I think we will leave the investment proposal issue there and move on to the 2015 annual growth survey. As members will be aware, next week we will meet the Minister of State with responsibility for Europe, Deputy Dara Murphy, in advance of the General Affairs Council meeting. As a large part of our agenda at next week's meeting will involve a discussion on the annual growth survey, it will be useful to hear the views of members and get a presentation on that matter today. I welcome Mr. Patrick O'Riordan of the European Commission office in Dublin. I have seen him in the audience at previous meetings of the joint committee. This is his first time to speak here as a witness.
Annual Growth Survey 2015: European Commission Office Ireland
Mr. Patrick O'Riordan
That is right. It is a pleasure to be here. I will make some introductory remarks about the annual growth survey. As members will be aware, the survey launches the annual cycle of economic governance, sets out the European Union's economic priorities and gives member states policy guidance for the following year. The role of the EU in this regard is to provide policy direction and country-specific recommendations and to ensure respect for commonly agreed rules.
The objective is to ensure that the structural, fiscal and monetary policies are combined in an integrated, growth friendly way to effectively tackle pressing challenges - acting on both the demand and supply sides of our economies. This requires action at all levels of government, from global to European, national, regional and local levels.
For 2015, the Commission recommends that countries pursue economic and social policy based on three main pillars, as alluded to by Ms Nolan, including a renewed boost and focus on investment, a fresh commitment to structural reforms and fiscal responsibility. Simultaneous action is required in all three areas as it is critical to restore confidence and reduce the uncertainty that has been impeding investment and to maximise the strong mutually reinforcing effects of all three pillars working together. This is a new emphasis in the strategy this year. The Commission also proposes to streamline and reinforce the European semester and to improve ownership of the process and simplify the procedures, starting with the semester starting now.
With specific regard to structural reforms, deepening the Single Market is the overriding priority at EU level. For this we need to break down regulatory and non-regulatory barriers in energy, transport, telecoms and the Single Market for goods and services to ensure that the EU regulatory framework supports jobs, growth and investment. The Commission will also prioritise work to make EU laws lighter, simpler and less costly for the benefit of citizens and enterprises. It will further strengthen its regulatory tools such as impact assessment. This relates to the discussion we had earlier and is an important tool to ensure the rules adopted are fit for purpose and appropriate. Employment and social indicators will be increasingly used to give a more rounded view of countries' economies.
At member state level, for 2015 the Commission recommends focusing attention on a number of key reforms. The areas chosen are relevant for all member states, but will be fine tuned to meet the particular issues and concerns of each country. The areas identified for reform are the following: making labour markets more dynamic and inclusive and tackling unemployment; making pensions and social protection more sustainable; developing more flexible product and services markets; improving business investment conditions; enhancing the quality of research and innovation; and improving public administration.
On the fiscal responsibility side, member states have made significant strides to cut their fiscal deficits. Deficits have declined from almost 7% of GDP in 2009 to 3% in 2014. The number of countries under the excessive deficit procedure has decreased from 24 in 2011 to 11 in 2014. However, there is a need to continue with responsible and growth friendly fiscal policies. Meanwhile, countries with more fiscal space should try to promote more domestic demand and stimulate investment.
The European Commission also assessed 16 euro area countries' budgets for 2015, focusing on their compliance with the Stability and Growth Pact. In that respect, the Commission concluded that Ireland is compliant with the provisions of the so-called corrective arm of the excessive deficit procedure and is expected to bring the general government deficit below the 3% of GDP reference value of the treaty in 2015.
In regard to the European semester, the aspects we have mentioned are designed to streamline and reinforce the European semester by giving it a sharper focus and a more political role. A more focused European semester should strengthen the social market economy and increase the effectiveness of economic policy co-ordination through increased accountability and improved ownership by all actors, including national parliaments, social partners and others.
The new economic policy cycle will also simplify Commission outputs and reduce reporting requirements of member states, while making the process more open and multilateral. The discussion on the European semester is also important in view of the mid-term review of the Europe 2020 strategy, which will be presented in time for discussion at the spring 2015 European Council. For the EU to succeed in meeting its jobs and growth challenges, there is a need for broad consensus on the right policy direction and strong stakeholder support for reform efforts. This means that national parliaments, the social partners and civil society at large all need to be more involved in the implementation of policies decided at EU and national levels.
