A Conversation with Enda Kenny

Thursday, May 5, 2011

Prime Minister Enda Kenny discusses terrorism in Ireland and around the world, the elections in Northern Ireland, and the relationship between the Republic of Ireland and Northern Ireland.

RICHARD N. HAASS: Good afternoon. (Chuckles.) Let's let people get to their seats. And let me welcome people to the Council on Foreign Relations. I'm Richard Haass, and let me just make clear for the record, because it's been known, on occasion, that our distinguished visitors are sometimes somewhat tardy, and though our most distinguished visitor today WAS somewhat tardy, I want to make it clear for the record, on the record, that the responsibility was not his. (Laughter.) Traffic in New York today is considerable because of the visit of president -- to a firehouse, to Ground Zero and so forth. So I just wanted to make that clear. (Laughter.)

PRIME MINISTER ENDA KENNY: I agree. I agree. (Laughter.)

HAASS: It's a real personal pleasure for me to welcome the taoiseach, Enda Kenny, to the Council on Foreign Relations. He has been prime minister for all of two months. I think your two-month anniversary is next week.

KENNY: (Chuckles.)

HAASS: It's a little like dog years, whatever. Just -- (laughter) -- it feels seven times longer.

But your timing is interesting. Obviously the news of the country and the world has been focused on the death of Osama bin Laden. As I just mentioned, the president is here today. The United States is now in the final two or three months of an extraordinarily significant budget debate about our debt ceiling. We're also coming up on July 1, which is the date the president said that reductions of American forces in Afghanistan would begin.

So what I take from this -- it's important to draw lessons from experience -- is that if you want a slow week, do not invite the Irish prime minister. (Laughter.)

The reason I say this is a personal pleasure is not simply that we had the chance to get to know each other a few weeks ago in Dublin, but I spent three years being the U.S. envoy to the Northern Ireland peace process. And what it did, among things, is, it took me to London, Dublin and Belfast four, five times a year, and a chance just to meet with a wide range of people.

It's the only thing I've ever been associated with in my career that had the semblance of success associated with it. (Laughter.) Otherwise, my career has been truly unblemished -- (laughter) -- by -- it's also the only time I've ever been in a situation where on the streets of a city -- in this case, Dublin -- people would come up to me and after -- and if they recognized me, for whatever reason -- it doesn't happen frequently -- they would say thank you, which was extraordinary. There was a real sense of caring and concern on the part of the people, and where -- you know, would always wish me well and then, when there were some signs of progress, were extraordinarily grateful.

And one of the real pleasures of the job -- and it's not always the case in diplomacy -- was actually working with my counterparts, including the -- who's now -- Michael Collins, who's now Ireland's ambassador here in the -- in the United States. It really was a team effort, led by the Irish government, the British government. United States was quite -- we were in a support role. But again, a lot of good came of it.

Prime Minister inherited a situation which is extraordinarily challenging. We'll talk about it for a few minutes, then we'll open it up to you, our members.

Just people, please turn off their cell phones -- bit of housekeeping -- that would be great.

Today's meeting is on the record, as those cameras suggest, so anything you say -- as the police inform defendants, anything you say can and will be used against you.

And again, I really do want to thank you for taking the time on this visit to the United States to be with us here at the Council on Foreign Relations.

I want to go back 10 years, and the reason -- with Osama bin Laden in the news. I was in Dublin, meeting with not your predecessor, but the predecessor of your predecessor, when the news came in about the planes and watching -- hitting the tower. Indeed, I watched the second plane hit the tower in the office of the taoiseach at the time. We then went out and did a rather impromptu news conference.

And I spent -- I couldn't get back to the United States, so I spent that night in Dublin -- first in Dublin, then I went to Belfast. And it was rather remarkable to be spending that time -- that night in a city that -- for an awful lot of Americans the word "Belfast" was associated with the word terrorism -- obviously, on a fundamentally different scale, since as many people died on 9/11 as essentially died during the Troubles. But it also formed a fascinating and, ironically enough, useful backdrop to diplomacy, because what 9/11 did was mark the end of any tolerance whatsoever for the use of violence to promote political ends. And it actually gave me, as the U.S. envoy, ironically enough, something to work with.

I'd just be curious, to begin with, before we get to some of the economic questions and the rest, what was the reaction in your country? What was -- what was your own reaction to the events of the last couple of days? And what, if any, difference do you think it might make heading forward?

