Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

I thank Deputy Catherine Murphy for tabling the motion, which allows us to discuss a very important issue for Ireland and Europe. I hope that in our discussions over the next two evenings we can have a reasonable debate on an issue that is currently at the centre of much dialogue in the euro area. At the heart of the initial motion proposed is the idea that public debt in Ireland and some other euro area members is unsustainable and the suggestion is that a lack of solidarity among member states has contributed to this. These suggestions are wrong.

First, I want to address the suggestion that economic recovery is being restrained by public debt. This morning, the Central Bank published projections that GDP would grow by 3.7% this year and 3.8% next year, following growth of over 5% last year. These figures are broadly in line with my Department's projections published alongside the budget. Importantly, domestic demand - that is consumer and business spending - is making a positive contribution to growth for the first time since the crisis began.

This year, the level of GDP in Ireland will likely return to its pre-crisis peak. However, it will be more balanced than during the bubble years, not relying too heavily on any one particular sector. This is a very positive development and reflects the Government's management of the economy.

Recovery is perhaps most clearly evident in the labour market, with employment having increased in each of the last eight quarters. Put another way, the level of employment has increased by 80,000 since the low-point in mid-2012. Unemployment has fallen significantly and this decline is projected to continue. So while there is more to be done, we are certainly moving in the right direction.

In this regard, the Cabinet held a special meeting on jobs last month and agreed to a range of measures to ensure the delivery of three key employment targets ahead of schedule: ensuring 40,000 additional jobs in 2015, which, when combined with the 80,000 new jobs already created since the launch of the Action Plan for Jobs, will ensure the Government's original target of 100,000 new jobs by 2016 is beaten; ensuring unemployment falls below 10% this year, ahead of forecasts when the Government took office; and delivering full employment in 2018, two years earlier than anticipated. To facilitate the delivery of these targets, the Cabinet agreed to update medium-term economic and job creation strategies in a range of areas in 2015. It is clear that whatever it is doing the debt burden is not inhibiting economic growth because we have the highest growth levels in Europe and we are creating more jobs relative to our labour force than anywhere else in Europe.

I turn now to the suggestion that our debt burden is not sustainable and that it was somehow imposed on Ireland by other member states. Our debt is sustainable, which is evidenced by the fact that borrowing costs are the lowest on record. Our debt-to-GDP ratio peaked in 2013 at 123% and fell to an estimated 110% last year. This figure is above the EU average and we must continue to reduce it but importantly, the figure includes a substantial amount of liquid and semi-liquid assets built up in order to ensure a smooth exit from the joint EU-IMF programme at the end of 2013. On foot of this our net debt - that is excluding liquid assets - amounted to around 90% of GDP last year, which is close to the European average. Furthermore, this net figure will decline over time as we dispose of our banking assets. These are currently valued at just €15 billion but I am confident that with ongoing economic recovery we will recover at a minimum the €18 billion that the Government invested and up to the €30 billion invested in the pillar banks and PTSB. The debt ratio will further benefit from the successful liquidation of IBRC over time. In addition, the repayment profile has improved substantially and major funding cliffs have been removed through the extension of maturities on EFSF and EFSM loans, refinancing of IMF loans and normal debt management operations. There will be no repayments on EU loans until 2027 at the earliest. The replacement of the promissory notes with long-term government bonds involves significant savings for the State.

The NTMA announced that it intends to raise €12 billion to €15 billion in 2015 and has already had considerable success, accessing seven-year funding at less than 1%. Indeed, the last €500 million in six-month treasury bills was raised last week at an annualised yield of 0%. This morning a 30-year bond of €4 billion was raised at an interest rate of 2.08%. There were 385 separate investors from throughout the world. They believe we are sustainable for the next 30 years and are prepared to give us 30-year money at just over 2%.

The Government has made major inroads into making our debt more affordable and minimising its impact on the economy. As our European colleagues have provided the necessary support for this, I reject suggestions that there is any lack of solidarity in the Union.

It is also important to correct the misperception that Ireland's debt is mainly due to banking debt. In fact the bulk of our debt relates to the mismatch between revenue and expenditure as a result of inappropriate policies adopted during the 2000s. All the earlier contributions on the motion were about debt, banking debt and our European colleagues when everybody in Ireland knows that the main reason for the collapse in the economy were the people who sit in the benches opposite. This evening they have disappeared. Fianna Fáil wrecked this country and nobody else. It caused the problems of poverty, the housing crisis and all the other problems that were enumerated across the House this evening, in case Deputies have forgotten what happened.