In this context, I have this committee's excellent report here. There is much appreciation for its work in this respect and on developing this political contribution to the mid-term review of the Europe 2020 strategy. I attended the launch event and I believe that the reforms introduced in the European semester process already reflect some of the Committee's aspirations. I trust that more aspects of its contribution will be addressed in the mid-term review proper. The committee's call for moving away from any "centre driven, top-down, non-inclusive approach" is well noted and the improvements outlined in the annual growth survey under discussion today go very much in the direction of the inclusive, bottom-up approach that we all want to see.
We hope and trust that this process will succeed and work as well as it can to help Ireland to strengthen its recovery. I look forward to contributing and working constructively with the committee to that effect.
I thank Mr. O'Riordan for his contribution and for his comments on our political contribution to the review of the Europe 2020 strategy. Deputy Durkan attended the Conference of Community and European Affairs Committees of Parliaments of the European Union, COSAC, in Rome on Monday. Ireland had put forward a number of amendments in its contribution, relating to our political contribution and what we agreed here. Some nine out of ten of our proposed amendments were accepted, including all relating to the Europe 2020 strategy. These included the use of social indicators, as set out in the alert mechanism report and the development, where feasible, of indicators that would assess social issues, such as job quality, zero contract hours and poor quality work. The contribution will be sent to the Commission and we are hopeful it will take account of it and bear in mind it is not just the views of this committee, but of the 28 committees of the European Union.
In regard to the three pillar approach of the annual growth survey, Mr. O'Riordan spoke about boosting investment and the need for member states with more fiscal space to encourage domestic demand, with a particular emphasis on investment. Ireland now has an investment spend 40% lower than in 2007. Countries like Germany have more fiscal space and the ability within their current budgets to spend more, but we read and hear they are unlikely to do so. How can the Commission put pressure on these countries to spend more? It is all very well to call for them to invest more, but unless strong pressure is put on them, I cannot see them coming to the table on this. I do not believe "calling" for them to invest will make them do so. What can the Commission do to encourage them to make these investments?
I agree with the Chairman. The work done by the committee in the run-up to the COSAC meeting was reflected in the submissions from other countries also. Everybody seemed to identify the same obstacles and the necessary remediation. The questions we are asking are how are we to go about doing this and what should we prioritise. If the right decisions are taken initially, we will see a quicker and more dramatic response. For example, in European banking recently interest rates have been extraordinarily low. This should provide a great opportunity to investors to invest in job creation projects, but they are slow to do so because of the risk factors already referred to. To what extent have the risk factors been addressed in a meaningful way? Is the proposal likely to activate people?
Another issue that arises in Mr. O'Riordan's submission is the question of ownership. The committee also addressed the issue of the ownership of the European project and of everything that is European.
It was interesting that at least one if not two countries at the COSAC meeting referred to the weakness of the eurozone. There was a clear indication on their part that they did not see themselves as taking ownership of anything that was involved in the eurozone - in fact, in the European project, because it is not possible to talk about the eurozone in isolation from the entire euro project. If we do, we become isolationists ourselves. I do not want to go into the precise details of that, but I ask the witnesses the extent to which they think the euroscepticism that is rampant across the European Union at the present time is being addressed or is likely to be addressed in the context of what we are discussing now.
Without a specific project targeting this particular area, we will always have criticism and it is likely to grow. There was a reference earlier to the fact that currently there is criticism and dissident, and diffident, opinion throughout Europe for a variety of reasons, mainly political. However, the political reasons should not impede the progress of the 500 million people in the European Union. To what extent do the witnesses think all the European member states, euro and non-euro, will contribute to the objective of ensuring that structural fiscal and monetary policies are combined in an integrated and growth-friendly way? If there is no cohesion, we cannot proceed in any direction.
I have already referred to the issue of taking ownership. That is hugely important. Even in this country we regularly speak about "them" - the Europeans - and "us". We are Europeans, as is every other person throughout the European Union. The problem is that we do not seem to be able to get around the mental block of taking ownership of that project and saying "we Europeans," as opposed to "them and us".
