EU should harness domestic politics, not fines, to bring deficits into line

France and Germany have agreed in Deauville to propose that the EU Treaties be amended to provide for the sanction of withdrawal of voting rights in the EU, from countries whose Government budgets exceed EU deficit or debt limits. I believe there is a better, and less cumbersome, way of getting the same result.

It is not clear what voting rights Germany and France propose to take away. Would it only be votes in the Finance Ministers Council? Or would they take away voting rights in all Councils of Ministers formations and in the European Parliament as well? Any voting right disqualification provisions would radically change the democratic nature of the European Union and would thus require an amendment of the European Treaties, and probably referenda in a number of countries because of their nature.

In return for this under the Franco German proposals, a system for giving conditional financial aid to countries in the euro zone , who find themselves unable to get out of financial difficulties of their own accord, and who could not borrow from the bond markets, would be introduced as a permanent feature into the European Treaties. This would, in effect, make the European Monetary Fund, which now exists temporarily and whose mandate will expire just before the next German Federal elections are due, a permanent feature. It would also satisfy the German Constitutional Court, which is careful about extensions of EU competence without explicit authorisation. It is understandable that Germany would want some assurances before it could agree to this treaty revision, but one must ask whether a withdrawal of voting rights is the best card to play.

A system, which would allow countries to renegotiate or reschedule their debts with their creditors in an orderly and EU approved way, is also being considered. This would have considerable merit. It would make the markets more wary of lending money to countries whose finances were unsound because it would create the possibility that careless lenders to Governments might not be repaid in full.

There are also proposals on the table to impose fines on countries whose borrowing and debts are seriously above EU limits. Some argue that such fines should be automatic. Others say that there should be a margin for political judgement as to whether to impose a fine in a particular case.

A number of questions have to be asked about these various proposals.

1.) Do they address the real problem?

It is true that many European countries now have a big Government finances problem. But, with the exception of Greece, their present Government finances problem does not have its source in the Governments own finances as such, but in a private sector credit bubble. In the case of Ireland, for example, the problem was an explosion in private sector credit which first overwhelmed the banking system, and which is only then dragged the Governments finances down too. A disciplinary system focussed on the Government finances alone, as this proposal does, is likely to miss the target, because it will be triggered too late. Private sector credit developments, and losses in competitiveness need to be covered by the disciplines. The European Commission attempts to deal with this by its excessive imbalances procedure, which addresses wider imbalances in a member states economy. But this will involve making fine judgements about what constitutes an “imbalance” and that may not easily lend itself to being an adequate legal basis for fines or voting right sanctions .

2.) Will the proposal on voting right withdrawal ever be accepted and brought into force?

All 27 countries will have to ratify it if it is to become part of the EU Treaties. It is easy to see where objections might come from. A country, which was still bound by EU decisions and required to contribute to the EU budget, but which had no vote in those decisions, would be in the position of being a sort of EU colony. I do not think there is much chance that all 27 countries, particularly smaller ones, will be easily persuaded to accept that possibility as proposed by France and Germany. Using up political capital on a proposal which has only a small chance of being accepted in the end would be politically unwise

3.) What sort of assumptions would be used in making these decisions?

The ratio of a government’s deficit to its country’s GDP is a relationship between three variables,....revenue, expenditure and GDP..... all three of which are highly unpredictable and uncertain. Making assumptions about the future growth of GDP, and even about the present size of GDP, are hazardous exercises. The size of GDP in a given year often has to be revised a few years later when more information comes in. The French President himself has pioneered studies to devise a more accurate measure of welfare than GDP. Basing a decision to remove voting rights from a sovereign state on the basis of this ratio between three uncertain variables would be a very messy legal process. So also is imposing fines on that basis.

4.) Will the proposal on fines make the problem worse?

Imposing a fine on a country that is already in a precarious position could drive it over the brink. That would be counterproductive and would increase the final cost of the exercise. One does not have to be a European historian to know that imposing collective “reparations” or fines on “guilty” nations has not had a great history.

I believe the better approach would be to harness the power of the bond markets, and the power domestic political and democratic oppositions to discipline Governments, at a much earlier stage in the process, if they are beginning to go in the wrong directions on debts, deficits, private sector credit, or competitiveness. This could be done without amending the Treaties, and could be built on proposals already tabled by the Commission.

