to FEDIL for inviting me to speak at your 2014 New Year’s Reception.  

It is a great honour to be present this evening at such a prestigious occasion, and an even greater honour for me to speak to you about Ireland’s path to economic recovery.  

This is my first visit to Luxembourg since the outcome of your election in October, I would like to extend my best wishes to Prime Minister Bettel and his new Government.  I had the privilege of meeting the Prime Minister earlier this afternoon for a very substantive exchange.  You have set out an ambitious, exciting Government Programme and I wish you well as you begin. We look forward to working closely with you as an EU partner and as a country which shares not just a perspective on the future of the European Project, but as two countries with such clearly shared vested interests in the success of the current European endeavour.

This is a challenging time to be in office.  In Ireland we know that more than most.  Let’s ensure that we continue to work closely together to achieve more than we could ever achieve alone.

Early response to crisis

To properly introduce you to the story of Ireland’s Path to Recovery, I will start at the point when my colleagues and I from the Labour and Fine Gael parties – in what you would call a Social Democrat/Christian Democrat coalition - entered Government in March 2011. 

Everyone here will recall how bad things were in early 2011: all of Europe was affected, but Ireland particularly so.

The Irish banking system was broken, and unemployment was soaring close to 15%. 

When the new Irish Government was formed, there was only five months’ funding left to pay for public services, for wages, and for pensions.  We had money to keep the schools open until June, but not to re-open them come September.   We had no choice but to work the EU / IMF Troika programme and all that went with it.

It was very clear: we had to fix the problem. Ignoring it or prolonging it was not an option.  This was our challenge on taking office.

The solution was to work within the programme, but to change it – driving ahead with crucial reforms and putting in place a growth agenda.

Early on, we restructured the banking system. We re-negotiated the interest rate and term of the programme loans.  We ended the guarantee for the banking system, liquidated the most notorious bank – the Anglo Irish bank - and restructured the debt we had incurred in rescuing investors in that bank- the infamous promissory note arrangement. We negotiated a reduction of €10 billion in our debt and of €40 billion in our funding needs. 

Ireland’s reputation

The other early but critical step we took on Ireland’s Path to Recovery was a major campaign to repair Ireland’s reputation abroad, both in European capitals and further afield – the importance of which cannot be overstated.  The work of convincing investors and political leaders in other countries, that Ireland was a sound place to invest and to do business was approached strategically by every member of the Irish Government and every member of our diplomatic corps.  That work continues to this day, keeping the confidence and goodwill stoked, as we take the next steps.

Stimulus to domestic demand

Of course, there were outstanding challenges. And our problems were not all external, by any means. Domestic demand was a major problem, so we brought forward measures to stimulate activity in the short term – a reduced 9% VAT rate for the hospitality sector, a stimulus plan focusing on works in schools, health facilities and roads - while also pursuing longer-term strategies in key sectors, such as ICT, and the development of a Strategic Investment Fund. 

Results

The journey along the Path to Recovery has not been all rosy, not all easy.  And it is not over yet.  I personally am convinced that it won’t be over until people feel that recovery in their own lives, and in their own pockets.  But the plan is working. 

The most important measure of success for me is jobs.  From an economy that was losing 7,000 jobs a month, we are now creating almost 5,000 net new jobs a month.  Unemployment is falling – down to 12.5 per cent, its lowest level in three and a half years.  Crucially, we are also seeing a modest decline in long-term unemployment and in youth unemployment.

Public finances

Competitiveness is not just a matter for the private sector. 

I believe in a fair economy, and good quality public services.  But if you believe in providing quality schools and hospitals and safe streets, then you have to know how you are going to pay for them.  And if you believe in an economy that can provide decent work, with fair conditions, then you cannot hand control of it over to the international financial markets. Our Path to Recovery required that we put our public finances on a sustainable track, and we have done that (from 2014 we will have a primary budget surplus).  

There is no easy way to make a budget adjustment of 30 billion euro – some 18% of our GDP.   We have made hard choices and tough decisions. But even in the face of the harshest realities, the Irish Government was, and remains, determined to maintain a threshold of decency in how we face down this crisis.  That is why we restored the minimum wage after it had been cut by the previous Government, and maintained core welfare rates for the unemployed, for pensioners, for carers and for people with a disability.