The next point to which I wish to refer concerns structural reforms, the deepening of the single market as the overriding priority and the identification of the barriers to this. The identification of barriers is of huge importance. If the barriers are not identified properly, there can be no resolution. We can talk around it and we can talk by it, but we will not actually address the subject matter.
The last point I will make concerns national parliaments - as the Chairman knows, we have discussed this at length - and the degree to which their influence will be reflected in the way the European project is progressed. The immediate question concerns the extent to which those whose national parliaments are not pro-European are going to influence the European project. Are they likely to become a barrier to the progression of the project we are now discussing? Are they likely to become an obstacle and as a result impede the progress that we all deserve?
I congratulate the Chairman and the committee for clearly identifying the headline issues in the subject matter for discussion at the COSAC conference. All other countries grudgingly came on board and agreed that these are the issues that are of fundamental importance to the European project.
I welcome Mr. O'Riordan and thank him for his presentation. We recently had a debate during Private Members' time in the Dáil during which it was noted that, while the economy has been improving, there was some concern regarding certain aspects of our society. In some way, Mr. O'Riordan touched on this when speaking on the employment and social indicators. The Government had a role in pursuing that agenda last year during its Presidency. There was debate on the country-specific recommendations last time, and this is the first year in which we have had those recommendations since we came out of the bailout. From where I am sitting, I do not think they have caused a lot of trouble. There has been strong liaison with the Government in terms of the things they are working on anyway. Many of them are part of our programme for government and are a requirement. Some of them were laid down previously by the Troika - for instance, the legal services Bill. Many of them are part of our processes in Government in improving low pay and that whole area. Have other countries experienced problems? There was reference to more national accountability. Has there been a huge demand for this within Ireland? I do not see it being debated in Parliament and I have not seen it raised as a specific issue or problem. Many of the country-specific recommendations, if not all of them, would have, I imagine, cross-party agreement in Parliament in terms of what they are about, which is improving the lot of the people and such issues.
Areas of reform were mentioned. There are two in particular. Reference was made to making pensions and social protection more sustainable. What is called the pensions time bomb is a cross-Europe issue and I suppose it is something that needs to be tackled in this country. I am sure other countries also have particular concerns about this. The second area is improvement of business investment conditions. With the co-operation of the German government and the German Minister for Finance, an €800 million package was announced a couple of weeks ago for SME investment. We have gone a long way towards ensuring that issue is sorted. Access to finance is an issue that has been raised consistently with regard to SMEs. Hopefully that package will alleviate their concerns.
We could all collectively feel very proud for being in compliance with fiscal responsibility as outlined by Europe. I am delighted that the employment and social indicators are going to become increasingly important, and these will give us a clear view of the state of each country's economies. However, there is a bit of a mystery attached to the degree of discontent and disquiet that exists in the Republic, for example, at this very point in time. We have passed all the exams as laid out for us and we are praised for being in conformity with the fiscal treaty. Our deficit must be down to 3% of GDP next year, and we are going to achieve this. We comply with the Stability and Growth Pact. A statistic was given that indicated that the number of countries under the excessive deficit procedure had decreased from 24 in 2011 to 11 in 2014. Can Mr. O'Riordan give us a flavour of those? Are there 11 countries that are as yet not compliant?
Notwithstanding the fact that we are compliant with the fiscal treaty and notwithstanding the fact we have a 5% growth rate this year and will have perhaps a 5% rate next year, which is completely disproportionate to growth levels as anticipated by Europe as a whole, the current economic climate in Ireland is marked with much discontent. I see in today's edition of The Irish Times that panic almost is setting in in Europe, in which figures for growth and inflation are being revised downwards. Serious questions are being asked. Given the fact that we are in this growth scenario, that we are in conformity with all the regulations and that we are being praised for all of these things, are we in a bubble and is it the case that something desperate is going to happen the economy some time after next year?
Our economy?
Yes. Are win a bubble that is going to explode, say, after next year?
