Monday 20 October 2014

Ireland must learn from Scandinavian recovery - Noonan

Published 04/09/2014 | 02:30

FINANCE Minister Michael Noonan has disassociated Ireland from some of the core eurozone economies and aligned it with the likes of Sweden, Denmark and Germany.

The minister said the country's recovery was not "an act of God" but the result of government decisions which he claimed eurozone giants France and Italy didn't take, and are now paying for.

And he gave one of the strongest signals yet that the Government may not need to pursue a deal from Europe to help ease the burden imposed by the state's banking debt.

Mr Noonan said the fruits of the sacrifices made by people were now becoming apparent.

"The success now is not an accident of nature or an act of God, it's a direct consequence of the policies that were pursued and they were the right policies," Mr Noonan told Today with Sean O'Rourke on RTE Radio 1.

"If you look across Europe, the Baltic states, Germany, Denmark, Sweden all followed these kind of policies and they're growing well now at this stage. If you look at the countries that didn't follow, like Italy and France, who went down the road of tax and spend, they're floundering and they're still in difficulty.

A raft of indicators suggest Ireland's economic recovery is taking hold, with unemployment yesterday dipping to below the eurozone average and the public finances €971m ahead of target.

The country's services and manufacturing sectors are surging and reaching multi-year highs, while estimates have put Ireland's economy growing as high as 3pc this year.

By contrast, growth in the eurozone stagnated in the second quarter, with Italy slipping back into recession.

Mr Noonan said Ireland needs a different economic model to get away from the boom and bust cycle and imitate the northern European model of steady growth and careful financial management.

Read more: Boom and bust is the past - it's time to focus on a more prudent model

"There's no reason why we couldn't have 3pc growth for the next 10 years which will solve an awful lot of problems, provided we're prudent," he said.

Sweden weathered the financial crisis much better than its European peers. It has managed to transform its economy in the two decades since it suffered a crash in the early 1990s, following a housing bubble, along with Norway and Finland.

Eurozone powerhouse Germany, one of the stronger European economies during the crisis, is, however, showing signs of weakness, although this is attributed in part to the crisis in Ukraine.

Weak investment spending and slow trade led Germany to contract for the first time in over a year in the second quarter, data showed, suggesting Europe's largest economy is running out of steam just as the impact of the crisis in Ukraine starts to bite.

Mr Noonan said Ireland's budget deficit is set to fall to 4pc of GDP this year - well ahead of the 4.8pc estimate.

The minister, who is due to hold talks with key European figures next week about renegotiating bailout loan repayment terms, also signalled that the Government was less concerned about pursuing its long-standing goal of having Europe retrospectively recapitalising the banks.

He reiterated that the Government would look to sell its stake in AIB privately and then use the money to pay down debt.

"If we were to give our bank shares to the European fund, they'd give us a lump of money to take off the debt. Now that's not as attractive a deal anymore because our bank shares have become very valuable," the minister said. "It will depend on the negotiating position but I'm coming around to the view that we will probably have a better option of selling AIB over a period of time on the market and using the money to reduce the debt and we'd probably get more out of it than having a fund controlling AIB which has now banking experience."

Mr Noonan will be holding meetings on Monday and Tuesday with Economics Commissioner Jyrki Katainen in Brussels, as well as European Stability Mechanism chief Klaus Regling in Luxembourg, Eurogroup head Jeroen Dijsselbloem in the Hague and ECB boss Mario Draghi in Frankfurt on Tuesday.

Sinn Fein's finance spokesman Pearse Doherty said Mr Noonan had admitted defeat in secure a banking debt deal from Europe.

"This government has failed to convince any of our EU partners that Ireland deserved a retrospective recapitalisation," Mr Doherty said.

"The government let the ball slip through their fingers and now it seems we have confirmation that retrospective recapitalisation is dead."

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