A Chathaoirligh, a Leas-Chathaoirligh, Leader of the House, members of all parties, I thank you for this remarkable privilege of being invited to address you. I thank the Cathaoirleach for the lovely words he has just spoken about me which I will always remember and which I deeply appreciate. It is a sign of the way in which the bipartisan nature of Irish politics has evolved in recent years that an invitation like this would be issued to me by a House where parties other than my own hold sway. I am especially grateful for that generous demonstration by the Leader and all in this House.
Coming to the end of my second year as European Union ambassador to the United States, an enduring impression I have from my travels around the US is the overwhelmingly positive image Ireland has all over America. In every state I have visited, Ireland is celebrated not only as the birthplace of parents or grandparents but also as a kind of economic miracle worker that has freed itself of the hardships that drove generations into emigration. Ireland's openness to workers from new EU member states is also much appreciated in cities such as Chicago, Cincinnati and Milwaukee where links to central and eastern Europe, Poland and the Baltic are very strong. Ireland's openness to those people is noted and appreciated. In short, Ireland's economic dynamism is often held up to me as a good example for the larger economies of continental Europe.
Tempting though it may be to lap this up uncritically, these conversations across America are telling. On the one hand, they are a reflection of Americans' unique enthusiasm for success, their openness to new things and ability to ask, without irony or envy, how we did it. Ireland is seen as a trailblazer, whereas other parts of Europe are often, quite unfairly, depicted as slow to change, addicted to subsidies, and not doing a great job of integrating Muslims or other minorities.
This undiluted admiration for Ireland's economic success, while always welcome, does set off some alarm bells. I am concerned our international reputation as feisty go-getters could lead us into an "if it ain't broke, don't fix it" complacency at home while creating impossible expectations abroad, particularly in developing countries, that economic miracles really do happen. Everyone in this Chamber knows well that Ireland's economic model was the result of more than 50 years of trial and error, mostly error at times. This fascination with Ireland's economic turnaround does not always take account of two very important ingredients, namely, European Union membership and United States investment, which were mutually reinforcing aspects of our emergence as a thriving economy.
The Ireland of today and the Ireland of 1973 which joined the European Union are two different countries and almost different worlds. The Ireland of 1973 had a population of only 3 million, an economy heavily dominated by agriculture and little opportunity for young people of school-leaving age. Ireland today is among the fastest growing economies in Europe, a leader in information technology and financial services, and a country to which people emigrate in search of good jobs and quality of life.
Perhaps many in college today do not remember the other Ireland which existed before a visible and tangible improvement was made in Irish living standards relative to the EU average. In 1988, after 15 years of EU membership, Ireland's income per head was still only 70% of the EU average. However, in the second 15 years, Irish income per head greatly increased, reaching 122% of the EU average in 2005. Our delayed progress during the first 15 years of EU membership was due to a mistaken attempt to stimulate the economy by borrowing in the late 1970s, and a high dependency ratio. The dependent children of the 1980s transformed into the young adults who launched the tiger economy of the 1990s.
Ireland continues to gain enormously from EU membership. What is not known widely is that it also continues to gain disproportionately from the EU budget. This is because of the Common Agricultural Policy and the regional funds. Ireland is now one of the richest countries in the EU in gross domestic product, GDP, terms. However, last year Ireland received a net income from the EU budget of €588 for every citizen, while Latvia received only €168 per person. This is more than three and a half times as much on a per capita basis. We might remember that when seeking an explanation why so many Latvians want to live here. Since Ireland joined the EU, net transfers to Ireland have amounted to approximately €10,000 for every person now living in the State.
In other ways, the European Union has been hugely beneficial. It lifted Ireland out of its obsession with an inherently unequal relationship with its neighbouring island. It widened our horizons, gave us access to a huge European market and thus enabled us to attract US investment on an undreamt-of scale. The total value of US investment in Ireland today, attracted here by our EU membership since 1973, is $61 billion, or approximately $15,000 dollars per person living here.
Foreign-owned companies, mainly from the US, produce almost 80% of all manufacturing output and 90% of all manufactured exports in Ireland, although they account for only half of all manufacturing jobs. In other words, the jobs created by foreign investment are very high productivity jobs.
The boost to productivity in Ireland from foreign investment has been major. In 1993, productivity in Ireland grew by only 1%. In 1994, it grew by 2.8%. However, in 1997, it grew by 6.7% in one year, probably the highest rate of productivity growth ever recorded in Ireland. In 2005, productivity still grew, but the rate of growth had reduced to 2.8%, less than half the exceptional 1997 rate. Productivity has also grown this year. The challenge for Ireland is to spread the same rate of increase in productivity achieved in the foreign owned sector to the rest of the economy, including private services, construction, Government services and retail and wholesale distribution. This is more easily said than done. One way to stimulate productivity growth throughout the economy is to ensure we use to the full the disciplines of the Single Market, and use them to tackle restrictive practices and barriers to competition. One key area where this can be done is in financial services.