KENNY: First of all, can I say that Richard Haass played a significant part in the jigsaw of putting together a permanent peace process in Ireland. Want to recognize that here.

And this very day, people in Northern Ireland are actually going to the polls, voting for the election of an assembly. And this assembly has been the first in a very long period of years. It has run its course without any real difficulty. And you, sir, put your thumbprints on part of that picture.

Because of the difficulties that we have encountered in Northern Ireland over 30 years, we've got some understanding of what terrorist activities are about, how they impact on people's lives, how the memory of loss is seared on people's minds. And from that perspective, all governments in our country supported the peace process. And whether we were in opposition or in government, all played their part in standing on the one platform; which eventually became the Good Friday Agreement where people, north and south, voted by referendum for that agreement, which is an international treaty. And except for a few tragic incidents, by and large, life has continued with a degree of normality. And Richard Haass played his part in the development of that. I just want to acknowledge it.

And in respect of what happened in Pakistan, I think this was inevitable at some point or other. The world has moved on significantly in the last number of years. I think there's a -- there's really a need for an understanding of the cultures that you have to deal with in the Middle East and beyond -- not the same as dealing with countries that you know very well. And whether it be -- whether it be Tunisia or Egypt or the Yemen or Syria or Saudi or Libya, and right across through to Iran, Iraq, Pakistan, Kashmir, Afghanistan and India, all of these have significant problems and significant difficulties with each other.

I think that the fact that Osama bin Laden has been removed as the head of al-Qaida brings a closure, in a way, to that particular part of the terrorist process. But it doesn't put an end to and won't put an end to it. And while al-Qaida as a terrorist organization may not be in the forefront of terrorist activities for the -- for the past period, it doesn't mean that there shouldn't be, you know, continued, very extensive vigilance as to what the consequences might be.

(Inaudible) -- there are people in Pakistan, obviously, who would be supportive of -- supportive of the al-Qaida organization. There are difficulties between Pakistan and India, leaving aside the question of Kashmir, which is very intractable. There is a difficulty of the United States dealing with the Taliban, the fragility that exists in Afghanistan. And these are problems that are not going to be sorted out overnight.

So I think that the fact that -- the fact that Osama bin Laden has been removed brings closure in a sense to that particular element of terrorist activity and -- but as we -- as we know only too well, it doesn't restrict and won't stop other organizations or other elements of terrorist activities continuing. And I'm quite sure that's a matter of significance, importance to the United States and to the president.

I was in the White House and had the privilege to be there on St. Patrick's day -- met President Obama. And he announced on that occasion that he's coming to Ireland. My first duty in coming here last evening was to stand on the viewing platform at Ground Zero and see the site in its current state as it's being developed with the buildings and the monuments. There were 12 Irish people working in the Trade towers and many more associated with the Port Authority, police and the firemen and so on.

I actually remember actually reading an account by -- I think it was by a British journalist, who described the scene afterwards in the -- in the towers before they collapsed. And I remember his line writing about the courage on the faces of the young men not coming down but going up.

So the fact that -- the fact that the American forces have taken out Osama bin Laden will bring fresh memories of loss to people in Bali and in Madrid and in London and in New York. And I think it also brings about a recognition that countries that harbor terrorists and harbor terrorist activities and terrorist organizations have to understand that there are responsibilities and consequences, (that these ?) things can't be allowed to fester, and human life -- innocent human life should not be taken out in that kind of fashion.

They're my views really.

HAASS: Thank you. Before we get to the economics, let me just ask you -- you mentioned the assembly elections today in Northern Ireland. Just quickly on that subject, is it your sense that no matter what else happens in Northern Ireland, it can't go back to the way it was --


HAASS: -- that those days -- that those days are essentially over?


HAASS: And then, if that's the case going forward, what's your sense then of the relationship between the Republic of Ireland and Northern Ireland? Obviously it's part of the political agenda of yours.


HAASS: Where does all of that stand?

KENNY: Well, Richard, there's no going back. We had a very tragic incident in the last -- in the last six to eight weeks of a bomb placed under a car of a young police officer working for the Northern Ireland police, which are known as the PSNI, the Police Service of Northern Ireland. And he was a young Catholic in his early 20s. He was a supporter of the Gaelic Athletic Association, played football with the Gaelic Athletic Association, was a Catholic and joined the PSNI to contribute to his community.

