Martin Mansergh (Tipperary South, Fianna Fail)

For the information of the House, copies of my speech will be ready in about ten minutes, before I have finished speaking.

I can think of few more topical and important subjects to be discussing today on the economic front. Following the meeting of the European Council on 11 February, the heads of state and government issued a statement supporting and defending the integrity and cohesion of the euro area against a background of the recent global economic and financial crisis. In the context of difficulties related to the budgetary and economic position of Greece, they stated that euro-area member states will take determined and co-ordinated action, if needed, to safeguard financial stability in the euro area as a whole. This statement sent an important signal to the public and to the markets.

There has been considerable concern and extensive media comment regarding the position of Greece and possible spillover effects across the euro and EU areas. Last week's European Council made clear its full support for the efforts of the Greek Government and its commitment to do whatever is necessary, including adopting additional measures to those already announced, to ensure the ambitious targets set out in the Greek stability programme for 2010 and the following years are met. The Council called on the Greek Government to implement all these measures in a rigorous and determined manner to reduce effectively the budgetary deficit by 4% of GDP in 2010. The statement also acknowledged that the Greek Government has not requested any financial support.

The position taken on Greece implicitly reminds all concerned that the Stability and Growth Pact, and adherence to its rules, continues to provide an essential framework for sound budgetary policies, and that there has to be a continued firm commitment to the pact in these difficult times.

At their meeting last evening, the eurogroup — the economic and finance ministers of the euro area — expressed confidence in the plans of the Greek authorities. They agreed that Commission would report further next month on the implementation of budgetary measures by Greece and that additional measures would be taken, if considered necessary, to secure the budgetary targets for 2010.

Earlier today, the Ecofin Council adopted a comprehensive and ambitious package of recommendations to Greece, covering fiscal and structural policies, based on proposals from the European Commission and following discussion with all member states. These recommendations require that the Greek authorities take steps to reduce the deficit on the public finances below 3% of GDP by 2012, in line with their obligations under the Stability and Growth Pact. They are also invited to implement specific economic reforms considered consistent with the smooth functioning of the euro area.

As envisaged by the European Council, the EU Commission will closely monitor implementation of the recommendations in liaison with the ECB, and will propose necessary additional measures, drawing on the expertise of the IMF. A first assessment will be done in March.

With regard to Ireland's response to the Greek situation, we welcome the efforts of the Greek Government to tackle the substantial economic and fiscal challenges which the country faces. These measures are key to addressing the fiscal and competitiveness challenges of the Greek economy. We also welcome recently announced measures which clearly show the determination of the Greek Government to consolidate the public finances and restore competitiveness. There is an urgent need for these measures to be implemented in order to regain the confidence of financial markets.

We are very supportive of the Greek Government in its plans to deal with a difficult economic and fiscal situation. This is primarily in the interest of Greek citizens, but also in the common interest of all euro area countries and the entire EU. We are confident that the necessary measures will be implemented speedily and efficiently, and that the Greek authorities will succeed in overcoming the fiscal and macro-economic challenges they face. We also note the important contribution of the Stability and Growth Pact in the context of the fiscal consolidation which is under way in Greece.

It is important to highlight the commitment of the EU to deal with the crisis, which began in 2008. From the outset of the global economic and financial crisis, the EU has taken decisive and concerted action to mitigate its impact and to position the European economy for future recovery. Last week's statement from the European Council should be seen in this context.

In December 2008, the European Council announced a major European economic recovery programme. This has involved concerted action of the order of 5% of GDP in 2009 and 2010, in support of the European economy through a range of fiscal stimulus measures and economic supports, as well as measures to support restoration of the normal functioning of the financial sector and a resumption of a flow of credit to the real economy.

The European economic recovery programme also took account of the position of member states, such as Ireland, where the overall priority is to restore stability to the public finances, while also taking action to support international competitiveness and to position the economy for future growth.

Measures taken by member states under the programme are designed to be timely, temporary and targeted in their impacts. Some member states are out of recession and starting to recover, while others have been more severely hit by the global downturn and financial turmoil, and their economies will take longer to recover. As the latest EUROSTAT figures show, recovery remains fragile, with GDP growth of only 0.1% in the EU-27 in the final quarter of 2009, and some continued stimulus will be required until it becomes self-sustaining. The average EU budget deficit will be approximately 7.5% of gross domestic product in 2010, taking account of stimulus measures, rising social protection expenditure and depleted revenues. Accelerated spending through the EU budget of €6.25 billion has seen earlier implementation of certain Structural Fund programmes. Member states' short-term labour market measures have provided a measure of protection to jobs, but unemployment in the EU is lagging developments in the real economy and will exceed 10% by the end of 2010. Public indebtedness due to rising deficits and interest payments is now a key policy challenge.

