IRELAND HAS TURNED A VERY DIFFICULT CORNER
Brian Hayes TD, Minister for State at Dept of Finance
Thanks to the patience of the Irish people this country has come a long way in a short time. Coming into government in 2011 I didn’t believe that we could have made such progress in re-balancing the economy and restoring our reputation abroad.
In March 2011 the Irish economy was in intensive care. There was a real possibility of a complete collapse of confidence, a full scale bank-run and a major economic and financial meltdown. Some advocated abandoning the Troika lifeboat and paddling our own canoe – if we had a canoe.
Just under two and a half years later where stands Ireland now? Out of intensive care and well on the road to recovery.
Ireland was the second EU country into an international bailout. Of the current four countries now within a programme, we will be first to exit and the first to return to the markets. I want to make it clear that in returning to the markets our ambition is to stay in the markets on a long-term sustainable basis. Market finance provides this country with a clear route towards long-term sustainable economic growth.
Markets want certainty and also want to know that they will get their money back. Amidst all of the international uncertainty that remains, financial markets want to know where they stand in regard to a country’s ability to provide strong public finances. Interest rates are the financial equivalent of blood pressure for the international money market. This time two years ago, the cost of buying 10 year Irish bonds was over 15%, now it’s less than 4%. Lower than Greece, Portugal and Cyprus but also lower than Italy and Spain. The view of Ireland is positive.
There has been much pain along the way. Our people have suffered from the relentless adjustments seen in recent years. But now is not the time to turn back. Now is not the time to send out a signal that in some way Ireland is not prepared to complete the job. This country, having made extraordinary sacrifices, cannot turn back from meeting our commitments at home or abroad.
Part of that job we were elected to do was to get Government spending and revenue into a better balance. That job is now 85% complete. To falter now, when success is in sight, would be a serious dereliction of duty. If we falter now the electorate would rightly punish us if things went wrong and Ireland was forced into a second bailout. We should push on and finish the job – ahead of schedule if possible. We have exceeded our targets each year so far. We should try and do the same in 2014 and 2015. Getting the budget deficit below 5% of GDP in 2014 would send out a clear signal. As far as the budget deficit is concerned size does matter – the smaller the better.
A decade that haunts me is the 1980s. I was a teenager growing up at the time and I can still remember the battered condition of the economy. That decade of high emigration, high unemployment and low living standards stemmed from political failure brought about by decisions taken in the late 1970s, and political failure to address the problem until well into the late 1980s. Yes the banks were solvent then and we could obtain funds on the money markets but our political system stood back and did nothing while the country fell further behind.
Crucial to our recovery in the 1990s, and the establishment of an export orientated economy that was productive and competitive, was the decision to repair the public finances. Then as now we have been tasked to restore order to the public finance position of this country.
Targets are important now as they were in the late 80s and early 90s. While we have made much progress in the task of reducing our deficit, it’s still too high and if anything we need to be more ambitious in getting the deficit down sooner. The sooner we fix the excessive deficit position that we are in, the better it will be for the economy and for job creation.
That’s what confidence does. Just three weeks ago Standard & Poor’s raised their outlook on Ireland from stable to positive. We have been praised by the IMF for the transparency of government’s finances and accounting practices. That inspires further confidence in Ireland. At the beginning of 2012, many national and international commentators were confidently predicting that Ireland would not exit the bailout at the end of this year. They were wrong. Many commentators were predicting and, perhaps, hoping for the collapse of the Eurozone system. They were wrong about that too.
The flow of Foreign Direct Investment into Ireland continues at a high level. Venture capital is investing in Irish assets. They are doing so because this Government is trusted. Trusted by its Troika partners to deliver on its commitments, and trusted by investors to turn this economy around.
We also need to stay the course because there are risks all around. We live in uncertain times. There is the possibility of further sovereign or banking crises in Europe. Growth remains sluggish in Britain and in the Eurozone. Ireland is one of the most open economies in the world. Troubles in the Middle East can impact on energy prices – a key component of any economy. Sustained recovery in Ireland is dependent on growth in our main export markets. We cannot pull ourselves up by own bootstraps. We pay our way by being productive and competitive, and selling goods and services at home and in international markets. That is how we will recover and that is how we will prosper.
And when people talk about austerity fatigue let us remember this – in 2013 we are still spending 22% more than we are taking in. We are still borrowing €1 billion a month just to keep the show on the road. Of course Ireland is advocating that the stronger European countries should assist recovery by stimulating their economies. But the idea that Ireland can create its own little bubble of prosperity, irrespective of what is happening in our main markets, is frankly ludicrous. There are some of you here who are old enough to remember Martin O’Donoghue and the Go for Growth strategy of Jack Lynch of the late 1970s. And where did the economy end up at the beginning of the 1980s – in the ditch; narrowly avoiding an IMF bailout.
And those who advocate increased borrowing should also take the following into account. In 2010 interest payment on Irish debt was of the order of €5 billion. Last year, 2012, it was almost €6 billion. This year it will be of the order of €8 billion. Because of the large volume of debt held by entities outside Ireland, in 2012 almost 80% of interest repayments on Irish government debt left the country. Interest payment on Irish debt is a river of resources leaving the country.
Those who advocate increased borrowing need to answer the following questions. Who will lend us the money and at what rate? What level of overall debt is sensible? How can we avoid getting caught on an interest payment treadmill?
So, as we face into a new budgetary round, the Government will be conscious of the following; hitting and exceeding if possible, our targets; the need to build a cushion of safety in case of further external shocks; and making our budgets more resilient and more sustainable.
The property tax and water charges are part of the process of building resilience into our tax system. If there is room for manoeuvre in the budget, resources should be concentrated on investment and job-support. Recently, the government announced a strong programme of job activation measures and direct job subsidies for long term unemployed. As the economy turns the corner, the unemployed must be trained, must be ready and must be willing to fill the vacancies.
Managing an economy, particularly in uncertain times, is not an exact science. It is more an art than a science. Managing the Irish economy is a bit like conducting an orchestra with the musical score continually changing.
The question remains: what have we learnt from all of this? How can we make sure that these profound mistakes are not repeated in post bailout Ireland? Will it be business as usual with the same cycle of political promises trying to seduce the public come election time?
In February 2011, the Irish people trusted us with the job of sorting out a very big mess. We are half way through our term of office and looking back on how far we have come. I believe most people acknowledge the progress that the country has made. While nothing is certain, Ireland has turned a very difficult corner, the task ahead is to translate this progress into improved living standards.