And it is a fact that - compared to 2009 - broadly the same public services are now being delivered with 10 per cent fewer staff, and with a pay bill that has been reduced by almost four billion euro.  This has been a difficult, but a vital achievement.

Social solidarity is an economic asset, and so is industrial peace. You as employers will know that as much as anyone.  And industrial peace has been instrumental in getting us to where we are today.  As a country, it is widely remarked that, for all of our difficulties, we have sustained a strong sense of social cohesion.  It is thanks to the work and sacrifice and solidarity of the Irish people that this has been the case.

In particular, we have reached an agreement with the public service unions, called the Haddington Road Agreement which will lead to major increases in productivity in the public service, while cutting the payroll by over 1 billion euro.

Programme exit / medium term strategy / next step

Ireland’s exit from the bailout last month was an important moment, but only a step along the road.  Last weekend, the decision by Moody’s to upgrade Ireland’s credit rating reflects the significant progress that has been made in stabilising the public finances, restructuring the banking sector and, most importantly, growing the economy and creating jobs.  Ireland is now rated at investment grade by all of the major credit rating agencies, highlighting the major improvement in investor sentiment towards Ireland. The change in the outlook accompanying Ireland’s rating from stable to positive reflects Moody’s expectation of a sustained recovery in the Irish economy and improved debt dynamics.

Our Government believes the upgrade will have benefits for the economy as a whole by putting downward pressure on the price of credit for companies and organisations in Ireland who are reliant on the financial markets for funding.

And now we look to the future, and we need to set ourselves new targets, ensure that we pursue with the same vigour and determination all that we applied to the restoration of stability and the bailout exit.

Last month, the Irish Government launched its Medium-Term Economic Strategy 2020. Our Pathway to Recovery may have begun with the determined and detailed implementation of our EU/IMF programme – carrying out 270-plus individual actions required under that programme. But our own Strategy will guide us on the next part of the journey.

It is first and foremost about staying the course and using the opportunities now possible to speed up recovery.  

It outlines the targets the Government must meet to get Ireland working again.

By 2020, we aim to replace all the 330,000 jobs lost during the economic crisis in 2008-11 with new jobs, and in doing so more than halve the rate of unemployment.

It will also ensure that the mistakes of the past are never repeated. By maintaining strong discipline in Government spending, we will eliminate the Government deficit by 2018.  All future Budgets will be in line with this plan. All Government Ministers will have to operate in line with this plan.

And, lastly, I think that our Strategy will make clear to our partners in Europe that we mean to continue, with commitment and resolve, on our Pathway to Recovery.  They will know that Ireland will continue to contribute to Europe’s recovery, its economy, its reputation, its cohesion.

EU level

As a small open trading economy, we know our Path to Recovery lies through trade and through membership of the Single Market.  For all of the problems we have experienced since joining the euro, the fact remains that membership of the single currency gives Ireland unrivalled access to a market of 500 million people. 

The core lesson of the crisis is that membership of a single currency requires careful and disciplined management of our affairs, including the public finances.  And yet, we are also confident in Ireland’s underlying advantages as a trading nation and as an attractive location for investment.  Building on our strengths, - including our greatly improved competitiveness - we can develop a strong model of export-led growth, which in turn sustains work and opportunity for all our people. 

At EU level, the Compact for Growth agreed by the EU leaders in June 2012 is our blueprint for creating the growth and jobs our citizens need.  It reinforces the political commitment to doing what is necessary to support recovery in the real economy – whether it is completing the Banking Union, improving access to lending, or advancing trade agreements with key EU partners. Of course much work remains to be done.

Skills / Employment

The purpose of our economic strategy is not just to maximise the total number of jobs.  It is also to ensure that we have good jobs.  We want a new way of thinking about social protection, education and training, to ensure people have the skills to move between jobs.  We want people to have a better quality of life which comes with rising incomes.  So we need to support the businesses and enterprises that will create and maintain and improve jobs. 

Supporting employers

Supporting the real economy includes helping companies, including SMEs. And this is an absolutely vital part of our Path to Recovery.  Each of you here will know the critical role Small and Medium sized Enterprises play as the engine of recovery across our economies: SMEs account for more than 98% of all enterprises, over 20 million firms, in excess of 87 million employees, 67% of all employment, and 58% of gross value added.

This places the onus on policy-makers across the EU to increase the flow of capital for investment, to further develop financial supports to SMEs, to reduce unnecessary administrative burdens, and to unlock the benefits of the single market for business. 

