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Ireland and the European Semester

Speech by the Minister for European Affairs, Paschal Donohoe TD to the Institute of International and European Affairs (IIEA)
Ireland and the European Semester

1st May 2014
(Check Against Delivery)

The global economy is predicted to double in size by 2032 and double again by 2050. Four of the ten largest national economies are European; across this period of income expansion it is estimated that that number will be reduced to two.

Technologies such as quantum computing and nanotechnology could mean that the next 100 years of innovation could create change comparable to all change achieved in the last 2,000 years.

A century ago, Europe accounted for approximately one quarter of the population of the world. Today it is approximately 12%. By 2050, it is estimated that it will be 7% of the global population, and an older 7% at that.

Will all of these predictions come true?
I don’t know.

Will some of them come true? Probably. But even if some of these predictions do materalise, in any case, there are two consequences of extraordinary strategic value for Europe, and for Ireland.

First, that the prominence of Europe in global economic, political and social spheres will be dramatically different in the future to where we are now.

Second, that this change will have decisive consequences for the livings standards and prospects of Europeans.

You will note that I am careful not to predict whether this change will be good or bad – I am simply saying that a period of intense change is underway due to changes in global demographics, technology and purchasing power.

People, the fabled ‘ordinary man and woman on the street’ know this change is happening. Our agricultural communities see it in the price they can achieve for their produce, in new markets and new competition. Young people feel it in the impact technology is having on how they communicate with their friends. We feel it in our working lives in how new industries blossom or wither in response to shifts in global competitiveness.

How and why?
That is the context for our discussion this morning. In the last few minutes I have not mentioned any of the lexicon or ‘lingo’ of peer reviews, country specific recommendations or semesters.

We spend too much time talking about the ‘what’ of processes. Not enough time talking about their ‘why’. Because of this we do not address the intuitive feeling that our citizens have of great change unfolding. The core theme of my address this morning is that the European Semester process represents the strongest national response by Ireland and by our neighbours to these kinds of challenges and opportunities – most of which are captured by the term globalisation.

I will now discuss this in four ways.
First – by relating the Union and the Semester back to how we want to help our citizens prosper in an ever changing world.
Second – by explaining this process and how it differs from what went before.
Third – by referring to where Ireland stands in our participation in the Semester.
Fourth – to conclude with observations about the operation of this process now and in the future.

The European Union – A contemporary rationale
This new way of working, and this new model of coordination and oversight known as the European Semester process, is rooted within, what I believe to be, the contemporary rationale for the European Union.
This rationale is that:
That we are more effective together. The ‘we’ here refers to the countries of Europe. On our own we’re less effective in responding to the things our people care about.

Let me ask some questions to illustrate this point.
Do we believe that European countries on their own could more effectively respond to climate change? Indeed if countries had to respond on their own would they respond at all?

Do we believe that European countries on their own could better regulate banks that exist across national borders? It is obvious that national balance sheets cannot deal with the failure of global banks.
Do we believe that European countries on their own could best create conditions in which their own companies could fairly compete in their neighbours’ markets?

A Collective Response
The common theme in these questions is globalisation – how interdependence has ‘changed the game’ for nations. The common answer is that we need to work together. And this, I believe, is the contemporary rationale for the European Union – that by working together we can achieve more than we can on our own.

As the hair shampoo advert says – now for the science bit. This challenge is summarised well by David Held in his work on global governance when he refers to the paradox of governance as :
‘..the fact that collective issues with which we must grapple are of growing extensity and intensity, and yet the means for addressing these are weak and incomplete. Global public goods seem to be chronically undersupplied, and global bads build up and continue to threaten livelihoods’.

The European Union is a response to this governance paradox.
What does this have to do with the Semester process? The answer is absolutely everything. It is a response to these challenges. The process is not the rationale. Explaining ‘how’ it works, without first explaining ‘why’, adds to the challenges of legitimacy.

The Semester
So what is it?
The Semester provides a structured process over the first half of the year for co-ordinating, in advance, policies to improve the growth and social prospects of individual countries. The outcomes of this process – the so-called Country Specific Recommendations – are then reflected in the national budgetary cycle and decisions in the second half of the year.
In essence, it is a way of agreeing and implementing a shared understanding of what each Member State needs to do promote jobs and growth.

How it works?
The annual cycle begins with the publication by the Commission of the Annual Growth Survey in November which takes stock of the economic and social situation in Europe and sets out broad policy priorities for the EU as a whole for the coming year. This is the framework within which the national Semester then occurs.

In the Annual Growth Survey, as in recent years, the Commission continued to emphasise five priorities which were subsequently endorsed by the European Council in December:
- the promotion of growth and competitiveness
- tackling unemployment and the social consequences of the crisis
- making national budgets sustainable
- the restoration of normal lending to the economy
- modernising public administration.
At the same time, the Commission publishes the Alert Mechanism Report. This simply looks at whether the kind of problems and forces that caused this crisis are developing again.

The process is overseen by the relevant Council formations attended by elected Ministers and is endorsed throughout the cycle by the European Council made up of Heads of State or Government who are accountable to their national parliaments and ultimately to their electorates.

