Address by An Tánaiste and Minister for Enterprise, Trade and Employment, Mary Harney, TD

To the Institute of European Affairs' Conference on Enlargement and the Lisbon Agenda

Friday, 21 November 2003

I am very pleased to be here today at the Institute of European Affairs, especially since we are joined by Commissioner Pascal Lamy and by representatives of our accession partners in the European Union.

Ireland takes over the Presidency next January at a historic time and exciting time for us all.

On the 1^st May the ten new States will bring us to 25 member states.

In June, the citizens of Europe will vote for a new European Parliament. They will do so knowing the contents of a new Constitution for Europe.

And on 1 November, a new Commission will take office.

For the EU, for you the accession States and for Ireland, it will not be business as usual by any means.

The enlargement of the Union to 25 member States increases the geographic area of the Union by over one third and brings the population of the Union to 453 million citizens.

We will mark the historic occasion in Dublin by a ceremonial event with our guests the Heads of State or Government of member States.

The new member states will bring with them a new richness of culture, tradition and history. For business and enterprise the enlargement of the Union provides new opportunities for trade, tourism, and collaboration in research and knowledge networks.

Ireland greets enlargement warmly. I am very pleased that the Irish Government will open the Irish labour market from day one to people from the accession countries.

We welcome the new member States, and look forward to building prosperity and sustainable growth together.

Ireland's experience of Membership of the EU

In recent months, my ministerial colleagues and I have stepped up our engagement with the accession countries through a programme of visits to capitals. We have also been very happy to receive delegations in Dublin.

In addition, there has also been very useful collaboration between our countries in the context of work on the Convention and the Intergovernmental Conference.

What is striking from conversations with Ministers in the accession countries is that Ireland is regarded as a role model in many ways both in terms of how we have managed our economy but also how we have benefited from membership of the EU.

I won't go into all the details of our transformation as a country since 1973. But it has been remarkable - more than an industrial revolution, a social and economic one as well. It went well beyond the effect of generous transfers of agriculture, structural and social funds. It opened our economy, our trading patterns and our attitudes.

Membership of the European Union did not guarantee our success - we still had the capacity to make mistakes ourselves, and we did so. And we can all still do that. But without EU membership, I doubt if we would have achieved the transformation of Ireland that is so clear now.

Financial transfers alone are by no means the key for sustainable growth for any EU member state. For us, and I believe it will be the same for the accession countries, internal policy reform was also essential to secure the benefits of EU membership and of the single market.

EU competition laws and rules on deregulation have also freed up and expanded the market for services that were once expensive monopolies. For a long time in Ireland, there was insufficient political will domestically to liberalise markets. Now, one only has to look at air transport and telecommunication to see the transformation.

In short, it is beyond question that economic policy and economic performance in Ireland has been influenced in every area by EU membership.

On the macroeconomic side, we have had the transformation of the single currency, the euro and associated fiscal co-ordination. On the microeconomic side, we have benefited from the development of the single market in all aspects.

The latter is the realm of the Lisbon Agenda. I would like to discuss first how I see that in our Presidency, before making some brief remarks about current themes on fiscal policy and the new Constitution.

Ireland's Presidency and the Lisbon Agenda

Only 40 days to go to 1 January 2004.

This may be the last opportunity Ireland will have as chair of the European Union under the current 6 monthly rotation. If so, we are determined to make it our best.

We see the Presidency as a tremendous opportunity to move the agenda along and to bring some energy based on our experience to the principal challenges. We want to add new dynamism to the Lisbon Agenda using the focal point of the Spring European Council.

The Competitiveness Council, which I will chair in our Presidency, is the engine room of the Lisbon agenda. If things don't move at this Council, the whole vehicle will stay still.

We know the challenges we face in terms of the delivery gaps on the goals we have set ourselves. Indeed I and many colleagues sometimes sense a tiredness and lethargy around the whole process. Some observers see a problem in the sheer breadth of the Lisbon agenda and the endeavour to move on all fronts at the same time.

But there is no alternative if we are to achieve the jobs and prosperity our people want.

By the end of 2004, we will be nearly halfway towards the 2010 target date of the Lisbon agenda. Unless we focus on the economic core of the Lisbon agenda, it's clear that some of the Lisbon targets will simply not be met. We risk a failure to match reality with our rhetoric on a grand scale, and the people of Europe would not thank us for it.

