Shaping Europe’s Economic Future: an Irish Perspective
An Roinn Gnóthaí Eachtracha
Department of Foreign Affairs
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Shaping Europe’s Economic Future: an Irish Perspective
Speech by Mr Micheál Martin, T.D.,
Minister for Foreign Affairs of Ireland,
to the Foreign Affairs Association,
Munich, 29 April 2010
Distinguished guests, ladies and gentlemen, I am delighted to be here in Globe Business College for this event organised by the College and the Foreign Affairs Association in conjunction with the Irish Embassy in Berlin. I want to thank Dr Bischof for her kind words of introduction. I want to pay tribute also to Dr Horst Mahr and the other members of the Foreign Affairs Association for their work in promoting enhanced understanding of international developments. In our deeply interconnected world, it is vital that knowledge and the tolerance this brings should triumph over prejudice and misunderstanding.
It is a pleasure to be in Munich where so many Irish people have made their homes. I know that there is a very vibrant Irish community in Munich, including an active Gaelic Football Club. Indeed, I understand that Munich is known within the Irish community as ‘the Irish capital of Germany.’ My Government colleague, Mary Coughlan, tells me that the Munich St. Patrick’s Day Parade, which she attended last month, was a hugely impressive and enjoyable occasion.
I would like to take this opportunity also to pay tribute to Herr Erich Lejeune, who has served Ireland magnificently as our Honorary Consul in Bavaria, supported, of course, by his charming wife, Irene. It is a real asset for Ireland to have such an active and prominent citizen of Munich as our Consul here. It gives me pleasure to announce that, as part of Ireland’s effort to enhance our ties with Bavaria, and in recognition of Herr Lejeune’s efforts on behalf of Ireland, we have decided to upgrade this post to Consul General. Supported by Consul General Lejeune, we look forward to the continuing development of Ireland’s ties with Bavaria.
I am particularly pleased to be here at the Globe Business College, which has such strong links with Ireland. Education is one of Ireland’s particular strengths. Our educational system is highly-rated internationally and I am delighted that the Globe Business College is offering degrees in Munich in cooperation with Griffith College in Dublin and that these degrees are validated by the Irish Higher Education and Training Awards Council (HETAC).
Globe Business College is part of long tradition of Irish scholarly activity in Bavaria, which stretches back more than 1,200 years to when Irish monks and scholars were frequent visitors to this part of Europe. Today’s Irish are drawn to Munich by the fact that there exists in Bavaria, as in today’s Ireland, a compelling blend of the traditional and the modern.
The Irish and the Bavarians share a strong sense of having a unique cultural identity. We both have important and vibrant agricultural sectors. Within the European Union, we share a commitment to agricultural policies that will sustain high-quality food production in Europe and thus help underpin living rural communities.
We both value our traditions, but this has not prevented us from fully embracing today’s challenges and opportunities. We are fortunate that Ireland and Bavaria both possess advanced economies founded on high technology production and strong services’ sectors. Bavarian-based companies such as Siemens and Allianz are household names in Ireland. Global companies with significant operations in Ireland include Facebook, Google, PayPal, Ebay, LinkedIn and Amazon, names that will be familiar to everyone who uses a computer. Their presence in Ireland caused the Süddeutsche Zeitung earlier this month to describe Ireland as Europe’s “information metropolis”.
I have just come from Berlin, where, together with Vice Chancellor Westerwelle, we marked a significant occasion. Twenty years ago yesterday, a special meeting of the European Council was held in Dublin to consider the implications of German reunification for the then-European Communities. The previous six months had seen remarkable events across Europe, with the breaching of the Berlin Wall, which had stood for decades as a hideous affront to freedom. As the year 1990 began, it was clear that the Cold War era had come to an end and a new horizon of hope had come into being.
This was the backdrop against which Ireland took over the EC Presidency in the first half of 1990. In Ireland, we have our own experience of political division and this gave us a keen appreciation of the palpable desire for German unity that existed in 1990. As Presidency, we wanted to do everything possible to facilitate German reunification. That was the purpose behind the Special European Council held in Dublin on the 28th of April 1990. The Council agreed that reunification should take place under a European roof and that discussions on political union should be launched. The Treaty of Lisbon can be seen as the culmination of the process of reflection and negotiation launched in Dublin two decades ago.
This year, we mark the twentieth anniversary of our 1990 EU Presidency and Ireland’s contribution by helping to secure full European backing for this historic reunification process.
A lot has happened in the past two decades. The European Community has developed into the European Union. From a total of 12 Member States in 1990, we have now grown to 27. We have established the European single market, created the Euro and, through enlargement, helped to heal the scars left by Europe’s Cold War divisions.
In Ireland, the last twenty years have been a period of achievement. In Northern Ireland, peace has taken root and the institutions set up by the Good Friday Agreement have ushered in a new era of cooperation between the different political traditions in Ireland. In economic terms, Ireland has been transformed on the back of a decade or more of rapid growth. When we joined the European communities in 1973, our per capita GDP was two-thirds of the average. By the early years of this decade, we had exceeded the EU wealth average. The economic success which Ireland enjoyed came about as a direct result of the opportunities available to us within the European Union, coupled with the implementation of major policy changes by the Irish Government. It is no coincidence that Ireland’s rapid economic advancement can be dated from the emergence of the Single European Market in 1993, for the single market proved to be an ideal environment for the trade-oriented, business-friendly country that Ireland has become.