A bomb was placed under his car by an offshoot of the original provisional IRA with a -- with a name attached to it of republicanism. I attended the funeral myself. It was the first time that an Irish Taoiseach actually attended at the funeral of a police officer. It was the first time that Peter Robinson, the leader of the DUP and the first minister of the assembly, ever attended in a Catholic church.

HAASS: He's Protestant, by the way.

KENNY: And equally so, it was the first time that Martin McGuinness, former member of the IRA and the deputy first minister in the assembly attended, at the funeral of any police officer as well.

But even more symbolic was the power of the symbolism here, because 10 years ago, the Gaelic Athletic Association prohibited its members from being associated with the PSNI and vice versa. If you were a member of the police organization, you could not become a member of the Gaelic Athletic Association.

And yet on that street, in that small village, the players of the Gaelic Athletic Association carried the remains in the coffin and handed them over to the police service, who, in turn, handed the remains over to the family for bringing into the church for the mass; and the same happened in reverse on the way back out.

And two statements were very important. The secretary of the sporting organization for officers, which is a national organization, said, if you touch one of us, you touch the entire country -- which is true.

And secondly, his mother, the mother of the young man who was murdered, said, I just want to say that this tragic happening should not prevent any other young Catholic from wanting to join the the PSNI. If a young man or young woman feels that that is their career and that they can make a contribution to peace in their community and protection of citizens from those who disrupt law and order, then that should not prevent them. The people who really suffered here were those who espoused violence in the name of some warped form of Republicanism. So there's no going back.

Now the relationship between the Republic, the government of which I lead, and the assembly and the members of that assembly in Northern Ireland, is a very strong relationship. And indeed, that was there in the previous government's time and in the government before that. So as I say, all governments over the last 25 years have supported the peace process.

What we're trying to do is to develop an all-island economy. As you know, it's a very small island, northeast and the other 26 counties, so it's to build an economic island where tourism, for instance, if you land on the shores of Ireland, you are a visitor to the island. For those of you swing the small white ball on the first tee -- (laughter) -- we are the home of champions, Ian MacRoy (ph) and McGrayan (ph) and McDulle (ph) and Harrington -- all these winners of the U.S. Open and the U.S. PGA, almost won the Masters, the British Open. So if you're feeling a vacation and you want good golf -- (word inaudible) -- please come to our little green island in the north -- (laughter) -- or western part of Europe.

So in that point of view, we cooperate very much with the Northern Ireland assembly and with the British government. In fact, the Irish government is putting in considerable financial contributions for the development of roads, the development of hospitals, shared medical services, strong interest in trade and business and educational circles and so on. So in that sense, there's a very good harmony between the two -- between the two communities.

We have always supported and appreciated the International Fund for Ireland funds from the United States, which former Ambassador Foley would have been involved in as well, which were used for deprived and vulnerable areas in -- particularly in Northern Ireland where you didn't want young men in particular to regress and go back to ways of violence. So we support that, and have always done so. We get other assistance from the European Union.

So there's no going back, Richard. The way forward here is onwards and upwards. It's always a challenge to keep young men in particular challenged and occupied and pointing the way towards, you know, a peaceful way for the future. And that's a constant challenge.

So we look forward, as a new government -- early in June, actually, we're going to have a North South Ministerial Council. That is where the ministers of my own government, with the members of the newly elected assembly, will come together and discuss those cross-border issues, cross-community issues and how we can assist in a -- in a developmental program that will assist both communities. So that's all very hopeful and optimistic for the future.

HAASS: As tempted as I am, as sorely tempted as I am to follow up your comment about the small white ball on the little wooden object, I will resist temptation.

KENNY: Well, I challenged your president and I don't think he's -- (laughter) -- (inaudible).

HAASS: Well, the president of this organization will accept your challenge. (Laughter.) Not to worry, not to worry. You're on.

So let's turn to economics for a minute, from the sublime to something. (Laughter.) OK.

It was several months ago that your government accepted -- if my numbers are right -- an 85 billion dollar -- euro rescue package put together by a number of parties led by the EU, the ECB and IMF. And I understand that your government is pursuing all sorts of measures to bring the deficits down. I think the goal is, what, 3 percent of GDP by 2015, give or take.

KENNY: Right.

