We must ensure that progress continues
Issued 19 January 2015
Speaking at ‘Ireland – Lessons from its Recovery from the Bank- Sovereign Loop’ Conference in Dublin Castle
I would like to welcome you here today to participate in this conference which has been organised by the Central Bank of Ireland, the Centre for Economic Policy and Research and the International Monetary Fund. I hope you find the experience a valuable one.
In particular, I would like to welcome back some old friends to Dublin. While the issues we dealt with were serious and we didn’t always see eye to eye, I would like to think our business was conducted with a large deal of civility, mutual respect and even the occasional smile. I hope you enjoy your stay in Dublin once again.
The conference, as you are aware, provides the opportunity to combine a retrospective on Ireland’s EU-IMF program with discussions which will be future focused. The objective of our gathering here today is to draw lessons not just for Ireland, the European Union and the IMF, but also for other countries who are facing similar challenges. While maintaining our focus on the future, we can learn from the past.
The challenges confronting the Irish authorities in the wake of the banking crisis which emerged in 2007 have been fairly well identified and discussed. In particular, the twin challenges of the restoration of the stability of the public finances and the restoration the stability of the banking system had to be addressed and have been addressed. It is not for me to put words into the mouths of our European friends, but I doubt even the most optimistic envisaged the level of progress Ireland has made in these few short years. We exited from the programme without a funding backdrop and that decision has been vindicated by the high level of growth we enjoyed last year and expect to record this year, barring unforeseen developments.
The progress made in terms of our banking system and our public finances is there for all to see. These are widely acknowledged. Less attention is paid to the considerable progress Ireland has also made, with the assistance of our partners, in terms of debt sustainability. Thankfully the markets are monitoring these developments and they are reflected in our bond yields. But there is no complacency. Challenges continue, whether in the financial services sector or the wider economy. We must ensure that the progress we have achieved to date and the momentum behind this progress continues in future years.
The Irish crisis of course did not occur in a vacuum. European policy makers too have had to grapple with other crises and sub optimum growth within the European Union. While firmly anchored within the Union, Ireland has undoubtedly benefitted from the strong return to growth in both the United Kingdom and the United States, countries with which Ireland enjoys strong cultural and trading links. It became clear to Irish policy makers during the crisis that as an open economy our capacity to deal with our challenges was hampered by a lack of economic growth in the Eurozone. That problem remains with us.
As Minister for Public Expenditure and Reform, I would like to speak, in particular, about our approach to the management of public finances. The Government’s approach has been to ensure that public finances remain on a sound footing and that, against this background of public financial stability, structures are in place to facilitate the provision of public services, as well as growth within our economy and continued job creation.
Under the budgetary reform measures first introduced by the Government in 2011, current expenditure by the State on the provision of public services - which are funded primarily by the taxpayer through the Exchequer – is now subject to periodic comprehensive review. Comprehensive spending reviews are a growing feature of modern international good practice in managing public finances. They provide the Government with an opportunity to examine public expenditure in a way which enables it to meet overall budgetary objectives and to realign allocations with its priorities over the medium term.
Over the last number of years, as part of its response to the fiscal crisis, the Government introduced a variety of expenditure measures – informed by the first Comprehensive Review of Expenditure 2012 – 2014. These measures helped to re-set public expenditure on a more sustainable path and also means that we now do more with less. This has resulted in more effective expenditure programmes. These expenditure measures, together with taxation and other measures, were key to the progress that has been made in terms of Ireland’s successful exit from of the EU/IMF programme and the year to year reduction in the General Government Deficit.
The impact of these decisions and the economic recovery which they helped to foster means that our progress towards achieving a balanced budget in the next few years can be achieved without recourse to further annual reductions in the aggregate level of Government spending.
Nevertheless, there are constraints on future public expenditure. In particular, the application of the new fiscal rules that were introduced across the Eurozone in response to the crisis, the open nature of our economy, and the high level of Government debt all demand continued strict and carefully balanced management of the public finances. There will be some room for additional spending to address demographic pressures and policy priorities.
Essentially, the fiscal framework is designed to ensure a fiscal discipline which will help to protect us against future shocks by ensuring that the changes to Government spending remain in line with growth in the economy, that the levels of public expenditure are sustainable and that they can be funded from Government taxes and revenues. In tandem, it is critically important that EU member states are facilitated in making the investment necessary for future prosperity.
We have focused on improving the framework conditions that underpin economic growth and we are now reaping the rewards of our efforts. Only last week we published our 2015 Action Plan for Jobs with the determination to build on the progress of its predecessors. Total unemployment has reduced by 87,100 since early 2012 while employment has increased by 80,000 in the same period. We have also seen strong export performance with indigenous exports estimated at €18bn in 2014, the highest level ever recorded. Overall growth in exports of goods and services is likely to have been in the region 8%.
During the financial and economic crisis, the response of the European Institutions and the International Monetary Fund had a key role in determining how to deal with the financial and economic crisis. The crisis was unprecedented since the very beginning of the European project and the full implications of the response could not be foreseen. It is important that the consequences of the response be examined with a view to learning lessons which would be useful in dealing with any possible difficulties which could arise in the future.
The High Level Panel Discussion will attempt to draw lessons from Ireland’s programme for other countries and for Ireland going forward. It will consider very pertinent questions such as how Ireland managed to maintain sufficient social cohesion while implementing an ambitious programme of reform. More importantly, from my perspective is the question of what needs to be done to secure Ireland’s full recovery and lay the foundations for sustainable growth in the future.
The topics under consideration at this conference are highly relevant to the European and global economy and the participants are eminently qualified to address them.
What lessons have been or can be learnt – good, bad or indifferent?
Ladies and gentlemen, I look forward, with interest, to the outcome of today’s proceedings.