Challenges in the Irish Economy
In common with other industrialised states, we have recently faced significant difficulties. The events of the past eighteen months have shaken the global economy. While no country has escaped its effects, as a small, open economy, Ireland has been affected more than most. After all, our total trade amounts to 150% of our GDP, which makes us one of the most trade-dependent economies in the world.
I want to share with you some thoughts on how we are addressing these challenges and then move on to the economic issues that now arise at an EU level.
Like other countries, Ireland has encountered problems in our public finances and in our banking sector. The Government’s strategy is designed to restore economic competiveness and we are determined to bring our Government borrowing under the 3% threshold by 2014 and have detailed plans to achieve this.
2009 proved to be an extremely challenging year for Ireland. A dramatic slowdown in our construction sector compounded the effects for Ireland of the global financial crisis. GDP is estimated to have contracted by more than seven per cent in 2009. As a consequence, unemployment has increased. On the plus side, the Irish economy has shown itself to be very flexible. Wages and price levels are adjusting to the new circumstances and our competitiveness is improving. Relative to other countries, Ireland’s exports have held up well, underpinned by strong growth in sectors such as pharmaceuticals and chemicals.
Economic activity in Ireland is expected to pick up in the second half of this year. Over the period 2011-2014, we envisage that GDP in Ireland will grow by an average of around 4% per annum, driven mainly by increased exports.
The Irish Government’s strategy for restoring our public finances has met with the approval of the EU Commission, the ECB, the OECD and the IMF. Difficult decisions have been taken to reduce spending. Measures introduced last year included a broadening of the tax base, reducing public sector salaries and social security payments and curtailing expenditure across all Government Ministries.
Ireland’s debt level will rise in the coming years. At present, it stands at around 64 per cent of GDP, which is well below the Euro Zone average of 78 per cent. In fact, when account is taken of the Exchequer cash balances and the assets of the National Pensions Reserve Fund, the net debt ratio was estimated at 38 per cent of GDP at the end of 2009.
Our efforts at controlling our finances have paid dividends in terms of a reduced cost of borrowing. The interest rate which Ireland currently pays on its bonds is considerably lower than it was last year.
The Financial Sector
Mistakes made by our banking sector have required exceptional measures to be taken in order to secure our financial system. In September 2008, we introduced a guarantee of bank liabilities and have since nationalised one Irish bank and recapitalised others.
In order to remove encumbered debt from the balance sheets of our banks, we established a National Asset Management Agency which will manage these loans and the assets supporting them for a number of years. The aim is to facilitate the flow of credit to viable businesses and households.
We have also moved to strengthen supervision of the financial sector, through the establishment of a single fully integrated regulatory institution, the Central Bank Commission, with responsibility for both the supervision of individual firms and the stability of the financial system generally.
Looking forward, we continue to be one of the most attractive locations for foreign investment. Our straightforward, transparent corporate taxation system, along with relatively low labour taxes, provides a positive environment for foreign investors, including many leading German firms. We are firmly committed to maintaining our 12½ per cent corporation tax rate. We have also introduced significant tax credits for research and development
We have made significant efforts to improve our competitiveness and, because of the adjustments made last year, Irish labour costs improved significantly relative to the Euro area as a whole. The European Commission’s Autumn 2009 forecast shows Ireland achieving a seven per cent improvement in productivity vis a vis other Euro Zone countries.
We remain an exporting nation and the future of the Irish economy clearly depends on our ability to export. Productivity and competitiveness are the keys to export success and these are leading priorities for us at present.
The broader European perspective
The European Union has a proud record of achievement. It has helped to rebuild Europe after the traumas and wreckage of war. It has ushered in an era of stability and prosperity. This question is sometimes asked, what is Europe’s mission in today’s world? The answer is that the European Union now has many interrelated tasks and the Lisbon Treaty provides the means for their achievement. Chief among these is the goal of helping secure Europe’s prosperity in a changing global environment.
There is much to be done if Europe is to prosper in light of intensifying competition from emerging economies. When one looks at the progress made by countries such as China and India in the past two decades, it is clear that we need to work together to make our European economies more competitive. This will not be easy and there can be no absolute guarantee of success.
One very clear lesson from the recent crisis, however, is the profound inter-dependence of our European economies. This is why we must work at European level to remove the remaining obstacles to the realisation of the full potential of the Single European Market. That is why we must take the relevant steps to strengthen the stability of the Euro Zone.
Recent indications suggest that the global economy is slowly recovering. It is clear, however, that there will not be a rapid return to normal economic conditions. There is need for a determined effort to create the conditions for recovery in the real economy. This means more investment, increased exports, greater innovation and, most important of all, more job creation.