I apologise for being late. I am coming from another meeting. On my way down the stairs I got a media alert stating that the European Central Bank had slashed the growth and inflation figures for Europe quite significantly. As if things were not bad enough, this is the icing on the cake. To echo what Deputy Durkan stated, one of the things that struck me most - I also attended the COSAC meeting in Rome - was a considerable unease that is growing across the European Union members and a diversity of opinion on where Europe is going and what types of intervention are necessary.
It was very disconcerting to listen to the representations of the Greek and Italian members, particularly the Greek contribution, about the situation in their countries and the Italian view that its economy was not in a very difficult position. There seemed to be almost a two-tier approach, with some countries being determined to stick to fiscal rectitude, while others were effectively stating Europe was stagnating, moving into decline, increasingly marginalised in the world and was not and would not be a major player. There was a sense that there was a lack of solidarity within the European family, so to speak, between certain northern European members and the southern European members about their priorities for Europe.
It is very depressing that 120 million Europeans are experiencing poverty and that the number has increased since the Europe 2020 strategy began. This may not be a fair comment, but the strategy relies too much on structural reforms such as deepening the Single Market – there has been a single market since 1992; breaking down regulation in certain areas; seeking greater efficiency; making labour markets more dynamic and ensuring sustainability. It is all very worthy, but there is a lack of acceptance that many European countries, including this one, want a genuine growth package that will seriously stimulate the European economy in the way the Federal Reserve was able to stimulate the US economy and the Bank of England was able to stimulate the UK economy. The figures from the Central Bank do not show growth; we are moving into stagnation. Questions were put about the 3% cap on expenditure and why we could not exclude certain forms of capital expenditure from the cap were-----
We discussed that issue before the Senator came in. The good news is that the Commission believes they should be excluded from the cap. I made the very point the Senator has made, but I am not sure every government would agree to it.
That is very good news. The issue came up several times and would be a very important change from Ireland’s perspective.
Representatives of the Fiscal Advisory Council are appearing before the Oireachtas Joint Committee on Finance, Public Expenditure and Reform. For the sake of argument, I see myself as Italy and the Fiscal Advisory Council as Germany. Last year it recommended that Ireland cut its budget by €3.2 billion and we cut it by €2.5 billion against the recommendation and the economy grew. This year it recommended that we cut it by €2.2 billion and not only did we not do this, but we increased expenditure by €500 million. To date, we have taken in more than €1.1 billion that we did not expect to receive. That is an Irish example that says one can push people too far and that there comes a point when one has to let go and stimulate. Just as we had to stimulate domestic demand the European Union has to stimulate demand.
Mr. Patrick O'Riordan
The Commission has only been in office for three weeks, but it has come up with a massive investment plan. It could hardly do more to put out in front its recognition of the need to stimulate demand and encourage investment. New funds have not suddenly been allocated to the European Union which has 1% of the total budget for all public expenditure in Europe. It cannot suddenly manufacture money. With the resources at its disposal, it has done the maximum in an incredibly short period to put together this programme in order to stimulate, promote and encourage more investment.
The Senator has mentioned the countries that have more fiscal space. As Ireland gets its country-specific recommendations, CSRs, in a number of areas, it is in this excessive deficit procedure because our deficit needs to come down. Those countries that have more space are encouraged through the CSRs to address the issue. That is the mechanism. It is a partnership approach which has been reinforced in the streamlining being introduced. With the involvement of more actors, it is important to have ownership. It is not a case of recommendations that this should be done by an outside body but of getting everybody to agree in discussions. There are bilateral meetings between the Commission and member states. The one with Ireland is taking place this afternoon. There is continuous engagement and a partnership between the Commission and member states to discuss the challenges at a country-specific level and see what needs to be done to address them.
In response to Deputy Bernard J. Durkan’s point about ownership, it is crucial and recognised in Brussels. Every effort is being made to increase it. I can only endorse and welcome what he has said. We are Europeans and these European issues and challenges concern us all. The CSRs for Ireland might involve a degree of homework or pointing to things that need to be addressed. The benefit of the process for Ireland in all of these recommendations being issued to all of the other countries is perhaps just as significant as, if not more so, the recommendations issued to other countries. Growth, investment, a reduction in employment, increased demand for our exports and so on in other European countries can have an enormous impact on Ireland’s growth prospects. Irish Ministers and officials discuss the economic challenges and issues in all countries, which is an important benefit of the process. I compliment the committee on its contributions to the Conference of Parliamentary Committees for Union Affairs of Parliaments of the European Union, COSAC, and its efforts and engagement. It is remarkable that the policies and ideas it has developed are coming into, and being reflected in, European policies.