There is a general consensus within the EU and in the G20 that fiscal consolidation will need to be combined with progress on structural reforms to support medium to long-term growth and jobs. In other words, in future there will be a more integrated approach as far as possible. The recent international financial crisis is a stark reminder of just how interconnected global economies have become and of the need for the Union to act decisively if it is to avoid the risk of slipping behind globally.

As well as restoring sound public finances, it will be equally important to promote investment in new sources of growth and social cohesion. In most member states, economic and structural reforms will be essential to offset the detrimental impact of the crisis on potential output. The EU has been developing a strategy to do this.

One of the topics discussed at last week's European Council and which has received relatively little attention was the planned successor to the Lisbon strategy for growth and jobs. Europe 2020, as this new strategy is currently called, aims to provide the means by which sustainable growth and jobs can be generated in the EU. It will do this by providing a reform agenda and the framework to ensure it is pursued at EU, eurozone, member state and, where appropriate, regional levels.

The Lisbon strategy for growth and jobs, which has been in place since 2000, is due to expire this year. It encouraged member states to engage in a programme of wide-ranging structural reforms to enhance the growth potential of the EU economy. Before the global economic and financial crisis, the strategy had helped create more than 18 million jobs within the EU. The post-crisis challenges now facing the EU, including long-term issues such as ageing populations and climate change, require an acceleration of reforms to increase sustainable economic growth and generate employment. This requires a new strategy for long-term structural reforms across the EU. Ireland has been a strong supporter of the Lisbon Agenda and is committed to ensuring its successor, the Europe 2020 strategy, due to be formally endorsed by the European Council later this year, will provide a new and positive departure towards ensuring sustainable growth and jobs in the EU.

As the time approaches for the withdrawal of short-term support measures implemented under the European economic recovery plan, the new EU 2020 strategy will play a vital role in facilitating the implementation of structural reforms across the EU, which will help achieve sustainable economic and employment growth over the long term. In essence, EU 2020 represents the exit strategy from the current short-term fiscal stimulus measures across the EU which, obviously, are not sustainable in the long term.

The challenges of increased unemployment, increased budget deficits and low potential growth highlighted by the recent crisis emphasise the need to retain the focus on sustainable growth and employment. It is expected that the new strategy will be pursued through a better functioning Internal Market, more efficient and inclusive labour markets and increased openness with regard to external trade. Finally, EU 2020 will also play an important role in the consolidation of public finances through the stimulation of employment and growth.

The current difficulties of Greece and the associated movements in the international financial markets underline the importance of continuing to take firm and decisive action to restore stability to Ireland's public finances. This in turn will help return the economy to a sustainable growth path. The actions taken by the Government to date, as well as the plan we have set out to restore sustainability to the public finances by reducing the general Government balance to below minus 3% of GDP by 2014, have been well received internationally. For example, the chief economist of the ECB, Jürgen Stark, commented recently that Ireland has won back the trust of the markets.

The 2010 budget was the latest in a series of measures, beginning in mid-2008, designed to restore order to the public finances. The budget re-emphasised the Government's commitment in this regard. Difficult and painful measures were necessary in the 2010 budget. An expenditure adjustment of €4 billion was delivered. As a result of these decisive actions, it is forecast that the deficit will be stabilised in 2010. The Exchequer returns for the end of January 2010 were broadly in line with expectations. The budget also provided for considerable capital investment with €6.4 billion, or 5% of gross national product, provided in 2010 and €5.5 billion each year for the years 2011 to 2016. In addition, tender prices for many new projects have also fallen back significantly, thus enabling us to get better value for money. In 2010, our investment projects will focus on labour-intensive areas such as schools building and maintenance, energy efficiency measures and investment in our tourism infrastructure.

While Ireland's debt level will rise over the coming years, it was relatively low to begin with. General Government debt was estimated at approximately 64.5% of GDP at the end of 2009, below the eurozone average of 78% of GDP. However, when account is taken of the Exchequer cash balances and the assets of the National Pensions Reserve Fund, it is estimated that the net debt ratio stood at approximately 38% of GDP at the end of 2009. In 2010, the National Treasury Management Agency, NTMA, plans to raise €20 billion and already it has raised approximately one-third of this total funding requirement for the year.