This could be done by involving, as of right, the Opposition parties in all national Parliaments in the European Commission’s process of invigilating national economic policy of member states. Every consultation with the Government could be accompanied by a detailed briefing of the opposition. Given that oppositions like to expose failings of Governments, such briefings would be lever that the Commission could use to pressure Governments to adopt responsible policies.

Such a process would also have an impact on the bond markets. Bond markets may have been slow to identify sovereign debt vulnerabilities in the recent past, but they are very much on the alert now and are likely to remain so for many years to come. Unfavourable public commentary by the Commission on a Government’s fiscal policies, either directly or through Opposition parties, would make it more expensive for that Government to borrow. That would be a much quicker, and more effective, financial penalty than the cumbersome system of fines that is being proposed, and it would come into effect before it was too late.

By John Bruton, a member of the board of CEPS

“What makes us different? “

Speech by John Bruton accepting an Honorary Doctor of Laws Degree at Memorial University, St. Johns, Newfoundland in October 2003

Mr. Chancellor, Your Honour, Mr. President, Mr. Pro-Vice Chancellor, Madame Vice Chair of the Board of Regions, Members of the Board of Regions, Members of the Senate and Faculty, Members of the Graduating Class, distinguished Guests, Ladies and Gentlemen,

It is a great honour to be conferred with a Doctorate of Laws by Memorial University. I receive this honour as a politician. Down through history the profession of politics has been the subject of cynicism amongst the general population. The public attitude could well be summed up in the quotation cited by H.L. Menken who said “a politician is an animal who can sit on a fence and yet keep both ears to the ground”.

It is therefore of particular significance to me, as someone who has devoted my entire working life to politics in my own country and further afield, to be honoured in this way as a politician. I regard it as an honour to my profession, as well as to myself.

Why is politics so frequently derided and misunderstood ? It is because politics is not so much about finding the answer to questions, to which there is only one right answer. -questions in that category are dealt with by other professions.

Rather is politics about questions to which there is no one right answer, but several answers, some of which benefit some people, but none of which usually will benefit everyone.

This is what makes politics so difficult, and yet so important to achieving a harmonious society. Good politics is one of the highest forms of public service. It is a vocation, not just a means of making a living.

I am, as I have said, especially honoured to be receiving this particular degree, but even more so to receive it from Memorial University. Firstly, because of the connections I have with Newfoundland and Labrador, of which I will say a few words in a few minutes.

Secondly, I am honoured because the University, in its very name, is a Memorial to all those who died in the Great War of 1914 -1918. I am well aware of the huge numbers of Newfoundlanders and Labradorians who died or were injured in that conflict some of whose relatives are probably here today.

The Great War deeply affected both Ireland and Newfoundland. 49,000 Irish people died in that war, side by side with soldiers from Newfoundland.

In the case of this Province, the debts undertaken by your government to fight that war crippled it financially to the extent that it was eventually unable to continue as an independent entity. In the case of my country, the violence and the passions unleashed by the Great War set it on a path which led towards complete Independence, but also towards a Civil War and the partition of the island.

In a sense, we are both still living with the consequences of the Great War, and we should see whatever sacrifices we face today against the background of that much greater sacrifice. One of the reasons that I have become so involved in promoting European Union is to help to ensure that divisions in Europe never again will be the cause of such suffering to humanity.

I first visited Newfoundland in 1976. Coming from Ireland, what struck me most was not so much the physical beauty of this place, or even the weather, but the cultural heritage, the accents, and the music of Newfoundland.

Newfoundland and Labrador are truly unique in North America. Here the culture of the old world has been preserved and enhanced like nowhere else. That is why, for an Irish person in particular, coming to Newfoundland is like coming home.

The Irish who came here between roughly 1700 and 1850 - the oldest and most enduring of all Irish migrations to North America - brought a strong culture with them, a strong sense of neighbourhood and of neighbourliness, and have preserved that, in many ways better than it has been preserved back in Ireland. This cultural inheritance is something of great value, as is Newfoundland’s tremendous cultural inheritance from the South West of England.

These inheritances have in very recent times, given voice and inspiration to a new generation of accomplished Newfoundland artists, writers and musicians.

Like Ireland, Newfoundland had experienced loss. The loss of emigration. The loss of traditional employment, and the loss of contact with the outside world derived from physical remoteness.

But as in Ireland’s case that loss has been the spur to a vigorous cultural revival. The loss Ireland experienced after its Great Famine of the 1840’s was the spur to its unprecedented cultural revival of half a century later. It is no accident that Newfoundland is now experiencing a cultural revival.

