Published: Wednesday, 19th May, 2010 5:00pm

Over recovery is gaining momentum

Finance Minister, Brian Lenihan.
Pic by==: 97

Minister for Finance, Brian Lenihan, writes exclusively for

The Anglo-Celt...

After almost two years of bad news, I am glad to say that the decisive measures the government has taken to bring order to our public finances and to stabilise our banking system are paying off. We are now in an immeasurably better place than twelve months ago.

In my Budget speech last December, I said we had turned the corner. The solid national economic data that has emerged this week proves that we are now on the cusp of a resumption of positive economic growth.

The latest exchequer returns show that our tax revenues are stabilising and are on target for the first four months of the year. The deficit - that is the gap between revenue and spending was smaller than for the same period last year. That is the first time this has happened in almost two years.

Retail sales increased by four per cent year-on-year during March. This is the first time since January 2008 that we have seen two consecutive months of year-on-year increases in retail figures.

Of course, the proposed 900 redundancies at Quinn Insurance present a real worry for readers of The Anglo-Celt right now and I know that An Taoiseach, Brian Cowen TD; Batt O'Keeffe, the Minister for Enterprise, Trade and Innovation; and the local representatives are making it a priority to assist those affected in seeking replacement employment as soon as possible.

However, the best way to create jobs is to return our economy to growth and the data published in the last number of indicates strongly that we are indeed on the road to recovery, and this will help us to create more jobs in areas affected by the Quinn Insurance redundancies and all over the country.

Most commentators, including the Central Bank and ESRI, are now forecasting positive growth in the second half of this year. Indeed some analysts say the economy returned to growth in quarter one of 2010.

Progress in banking

Less than a month after the transfer of loans to NAMA, Bank of Ireland became the first of our financial institutions to emerge from the banking crisis. This is good news for the taxpayer; good news for the bank and its investors; and above all, good news for our economy.

The bank has published its plans to attract money from private investors to meet the stringent capital requirements set out by the Financial Regulator. The fact that the bank has secured the backing of a number of large international financial institutions guarantees the success of its plans.

The level of private sector investment involved in the deal is tangible evidence of the growing international confidence in both the Bank of Ireland and in our economy. Through the transfer of its riskiest loans to NAMA, we are removing the crippling uncertainty about the losses on its balance sheet. Our policies are delivering a cleaned up, well-capitalised and better funded bank that is in a position to provide the vital credit to small businesses and householders that is needed to support economic recovery and job creation.

The deal will also provide a handsome return to the taxpayer. The state shortly will get over €540 million from its previous investment in the bank. We will own about €1.8 billion of preference shares, which will yield around €180 million in cash to the Exchequer annually. The state will own up to 36.5% of this valuable bank, which it can sell in the future.

This outcome is a vindication of the government's banking strategy, which pursued an institution-by-institution solution. The policy of blanket nationalisation, which some had advocated, would have deprived Bank of Ireland of the considerable private sector funds it is now raising, leaving the taxpayer to foot the bill. The Fine Gael proposal to split the bank into a good bank and a bad bank and to default would have destroyed this 200-year-old institution.

I am well aware of the public outrage at the appalling mess that has been uncovered inside our banks. Our citizens are shocked and understandably angry that they, as taxpayers, have had to pick up the pieces.

But the developments in Bank of Ireland mark a crucial milestone in the resolution of our difficulties. This bank is now ready to serve the economy. We know the extent of our problems in the other institutions and as the Central Bank Governor, Professor Patrick Honohan has said, the cost of the rescue is manageable.

Building confidence

Public confidence in the system of regulation we have put in place is growing by the day and the work of NAMA in forcing the banks and their borrowers to face up to their losses is winning the respect of the public.

Professor Honohan, the Regulator, Matthew Elderfield, and the chief executive of NAMA, Brendan McDonagh have, in their respective roles, brought enormous credibility and professionalism to the new structures the Government has put in place to resolve our banking crisis.

The decisions we have taken have met with the approval of the IMF, the European Commission and a host of respected economic commentators and financial market analysts.

This positive international reaction reinforces the confidence engendered by the manner in which we have addressed the imbalance in our public finances over the last two years.

We have regained competitiveness through the difficult budgetary measures we have taken. Consumer sentiment is improving. Car sales have increased. Surveys of manufacturing and services firms confirm we are moving in the right direction.

As the recovery gains momentum, the sole focus of the Government will be to create and protect jobs.

Ireland is now regarded by international investors as a country that faces up to its problems and deals with them effectively. The credit for this growing confidence rests with our citizens.

They have demonstrated their gritty determination to get this economy back on the road to growth. They have shown the world that the enterprising spirit that brought us the boom is alive and well and will lead us back to recovery.

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