In the period 2008-14, the cumulative underlying deficit - the gap between the income and expenditure of the State on services and excluding banking support - totalled €100 billion. Some €100 billion of the debt between 2008 and 2014 was because expenditure was ahead of tax and the gap was bridged by borrowing. Some €100 billion was borrowed for health services and education and all public services. If we are to debate the issue, we should at least agree on the facts. The bulk of the Irish debt is due to the fact that the previous Government not only destroyed economic activity but destroyed the tax base. We were left with a situation where the taxes collected were no longer sufficient to fund the day-to-day running of the public services in the country. As a result, just under one fifth or approximately €40 billion of our gross debt relates to banking support, at least part of which will be recovered over time in a manner that maximises value for the taxpayer. NAMA is disposing of its assets at a faster pace than initially expected and, in all likelihood, NAMA will be wound up before 2020, thereby eliminating an important source of contingent liability for the State.

The majority of the banking-related debt in our national debt is associated with IBRC. As a result of the accounting treatment applied, the total cost of Anglo Irish Bank was added to our debt in 2009 and 2010, the two years following the banking guarantee and years in which Fianna Fáil injected just under €35 billion of taxpayers' funds into Anglo Irish Bank. As a result of the promissory note transaction and the successful liquidation of IBRC, the main legacy cost of this on the national debt is the portfolio of eight floating rate Government bonds totalling €25 billion. The first bond does not mature until 2036, with the final bond maturing in 2053. The misconception is equally true when it comes to the cost of servicing the national debt. The factual position is that, of the €7.5 billion in interest payment we face in 2015, when account is taken of the various asset sales and circular flows of income, only around €800 million is bank related. Slightly more than 10% of the interest paid on the national debt is interest paid on the debt incurred in bailing out the banks and the bad decision to fund Anglo Irish Bank through promissory notes. If we are to debate this seriously, let us stick to the facts. The debt we in Ireland must pay for and sustain through interest rates is the accumulation of historic debt together with deficits that have been run since 2008. We are still running one this year and that is why we are trying to get deficits below 3% and then bring in a balanced budget by 2018 so that we are no longer building up debt.

There is another misconception that if it were not for the interest costs, banking related or otherwise, we would have billions in additional capacity to spend on day-to-day expenditure. Again, this is not the factual position. Looking to the future, interest costs are not included in the calculation of the expenditure benchmark and will have no impact on the available fiscal space. This is an important issue to bear in mind.

Before continuing, I want to say a few words about reforms that have taken place in the EU and particularly in the euro area since the crisis began. At its heart, the EU is a community of nations that came together because they realised that working together, compromising and reaching negotiated solutions was infinitely better than going to war. This was the foundation of our Union and it remains as true today as ever. Over the decades, the Union has increased in size and geographical spread but the basic principles have been always maintained and respected. I strongly dispute any suggestion that this is not the case.

It is fair to say the financial crisis and subsequent euro area debt crisis highlighted flaws in the design of economic and monetary union. Broadly speaking, the policy response has centred on retro-fitting the monetary union with the tools to make it operate more efficiently - a strengthened fiscal framework, enhanced economic surveillance and progress towards a banking union - and these are very much consistent with the principles of solidarity and mutual respect.

As a Union, we are now in a much better place. In recent weeks, financial markets in Greece have been adversely affected through declines in the stock market, capital outflows and increases in bond yields, although markets appear to be treating Greece as an outlier rather than a source of contagion. This is encouraging and suggests the firewalls created, especially outright monetary transactions, OMT, and governance changes made during the crisis appear to have the desired effect.

While the governance changes have improved policy making and the resilience of the European economy to shocks, I am conscious of the need for a greater focus on jobs and growth in Europe. This was a major theme of the Irish Presidency in 2013. The data flow has not been particularly encouraging of late - GDP in the euro area remains well below its pre-crisis peak and activity has virtually come to a standstill in the past year or so. This has manifest itself in unacceptably high levels of unemployment and social exclusion.

