Good morning everyone.
And thank you, David and Brendan, for your introductory remarks. I was delighted to learn of the Association’s resurgence in recent years, a testament to all involved.
I am very happy to be here today and to share some thoughts with you. We should never underestimate the value of simply bringing people together to meet, talk to each other and to exchange ideas, especially during these difficult times.
Difficult times indeed, but there are underlying strengths of Ireland’s economy in the very mix of who’s here today:
- great global companies whose choice of Ireland as an investment location is testament to our resilience and competitiveness;
- great Irish multinationals who are world leaders in their sectors;
- many of the over 250 foreign financial services companies and banks with operations here;
- and of course representatives of the Irish banking sector, which is moving through a restructuring process which, though necessarily painful, is already bearing fruit in terms of securing private funding.
Ladies and gentlemen, I want to give you my personal political perspective on where Ireland and its economy is going, what’s happening on a European and global level and on some of the themes of most interest to yourselves in the financial and business community. I’ll try not to simply list off the government’s achievements, give you a few statistics and all that – but do forgive me if a few slip in here and there!
These are challenging times for governments and for companies. As professionals you are used to dealing with risk. But now you also have to deal with uncertainty. I’m sure all of you have been asking yourselves the basic question: Where is money safe? Even the question: Is money itself a safe asset? My advice to you is do the sensible thing. You know the Irish banks are now well capitalised. There are no skeletons left to be found. We have a strong and stable government. A legal system that defends property rights. And after all the pain we have gone through we certainly won’t let the Irish banks fail now. I know there has been a large outflow of corporate deposists from Irish banks in recent years. Now is the time to consider bringing that money back.
My core message today is one of optimism… cautious optimism but optimism nonetheless. Optimism about Ireland, certainly, but also optimism that Europe will respond effectively to the situation in which we find ourselves. However, we do have to respect the fact that each country in Europe has its own political and constitutional traditions. Getting agreement among 17 members of the Eurozone and 27 members of the European Union will always be slow and cumbersome. But we will have to live with that fact.
As my colleague Michael Noonan, Minister for Finance, said in recent weeks, this is not really a crisis of the euro currency, it’s much more a crisis of “euro land”. The fact is that the necessary architecture around a single currency, including crisis management systems, had never really been put in place and now we’re engaged in a retro-fitting exercise. We’re doing so in the middle of a global slowdown, one in which some countries are in bigger trouble than others. And in doing so, we have to preserve democratic checks and balances. As a public representative, I believe this is fundamentally necessary but of course it moves slowly, while events seem to move quicker as we saw last week in the eurozone area.
To my mind, the obsession with the next day’s market opening amounts to a sort of vicious circle. New announcements are made almost daily and no-one ever seems satisfied. We – all of us, in politics and government as much as in the financial and business community as well as the media – must try to take a step back and first focus on implementation of the far-reaching decisions already made. I’m talking about the decisions of eurozone and EU leaders in July and October which, let’s not forget:
· put in place arrangements for recapitalising Europe’s banks;
· increased the firepower of the euro area’s stability fund
· improved economic governance;
· and something that the Taoiseach focused on in particular, enhanced economic growth though structural reforms;
In many ways, what happened since these summits in the last two weeks happened because of doubts about implementation of decisions and commitments, not because of a clamour for yet more decisions and announcements. This week, I think we can feel a little more comfortable about capacity to deliver on commitments. Importantly, there is no doubting the credentials of the new Prime Ministers in Greece and Italy – two serious and capable individuals who are building teams around them with a good mix of continuity and renewal.
We must all hope their political resolve holds strong, especially in terms of constructive participation by opposition. I myself remember meeting the IMF when in opposition late last year – Michael Noonan and I told them that while we would seek to renegotiate elements of the package, we would commit to its headline objectives and targets; we did so and as you know we subsequently renegotiated elements like a targeted VAT reduction, the need for a Jobs Initiative and of course the interest rate reduction.
