Returning to Economic Growth, May 2010
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Returning to Economic Growth, May 2010



Fianna Fáil Economic Policy and

Fianna Fáil Economic Policy and



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Returning to Economic Growth, May 2010 Returning to Economic Growth, May 2010 Presentation Transcript

  • Returning to Economic Growth May 2010
  • Our plan for economic recovery is working
    • Restoring order to the public finances.
    • Repairing the banking system.
    • Regaining competitiveness to create new jobs.
  • Much has been achieved on the public finances
    • Fiscal correction of 5 per cent of GDP in 2009 and 2½ per cent of GDP in 2010.
    • Without these measures, budget deficit would have ballooned to 20 per cent of GDP.
  • We have stabilised the deficit with decisive actions. EU Commission have endorsed our plan to reduce the deficit to 3 per cent by 2014. Budget balance (% of GDP) *Underlying 2009 General Government Deficit of 11.8% of GDP
  • We must retain our fiscal discipline and deliver €3 billion of adjustments in 2011
    • € 1 billion adjustment in capital spending already provided for .
      • Will still spend € 5½ billion in 2011 to boost productive capacity in crucial growth sectors.
    • Where will the other €2 billion adjustment be achieved?
      • Reduce cost of public services and reform of how we tax income.
  • We need to reduce spending further
    • Payroll costs must be contained.
    • Certain current expenditure programmes can be scaled back or eliminated.
  • Tax base needs to be broadened
    • Little or no scope for increases in marginal income tax rates.
      • Nearly half of income earners will pay no income tax this year.
    • New universal social contribution to be paid at a low rate on a wide base.
      • Replace employee PRSI, the Health Levy and the Income Levy.
    • Water charges.
  • We have taken the necessary actions to solve the problems in the banking system
    • State guarantee to stabilise funding.
    • National Asset Management Agency to clean up banks’ balance sheets.
    • Recapitalisation of banks and restructuring of the banking system.
    • Reform of the regulatory system.
  • We are in t he ultimate phase in the resolution of our financial crisis
    • NAMA has determined the price for the first tranche of loans, after rigorous loan-by-loan analysis.
      • 51% average discount – aggressive valuations.
      • NAMA has forced the banks to acknowledge reality and recognise their losses.
    • Financial Regulator and Central Bank have set prudent capital requirements.
      • 8% core tier 1 capital requirement, of which 7% must be equity.
  • Banks need additional equity capital to meet the new capital standards
    • Bank of Ireland: €2.7 billion.
      • Private capital raising
      • Significant return to the State from its involvement in the capital raising – includes conversion of preference shares into ordinary equity.
    • Allied Irish Bank: €7.4 billion.
      • Detailed capital plan submitted to Financial Regulator.
    • Can be fully met from the National Pension Reserve Fund.
      • NPRF will hold valuable shares.
  • Getting credit to viable businesses, particularly SMEs.
    • Specific lending targets on two main banks.
      • € 3bn each for new lending to SMEs in both 2010 and 2011.
      • Must include funds for working capital.
      • Must submit SME lending plans both by geography and sector.
    • Credit Review process.
      • SMEs, sole traders and farmers, who have had credit refused or withdrawn, can apply for an independent review of the bank’s decision.
  • Why are we supporting Anglo Irish Bank?
    • Immediate wind-up would lead to:
      • Fire-sale of assets resulting in a permanent additional and unnecessary loss of more than €30 billion.
      • State would have to provide in the order of €70 billion of cash up-front to meet the deposits, bondholders and the liabilities due to the Eurosystem.
  • Stabilising the economy and setting the seeds for renewed growth and new jobs
    • Consensus forecast is for a return to positive growth in the second half of this year.
    • Growth projected to strengthen next year and beyond, led by exports.
    • Net job creation of 20,000 next year, and 45,000 each year thereafter.
  • Improving competitiveness will spur exports Unit labour costs (annual change in 2009, %)
  • Balance of payments is moving toward surplus Chart shows: current account of balance of payments (inc D/Finance forecasts)
  • Consumer confidence and spending are improving Consumer spending* Consumer confidence *Volume of core (excl cars) retail sales. 2005=100
  • Business confidence is improving Purchasing Managers’ Indexes
  • Our polices have boosted international confidence in our ability to recover
    • “ In the case of Ireland very, very tough decisions have been taken by the government and rightly so.”
    • Jean Claude Trichet (ECB)
    • “ Ireland has set the high standard the rest of us must follow.”
    • French Finance Minister, Christine Lagarde
    • “ I think there is a deeply rooted trust and confidence in this country’s ability to sort out its problems. … There is a fundamental belief that the Irish are going to solve it.”
    • German Minister for European Affairs, Dr. Werner Hoyer
    • “ Ireland’s bold and credible measures are paying off. I would agree with Brian Lenihan that the worst is over and the Irish economy is now recovering.”
      • European Commissioner for Economic and Monetary Affairs, Olli Rehn
  • Conclusions
    • Plan for economic recovery is working.
      • Positive growth later this year, leading to employment growth next year.
      • Confidence is returning – externally and domestically.
    • The full implementation of the plan will restore sustainable growth, create new jobs, and deliver economic prosperity.