Your physical and folk heritage, held in less esteem in the past, is now being vigorously chronicled. Literature of a high quality is emanating from creative artists here.

In Ireland’s case, while our literary revival took place in the 1890’s, our economic revival did not take place until the 1990’s. I hope that Newfoundland and Labrador does not have to wait that long !

Indeed it was to help accelerate the process a bit that in 1996, Brian Tobin and I agreed a Memorandum of Understanding between our two Governments. Under it an immense amount of valuable work has already been done in fields as diverse as marine technology, business and human development, student internship, and folklore. I pay tribute to all those involved in this Partnership, my successor as Taoiseach, Bertie Ahern, and the Chief Executive Ms. Agnes Aylward, Chief Executive in Newfoundland Mr. Vince Swithers, and Mr. Walter Kirwan, Deputy Chairman

I especially pay tribute to the President of Memorial University Dr. Axel Meisen and everyone in Memorial for the commitment that they have shown to making this relationship prosper. Universities on both sides of the Atlantic have embraced this partnership with enthusiasm, notably University College Dublin, University of Limerick, and Waterford Institute of Technology, all of whom have a special relationship with Memorial.

Mr. President, when you look at all the trouble spots of the world, you soon realize that, the most important politics of all is the politics of identity.

“Who are we ? “

“What makes us different? “

It is the answers to these identity questions that lead countries to great achievements, but which sometimes lead into destructive conflicts with one another, and within themselves. Until identity questions are solved, people find it very hard even to address other political questions.

One of the most attractive features of Newfoundland for me, is that you have solved the identity question. Newfoundlanders are deeply proud to be Newfoundlanders, but they are also proud to be Canadian. Europeans are only beginning to learn, what you already know, that it is possible simultaneously to be a Catalan, a proud Spaniard, and also a proud European.

Northern Ireland’s troubles can be symbolized in the conflict between the Harp and the Crown – the conflict between Irishness and Britishness. People there mistakenly feel that they must have one identity or the other, and never both.

Yet here in Newfoundland, The Benevolent Irish Society - the oldest society of its kind in North America – in whose St. Patrick’s Day parade I participated in 1996, has a banner which includes both the Harp and the Crown. This shows that the Irish who came to Newfoundland before our Great Famine had a sense of Irish identity that did not exclude wider allegiances as well.

You, the students who have graduated today, are going forth into a competitive and challenging world.

I hope that you will not lose sight of the really important things in life. Your excellent education here has been a privilege. It is a privilege that you should put to the service of others.

Your time is the most valuable asset you have. Remember that no-one on their death bed ever regretted having spent too little time in the office!

The things that are really important are your family and your close relationships, and I would like, on this very big and proud day for me, to pay tribute to the person without whom I would not have been able to have led such a fulfilling life to date – my wife, Finola – a lady of great achievement in her own right - who is here with me in Memorial this morning.

DEADLOCK IN THE UNITED STATES?

I have just returned from the United States and confess to some bafflement as to the American electorate’s long term intentions.

President Obama remains personally popular but satisfaction with his performance in office has fallen to levels that suggest his party will lose control of at least one house of Congress in the Mid Term elections next month.

The Tea Party movement has energised the base of the Republican party and is gathering support among Independent and some Democratic voters. The central concern of members of the Tea Party is the growing Federal debt. In a way that Europeans do not, Americans take their country’s debt personally.

Many of those who voted for President Obama last time may not come out to vote, while more of those who voted against him will. This will tip the balance in favour of Republicans, who will certainly gain a majority in the House of Representatives, and possibly even the Senate. There will certainly not be enough Democrats in the Senate to overturn a filibuster. This will mean that ,in effect, President Obama will be unable to get legislation through either house. But the President will still have a veto on any laws the Congress passes, and it is unlikely that Republicans would then be able to marshall enough votes to overturn a veto.

The potential net effect of all this is a complete deadlock, with neither side able to pass anything. The Republicans will exhaust a lot of energy trying to repeal Obama’s health plan. They will not succeed, but they may prevent it becoming fully effective. Meanwhile health costs in America, which already spends 18% of it entire income on health, will continue to spiral. Al Qaeda will never bring America to its knees, but health costs will do so, unless something changes very soon.