Its also important that in Europe we do everything possible to increase growth and productivity, which is why, for example, during our Presidency we put so much emphasis on progressing the talks between Europe and the US on a new Trade and Investment Agreement – TTIP.

Values

As a society, we have values that we can, and should, articulate on the world stage.  Exiting the bailout is the final act in returning Ireland to the status of being a ‘normal’ member of the European Union.  And yet we seek to be far more than that.  As our Presidency of the Union last year has shown, we have a capacity as a country to influence the direction of the Union that we can and must exercise to the full.  For me, that meant working to deliver the MFF – the EU Budget for 2014 to 2020.

Luxembourg will of course assume this responsibility and privilege of the Presidency at the end of 2015.

The past six years are an experience that we should not wish ever to repeat.  But in the midst of adversity, we have also seen many causes for optimism.  We have sustained a strong sense of social solidarity.  We have maintained, and indeed deepened, our international relationships.  I want, on behalf of the Government, to express our thanks to our partners in Europe, including Luxembourg, for their solidarity and assistance during this difficult time. 

Ireland now

Mr. Chairman, Ladies and Gentlemen,

For now, the pathway to recovery remains a difficult and a long road to walk.  But modest GDP growth has returned, and is forecast to reach 2% in 2014. Ireland’s headline competitiveness ranking is up seven places since 2011.  If competitiveness is the main tool for Recovery, for me jobs growth is the main target.   Therefore, the most important indicator is that employment growth was 3.2% in the year to last September - the strongest rate recorded in years.

We continue to perform very strongly in attracting foreign direct investment.  Ireland is proud to be recognised as one of the best small countries in the world in which to do business.

We have the most open economy in the western world. We have a pro-business environment, with a world-class R&D environment, and a competitive and transparent tax rate.  Inward investment into Ireland is at record levels.

Ireland is ranked 1st in the world for labour force flexibility and adaptability and 2nd in the world for lack of protectionism.

So there are grounds for optimism, and grounds for redoubling our commitment to the hard work and hard decisions that are beginning to bear fruit.  Our Path to Recovery is not over; we have not reached our destination, but we are on the right road, and we have come some distance.

Luxembourg and Ireland

Mr. Chairman, Ladies and Gentlemen

I wanted in closing to tell you how I see the relationship between our two countries.

Luxembourg and Ireland are two small, open economies in an increasingly competitive, highly globalised environment fighting to attract investment, innovate and ultimately export our way to a sustainable economic future. 

Of course, in doing so, there is strong, healthy competition between the two countries, nowhere more so than between our respective financial centres.  But there is also a level of complementarity. 

One only has to look at the number of multinational companies established in both countries to see that we each offer advantages for investors, and add distinct value to the international business models of such organisations. Our financial centres, for example, continue to win new business and grow at an impressive rate, even in these times of crisis.  The Irish Government, as in Luxembourg, is strongly committed to the sector, particularly as a necessary source of jobs for our young workforce. 

We also work hard to create the right environment for innovation, and to ensure that our imaginative start-ups are able to flourish.             

In an international context, it is the case that our respective business models are coming under closer scrutiny.  Taxation is obviously one such area.  The Irish Government is fully committed to working with EU and OECD partners on issues of concern while, at the same time, is determined to remain a pro-business, pro-investment economy with strong competitive advantages, in the interests of our citizens and our partners.

Heart of the EU

Like Luxembourg, Ireland sees itself as very much at the heart of the European Union.  We believe in an EU with strong institutions operating on the basis of the community method; in an EU where solidarity between Member States is a commitment, not a concession; in an EU of shared values that is tolerant, inclusive and open to the world; and in an EU where the views and positions of all Member States are respected.    

2014 will be a very busy and challenging year for Europe.  We may no longer be in crisis management mode, but the financial, economic and social challenges are still there - and as keenly felt as ever by our citizens.

This will also be a year of institutional change, with the European Parliament elections in spring, and the new Commission taking office in the autumn. 

So there is much to do.  For my part, I look forward to working with friends in Luxembourg and throughout Europe to meet these challenges with decisiveness and commitment. Our citizens expect no less.

Mr Chairman, thank you again for allowing me the honour of speaking tonight at this wonderful event. Let me take this opportunity to wish you all a happy and prosperous 2014. 

ENDS