Tánaiste outlines the new Government’s approach to EuropeDFAT - 18/7/11
Chairman, Ladies and Gentlemen,
I am delighted to be with you this morning at the European Policy Centre. I know that I follow in the footsteps of many other Irish speakers over the years, and that the President of your Advisory Committee is of course my distinguished countryman, former Commissioner Peter Sutherland. The EPC is greatly valued for its focussed and practical analysis of European issues, both short and long term, and for promoting debate on these issues among a very wide range of participants. Its role in providing a platform for visitors to Brussels such as myself is also deeply appreciated and I am very grateful for everyone here for coming to listen to me early on a Monday morning.
My theme for today is the new Irish Government’s approach to Europe, as we address what continues to be the most severe economic and financial crisis our State has faced for very many years, perhaps ever.
Let me begin however by putting some context and historical perspective on Ireland’s engagement with the process of European integration. It was 50 years ago this month that the Irish Taoiseach (Prime Minister), Sean Lemass, wrote to Ludwig Erhard as the President of the Council to submit Ireland’s application to join the European Economic Community. He did so then as the leader of a country that was isolated, that was poorly developed by EEC standards, that had missed out on the post-war economic resurgence, but that was, after considerable debate, beginning to shift away from a reliance on protection, and towards a greater economic openness, characterised by tariff-lowering and the attraction of international investment.
For a variety of reasons, EEC membership came about only later, in 1973. But when it did it acted in synergy with the transforming forces that were reshaping Ireland’s economy and society. There is much that Irish political leaders of the 1960s might wonder at in the country today:
· The infrastructure, notably motorways linking our major cities;
· The volume of passengers moving daily through our airports, many of them carried by Ryanair, an Irish airline that is one of Europe’s largest carriers;
· The diversity of our population, including the substantial Polish, Latvian and other eastern European communities now settled in the country;
· Not to mention the place of women in Irish society. Up to 1973, women in the public service had to give up their job once they married.
These changes, and many others, are part of the transformation that has been wrought in Ireland over almost 40 years of EEC and then EU membership.
So when I address the issue of the new Irish Government’s approach to Europe, it is within that larger perspective.
We in Ireland have benefitted much from EU membership. But those benefits have also flowed both ways, and Ireland has played its part and made its contribution, whether through policy inputs, personnel or effective Presidencies: I recall that of 1990 which managed the EU dimension of German unification, and that of 1996 when Ruairi Quinn, now a colleague in this government, chaired lengthy Ecofin meetings which established the Stability and Growth Pact.
The new Irish Government took office in March against the background of an unprecedented economic crisis, both at home and internationally. The Government, made up of the two largest parties in the State, has a clear and urgent mandate to tackle the problems facing the country and to put in place measures that will lead us through the crisis onto the path to national recovery.
Included in our programme for Government is a specific commitment to restore Ireland's standing as a committed and influential member of the European Union. There is no doubt that Ireland’s reputation was severely damaged, both by its domestic economic crisis, and the subsequent handling of it by the former Government. Our sense too was that, in recent years, the dangerous complacency, which had so manifestly characterised conduct of our economic affairs, had also influenced Ireland’s approach to Europe. A credible response by the new Government would have to demonstrate decisive action to address our immediate economic problems on the one hand, and an active process of re-engagement across the EU agenda on the other.
On the economic front, the scale of the challenges facing us remains great, but there is progress to report.
We have moved quickly to reform a banking system that had been at the root of our economic problems. At the end of March we announced the results of an in-depth analysis of the banks, including stress tests that were among the most stringent in Europe, and a comprehensive strategy to put in a place a functioning banking system suited to the needs of the real economy. We have made provision for up to €24 billion to recapitalise our banks.
At the same time we have made good progress in implementing the terms of the joint EU IMF programme of assistance that Ireland was obliged to accept last year. In May, having completed their initial review, the IMF authorities stated that Ireland's economic programme was off to a strong start. Last month, the European Council issued a similar endorsement saying our reform programme is “well on track”. The third review was carried out last week and confirmed that Ireland was meeting the fiscal, banking and structural reform targets of the programme.
Given the steps we have taken, the decision last week by Moody’s to downgrade Ireland’s credit rating further was disappointing and hard for many Irish people to understand. And indeed for the Commission too which regretted the downgrade and found it in contrast with much recent economic data.
The scale of the adjustment the Irish people have had to make is perhaps not well known outside Ireland. Corrective measures, involving tax increases and reductions in expenditure, totalling €14.6 billion were implemented between 2008 and 2010, amounting to over 9 per cent of GDP. A further correction of €6 billion has been made this year. There has already been considerable sacrifice on the part of the Irish people, and it is regrettable that further painful cutbacks will be needed in the coming years. But we are also clear, as a Government and as a people, that our objective must be to exit the EU IMF programme as soon as possible. Not only is the restoration of our economic sovereignty the best outcome for Ireland, it is the best outcome for Europe.