It would be really bad for the world if the US legislative process were to become gridlocked for the next two years.

If this is not to happen, President Obama will have to look for Republican ideas he can agree with. One such might be a reform of the legal system to limit damages awards for medical errors. This could dramatically cut healthcare costs and could be a part of a compromise with Republicans to preserve the essentials of the Obama healthcare reform.

LETTER FROM AMERICA

Finola and I are in Washington this week, catching up on some of our friends here.
The annual meetings of the International Monetary Fund (IMF) are on  here this week.  I remember  being at these meetings back in the  1980s when I  was Minister  for Finance.  I heard  the opening   speech of the  Managing Director of the IMF, Dominique Strauss Kahn.
It was one of the most lucid descriptions of the world’s current economic situation that I have heard.  It is accessible on video on the website of the IMF and is worth watching.
He identified the risk that arguments about currency valuations could escalate into a much wider conflict, as happened in the  1930s.
He also explained why the shift in economic power towards emerging economies is taking place. The explanation lies in technology.
For the last 200 years western countries, despite their relatively small populations, have managed to monopolise access to certain technologies, including I assume military technologies. This was  historically  abnormal.
Now, for a variety of reasons, that monopoly is breaking down and everyone is getting the technology. The spread of mobile phones in India is an example, a dissemination of communications that would have been impossible if we had to rely on fixed lines.
As a result of all this, in future, size of population is going to become more important in determining economic power, and consequently military power.
If such a fundamental shift in economic power is taking place, it is going to be very difficult for western countries to get back to the rates of growth we got used to in the 1990s and earlier. Yet, we seem to be basing our plans on that assumption.  We may have to get used to a more frugal way of life , and set the maintenance of living standards rather than increasing them as our goal. Distributing the burden fairly will be crucial.
The Mid Term Congressional elections here in the United States are  heating up .
A Washington Post poll shows that a majority of all Americans prefer Democratic party control of Congress, but a majority of those who profess to be “very interested voters” would prefer Republican control.
While 47% of Americans say they would like to pay fewer taxes and have fewer services from the Federal Government, three quarters of them say that they regard the two big programmes run by the Federal Government, Medicare and Social Security, as “very important”.  56% regard defence spending as “very important”.
There would appear to me to be a real risk that people will vote for what they do not really want, because they do not know what their taxes are really spent on. Every taxpayer should be sent a pie chart showing where their taxes go.

MAKING THE CASE FOR THE EU TO THE TORIES

I spoke this week at a fringe event at the Conservative Party Conference in Birmingham. It was a debate, organised by the Centre for European  Reform and Open Europe, on the relationship between Europe and America, but much of the time was spent debating  Britain’s relationship with the European Union.

There was a standing room only attendance, and a predominance of  euro sceptical views.

I shared the platform with UK the Foreign Secretary, William Hague and the Swedish Foreign Minister, Carl Bildt, and Daniel Hannan MEP.

Daniel Hannan unfavourably contrasted the long EU Treaty of Lisbon with the very short US constitution, and that countries that stayed out of the EU ,like  Switzerland and Norway, were better off.

I replied that the big difference between the EU and the US was that states could leave the EU, but states could not leave the US, once they joined, as South Carolina discovered to its cost in 1861. A Union, where states could leave like the EU, required much more detailed compromises that did one  they could not, like the US. That accounted for the greater length of EU Treaties, which were in effect the price one paid for the fact that individual states in the EU remain sovereign, whereas it is the Federal Government that is sovereign in the US.

As far as Switzerland and Norway were concerned, I said that they still chose to apply the EU rules on all issues that affected freedom of movement of goods, people and services, because they wanted to have access to the EU market. The price they paid for staying out of the EU was that they had no democratic say in making these rules, whereas , as an EU member, Britain had a say in making  these EU rules through its Ministers in the Council and its MEPS in the European Parliament. Quite a list of countries are applying to join the  EU, but no states, not even Puerto Rico, were applying to join the US.

I added that, even though it was not in it, Britain gained from the existence of the euro. British travellers did not have to pay foreign exchange fees to banks every time they crossed a  border on the  continent, and London gained  from the euro as a financial centre.

I also attended some of the sessions of the Conference.

Boris Johnson made a good case for his leadership of London as its Mayor, highlighting the reduction in night crime, his removal of road bumps, and his bicycle scheme.