Commissioner Neelie Kroes, responsible for competition policy, and Commissioner Charlie McCreevy, responsible for the Single Market, have shown great determination in tackling restrictive practices in Europe everywhere they find them. This is the great merit of the European Union, namely, it can act as a liberalising external discipline on member states in the interests of their own citizens and consumers. EU liberalisation has served Ireland well. In the first ten years of the internal market, from 1992 to 2002, freeing up markets added 1.8% to this country's GDP — an additional €877 billion in real terms, and an average of €5,770 for every household — and helped to create 2.5 million jobs throughout Europe.
Precisely because Ireland has benefited so much from American foreign direct investment and from a large European market for its goods and services, Ireland would be vulnerable to any change in the economic situation of the United States or to an energy crisis in Europe. The American economy is renowned for its resilience but, after a long period of expansion, economists are signalling concern on a number of fronts. In a recent edition of Foreign Affairs, former chairman of the US Council of Foreign Advisers, Dr. Martin Feldstein of Harvard, wrote about the dramatic decline in savings by American households in the past ten years — from approximately 7% of income in the 1990s to little or no savings now. The increase in the value of their homes and their stocks and shares made Americans feel wealthier, more willing to spend and less willing to save. Low interest rates encouraged people to take on second mortgages on their homes. Mortgage debt in the US increased by $1 trillion in 2004 alone.
This US savings gap — the gap between savings and income — is being filled by imported money. Through an increasingly globalised financial system, Americans are essentially borrowing money from all over the world. This trend will not continue. Dr. Feldstein believes Americans are already beginning to save again because they know the value of the shares they own will not double yet again in the next ten years, nor will their homes go on increasing in value at three or four times the rate of inflation in the next ten years as they did in the last ten. A resulting rapid rise in the US savings rate would mean Americans would begin importing less and, if associated with a fall in the dollar, exporting more.
The question is whether the slowdown in American imports will lead to a general slowdown in the world economy. I believe this will depend on how sudden is the turnaround and on whether and how it is adapted to politically, not just in America. German, French and Chinese savers will have to start spending a bit more than they spend currently. An increase in the value of the euro and the renminbi relative to the dollar would mean European and Asian consumers have more spending power. Will they have the confidence and optimism to use the spending power that an appreciation in their currencies would give them?
The bottom line is that everybody, not just Americans, will have to change. This is as much a psychological as a financial challenge. One of the great characteristics of America is optimism, a belief that dreams can be realised through personal effort. That optimism needs to spread to other countries, including those in continental Europe. It needs to become America's No. 1 export, so that the coming transition in the world economy can be successfully managed.
I would like to turn to a problem Ireland, Europe and the United States must face together: energy and climate change. Whatever about the short-term trends, I am convinced that oil prices will rise substantially over the next ten to 15 years, perhaps double. Not only that, our dependence on oil from the Middle East will increase, with all that implies for our relationship with all the countries in an arc stretching from Israel to Iran. We have the choice of anticipating these trends and trying to master them or of simply allowing them to overwhelm us.
I believe oil prices will rise in the medium term, although not perhaps in the short term, because China now consumes only two barrels of oil per year per person. Europeans consume 12 barrels each per year, and Americans consume 26 barrels per person per year. Over the next 15 years, the number of cars in China is expected to increase fivefold. Furthermore, 1.5 billion people in the world do not have electricity in their homes. What will happen to world energy demand when they are connected up and can switch on? What will that do to energy prices and global warming?
Climatologists agree that the world's weather is already changing. As the world becomes warmer, the sea level will rise. If, as some predict, global temperatures rise by 5° Fahrenheit in the next 100 years, that could mean an 80 ft. rise in the sea level, which would put low-lying parts of Europe and major cities on the US east coast under water within the lifetimes of our grandchildren. Some 50 million US citizens live within 80 ft. of sea level, as do 250 million Chinese, 120 million Bangladeshis, and probably some Members of this House. I am surprised that property markets do not reflect that risk.
The biggest emitters of greenhouse gases in the world are the United States with 21%, followed by China with 15% and Europe with 14%. Europe is still far from perfect. Some individual European countries have already greatly exceeded their Kyoto emission targets, including one I will not name. Other countries that have congratulated themselves have taken credit for one-off gains, such as the closure of coal mines and heavy industry, which they cannot repeat.
We will manage to cut the rate of increase in greenhouse gases only if public opinion recognises that the problem is both serious and urgent, and is willing to make sacrifices to overcome it. A recently published world opinion survey by Pew Global Attitudes shows wide gaps between countries in how ordinary people view the seriousness of the climate change problem. While 66% of Japanese and 65% of Indians said they worry a great deal about climate change, only 20% of Chinese and 19% of Americans said they do so.