HAASS: We're obviously having debates here. What is your formula for doing that? What is your -- you're thinking of it in terms of budget cuts as opposed to taxes. What is your approach? The British government has one model of doing it, a lot of front-loading of spending cuts, a 3:1 ratio of spending cuts to tax increases. Here we haven't decided on all that. Where have you come out?

KENNY: Well, where I come from is that we're now in government almost two months; no government in the history of our country has ever faced the scale of the economic challenge that the government I lead faces. In fact, it's very much like what happened in the early part of the last century, in the 1920s. The first government of our state actually built a new country over the rubble of the old. We've got to build a new economy over the rubble -- or certainly a considerable element of rubble -- of an economy that was destroyed by reckless spending, reckless lending and gross incompetence in a whole range of areas.

That means that we are unable to borrow money ourselves, our banks have been unable to borrow money, and this has been continued now for over 2 1/2 years. So we had arriving on our shores visitors from the IMF and the ECB and the EU, so this troika effectively control much of the running of the financial elements of our country at the moment.

So our target's to be able to say goodbye to them in due course, go back to the international bond markets, borrow ourselves at lower interest rates and be in charge again of our own economic destiny. In order to do that, the government I lead has been given the strongest mandate in the history of the state. In the recent general election, the party that I lead, the Fine Gael party, together with the Labor Party, achieved a unique overall majority. So we've got a very strong mandate.

What does that mean? It means stability politically. It means the opportunity to bring certainty where there was confusion. It means the opportunity to bring decisiveness where there was -- where there was uncertainty and confusion.

And in the last six weeks, we've made a number of serious decisions. We want to deal with this, Richard, by making decisions about our banks, by making decisions about our employment situation and by rectifying our public finances and restoring them to good health.

This was started, in fairness, by the previous government, 6 billion being taken out of our economy this year. We're in an austerity program. We didn't ask to be in there, but our economy has been staggering for a while. We want it to be able to stand upright, to pay its way, to play its part and meet our targets and our demands.

The fact that our own national debt, while it's quite considerable and challenging, has been exacerbated by the nature of the blanket guarantee given by the previous government. So you've got bank debt became national debt, and these two together impose a serious challenge for us.

HAASS: Could I interrupt for a second? Was the decision to -- that your predecessors made to give a national backing of all bank debt -- was that clearly just a strategic error of the first order? (Laughter.)

KENNY: Well, I offer the view -- I offer the view that this was a mistake, obviously. (Laughter.) We don't actually know the full detail of what happened here. And given the nature of our parliament, we can't find out without a referendum of the people to give the Oireachtas, or the parliament, the opportunity to have real inquisitorial powers, as it were, on matters of fact as against any intention of criminal intent.

So we're going to have a referendum on that question later on in the year so that parliamentary committees will be able to have compulsory powers of attendance for bankers and politicians and anybody else associated with that to actually attend before those committees, in the same way as you do here with hearings in the States.

But in any event, the Exchequer figures released yesterday show, for instance, that while many commentators would say Ireland's not going to be able to meet its targets, we're actually running 600 million ahead of targets on the main areas of tax, like VAT or excise, corporation tax and income tax, which, if you like, is a sign of some small confidence that we're beginning to head in the right direction here.

I think that that comes from a feeling of good will for the new government, a feeling of people now understanding that having gone through THE most serious stress test for our banks of any European bank system, we now know the scale and the reality and the truth of where that actually is, so they can deal with it.

There are a number of banks that were not subject to those stress tests, and claims may or may not come in for the recapitalization there.

So we'll deal with that. We've made decisions about the number of banks we're going to have in the country -- two pillar banks, instead of six dysfunctional ones; continuing that with new requirements for the governance of banks, dealing with the bonus culture in the context of European directives and see that this cannot happen again, where money was fired out left, right and center to a profligate degree, which has -- which meant that banks knew they were lending money that they'd never be paid back and people were borrowing money that they knew they couldn't pay back -- and all kept together.

Then we want to deal with our unemployment situation. It's over 14 percent at the moment. While there's been a slight drop in the last -- in the last month, it's nothing like -- nothing like what we want to get to.

And the reason, Richard, that we have to have a jobs initiative next week is to deal with the lack of confidence in our indigenous economy. We've had increases in interest rates, increases in the cost of fuel, cost of energy. You've had -- you've had a 24 billion requirement to deal with banks instead of an estimated 10 billion. And then you've had a very high savings ratio because people were afraid to spend money because of uncertainty, and therefore consumer demand fell, and therefore lack of confidence.