A key goal of the Irish Presidency will therefore be to re-invigorate the Lisbon Agenda and to prioritise the key policy decisions that need to be taken.

The Taoiseach has recently written to his counterparts in Europe signalling that growth and employment will be our twin priorities. The specific areas to be pursued will be those of promoting growth-oriented economic policies, fostering competitiveness, delivering more and better employment and generating sustainable growth.

I intend to use my role in the Competitiveness Council to achieve specific, tangible progress forward on key parts of the Lisbon Strategy.

We know, broadly speaking, the policies that need to be spurred on to enhance our competitiveness. It is about promoting a business environment in which enterprise can flourish, in which regulatory burdens are eased, in which efficient capital markets operate. It is about investment in infrastructure, in research and development and in education. It is about exploiting the full potential of the single market as well as enabling European companies to compete successfully in global markets.

How do we intend to translate those into practical advances in the first half of 2004? It can only mean making tangible progress on trade in services, European patents, mergers and takeovers, and chemicals. We also need further progress to complete the financial services action plan.

Commissioner Bolkestein has rightly said that now is not the time to get wobbly on the Lisbon Agenda. We must press on. These are the nitty-gritty items that are needed to achieve the goals of the Lisbon agenda. There is no other way. It's not about speeches or different policies or new formulas. We have the goals, we have the agenda items, we only need the decisions now, one by one.

We simply have to make a better connection between the practical work of each Council meeting and the ambitions and goals we have all signed up to. We have to see that every time we don't make an advance is a real missed opportunity and a real delay in achieving the outcomes we want for our people.

Slow movement is not cost-free. Procrastination is not cost-free. Failure to agree is not cost-free. And the costs of missed opportunities will be borne by all of us in Europe, just as the gains of opportunities taken will be seen across all Europe.

So, there is much at stake.

The Lisbon Strategy is, of course, as relevant to the accession countries as it is to the current fifteen. The scale and pace of change in the accession States so far has been impressive. The difficult political choices that have to be made to deliver reform are not underestimated. But not should we underestimate how high your potential for growth and convergence is.

We look forward very much to working with you in our common endeavour to advance the Lisbon Strategy.

The Euro

The micro economic reforms we are pursuing in the Lisbon agenda need a sound macro economic context, in monetary and fiscal policy.

One of the defining moments in the history of the European Union and in Ireland's history was the establishment of the euro in 1999.

Against a lot of scepticism, the euro has been a success for the Union. The euro zone has low and stable interest rates and inflation.

Monetary stability is a very beneficial environment in which to make fiscal policy and to implement the Lisbon agenda.

For Ireland in particular, the euro has been a great benefit. After our people voted in favour of the Maastricht Treaty, we set our sights on meeting the convergence criteria over the course of the 1990s. There was also a lot of scepticism as to whether we could qualify for euro membership from the very start. But we did.

We managed our budget position carefully. We solved a high debt-GDP ratio by growth. And we saw our interest rates falling from 11 per cent in 1991 to 4 per cent in 1998. Since 1999, we have enjoyed low euro interest rates.

It may be useful for you to reflect that in Ireland, we kept a clear distinction between issues of monetary sovereignty and political sovereignty. While some people argued for the flexibility of national control over a national currency, an Irish currency based on an economy of fewer than 4 million people could not have offered much practical sovereignty in the global currency markets.

In fact, up to 1979, we had no monetary sovereignty, as our currency was the United Kingdom's pound sterling. This was the case since the foundation of our State in 1922. It was our choice. In 1979, we broke with sterling and joined the European Monetary System as a national currency, but we were still viewed as a sterling shadow.

So when it came to the euro, our practical choice was very obvious. We could remain as a small independent currency, viewed by the currency markets as a mere sterling hybrid, or we could integrate fully into the euro zone.

This was a practical reality for a small country. It is a reality that reflects our different approaches to monetary sovereignty and political sovereignty, including fiscal policy. We can also accommodate these different approaches within the EU.

Convergence and Stability and Growth Pact

Your countries, the accession states, are now working on your convergence programmes. You have accepted the discipline of economic monitoring that Member States are committed to in the Treaty, in order to underpin monetary stability with fiscal stability.