In terms of the need to activate investment, the approach taken here, in identifying the challenges in different countries, involves seeing where the problems and blockages are to encourage creating the mood and committees such as this one to discuss the investment programme across Europe. It is bringing investment back onto the agenda which will I hope encourage people because there is a lot of money that is not being used productively and there is enormous scope to do this.
I acknowledge what Deputy Seán Kyne said about the social and employment concerns that had rightly been flagged and prioritised during the Irish Presidency. It is welcome that they are reflected here. The CSRs are designed to address issues where there is room for progress and scope to do things. There is no point proposing ridiculous things that have no chance of being achieved, or things that are already being done. The challenge is to see where reform is needed and have collective consensus in prioritising several areas. It is not possible to list all aspects of Government policy.
It is a case of working in partnership with the governments to see what is the collective opinion of the Commission and then having it discussed with the other European partners as to where progress can be most useful and effective. I know the Commission has recognised and appreciated the co-operation with the Irish Government and the Irish authorities throughout the entire process and that is continuing.
On the question about investment in small and medium business, as the member said this has been one of the key challenges and issues. We know there are problems on both the supply and the demand sides and this has been discussed at length. Ireland has taken great steps with the public programmes and with the involvement of KfW. Funds are on the table and we hope now that as demand increases in the economy there will be more call for using these funds and that the issue becomes more one of demand - having enough SMEs demanding money - and that there is sufficient money available for them to expand and invest.
I take note of Deputy Byrne's points about the degree of compliance. Ireland is one of five countries that were fully compliant as regards the budgetary review process. A number of other countries are partially compliant so there is a different gradation of responsiveness, of degrees of compliance. We know there are problems in some areas that remain to be addressed. There is specific consideration analysis of the budgets for each particular member state. The process is ongoing for some of them - that is up to March of next year. Some countries will be reviewed at that time to see their degree of compliance.
Growth needs to be stimulated across Europe. I do not think Ireland is in a bubble situation. We know that the growth has been very strong this year. The projections set out in the Irish budget have been considered to be compliant. There is obviously a debate around the degree, the exact growth figure and so on, but the expectation is that growth continues on a sound, solid and sustainable basis for the next couple of years. One can never tell what is around the corner.
My question was to find out if our growth was disproportionate to the growth in Europe. We have come from a very low base. When I spoke about the bubble I was wondering if the European Commission has concerns about what is happening in Europe. I refer to the crisis referred to by the ECB. Is a sustainable growth possible in the presence of a decline in the rest of Europe? In that sense are we in a bubble?
Mr. Patrick O'Riordan
It has been a very great turnaround for Ireland from being in the programme to going to the top of the European league table of growth. It is a phenomenal turnaround and we can only rejoice in it and try to get other countries growing - ideally as fast but I do not think that will happen - so that people will realise their growth potential which they are not doing at the moment. The areas identified in the growth survey highlight some of the problems and the reason that is not happening. Everybody around the world is trying to play a part in encouraging growth. The Deputy referred to the roles of central banks which have been raised in discussions. Everybody must play a part; there is no silver bullet or magic formula. Hopefully, European growth will approach Irish levels in the next couple of years because that is what we all want to achieve.
Other points raised by members were to do with euroscepticism.