Yet our exports, with many multinationals from the States there,are running very strongly -- 21 months, very strong -- very strong surplus, and projections are very good. And even in my deliberations here yesterday and this morning, great enthusiasm, great excitement, great interest in investing in Ireland because we've got -- we've got very strong financial packages for business as will stand the test of time, including the clarity and the transparency and the certainty of the 12 1/2 percent corporation tax rate, which is a big issue for American business to invest in Ireland. Foreign direct investment has been a cornerstone of that, as you know, for many years.

And we're not shifting off that, despite the pressures that there might be from some of our European colleagues. I've made that perfectly clear on every radio/television station I've been speaking to.

And the third element, then, is to deal with the budget deficit at home, and that's about 18 billion at the moment.

So what we really see is that we split the Department of Finance into two departments, one to deal with the bigger picture, the other to deal with public expenditure and public sector reform. We have a -- we have an agreement between the labor unions and the management and the government to reduce the numbers in the public sector by 25,000 by voluntary redundancy and redeployment over the next number of years. We've implemented a range of austerity programs -- pension levies, public pay reductions, cutbacks in one sort or another -- that will lead us to a point where we can close this deficit to manageable proportions and hope that we can build on further growth in exports, confidence in our indigenous economy and get on with meeting our targets.

It's not going to be easy. People know this. But they also have the willingness to get though this valley of obstacles, if you like, and come out the far side as a leaner, more efficient -- more efficient, more professional country to deliver the public services.

And my political philosophy is that by 2016 and the centenary of the year when those who took the first stumbling steps towards economic independence and political independence -- that we will demonstrate we're the best small country in the world in which to do business.

I'm speaking today down on Wall Street, down on the New York Stock Exchange, and meeting with a number of potential investors. They are actually very excited about the clarity and the decisiveness and the stability that the new government can bring to the country and its reputation. And partly the reason why I'm here and here today -- thank you for your invitation -- is to help rebuild that reputation and have that connectivity that's always been strong between our two countries. And that's going to be very heavily endorsed by the -- by the visit of President Obama when he comes in the next few weeks. And he and his first lady will be made more than welcome in Ireland as he heads to Britain and on to France.

HAASS: Let me just ask one more question. Then I'll open up to our members. As you look forward, do you think there's any chance that you'll be forced to restructure your sovereign debt, or you think you can escape that?

KENNY: I think we can deal with this. The indications yesterday on the Exchequer returns even at this stage are a measure of confidence. Obviously you'd like to be in a much stronger position, but that's the opportunity of politics. The scale of the challenge is enormous, but so is the opportunity to get it right.

And people in times of pressure and austerity are willing to accept change. And change is very necessary in the way we do business and have been doing business. And that's my -- that's my mandate. We've set -- we've set out a really strong program for government with our partners in government, the Labour Party. And we intend to deliver on that. And that's our political priority.

Our people demand and deserve no less. That's why they voted. That's why I sit here as the -- as the leader and taoiseach of the country. And I can't -- I can't say it any more strongly than to say the -- I intend to demonstrate the proof of that mandate by delivering on that program. I believe that it has the potential to turn around the fortunes of our people and our country and give -- you know, give an opportunity for that creativity and ingenuity and energy that is in our young generation, who, in my belief, can stand the -- on the competitive stage with their peers in any country around the world. It's just (we have ?) to harness all that together.

And when you land in government, for those of you who might land in government, it really comes at you like one of those unfortunate tornadoes down in -- down in Louisiana or wherever. And you've got to be able to face that head on and deal with this. People want integrity. They want decency. They want truth. They want decisiveness. They want hard work. And they need you to lead that by demonstration, by example. And that's what I intend to do with my cabinet for the period they leave me -- (inaudible).

HAASS: And that also -- does that mean that the bondholders --

KENNY: Yeah, well --

HAASS: -- ought to be protected against any -- (inaudible)?

KENNY: When we -- when we discussed the question of the -- of the -- of the decision that we're making in both the pillar banks, Richard, we discussed this with the ECB -- or actually -- (inaudible) -- Jean-Claude Trichet and myself -- (inaudible) -- China. And they were very strongly of the view that we should not (burden ?) senior bondholders in Allied Irish Bank or Bank of Ireland, which are going to be our two pillar banks.