Our overriding emphasis now has to be on economic growth, that is, growth based not just on sound public finances and ongoing structural reform but also growth driven by productive investment. We need economic growth at a rate sufficient to get people back to work as well as to re-establish the commitment of our citizens to the European ideal that has been damaged in recent years.

In the past six months, ECOFIN has held substantial debates and took important decisions on how to create durable conditions for sustained growth and job creation, most notably on structural reforms, investment and market integration. We must have a comprehensive and co-ordinated approach to realise the full potential of our economies. In this regard, a three-pronged strategy is needed. First, there is a need for differentiated fiscal policies - those member states with fiscal space should use it, especially when borrowing costs are so low. Second, there is the role of monetary policy. The announcement that the ECB would undertake a widescale programme of bond buying to reduce financing costs for households and firms is certainly welcome. The potentially open-ended nature of the programme is also positive and has sent a strong signal that the monetary authorities are responding to the problems. Finally, member states need to undertake structural reforms to unlock the growth potential of their economies. I welcome the clarification provided recently by the European Commission that, under certain conditions, the fiscal cost associated with structural reforms will be excluded from deliberations on the Stability and Growth Pact. Investment under the so-called Juncker plan will be also treated favourably.

The European Union was formed out of a desire to forge a common destiny, while retaining a national identity. In this regard, solidarity and mutual respect among nations has been key to the restoration of economic growth in Ireland. It is fresh in the minds of the people of Ireland, the support that was sought from our European colleagues and the international institutions in terms of the programme of financial assistance in 2010.

We have successfully exited the EU-IMF programme and we have the fastest growing economy in Europe. In the most recent budget, we were in a position to invest in public services and to reduce the tax burden on individuals. The Irish people have made major sacrifices to achieve this economic and financial stability and this must not be taken for granted. While the people of Ireland firmly took control of the destiny of this country by making important sacrifices, it is important that we acknowledge the role of our European colleagues, particularly in ensuring our debt burden is sustainable.

In the run-up to the Greek elections, the issue of a debt conference was raised and has since garnered a lot of attention. My view, and that of the Government, is that when countries encounter difficulties, a process of negotiation is always better than one of conflict. Recent comment form the newly-elected Greek Government suggests this is a view shared in Greece. Specifically in the case of euro area member states, all programme negotiations have been conducted between the Finance Ministers and Prime Ministers of democratically elected Governments in member states within the Eurogroup, ECOFIN and the European Council, with institutional involvement as appropriate. My view is that these are the appropriate fora for resolving outstanding issues in the best interest of Europe.

When I was asked what would happen if Syriza won the election in Greece and wrote off debt, I expressed the view that it probably would not seek to write off debt in a unilateral fashion because I had read its election manifesto and it had proposed a debt conference. I made the point that if it was proposing a debt conference, its intention was to negotiate rather than take unilateral action. That is the context in which I was talking about a debt conference.

I read practically everything that has been said by the Greek Prime Minister and Finance Minister in recent days. I have not come across any proposal from the new Government on putting in place a debt conference. It has said it will not negotiate with the troika but it seems to be negotiating with the ECB and the European Commission, although it has been silent on the IMF.

I wish the Greek Government well because Greece has suffered much more than Ireland. The 25% of the Greek population who are unemployed have no social assistance after 12 months. Effectively they have to live as best they can in the black economy or through charity. In such circumstances, I can understand why the new Government committed in its election manifesto to providing food stamps and free electricity in the winter months to 300,000 people. It would, however, be a mistake to say the position in Ireland is comparable to that of Greece. Greece has an extraordinarily weak economy and it is in a very bad situation. There is solidarity in Europe in terms of assisting the Greek Government and people, and we will see how that develops in the coming weeks and months.

The solution for heavily indebted countries is growth. I hope the Greek economy can grow again. If one takes Ireland from 1995 to 2005 as a model, our general government debt was €43 billion in 1995, or 80% of GDP. The debt had increased by €1 billion by 2005 but it was only 26% of GDP. This demonstrates the point that national debt is usually rolled over rather than paid back. The proportion of GDP taken up by debt is the significant figure. During the 1990s, employment in Ireland grew by approximately 50%. Do the people who used to speak about debt default in Ireland really believe that Ireland should have defaulted in 1995?

See this speech in context