Ms Barbara Nolan
I wish to return to two points. I refer to Senator Hayden's comments about lack of solidarity and the point about Euroscepticism. I will deal first with the lack of solidarity. I was quite surprised at that comment because in my opinion Ireland has been shown much solidarity as a result of the crisis. If Ireland had not received EU and IMF assistance it would have been forced to close its schools and hospitals and to stop its social welfare system. Nobody was prepared to loan to Ireland. The EU loaned two thirds of the money and the IMF loaned one third. I thought there was remarkable solidarity which ensured that the country could keep functioning normally and it could continue to protect the most vulnerable from being left to one side. It kept the schools open and the public system working. There was also solidarity shown by countries outside the eurozone. Bilateral loans were given by a number of countries such as the UK, Denmark and Sweden. There has been remarkable solidarity shown at a time when there was no access to normal borrowing in any market -----
I need to clarify my point which I was making in the context of the COSAC meeting in Rome. I specifically referenced Greece and Italy. I was never disputing the solidarity shown to Ireland although other people might dispute it in the context of the impact of various ECB letters sent at certain points in time on our sovereignty. I specifically reference comments made by Greece, by Italy and by Cyprus about their experiences and the level of solidarity they believe they are experiencing within the European Union.
I remind the Senator that we discussed that it may be appropriate to hear from the Greek ambassador at some stage in the near future in order to have an update on the situation in Greece, not just about the economic crisis but also about the extenuating circumstances such as the influx of migrants which is a particular issue in Greece. It might be appropriate for the committee to hear from the Greek ambassador in the near future.
I think it is important to clarify for Ms Nolan the exact context of my references; they were not to do with the Irish economy. Were I going to mention the Irish economy and solidarity I might be mentioning issues such as potential pressure that might have been put on Ireland but as I am not speaking about the Irish economy, I am not mentioning those matters.
Ms Barbara Nolan
That is understood.
On Deputy Durkan's point about Euroscepticism, I agree it is a significant problem which seems to be spreading. It is linked to a disillusionment about politics in general. I attended a conference last week at which Professor Brigid Laffan from the European Institute in Florence had a very interesting graph which showed that across Europe there is a significant decline in trust in both national governments and in the European Union. In most cases, there is a greater decline in trust in the case of national governments than in the European Union, with the exception of possibly two or three countries, including Germany, where there is more confidence or trust in the national authorities than in the European Union. The general trend was extremely depressing.
One of the ways in which we can combat this trend is to make an effort to turn the economy around. The situation could be improved if economic conditions improved and things were going better in the economy and if unemployment levels decreased. The investment plan hopes to achieve these aims. It would also help if national politicians returning from meetings in Brussels would stop Europeanising failure and nationalising success. This is frequently the outcome at various European Council meetings and we see it all the time. We are the European Union; it is not something extraneous to us. The European Union is only the sum of its parts, the member states. We all make up the European Union. It would help if it could stop being treated as some extraterrestrial body without any particular ownership.
I agree entirely with the points made by Ms Nolan. However, to what extent are the European institutions totally focused on those issues? What are the causes? What is motivating those who are Eurosceptics in all parts of Europe? Is it a case of disillusionment with all kinds of democratic politics? That is a dangerous place to go. Do they prefer government by public acclamation which is another dangerous way to go? To what extent have the European institutions identified the cause or causes of this cynicism and the scepticism across the rest of Europe?
Ms Nolan correctly identified that it is convenient for national politicians to blame Europe for everything, to walk away and say it is a European problem. The reality is that every single directive is referred back to member state governments, parliaments and institutions, for them to make the corrective measures if they wish to do so. Unfortunately, the two events are not always related and connected in the way they should be. It is a little like voting in the secrecy of the ballot box. Sometimes people detach themselves from the possible consequences - I will not go further - and we could be coming to a stage in Europe where people are about to do that. I hope the European institutions, individually and collectively, are focusing on this situation.
There will be serious consequences because every single emphasis, that I have noticed, emanating from some member states in recent years seems to demonstrate their pulling away from Europe and becoming more nationalistic in their approach. That is a pattern that Europe has followed in the past with great and severe consequences and for those who profess a faith and confidence in that kind of attitude they would be well warned in advance. I want us to ensure there is a particular focus on the issues being used by people to break up modern Europe.
On that note I shall call today's proceedings to a close. I thank Ms Nolan and Mr. O'Riordan for coming in. It is always nice to see them and no doubt that we will see them again in the near future. We look forward to seeing the work programme in the next few weeks.
The joint committee adjourned at 3.45 p.m. until 2 p.m. on Tuesday, 16 December 2014.