Remember, Europe continues to say no until no becomes yes, because Europe always said you can't (burden ?) subordinated bondholders either. And now they've been making a significant contribution. But I'll put it this way to you. The stress tests that were carried out were exceptionally strong and are overcompensated, if you like, because the decision that the government made to have two core banks means that you split them into core and noncore. That allows for the deleveraging of the noncore elements, which would provide credit capital for lending to business, which will stimulate the economy and will lead to a more efficient machine.

But also, Anglo-Irish Bank, which was -- which is -- which (the ?) name was taken down from the bank last week as an iconic symbol of change and movement forward, was not subject to those stress tests. And their senior bondholders, which are not very many in extent now, are in a different category than senior bondholders in AIB or Bank of Ireland. And if a requirement for further capitalization of Anglo-Irish Bank comes before us, then the government would deal with that, obviously, in a different light than we did with senior bondholders in Allied Irish Bank or Bank of Ireland.

HAASS: (Inaudible.) Okay. With that, all, let us know if you'd like to make -- ask a question. Please wait for a microphone. Give us your name. Is there a --

KENNY: Young lady over here.

HAASS: There's a young lady all the way in the back. I will -- (inaudible). And by the way, keep your questions short, and one to a customer.

QUESTIONER: Sure. Thank you for calling me "young lady," as well. I really appreciate that. (Laughter.)

My name is Pauline Hines (sp), and I work for Thomson Reuters. I'm an Irish citizen. I'm from Tipperary. I do have one question for the taoiseach; however, it's a multi-dimensional question, so I'm going to try and shorten it.

HAASS: Why don't we stick to one dimension? (Laughter.)

QUESTIONER: I will try. I understand that you're here to try and repair and rebuild Ireland's reputation as a center for foreign investment. And I think that's really important. It's something that our country needs very badly.

I do think, however -- you know, as I read the news at home and I talk to people at home, we struggle. I'm sorry, Mr. Haass, but it has to be multi-dimensional. And I would like to just briefly touch on these points, Taoiseach.

HAASS: Actually, you can't do that. You've really got to get to the question. We have a lot of people who want to ask them. Sorry. One question.

QUESTIONER: Okay. Infrastructure and services are key at home, and they're sadly lacking. Health, education, community services all are being torn apart. And I think that that's really important. If you want to bring foreign investment and you want to bring people to work in the country, they have to have those basics. And they don't really exist today. I haven't really seen -- is there a plan from the government?

HAASS: You've got to ask a question.

QUESTIONER: That's what my question is. What is the government's plan to deal with the education scandals, the health scandals and the desire to centralize community services like schools, post offices and hospitals?

I'll leave it at that. Thank you.

KENNY: Well, let's start with the health system. We're spending 20 billion on health at the moment. And it is true to say that the current structure of the health system has not delivered first-class health services to all our citizens in the way that you would want. For those who get inside the system, they find the best nurses and doctors you'd find anywhere, who do heroic duty with a lot of pressure.

So what we're doing now with the health system is to change it over the period of government and bring in what we call the Dutch health model system, which eliminates the two-tier system that applies in Ireland, which will eliminate waiting lists, which will bring about a situation where money will follow the patient, and hospitals get paid for what they do, instead of a system of having hospitals paid at the beginning of the year and no account afterwards of how that money is spent, so that when they run out of money by June or July, wards close down, expensive equipment lies idle, people get onto long waiting lists and so on.

This is a complex area, so the minister of health, himself a man of considerable medical experience, is already starting out on dealing with those fundamental changes. There's an acceptance and a willingness that this happen. But it can't be done overnight. It's going to take that program for government to bring about that evolution.

In respect of education, our system in general measures up much better than many others, but it can be improved and it will be improved. You've got to look at the question of the youth of our universities and colleges of technologies. There's always a sense of, you know, that ours is the best in the would. We're a small country and I think we can get better use from our universities by cooperating together with business and the colleges of technology to a greater extent in the interest of foreign direct investment, whether it be in the pharma area or the medical area or the financial services or whatever.

But the -- there's always the issue of population drift and demography. Planning permissions are not an easy thing to get at, in Tipperary or anywhere else, as you're probably well aware. Population numbers have declined in terms of family numbers. So this has implications for school sizes.