The Stability and Growth Pact, which arises out of Treaty commitments, is much debated at present. I believe each of the words in it - Stability, Growth and Pact - are important.

We all value monetary and fiscal stability. We also know that Europe's economic problems can only be solved by growth. And we share the conviction that this is a pact - an agreement of solidarity between the Member States.

Viewed in this light, we can see the logic of the position set out this week by the German Finance Minister in the Financial Times. He wrote that the Pact should not be interpreted in a purely mechanical way. He is right.

Our economies are not machines. Our fiscal policies are not computer programmes. Our Pact is not, as he wrote, `a code of sanctions', but rather, `an adaptable framework for taking action on the economy'.

I agree strongly that EU co-ordination of fiscal policy must be adaptable to achieve its main purpose, sustainable growth. It must be responsive to the real needs of our populations. And it must have the confidence of our people. And let us not forget that confidence is helped, not hindered, when people abide by rules they agreed together.

Just as our monetary policy needs command the confidence of the peoples of Europe, so do the instruments of fiscal policy.

Fiscal policy and democratic choice

Clearly, however, fiscal policy and monetary policy win and maintain the confidence of our peoples in very different ways.

Fiscal choices are decided by elections. Monetary choices are not.

How much we tax, what we tax, and who we tax, are not mechanical matters of technical rules and targets. They are about democratic political choices.

In each of our societies, we argue about them, we contest them, and we resolve them. Tax decisions define our political life.

This is why my colleagues and I in the Irish government are firm in our view that policy on direct taxation must remain a matter for national governments. It is central to our democratic mandate and the confidence of our people in economic governance.

When we asked the Irish people to vote for the Nice Treaty in a second referendum, a decisive factor was that Nice had preserved national decision-making on direct taxation. We asked people to vote `Yes' to reaffirm that position. And the people did so, only one year ago.

It is not, unfortunately, the position in the new draft Constitution being considered at the current Inter Governmental Conference.

We strongly support bringing the work of the IGC to a timely and successful conclusion. We have said, however, that in the area of economic policy, tax is a red-line issue for us.

We are saying this to our colleagues, old and new, respectfully and firmly. We want to be clear and fair to all concerned. Everyone in a negotiation has bottom lines. There would be no need for any negotiation if everyone had the same bottom line, or if no one had any bottom line.

Our red-line means that the agreement we reached at Nice, approved explicitly in our referendum, should remain in place.

We do not support the proposal in the draft Constitution whereby the Council can, by unanimity, move to qualified majority voting on aspects of company taxation.

This would be the `passerelle' method used in relation to a matter of vital economic and democratic importance to Irish people.

This text clearly anticipates a move to qualified majority voting. For some, the present text is just a temporary halt along this road. But I am convinced it would be a recipe for instability and tension around this issue that would prevent progress on the Union's economic, financial and internal market policies.

This procedure would mean, in effect, `one minister, one vote, once only' on this aspect of direct taxation. After that one vote, national decision-making would be gone forever.

I do not see how we could recommend to the Irish people that they would approve a constitution that would allow a fundamental and permanent alteration in power on an issue like direct taxation by one vote of one minister at one Council meeting. And I don't see the Irish people approving that.

I would like to add, finally on this topic, that the absence of qualified majority voting on corporation tax has never held up effective co-operation by Member States on tackling harmful business tax practices in the single market. Ireland has fully engaged in this co-operation and we fulfilled our obligations by the start of this year on the tax issues identified for us.

We are also convinced that it will be good for the diversity and dynamism of the European economy for different parts of the Union to promote their strengths using a variety of policy instruments including corporation tax. I believe that you, the accession states, will benefit greatly from this flexibility, and that you will also bring dynamism to the wider European economy.

Conclusion

As I said at the outset, next year will be an exciting and historic for you, for us and for the whole of Europe.

It will be a turning point for the Lisbon agenda, for enlargement and for the Constitution.

I am firmly of the view that our commitment, enthusiasm and energy for the enlargement project will, if we wish, translate in the detailed policy decisions that we need to take next year.

This is the key task for us - to make our principles, our hopes and our solidarity count on all areas of policy, especially those that have the potential to deliver real, lasting and sustainable benefits to our people.

ENDS/ETE 1163