It is clear to me that Europe will not succeed in the years ahead with a ‘business as usual’ approach. Our future prospects lie with the creation of a ‘smart economy’. There is a need to commercialise the knowledge that exists in our Universities and other places of learning. Economic innovation needs to become Europe’s watchword. Competitiveness must be put at the heart of the European agenda.
I believe that the Union is responding well to these new economic horizons. Only last month, the Spring European Council agreed the broad outlines for a new programme to replace the 10 year-old Lisbon Strategy. We have to be honest with ourselves and acknowledge that the Lisbon Strategy’s headline goal of turning the Union into the ‘most competitive and dynamic knowledge-based economy in the world’ was not a complete success. There are lessons to be learned from this experience. These have been used in shaping the new strategy, which is known as the European Strategy for Jobs and Growth or Europe 2020. It will be formally adopted at the June European Council.
Ireland fully supports the core elements of the new Strategy, which include a sharp focus on knowledge and innovation, on a more sustainable economy, on high employment and on social inclusion. These are all in line with our own national strategy, which is entitled Building Ireland’s Smart Economy.
Europe 2020 establishes five headline targets. This is a good idea as the Lisbon Strategy clearly lacked focus on account of having too many targets. The Europe 2020 targets cover:
- research and development, including innovation;
- climate change and energy;
- education; and
- social inclusion, in particular combating poverty.
Speaking at an educational institution, and as a former Education Minister, I can say that I am especially pleased to see education included as a headline target. Social inclusion is also a vital concern, for it is clear to me that the European Union cannot thrive without a strong social dimension. This was something that emerged during the debate we had in Ireland concerning the ratification of the Lisbon Treaty. It is why we secured a Solemn Declaration on social policy as part of the package of measures agreed in June 2009 in response to the concerns of the Irish people regarding the Lisbon Treaty. Our Solemn Declaration underlined the Union’s aim to combat social exclusion and discrimination and to promote social justice. In the case of the education and social inclusion targets, further work is needed to be done to reach numerical rates and appropriate indicators respectively. These are important targets and it is essential that we get the rates and indicators right, so that they are relevant and appropriate right across the entire the Union. The European Council will return to elaborate upon these targets at its June meeting.
Significant work remains to be undertaken on Europe 2020, for example on the elaboration of the headline targets on education and social inclusion; on the development of national targets by each Member State; and on the identification of bottlenecks constraining growth at national and EU levels.
The Europe 2020 strategy also focuses on the transition to a low carbon, green technology economy based on environmentally sustainable use of resources. This is an area where the EU enjoys a competitive advantage and there is considerable scope for us to make further advances in the field of green technology. This will have the added-advantage of improving our energy security situation.
Ireland takes the view that the prime thrust of Europe 2020 must be towards the creation of sustainable employment. We cannot permit so many lives to be blighted by unemployment, so much potential to go untapped.
In a city like Munich, there is ample evidence of the potential of high technology industries to deliver substantial benefits. Europe needs to harness fully the potential of its people. We need to develop our strengths in the life sciences, in nanotechnology, in pharmaceuticals, in biotechnology and in medical devices. That is where our future lies.
The Lisbon Treaty has given a key role to the European Council. It has already met on a number of occasions under the direction of President Van Rompuy, who has made a positive impact with his thoughtful and incisive approach to his new role. The European Council now has the capacity to define, at the highest political level, the Union’s future political direction and priorities. The Union’s success is, as always, dependent on the political will of the Member States and the sense of solidarity between them. During the more than 50 years since the signing of the Treaty of Rome, those qualities have asserted themselves time and time again.
The European Union has come a long way during its 50 year history. Our journey continues. Whereas these first five decades of our European journey have been characterised by a healing of historical wounds, there is now a quite different agenda to be tackled.
The post-Cold War world is one in which the threat of major conflict has been greatly reduced. The nuclear-armed stand-off that marked the four decades after the Second World War is no more and there are now good prospects for genuine progress on nuclear issues. At the same time, new threats have emerged and this is why the Lisbon Treaty gives the European Union new capacities for dealing with international issues, including the appointment of a High Representative for Foreign Affairs and Security Policy and the creation of European External Action Service.
Never has it been more important that Europe should speak with one voice in global affairs. We have the potential to make a distinctive contribution to the search for global peace and security.
The Lisbon Treaty gives the Union the capacity to act as a strong and coherent, collective voice for the Member States on such issues as climate change and energy security as these are issues that cannot be dealt with by individual States acting in isolation.
The Union now has the opportunity to argue for a more equitable international order, which will help avoid future conflict and upheaval. The Union’s voice can also be effective on issues of international economic governance, at the WTO and within the G20 for example. The Lisbon Treaty also affords opportunities for a more rounded EU approach to its relations which Russia, China, India and other emerging economies.
Europe’s future rests in our own hands. We enjoy many economic advantages. We have a rich heritage of economic innovation. By combining our energies and talents in areas where collective effort is required, we can shape Europe’s economic future. With the Lisbon Treaty, we now have the tools with which to do so. It is up to us to use them wisely and well.
Thank you very much for your presence and for your kind attention.
29 April 2010