Mr. Valdis Dombrovskis:

Good morning distinguished Members of the Seanad and Dáil. I thank the Chairman and members for welcoming me to Dublin and giving me this opportunity to come to the Oireachtas to discuss the European semester and economic developments in Ireland and the European Union.

My visit is taking place in the context of the European semester, which has become our main economic and fiscal policy co-ordination tool, and we have an opportunity to discuss with member states key fiscal, economic and social challenges. In the European Semester Office we prepare country reports. In line with the practice established last year, we sent the analytical parts of the draft country reports to the member states, waiting for their factual comments and inputs. The negotiated country reports provide countries with the opportunity to view the factual feedback. We found it quite useful when we first did it last year.

As regards the situation in Ireland and Ireland's position as regards the European semester, first, we have seen strong economic growth in Ireland last year, close to 5%, and this year the economic growth is close to 4%. The economy is developing, unemployment is reducing and job creation is proceeding at a good pace. All in all, we see positive developments in the Irish economy.

As regards Ireland's fiscal performance, Ireland has made a major adjustment since the crisis and this year we expect Ireland to meet its medium-term budgetary objective. According to the European semester, we set the medium-term budgetary objectives for each EU member state to meet. In the case of Ireland, it is 0.5% of GDP structural deficit and now we forecast that Ireland will actually reach the medium-term budgetary objective. What is important is that public debt is reducing. The figures for public debt need to be interpreted with caution because in 2015 there was a major readjustment of the calculation of Irish GDP and also the debt-to-GDP ratio decreased very rapidly, but if we use other measures to do this assessment, like public debt per capitaor public debt per tax revenue, we still see that Ireland has quite high public debt and is exceeding the Maastricht criteria threshold of 60% of GDP. It is important to stay the course and continue to reduce the public debt. It is also important in the context of potential economic shocks, which Ireland may face. In our assessment, a most immediate and imminent issue which we will need to deal with is Brexit. Brexit is a potential source of uncertainty, especially in Ireland which has the closest economic links with the United Kingdom from the EU 27 countries. The European Union is ready to stand by Ireland and support Ireland in this process and also to address negative economic consequences that Brexit may bring.

As regards the European semester, we also issue country-specific recommendations to address certain challenges which we think are important. In the case of Ireland, we have three country-specific recommendations. First is a fiscal recommendation and I touched on this when I spoke about the medium-term budgetary objective. I stressed the need to continue to reduce public debt. In terms of the privatisation of public expenditure, we propose to prioritise investment, especially in areas of transport, energy, water supplies and also to enhance social infrastructure, including social housing and child care facilities. This is one of the directions where we think there are infrastructural bottlenecks which need to be addressed.

On the social side, we see that while unemployment is decreasing, there are still issues in terms of activation policies and a relatively high share of low-skilled workers. The level of participation of women in the marketplace is below the EU average. We recommend the delivery of an integrated package of activation policies to improve the employment prospects of certain categories of people.

Our third recommendation concerns the financial sector and the need to address the level of non-performing loans. This is in a sense a legacy of the crisis not only in Ireland but in many European countries, so we are currently developing action plans to reduce the number of non-performing loans at EU level.

It is worth pointing out that, primarily, this is still the work of the member states and much progress has been done on this in Ireland. In mid-2017, which are the latest verified figures we have, the non-performing loans, NPLs, ratio stood at 11.6%, which is still high compared with most historical levels and with other EU countries. Further work is needed on NPLs. We will also be bring forward an action plan to reduce NPLs at European level, working on several directions, requiring banks to put sufficient means or to create sufficient buffers to cover losses if new loans become non-performing, to tackle delays in debt recovery, and, in terms of insolvency and loan enforcement frameworks, to open up secondary markets. We will bring forward a blueprint on how to set up national asset management companies within the EU state aid and banking union framework. Of course, Ireland has the National Asset Management Agency, which is already working. Perhaps this work theme is not so relevant in the case of Ireland. Those are our main findings in terms of the European Semester. Overall, in Europe we currently have good economic development. The latest figures show that last year we had 2.5% growth both in the EU as a whole and in the euro area. We should be using this good economic momentum to continue the work on deepening the economic and monetary union, EMU.

I will say a few words on that work stream. As the members will be aware, in December the European Commission put forward a package of proposals on how to proceed with deepening the EMU. We consider the most immediate priority to be the completion of the banking union and capital markets union. In the case of the banking union, all the elements are already on the table. I refer to our bank reform package, which we put forward in November 2016, which mainly concerns risk reduction, and the ongoing work on reducing non-performing loans. Also, last October we came forward with some ideas on how to unblock the discussions regarding the European deposit insurance scheme. We believe it is important to reach an agreement on the fiscal backstop for a single resolution fund. We believe this can be done on the basis of the European Stability Mechanism or, potentially, as we propose to transpose it to the European monetary fund.

Looking forward in terms of deepening EMU, we want to reach two objectives to strengthen the resilience of the EMU and to improve the crisis management tools of EMU. In terms of resilience, there are the risk reduction measures, which I already described, but also a continued focus on structural reforms. We have some proposals on how we can further support structural reforms in member states. We propose a structural reform delivery tool as a support mechanism and we propose to extend our existing structural reform support programme.

In terms of crisis management tools, we already have the European Stability Mechanism, ESM, which we propose to strengthen and transpose into the European monetary fund, anchored in a European Union legal framework. We propose to create a euro area of fiscal stabilisation function to help countries to address large economic shocks, asymmetric economic shocks, and this euro area of fiscal stabilisation function could take place in a form of European investment protection scheme. The problem is often that investment is the first item to be cut in times of fiscal strain and then it undermines the recovery and potential growth of a country. Therefore, we propose this European investment protection scheme to sustain a level of investment during the crisis.

We also propose to have a dedicated convergence facility to support those EU member states which are working towards euro adoption. Primarily, I am talking about technical assistance and, in some cases, it can also be financial assistance. It will send an important signal that the euro area is open and transparent to non-euro countries, that we do not want to create new dividing lines in Europe and that we are willing to support those countries which are working towards euro accession. That, at a glance, outlines the main ideas and elements of our deepening of the EMU package. Those are my introductory remarks and I am open to hearing members' comments and taking their questions.