As part of the steps we are taking, a newly formed Department of Public Expenditure and Reform has initiated a Comprehensive Expenditure Review to identify the savings that we will make and to help the Government prioritise our reduced resources.
In recent days too, the Government has appointed a Fiscal Advisory Council made up of independent experts who will review the soundness of the Government’s fiscal stance and macroeconomic projections. This is another step on the path to ensuring the sustainability of our public finances.
The good news is that the economy has stabilised after a severe contraction over the past three years and we will see a return to growth this year. Growth is being driven by a very strong and broad-based export performance. Exports grew by over 6 per cent last year and continue to grow at a rapid rate. This has been underpinned by a strong improvement in our competitive position. Consumer prices have fallen, as have wages and other costs. The European Commission estimates that Irish unit labour costs declined by 6 per cent over the past 2 years compared to 4 per cent increase in the euro area as a whole.
Another positive for the Irish economy is that, despite the crisis, we remain an attractive destination for foreign direct investment. Last year the number of companies investing in Ireland for the first time rose by 20 per cent and almost 1,000 companies have now chosen Ireland as the hub of their European networks, including well-known names such as Google, eBay and Facebook. Our strategy to attract foreign investment has been the cornerstone of our economic policy for the past fifty years. It was fundamental for the development of the country and it is key to our national recovery now.
I hope it is clear why, when our very economic survival is at stake, we are so insistent that we must not and will not undermine that strategy by tampering with one of its elements, our long-established corporation tax regime.
The crisis in Ireland has been played out against the backdrop of the wider international economic situation, and has to be seen in the context of continued market uncertainty in relation to the euro area as a whole. Many commentators have been vocal in their criticism of a perceived inability of the European Union to devise an effective and comprehensive resolution of the crisis. I understand their frustration. The IMF deputy director in Dublin last Thursday was clear: he said that “the problems that Ireland faces are not just an Irish problem, they’re a shared European problem…and what’s lacking so far is a European solution.” We are working now in the Eurogroup, and perhaps soon at summit level, to craft a credible programme, including for Greece, one that avoids contagion and spill-over risks and puts the atmosphere of crisis behind us. Ireland is playing its part in finding a solution to our shared difficulties; all that we ask is that others play their part also.
For this reason, the proposals put forward at last week’s Eurogroup meeting were particularly welcome. These included enhancing the flexibility and the scope of the EFSF, lengthening the maturities of the loans, and lowering the interest rates on them. Since taking office, we have advocated this type of approach in order to assist programme countries meet their obligations as rapidly as possible and to safeguard the stability of the euro area as a whole.
At the same time, we should not underestimate the long-term impact of the other economic and financial measures that have been put in place by the Union over the past year. We have devised a comprehensive package of measures to coordinate economic and fiscal policy and to strengthen our systems of economic governance. These represent a major step forward and will help to underpin the stability of the euro and provide the conditions for sustainable growth for future generations.
As well as taking decisive action on the economy, the Government has also been delivering on its commitment to enhancing our engagement with our partners in Europe. This is reflected in a more active schedule of contacts by members of the new Government with their European counterparts. It can also been seen in Ministers availing of opportunities to set out our new approach to Europe to influential bodies such as this.
That approach necessitates too an assessment of the issues that are current on the EU agenda and where we can make a constructive contribution to the evolving debate. There are important issues at stake in this. For example, the Commission has just published its proposals for the Multiannual Financial Framework for 2014-2020 which will have implications for the future of EU policy in many areas. While we fully accept the need for budgetary prudence in these difficult times, we need a budget that is fit for purpose and allows the Union to deliver – whether on the crucial issue of agriculture and food security for European consumers, or in the increasingly important area of research and innovation.
There are other issues on the EU agenda which demand our attention. We need to manage the Europe 2020 strategy so that it delivers growth and jobs. We need to work to realise the full potential of the Single Market. The interdependent questions of energy security and sustainability as well as climate change need to be addressed and will have implications not just for us but for our children and their children. These are all areas where we cannot successfully act alone and where we have to work together to get results.
Over the next 18 months Ireland will be actively engaged in these debates and at the same time we will be preparing for our 2013 Presidency of the Council. This will be our seventh Presidency and will coincide with the 40th anniversary of our accession to the European Union. In the past we have shown that a small committed member state can help manage the business of the Union impartially and effectively. We are determined that we shall do so again and intensive planning has already started.
It is my hope and indeed my expectation that by 2013 Ireland will have shown that, with the help of its partners and in the right European policy framework, it is possible for a resourceful and resilient people to overcome even the most daunting challenges and to work and fight their way back to growth, prosperity and jobs. We still have a long way to go, and the journey will take several more years, but we are determined to get to our destination.