Crucially for many of you here, I know, we also copper-fastened our corporate tax regime and our commitment there remains steadfast. I know that this commitment is very important to the Association and its members.
Members here today are probably aware of the rumours of plans for some form of a two-speed eurozone. This scenario is a purely hypothetical one and I am not going to add to speculation in that regard. However, I note that over the weekend there was clarification from Germany and France that they are not proposing any breakup of the euro area. The German Chancellor Angela Merkel speaking at her party’s annual conference on Monday made the point that stabilising the Eurozone is also about preserving the European Union. Today Taoiseach Enda Kenny will be in Berlin on a formal visit to meet the German Chancellor. This is the kind of high-level political contact that is extremely important in these times. This happens because Fine Gael and Chancellor Merkel’s party, the CDU, are in the same political group in Europe.
What we need, put simply, is a greater sense of certainty at a national and European level. The work each of you do, I imagine, centres around planning financial needs, sourcing funding and doing so on a multiannual basis. For this you need as much certainty as possible, not least those of you involved in foreign direct investment decisions involving Ireland. Your continued confidence in us is appreciated and I cannot emphasise that enough.
I might move closer to home now and talk about Ireland. In terms of that requirement for certainty I just spoke of, I hope you now have a greater sense of certainty about where the country’s economy is moving.
This government aims to be strategic in its focus and in its economic planning systems. Many of you would be familiar with the Department of Finance’s work on the banking and financial services/taxation sides, but on the economic and budgetary side, concrete evidence of this strategic focus can be seen in the Medium Term Fiscal Statement we published almost two weeks ago.
For the period 2012-2015, this Statement sets out a year-by-year timetable of how an overall €12.4 billion consolidation will be phased, starting with the €3.8 billion adjustment that is now planned for 2012, how it will be split between tax increases and spending cuts, and how the spending cuts in turn will be split between the current and capital budgets.
The economic forecasts paint a positive picture of our economic prospects, even though recent data have led to some downward adjustment, notably for 2012. GDP is now projected to grow by 1.6% in 2012 and at an average annual rate of 2.8% over the following three years. A key reason for the downward revisions is that the outlook for the global economy has deteriorated in the intervening period. It is worth noting that the most recent OECD forecasts for the Euro Area as a whole see GDP growth of 0.3% in 2012 and 1.5% in 2013.
You will have seen our capital programme announced last week, while the 2012 Budget will follow early next month. A major objective in this new means of announcing budgetary decisions is that people like you can plan ahead more easily than before. The Government believes it can assist in the rebuilding of confidence by pursuing a budgetary strategy that is clearly explained and that dispels fears about the sustainability of Government debt.
In the context of the Budget, I know that the Corporate Treasury sector is represented on the Clearing House Group’s Banking and Treasury Working Group. Minister Noonan is currently considering taxation proposals from this Group, given the government programme’s vision of the IFSC as a source of future employment growth, subject of course to appropriate regulation. I would add that the recent signing of a Double Taxation Agreement with Saudi Arabia brings to 64 the number of comprehensive treaties which Ireland has signed. The rapid expansion of Ireland’s tax treaty network by more than 50% over the last number of years gives the Irish-based corporate treasury sector a significant competitive advantage.
Your financing and investment decisions are also based on more intangible factors. In this context, the government has made rebuilding Ireland’s reputation one of its key objectives for 2011. The decline in spreads over the summer are testament to progress already made.
A better quote than that one about “living in interesting times” is Oscar Wilde’s classic: “the one thing worse than being talked about; is not being talked about”. This is mostly true of political life but when it comes to the eurozone crisis, it’s a different story. It’s good that Ireland is no longer being talked about as a crisis country. Reputation matters, particularly for a small open economy. Our embassies around the world have reported a sharp decline in overall coverage and in negative sentiment. I went to Berlin in recent weeks and spoke at a Bundestag event, where the reaction to my presentation was most positive. Europe and the international agencies know that we are dealing with our problems.