David Willets spoke of the creation of extra places for apprentices, and of the need for universities to arrange to commercialise their research, a lesson that universities in other countries need to learn. He added that promotion of academics to higher posts should reward their skill and   success as teachers, something often ignored at the moment. Again I think other countries could consider the same point.

IRELAND IS NOT A POOR COUNTRY

Speech by John Bruton, former Taoiseach,  at the National  Conference of the Institute of Public Administration in the Aviva stadium on Thursday 30th September  at 2.40pm

I start by saying that the following are personal opinions.  

Let us keep a sense of proportion about  Ireland’s current  situation .  A few  years ago there was a consensus of euphoria, with sceptical voices drowned out. Now we run the risk of forming a new consensus of helplessness and despair.  The euphoric consensus was a huge mistake, a consensus of helplessness now would be just as big a mistake. We still have a lot going for us as a country, but we have some decisions to take.  We need a long term perspective to make sense of the short term sacrifices that have to be made.  
The recent Quarterly Economic Commentary of the ESRI says income per head in Ireland is now back to what it was in 2000. That is quite a drop from the unsustainable heights it reached in 2006, but nobody can seriously suggest that Ireland was a poor country in 2000.
We had a solid economy in 2000, something we did not have in 2006.  Of course this is not the whole story.  There are many who are worse off than they, or their equivalents, were in 2000. But that also means that there are people who are much better off than they, or their equivalents,  were in 2000!  There is much more anxiety around now than there was in 2000.   America, on which we rely a lot, was much  more buoyant in 2000 than it is today. But East and South Asia, to which we must turn our attention now, is much more vibrant than it was in 2000.  Growth rates will be an average of 8.5% there in 2011.
So I am not impressed when I read a respected Irish journalist wringing his hands helplessly and writing in a  paper last Sunday that “the chasm between the governments revenues and spending cannot be bridged”, and suggesting that we “renegotiate our debts”. He was talking about the Governments debts, not the debts of the banks.  Another journalist in the same paper called for “debt rescheduling and renegotiation” of our sovereign debt.
This sort of comment is wrong, and sends out a bad message at home and abroad. The gap between spending and revenues can be bridged.  All three major political parties have committed themselves to bridging it, or at least to reducing it to 3% of GDP by 2014.
Whatever about subordinated bonds of formerly private banks,  there is  no need  for ,  nor  wisdom in, calls for renegotiating the liabilities that  our democratically elected  sovereign  Government freely undertook.
 A rescheduling  or renegotiation of debt would affect one’s future ability to borrow, and Ireland will need to borrow in future for productive purposes, even after it has eliminated its current budget deficit.  The country would also need to borrow while and renegotiation was taking place, and  with Irelands ongoing  deficit, we would have to borrow quite a lot. Who would lend more money to us if we  were saying  we wanted to  evade timely  repayment of existing debts?
There is a limited amount of money available to be lent to sovereign borrowers, and we will be competing for those funds with other countries all over the world, including in Africa, who pay their debts on time without   renegotiation or rescheduling. We will also be competing with the United States Government which has a voracious appetite for loans, and which will increasingly  crowd out other  sovereign borrowers, especially smaller countries. A global economic recovery would  also  crowd us out because it would lead to increased borrowing from the markets by large companies with  good bond ratings. We need to get our house in order before that happens.
Those who say that the chasm cannot now be bridged between  spending and revenue should bear in mind that the increase in spending, and the gap between it and revenue which it has created, are quite recent.
From 2000 to 2006, the numbers working in the taxpayer financed health sector increased by 20%, numbers in the education sector rose by 27%, and in the Justice sector by 22%.The number is senior grades in the civil service increased disproportionately, by 82% as against 27%, between 1997 and 2009.
 In the economy generally, wages, which had grown in line with wages in  the euro area generally up to 1996, increased at between two and three times the euro area average between  1997 and 2008. Other payments have also increased similarly.  All that was done  on the back of artificial buoyancy of taxes collected from   the construction sector, which everybody knew in their hearts was temporary.
But in 1997, before that big increase in wages by comparison with the rest of Europe took place,  Irish people were still comparatively well off , as we were in 2000 before all the additional recruitment to the public sector took place.  That is why we need to keep a sense of proportion about the fiscal challenges we face. They are manageable, if we choose to manage them.