So, an overview by the Commission, engagement between the Commission and Member States, overseen by Ministers and endorsed by Heads of State.

But within this process – which is complex – let us go back to the central insight – of helping our citizens respond to huge changes and opportunities.

All of these form integral elements of the European response to the changing world that I have emphasised in this address.

Difference from before
How does it differ from what went before, from measures such as the Stability and Growth Pact?
This is the first time we have a mechanism which provides for economic and budgetary coordination at EU level with a horizon that stretches beyond the immediate. The key points at its heart are stability, competitiveness and social inclusion. We have to think long term. This is what the Semester aims to do.

Second, this way of working does not just focus on budgetary decisions. It looks at the breadth of policy decisions that influence the opportunities open to people. Previous systems focused on fiscal reference points, the consequences of policies. The Semester aims to look at the policies that produce these consequences.

Third, it is proactive. It looks at policies that will have consequences in the future, not just the consequences of today and of decisions already made.
And while not a difference – it is important to point out that the Semester has clear roles for both the Commission and the Council of Ministers.

Irish Participation
Ireland is now at the halfway point of the Semester cycle. We are now in the middle of the fourth annual cycle of the European Semester, with Ireland now a full participant in the process since we have exited our bailout programme.

We have completed and submitted to the Commission our National Reform Programme for 2014 – which is available on the website of the Department of the Taoiseach – and the Stability Programme Update – available on the website of the Department of Finance. These documents set out the economic and budgetary reforms we have undertaken and are continuing to implement and they will inform the approach that the Commission will take in proposing Country Specific Recommendations for Ireland in early June.

Breadth of process
These policies illustrate the breadth of this process and how it is focused on helping our society. The National Reform Programme – or NRP – sets out the policies the Government is pursuing to ensure a job-rich recovery and to set Ireland on the path to sustainable prosperity, with a high standard of quality public services.

Inevitably, given the scale of the jobs crisis that faces us, and our young people in particular, the NRP gives detailed consideration to the range of measures adopted by the Government to tackle unemployment and to provide the necessary skills for our workforce.
The Stability Programme Update sets out the Government’s macroeconomic and fiscal projections up to 2018. These have been independently endorsed by the Irish Fiscal Advisory Council.

At the start of April, I had the opportunity to present the draft National Reform Programme to the Joint Committee on European Union Affairs and Minister Noonan presented the draft Stability Programme Update to the Joint Committee on Finance and Public Expenditure before Easter.
I very much welcome the involvement of the Oireachtas as a means of providing democratic scrutiny of the Semester process and I believe one of the issues we have to consider is how to strengthen the role of national parliaments in the European Semester process in the future.
On the basis of the information we have provided and ongoing bilateral contacts at official level in Brussels, the Commission will prepare draft Country Specific Recommendations for each Member State and these will be first published in early June and adopted by the June European Council.

Is it working?
I will now conclude with observations and some questions on how the process is working?
First – is it working? It is probably too early to say and it is clear that the process itself is still undergoing evolution. It has had to accommodate the provisions of the ‘six-pack’ and then of the ‘two-pack’. The management of the process continues to be refined and streamlined, notably last year under the Irish Presidency.

The Commission points to substantial progress on fiscal consolidation and improved market confidence in the sustainability of public finances leading to a lowering of borrowing rates. It notes that Member States have taken important steps to reform labour markets. It recognises, however, that much remains to be done to improve the functioning and flexibility of product and services markets and to implement structural reforms.

But there is little doubt that the close scrutiny and peer review of each other’s economies is now a fully accepted norm. This is a major development. It is also crucial for those who share the single currency.
Second – while the recent crisis was a spur to the development of this process it does not provide the full rationale for it. The pressures of financial markets may have created the background for the Semester but as these pressures ebb this process is still vital. It is a European response to changes and opportunities for our people.

Third – this is why peer review is a positive concept. It is simply a better way of navigating and making changes rather than dealing with the inevitable financial crises that the absence of these changes create.
Fourth – this process will lead to the changes in productivity and ‘real economic performance’ that are vital necessities for the prospering of the Eurozone in the future – as opposed to its survival. Thomas Mayer has argued that:
‘the end of cheap and indiscriminate credit pulled the rug from under EMU’.

The Semester provides the solid foundations for a euro that will prosper, as it reflects positive improvements in Member State economies.

Finally, there is some debate over the introduction of more binding ‘contractual’ arrangements to support the implementation of key reforms. While I welcome any serious and constructive discussion of the effectiveness of the Semester process, we should be given the opportunity to implement the range of tools we have already adopted – and these are not inconsiderable – before we move to introduce further measures.

Let me conclude with where I began; on the nature and scale of change that Europe is facing. The process that we are discussing this morning is part of the response to this huge change. It is not perfect, it can be improved and it will be improved.

But, globalisation is not imposed on us by a sinister ‘other’. It is a natural consequence of our willingness to trade and cooperate with each other. The Semester is the same. It is part of the solution – not part of the problem.