We need to replace the Kyoto Agreement with a regime to which every country in the world is committed. As we know, many countries have no commitments under the existing Kyoto Agreement. The new regime should be ambitious, but should also encourage genuine long-term investments by having a much longer timeframe than Kyoto. I do not buy the idea that we can deal with global warming by some yet-to-be-discovered technological wheeze, without some sacrifices in our short-term economic growth rate.
I will conclude my remarks by looking forward. What sort of world will we have in 2020? Of every 100 people in the world in 2020, about eight will be EU citizens, four will be Americans, 56 will be Asians and 30 will be Africans.
Asia is on the way back, economically speaking. I do not belong to those who find this alarming, unthinkable or surprising. After all, in 1800 — this House was already built at that time — three-fifths of the world's economic activity took place in Asia. By 1900, Asia's share had fallen to just one-fifth, and Europeans with 20% of the world's population, had 40% of its wealth. By 2000, Asians had come back to having two-fifths of the world's wealth. Europeans, meanwhile, had fallen to only 7% of the world's population, but still enjoyed 25% of its wealth. This balance has shifted back and forth over the centuries and will change again during the 21st century.
We must put ourselves in a position to manage these changes proactively. We must manage the perfectly natural re-emergence of Asia, to allow it to enjoy a fairer share of the world's income. We must help Africans to overcome the wars, chronic diseases, and the lack of basic infrastructure such as roads which are now holding them back. We must do all this without destroying the planet with an excess of greenhouse gas emissions. Membership of the EU puts Ireland in a position to have a say in the management of these global changes. It thus enhances our sovereignty.
These massive global tasks can only be tackled if nations are willing to trust one another. The task of diplomats — even newly recruited diplomats — is to build trust and on that basis to negotiate. Negotiations can only start when you empathise, even if you do not sympathise, with the other sides' fears, ambitions and insecurities. Empathy sometimes comes hard for big nations. They know their own story, are proud of their achievements, they know their model works for them, and wonder why they need to understand anyone else's model at all. However, if a region comprises only 7% of the world's population, as in the case of Europe, or 5%, as in the case of America, it is necessary to understand the way other peoples look at things. The European Union, as a construction of 27 nations, making compromises in the world's only multinational democracy, can build a structure of peace for the world in the 21st century.
I am a deep believer in the European Union because just as it has done for Ireland, it has also lifted the sights of other nations from their quarrels with their neighbours, and built a system and a habit for resolution of disputes. The European Union has enabled people to see that each one of us has several identities, of which the national identity may be the most important, but is far from being the only one. The European Union has enabled the people of all 27 nations to be, and to feel, at home everywhere within its boundaries. That feeling of being at home everywhere in the Union gives us all a psychological sense of security that is an antidote to atavism, sectarianism and fear of people who are different from us. I believe that the psychological benefits of the European Union are more important even than the material benefits we have derived from the Single Market, the single currency and the global clout of the Union as an economic player.
The enlargement of the European Union to bring in 12 new countries in four short years is truly remarkable. It is almost as if the 50 states of the United States had merged with the 32 states of Mexico, giving every Mexican the right to work anywhere they wished in the US and vice versa, and adding 64 Mexican senators to the 100-member US Senate on Capitol Hill. That is what we have done in the European Union. We have undertaken an equivalent project, with the conference of equivalent rights. We should not be surprised that such a revolutionary change has created anxiety in some quarters. We should celebrate it for the remarkable achievement it is.
This enlargement is a geostrategic project for the security of every European. Stabilizing central Europe makes every European safer than they would be otherwise. This enlarged Europe must rest on something more than a technocratic base created by 80,000 pages of common legislation and treaties. If it is to exist at the end of the 21st century, as I believe it will, the European Union must become more efficient. That may mean a smaller Commission, more majority votes and fewer vetoes. Beyond that, it must develop the political capacity to seek sacrifices from its citizens and member states whenever that is essential. A Union of rights and responsibilities must be a fully democratic Union. Elites cannot ask others to make sacrifices. Only those who have been directly elected by the people can legitimately ask for sacrifices from the people.
If the European Union is to be strong enough for the challenge of the 21st century it must be able to attract patriotism, loyalty or affection from all EU citizens in the same way each member state will continue to attract patriotism, loyalty and affection from its citizens. Patriotism, loyalty and affection do not arise spontaneously. Rhetoric alone will not create them, nor will constitutions or abstract declarations on their own. People will give loyally and affection only to something they have had a part in creating. People give loyalty to people, not to abstractions.
I have long advocated the idea that the President of the European Commission should no longer be selected in a private negotiation between Heads of Government but should be elected by the people of all member states on the basis of equal suffrage. A large democratic idea of this kind is now needed to energise the European Union.