FACING OUR RESPONSIBILITIES AS A SOVEREIGN DEMOCRACY
This is not a poor country.  It was not a poor country in 1997 or 2000 either, before we added this additional expenditure, which we are now  sustaining by borrowing an additional   11% of our  GDP each year, year after  year if nothing changes.
We still have a higher income per head than most EU countries have, whether you measure it by GDP or even by GNP.
We also have a little pride. We worked hard to gain our independence.  A survey has shown that only two other peoples in the world have a higher level of patriotic pride than we do, the Americans and the Venezuelans. That is an asset on which  you cannot put a price.
As a comparatively well off , and  a proud, people, we are not the sort of people who would want to “renegotiate” what we owe to others, especially as these were debts incurred on our behalf  by the Governments which , for good or ill, we freely elected. Almost every other country in the EU has sovereign debt problems, even Germany has a deficit. We have received more EU funds per capita over the last thirty years than any other EU country, and we are one of the better off  countries in the EU.
As in life, so it is in finance. All rights have their corresponding responsibilities. Being a fiscally  sovereign democracy involves responsibilities, as well as rights. The sovereign right to borrow  goes with a sovereign  responsibility to repay. Those are the rights and responsibilities that we have, that Northern Ireland  does not have.
Some even went out to die, and to kill other people, almost 100 years ago to win the right to fiscal sovereignty. Others worked for the same goal by constitutional methods. The main difference between Home Rule and the Treaty was not legislative autonomy, it was fiscal sovereignty.  
What would the people  who won fiscal sovereignty  for us 100 years ago  think if we were to show, 100 years later, that we cannot manage our sovereign finances, without asking to be forgiven some of our debts, and that we had shown by that that we could not fully shoulder the responsibility of fiscal sovereignty?
That need not happen, and it will not happen

OUR STRENGTHS   
We have the capacity to meet all our liabilities because   we have the means of generating income by selling goods and services that others will want to buy.
 Our human resources in Ireland are second to none.  Proportionately more young people have a third level education than in almost any other European country.
Our roads, our accessibility to hotels and cultural facilities, our public transport, our airports...these are all better than they were. Not all of  the borrowed money was wasted.      
Exports are buoyant this year, rising faster than in most European countries.
More significantly, Irish exports fell much less in the recent downturn in global markets, than did the exports of most European countries. The pharmaceutical sector has been particularly strong.  This general trend in exports shows that Ireland is invested in economic sectors for which there is consistent demand, whereas other European countries are heavily into sectors, like cars, where demand is much more volatile.
While the Irish public sector still has unresolved debt problems, Irish households have paid down a lot of their debts.  Irish people are saving more of what they earn.  The private savings rate is now 10% of GDP as against 2% in 2007.
According to the ESRI,  in  2009 there  was an  increase in net financial assets of Irish households of  almost 25 billion euros ,  due to a reduction of  personal debt of 4.6 billion euros and  an increase in financial assets  of 20 billion  arising from an improvement in the  value of pension funds and insurance policies. Of course, this improvement starts from a very high level of indebtedness, and it is unevenly distributed.   
Some sectors have come through the crisis very well. The international financial services industry in Ireland , which is quite separate from the domestic banking sector, has done remarkably well. It is spread all over Ireland and is creating and sustaining highly skilled jobs, especially for young Irish people with good mathematical skills. I have been struck by how diverse the international financial services industry in Ireland is, and by how much inventiveness has been applied in using  information technology to provide global services  from  Ireland that are better  than can be provided from  anywhere else.
Our relative competitive position has greatly improved too.
House and apartment rents, new office rents, wages costs and prices have reduced proportionately more here in Ireland in the last two years, than they have  in other  European countries.  We need to talk more about that.
Staff turnover is much less than it was, so a new employer coming in here from abroad will finds it more worthwhile to train Irish employees than he would have in 2006.
Irish people are still inventive and adaptable.
The industrial society, with its emphasis on disciplined repetition of tasks, may not have suited the Irish character all that well. But the information society, with its emphasis on adaptability and innovation, is ideal for us
Irish people have shown themselves to be more sensible about facing up to the need to make the painful economies to adapt to our reduced economic circumstances than have other societies.  Major economies, including wage reductions, have already been made. The contrast between Irish reactions to this and the   street theatre in France and Greece is stark.  
The Irish tendency towards too much consensus , that  may have collectively  blinded us to reality during the boom,  can now work to help us come together to face up to our problems in a practical way.


