Ireland was the fastest-growing country in the Eurozone in 2014. Enda Kenny, Ireland's Taoiseach, on how his country recovered from the worst economic crisis in its history.
Four years ago, just before the coalition government that I lead came into office, Ireland was in the worst economic crisis of its history. With government borrowing at over 12% of GDP in 2011, the public finances were out of control. Yields on Irish 10-year bonds rose to over 15%, with speculation that Ireland might be forced to default or even leave the euro.
Property prices were collapsing and banks teetered on the edge as billions in savings flooded out of the country. Jobs were haemorrhaging, with almost 20% of private sector employment wiped out. Locked out of the bond markets, Ireland was forced into a humiliating EU/IMF programme to fund our public services and banks in November 2010.
The Fine Gael and Labour parties were elected to government in March 2011 with an historic mandate to get Ireland working again. We have come a long way since then. In 2014, Ireland was the fastest-growing country in the Eurozone. We exited the bail-out in 2013, and are now funding ourselves in the markets at record low interest rates. Unemployment is still too high, but has fallen by a third and is now below the Eurozone average.
The strong recovery we’re now experiencing is very welcome, though getting here has been a very difficult journey for our people.
Fixing the banks
Our immediate and urgent priority when we came into office in 2011 was to stabilise the economy by fixing the banks and tackling the enormous budget deficit we inherited.
We had to act decisively to show investors, markets and our own people that we were serious about fixing our economic problems.
Zombie banks were closed and the remaining banks were restructured and recapitalised.
Public sector wages were cut, services rationalised, and new taxes introduced to broaden the revenue base. In total, Ireland delivered a fiscal consolidation equating to over 18% of GDP. The deficit is on course to be below 3% of GDP this year.
This has been extremely tough for so many people. But throughout the crisis, the parties in government maintained a strong political consensus around the measures needed to rebuild our economy. While individual initiatives to rebuild our competitiveness and to create jobs are too numerous to mention, it has been this commitment to political and economic stability that has been the foundation of Ireland’s recovery.
Our commitment to stability as a force for recovery has also shaped our foreign policy. When some at home were urging unilateral actions and confrontation with creditors at the height of the crisis, my government chose the path of constructive engagement and negotiation.
Full employment by 2018?
Our strategy has been vindicated by events. The bail-out programme my government inherited in 2011 was penal, and markets perceived it as unaffordable. By demonstrating our resolve to restore economic stability, we negotiated a series of concessions in the programme design – lower interest rates, longer maturities, a better deal on bank-related debts – that won back investor confidence in the Irish economy. This was not just because of the direct benefits of the concessions on the public finances, but also because of the demonstration that Ireland and its economic policies once again had the full backing of our international partners.
While many people in Ireland continue to struggle, there is now growing confidence and hope for the future in Ireland. This week, my government agreed that it is now realistic to target a return to full employment by 2018.
We agreed to publish a new economic plan in April to deliver on this commitment – a goal to be founded on a balanced budget, improved credit availability and a low tax environment that encourages investment and employment.
Ireland: a core Eurozone country
Securing the recovery to deliver full employment will require an unbending commitment to remain at the heart of the Eurozone. I reject the trite division by financial markets of Eurozone countries between core and periphery. Ireland is, and will remain, a core Eurozone country, with the same rights and responsibilities as every other.
With the ongoing reforms to national, EU and Eurozone institutions and policies, I believe that the euro can once again become a source of stability, security and prosperity for our people and indeed all of Europe.
One thing we cannot afford – not now, not ever – is complacency. Recent events internationally show us how hard-won economic progress and credibility can be too easily reversed by political instability. My government’s plan should offer confidence to everyone that that Ireland will remain a land of stability, opportunity and progress.
Author: Enda Kenny is the Taoiseach of Ireland
Enda Kenny is attending our Annual Meeting 2015 in Davos, and is a panel member in the session Europe’s Twin Challenges: Growth and Stability, on 22/1 at 10.15am CET.
Image: The Irish flag flies above the General Post Office on O’Connell Street, in Dublin, Ireland November 27, 2010. REUTERS/Cathal McNaughton