Over the past 18 months we have made and implemented difficult decisions. We know that challenges and difficult choices still remain but the Government is determined to continue to take the necessary steps in this regard. This in turn will help return the economy to a sustainable growth path. Alongside fiscal consolidation, the Government is pursuing measures to restore stability to the banking system and reform our regulatory and supervisory structures in line with best EU and international practice. The transfer of assets to NAMA will commence in the coming weeks with the process continuing over the course of the year.

Turning to the outlook for the economy, while the Government is not complacent about the numerous challenges that still confront us and the expectation is that economic activity will contract again this year, there are indications that the economy is stabilising and there are emerging signs that we may be close to the bottom of the current downturn. There is growing consensus among observers that positive economic growth will now return during the second half of this year, although we will have to wait until next year before we experience growth on a full-year basis, as the international recovery gains momentum, competitiveness improves and the domestic economy recovers.

Looking at our economy from a medium to longer-term perspective, our future pattern of growth will, by necessity, be based on a more sustainable export-led growth model. This will require a continued focus on improving our competitiveness and continued reductions in our cost base. Price levels and wages are adjusting to the new circumstances, thereby improving Ireland's competitiveness. Our economy is proving yet again to be flexible and resilient with evidence that the necessary adjustment is under way. Once the necessary adjustments are made, the medium-term outlook is favourable.

The performance of individual member states in sustaining their international competitiveness and dealing with economic imbalances, current account deficits in particular, is increasingly seen as critical to the cohesiveness of the eurozone. This is an important issue and one that is receiving considerable attention within the EU. Eurozone member states are facing important challenges arising from the economic, budgetary and financial implications of the crisis. They are taking steps, however, as we are, to prepare for a return to sustainable growth.

Having considered a detailed report from the European Commission, Ministers are considering appropriate horizontal policy guidelines for the eurozone. It is likely that analysis of this nature will increasingly inform the EU monitoring of macroeconomic performance. The discussions in this area have focused on the need for countries with large current account deficits to reduce them, while it was also accepted that countries such as Germany and the Netherlands, which have run large surpluses from strong export performance, would be urged to stimulate domestic demand.

Ireland is recognised as having taken necessary action to reduce costs, especially public sector wage costs, and regain competitiveness. It is vital we continue with this process. The budget included a number of targeted measures to support economic recovery and employment in 2010. I note a reported warning yesterday from a trade union leader of Armageddon if the Government does not reverse the pay cuts. I am reminded of the old saying, "beware of what you wish for", as I can think of few quicker ways of bringing forward an outcome which could engulf us all, including the public service unions, than the Government agreeing to such a demand. Our external deficit is also improving. The current account of the balance of payments is expected to move into surplus this year as the economy is rebalancing.

In line with other member states, we note and welcome the recent important statement from the European Council emphasising the cohesion and integrity of the eurozone and that, in the context of current difficulties in relation to Greece, determined and co-ordinated action, if needed, will be taken to safeguard financial stability in the euro area as a whole. I understand that at meetings yesterday and today of the finance ministers of the euro area and the EU 27, respectively, the Greek authorities have reiterated their commitment to take all necessary measures to address their budgetary and economic situation. We welcome this and remain confident the Greek authorities will proceed to implement the relevant measures in a speedy and efficient manner.

It is widely recognised the Irish Government has taken difficult but necessary budgetary action to restore stability to the public finances, with €4 billion in cuts this year equivalent to 2.5% of GDP, following cumulative cuts of 5% of GDP in 2009. Recent developments vindicate the action taken by the Government and underline the importance, in all of our interests, of continuing to implement the budgetary consolidation which the Government has set out. We have begun to make progress in improving competitiveness, with necessary price and wage adjustments under way, and in resolving problems in the banking system. We are making headway in addressing all of these challenges and we are confident that with further efforts we can continue to do so.

We remain, however, in very difficult times and it is essential we maintain our resolve to prepare the economy and public finances for future sustainable growth and jobs, and that we are seen to be doing this. As anyone who has been following the financial press will know, this issue has raised many debates about the governance by the EU and the eurozone and of the financial markets. It is important to exercise restraint in commenting on the affairs of partner countries so as to create the maximum space for appropriate action.