THE EMERGING ECONOMIC POWERS AND IRELAND
We are living in a changed world.  Between 2000 and 2010, the global output share of the  advanced economies fell from two third to one half, while  the share of  the places, like China, India ,the Middle East  and Brazil, where  the immigrants and students  come from,  has risen dramatically. These are increasingly the people with the money.
Ireland is an open society and has handled the transition to a multi faith, multi ethnic, society much better than have some of our European neighbours.
In fact, I think Irish people have a better instinctive understanding of the way the balance of economic power in the world is changing than do some of our continental neighbours, who are now convulsed by very backward looking debates about ethnicity and immigration.  Looking for Islamic finance, and making immigrants of Islamic faith feel  uncomfortable do not sit easily together.
Our  own religious  heritage, our lack of a colonial past, and our own experience of emigration has made us more welcoming of strangers in our midst than some other societies have  been . That will be a big help to us in attracting foreign investment here, from the Gulf States to which I will travel in a few weeks,  and  from the emerging economies from which many of our immigrants in Ireland  have come. Some of the students from China, India or Brazil  who are educated  for a time here will, if they  return home with a good impression of the country and   rise to  influential positions in their own countries,  will  be  helpful to us in attracting investment here.
In Hong Kong last week in my capacity as Chairman of IFSC Ireland, I saw the dynamism of the Far East at first hand. China is growing at 10% a year. Hourly wages rose by 14% last year in China. This is  spinning off into the rest of Asia. India will grow by 8.5% next year, South Korea by 6%, the Philipines by 6.2%,nd  Singapore by 14%.
The transformation of the China’s economy has been described by the OECD as one of   “the greatest economic success  stories of modern times”.  
 Savings are very high in China, and opportunities for private investment are limited. This has fuelled a lot of property speculation. Only 47% of second homes in China are earning a rent, and 20% are vacant. The Chinese Government wants to divert saving away from property. This is an opportunity for Irelands financial services sector, to devise ways of helping China spread it investment globally in ways that minimize risk and maximize returns .
WHAT IRELAND HAS TO OFFER
We have the expertise to do this. Dublin is already the 9th largest international banking market in the world, and 6th largest for the issue of international debt securities.
The administration of 49% of the world’s hedge funds takes place in Ireland, and 350 fund promoters from 50 countries have chosen Ireland as the base from which to service their funds.
Ireland id the  world centre  for aircraft leasing finance.
The international insurance sector has a big presence in Ireland, writing 26 billion euros worth of  non Life and reinsurance business, and  28 billion worth of Life insurance business .
3000 international investment funds are listed on the Dublin Stock Exchange. These originate from 40 different countries.  There are over 2700 UCITS funds in Ireland with investments of 682 billion euros, and 1245 Qualified Investor Funds (QIFs) with investments of 135 billion euros.  Both types of fund operate under EU rules. UCITS are the more conservatively managed of the two types of fund.
These are strong Irish  businesses that all have the capacity to help China, and other emerging economies, to  use their savings wisely and well.
ANOTHER “ECONOMIC DEVELOPMENT “  DOCUMENT NEEDED NOW
Turning back to our own economy, let me conclude by saying this.
Yes, we have a deal to learn from our mistakes.  Yes, we will have to make some painful changes. Government services will be reduced and the direct and indirect tax base may have to broadened.
But the fundamental human resource base of the Irish economy remains young, adaptable and well educated. That is what provides the basis for economic recovery.  
The challenge today is as much psychological as financial. What is needed now is a 5 to 10 year perspective, like the Economic Development document, produced by Ken Whittaker in 1958,
which shows a credible linkage between sacrifices now, and results later and,
which explains the difference between necessary and intelligent risk taking and reckless speculation and
which shows how the burden of change  can be borne by all in a fair, prudent  and proportionate manner.  
Economic Development in 1958 was an educational exercise, not a dogmatic prediction of the future.
We need a similar educational exercise now, to paint a picture of what is possible.
Not a set of promises,
not a lot of numbers  plucked from the sky,
not pious management speak,
not an  impossibly  prescriptive  and  detailed plan either  ,
but a logical explanation of the linkages between what we will  do now,   clear and courageous choices we are now making,   and  an honest estimate, no more than that, of  we could   achieve  ten years from now, once those choices are made .
If a much smaller public service could produce something like that in 1958, after years of economic stagnation and wilful isolation, surely we can do even better now   with the much enhanced expertise available in our much bigger public service today.