It is important that the Irish people understand that, despite the severe difficulties which the country has experienced over the last few years, there is now light at the end of the tunnel.
Economic growth has returned on the back of a strong performance of Irish exports in the first half of the year, as the country has recovered much of the competitiveness it lost in the years leading up to the crisis. Fiscal consolidation is on track, with the Government establishing a strong track record and showing that it is capable of taking the difficult decisions that are necessary to res-tore sustainability to public finances. The budget deficit for 2011 is projected to be well within the programme ceiling of 10.6% of GDP, and the Government is strongly committed to reducing it to below 3% by 2015, in line with its European commitments.
In relation to Ireland’s banks, impressive progress has been made towards the goal of a smaller, better capitalised financial sector which will be vital to supporting the country’s economic revival. The recapitalisation of the domestic banks has now been substantively completed. Progress has also been made in dealing with the remaining weaknesses in the credit union sector. Banks’ sales of non-core assets are proceeding broadly in line with programme assumptions, despite difficult market conditions. Let me also note that the cost to Irish taxpayers of restoring the healthy functioning of the financial sector has been substantially reduced thanks to burden-sharing with subordinated debt holders and a sizeable injection of private equity into one of the pillar banks.
Key economic reforms are also being put in place to enhance competitiveness and strengthen the country’s capacity to create jobs. Sheltered sectors of the economy, such as the legal and medical professions, are to be opened up with the recent publication of landmark reform bills. The aim is to reduce costs in these sectors, and so bring prices down for Irish consumers and businesses. To boost job creation, the Government is working with the social partners to modernise the framework of sectoral wage-setting arrangements, which cover areas where unemployment tends to be highest. Steps are also being taken to raise the caps on the size of retail premises and to strengthen the enforcement of competition law.
All of these achievements will bring benefits and help the Government to get back to financing itself on international financial markets, which is, of course, an objective of the programme. But doing all of this has not been easy, especially in the context of a still weak domestic economy and while unemployment remains unacceptably high. Indeed, this makes the sacrifices of the Irish people and the strong efforts of the Government all the more impressive. Ireland now has a hard won, but well deserved reputation for living up to its commitments. This has been recognised by its partners in the EU and, increasingly, by financial markets, where there has been an impressive reduction in the spreads on Irish Government debt since the summer, despite market turbulence due to the escalation of the sovereign debt crisis in the EU.
Another positive development in this respect was the decision by EU leaders in July to reduce the interest rates and extend the maturity on the EU loans to Ireland. This has improved the outlook for the country’s debt sustainability and brought a significant saving for Irish taxpayers.
Let me close by responding to the view that is often expressed by Irish commentators and parts of the media, that by requesting financial assistance from the programme partners the country has effectively lost its sovereignty.
I do understand, from the perspective of Ireland’s history and also from that of my native country, why sovereignty is so important. And it is also true that, when a country is covered by a financial assistance programme, the room for manoeuvre in the field of economic policy is obviously going to be less than would otherwise be the case.
But it is important to reiterate three points. Firstly, the financing being provided by the EU and the IMF is helping to keep vital public services operating such as schools, hospitals and the Garda Síochána. It is helping to cushion the substantial shock that the economy has been subjected to while protecting the most vulnerable in society. In the absence of the financial assistance programme, conditional as it is, the room for manoeuvre would be much more limited.
Secondly, the programme leaves considerable policy discretion to the Government in terms of how to meet its key objectives. It is the Government, and not the so-called “troika”, that is responsible for taking the key decisions that matter to the lives of Irish people.
Finally, continued, strong implementation of the programme is the best way for the Government to repair the damage that has been done to the economy due to the excesses of the past and to lay the foundation for sustainable, job-rich growth in the future.
* Olli Rehn is vice-president of the European Commission.