So our reputation is indeed recovering. Some say that it’s not that important and that we are too attached to adhering to our programme commitments and have missed the “opportunity” Greece has got to avoid paying some of its debts. I disagree. For Ireland, that is most definitely not the way forward.
To renege on our commitments would have major adverse implications for our international reputation and could seriously harm our prospects of attracting inward foreign direct investment and trading our way to recovery and a return to the markets. Any reneging on our commitments would necessitate eliminating the primary budget deficit overnight. In other words, it would be disastrous and the effects would be felt by every man, woman and child in this country. Those who talk of default would immediately bring about a nuclear winter in the country. It is the policy of mad men who prefer to play out experimental economics with the lives of ordinary people, than face some home truths about living within our means.
I stress that the Government will not go down that road. The Government is acutely aware of the great burden that has been placed on Irish citizens and businesses but our strategy is growth, not default.
BANKING & CREDIT
I now want to talk about banking and the question of credit supply and demand.
I don’t think I need to tell you the extent to which the Irish banking sector was gripped by a crisis, the repercussions of which we still feel.
Today, I might give you a sense of where we now are in that journey towards creating a banking system that is appropriate to the future needs of the Irish economy.
To save time, I might point you towards a detailed presentation called ”Irish Banking Landscape – Moving Forward” available on the Department of Finance website. This outlines in some detail the steps we have taken in the last six months to move in a determined way to put our banking sector back on a stable footing. The central aim of this is to support the growth of the Irish economy and the corporate market – both large and small.
In summary, we adopted a strategic approach this year to achieve the aim of creating a banking system that will meet our needs. The first building block of this approach relates to bank board Renewals and Mergers. The second task we set ourselves was that of recapitalization, the cost of which to the State reduced to €16.5 billion while still delivering the €24 billion required by PCAR. As many of you know, the reason why recapitalisation was €7bn cheaper than expected was subordinated debt writedown and the successful sale of Bank of Ireland equity to a consortium of international investors. The third task relates to deleveraging, with the banks set deleveraging targets by reference to a 122.5% loans to deposits ratio. Our fourth priority relates to the funding and liquidity position of the banks.
Through focus on the implementation of these steps together with a new supervisory framework, we aim to establish sustainable banks that can survive and prosper without the need for ongoing State support.
Weaning the banks off State support will take time of course and will require improved profitability and market access. At the same time, we have to ensure that credit is available to the business sector, SMEs and consumers – all of whom will be the source of our future growth. While there are perhaps not many SMEs represented here today, I mention them because their future sucess is inextricibly linked to the future of the Irish economy.
The banking system restructuring plan creates capacity for the two Pillar Banks, Bank of Ireland and AIB, to provide lending in excess of €30 billion in the next three years. SME and new mortgage lending for these banks is expected to be in the range of €16-20bn over this period. This lending capacity is incorporated into the banks’ deleveraging plans which allow for repayment of Central Bank funding through asset run-off and disposals over the period to 2013.
I might conclude here by reiterating my optimism despite the current challenges. And let me make some positive points. According to a recent IBM survey Ireland is the number one location in the world for Foreign Direct Investment. Earlier this year the World Bank ranked Ireland first in the Eurozone for doing business. And the widely respected Economic Index of Freedom recently ranked Ireland number one in Europe for economic freedom. And to finish the good news – the very prestigious United Nations Human Development Index for 2011 ranks Ireland at number seven in the world, ahead of Germany at number 9, France at number 10 and the UK at number 28.
In early December we will have a budget which will be tough but I hope fair also. My job and that of my government colleagues is to represent the people; in partnership with the Irish people and with the business and financial community including all of you here today, we can and will recover.
Brendan Keenan said in last Thursday’s Irish Independent: “We have to find out way out of this mess step by step”. Progress can only happen on a step by step approach. Over the last eight months in office the Government has attempted to navigate our way through this crisis. Success is not guaranteed. But our plan in getting the country to a better place and fundamentally changing this country, economically, politically and administratively is the only way through our difficulties. Your support in helping us, and by connection, the Irish people, is appreciated fully.