Ireland: "Significant Progress On The Road To Economic Recovery"

With the successful launch of the bank recapitalisation plan, the publication of the Central Bank Reform Bill and the agreement secured with the public service unions, the Irish government has made significant progress this week on the road to economic recovery. Ours is a three pillared strategy focussed on:

• stabilising the public finances;
• repairing the banking system; and
• improving competitiveness and fostering sustainable employment.

The agreement on the transformation of the public service includes proposals on public sector pay up to 2014, a reduction in public service numbers and a cost-saving re-configuration of public services which will maximise productivity gains.

Implementation of the deal will contribute to a stable industrial relations climate as the country emerges from the global economic recession.

The Government has moved swiftly to address the regulatory weaknesses which were exposed by the global economic and financial crisis. A new Central Bank Governor and a new Financial Regulator have been appointed and the Central Bank Reform Bill will enhance Central Bank accountability and parliamentary oversight, thus safeguarding the interests of consumers and investors.

The announcement this week by the Financial Regulator that banks will be required to hold a level of 8% core tier 1 capital (principally in the form of equity) by the end of this year is consistent with best international practice. This is a core measure of a bank's financial strength which, as the Financial Regulator put it himself, will draw a line under our banking crisis and the Governor of the Central Bank has said that these costs will be both manageable and affordable for the State.

There is no doubt that there were shoddy banking practices here with banks engaging in reckless property lending. But the new National Asset Management Agency (NAMA), established by the Irish government and approved by the European Commission, will ensure the safety, stability and capacity of the Irish banking system.

NAMA will remove the riskiest assets from the banks' asset sheets. The process of transferring eligible loans from designated financial institutions has begun and we expect it to be completed by the end of the year with the transfer of assets with a book value of €80 billion in total.

NAMA is purchasing the first tranche of these loans at a 47% discount of their original book value of €16 billion. Some of these losses will be met by the banks themselves by raising private capital and selling assets. But the unavoidable reality is that the state will also have to inject capital. This puts an unpalatable burden on taxpayers but one which we must face up to in order to ensure a functioning banking system which can provide credit to small businesses and lead the country out of recession. Indeed, the Government has placed specific lending targets on the relevant banks which will oblige them to provide credit facilities for small and medium enterprises.

Over the last two years we have made budget adjustments equivalent to 7 1/2% of GDP and these tough decisions have given us the fiscal credibility to tackle our banking problems. We have engendered real confidence in our economy on the international stage and have reaped the benefits through falling borrowing costs and a halving in our bond spreads. Ireland's budgetary policy during the global economic crisis has met with the approval of many, including the European Commission, the European Central Bank, the OECD and the IMF.

The economy is expected to return to growth in the second half of this year and, by fixing the banks, our economy will grow faster. Over the period 2011 to 2014 our GDP is expected to increase on average by around 4% each year and this growth will be driven by exports. Indeed, the latest figures show the country ran a trade surplus of over €38 billion last year.

The factors which facilitated our recent economic success remain and Ireland continues to be a very attractive location for business. We are part of the European Union and the eurozone with full access to Europe's Internal Market. We have a young, highly educated, flexible workforce, a favourable business tax regime, an export-oriented, open economy and a pro-enterprise focus.

The global economy is improving and we are confident that we will take advantage of the upturn. The Irish economy is very flexible with a track record of fast adjustment.

Micheál Martin T.D is the Minister for Foreign Affairs of Ireland