We had an influx of a huge number of people from other Eastern European countries during what were known as the Celtic Tiger years. Many of those have now left and gone back to their own countries because work wasn't available in the way that it was previously.

So these are issues for government. It's fair to say that during that 10-year period, very significant amount of monies were spent on the provision of motorways, which now go from Belfast to Dublin, from Dublin to Cork, from Dublin to Galway and other parts of the country. And there were significant improvements in the rail system.

There is the basis of a very good broadband system being finalized and put in place. Obviously, we're looking at renewable energy in terms of wind production and renewables from wave and tidal. Serious amounts of capital are lining up to be invested there. And that's the challenge of -- that's the challenge of the future.

So I wouldn't be as pessimistic as you are yourself. Community spirit is actually very strong in the country. And despite the fact that many people have had a loss of income and a loss of lifestlye, if you like, the sense of community has actually grown stronger, and many organizations have come together in a very real way, which is deep within the nature of Irish people. Having had to deal with immigration issues over 2 1/2 centuries, we know what that's about.

So for me, I'm an optimist by nature. And what people need is leadership, and they need certainty on the way forward. And it's my duty and responsibility to give them that.

HAASS: Are there any one-dimensional questions? (Laughter.) Lucy. Lucy Komisar. Got a microphone there.

QUESTIONER: Thank you. My name is Lucy Komisar. I am a journalist. Ireland allows -- invites companies such as Google and Microsoft to move their intellectual property created in the U.S. offshore to Ireland to evade U.S. taxes. Do you think this is a moral way to build your economy?

KENNY: No we don't. We don't invite anybody to evade taxes. We have a -- we have a national confidence in our tax -- in our tax structure, as other countries have. That's defined and set out in the -- in the Lisbon Treaty of the European Union.

Our corporate tax rate is 12 1/2 percent. It's transparent. It's an effective rate of 11.9 percent. We don't obviously force companies to go to the country. Some European countries have a zero rate of corporate tax; others have a(n) over 30-percent rate. But the effective rate may not be what the -- what the stated rate actually is.

I think companies don't actually go to an individual country just because of their tax rate. Yes, it is an important element in the tool kit, as it were, but there are other elements that are required, such as political certainty, such as tradition. And in the case of Ireland, we have over 40 years of investment from other countries, including the United States; has been the case with the European Union, which as you know has grown from 15 countries to 27, with a market of 500 million people. We've a very strong proven legal base. We don't have any language problems insofar as American investment is concerned. And these are all complementary issues that need to be decided on by investors before they decide to go there.

But beyond all of that, there is the -- there is the people, because it's not just about economics or statistics; it is about the environment in which the work actually takes place, the kind of cities that we offer people, the kind of educational system which they and their children can participate in. And these elements are also part of the makeup of decisions for investors in the first place.

And on top of that, when you speak to them and you ask them, "Are you happy with the quality of the graduates emerging from third-level colleges to work in the firms that you produce?", by and large, they are. And flexibility from a small country allows you to actually change curriculum to cater for the standard that's required by individual companies. So as a small country, we have that -- we have that opportunity and, hopefully, measure up in respect of their needs.

It's not a case, in any way, of inviting -- of inviting people to evade tax. Ireland is not a tax haven for people who evade tax. We've been very clear on that. Our standards are high in that regard, and will continue to be so.

HAASS: Thank you.

Professor Stiglitz (sp). Sorry -- you've got a microphone coming. Even though we know you can project in a classroom.

QUESTIONER: (Laughs.) OK. You've inherited a large number of problems from your previous government. I just want to comment on two of them. One of them is the approach to restructuring the banks. The NAMA: the design of it was probably one of the worst in the world and -- both in terms of effectiveness and also in terms of transparency -- been widely criticized. Are you planning to wind it down, or what are you planning to do about it?

And the second problem is austerity. We know what happens in general with austerity. The countries tend to go down. Your GDP has gone down. Unemployment goes up. So the question is, you may not have much fiscal space, but within that, how are you going to change tax structures and expenditure programs to stimulate the economy, given the constraints that you have?

KENNY: Well, I'll do the latter one first. Next Tuesday, the minister of finance will deliver on a government commitment to introduce a jobs initiative. We'd much prefer to be able to, as it were, spend money on a whole range of schemes; but you can't, because you are constrained by the requirement of responding to the troika on a regular basis in respect of the IMF/EU deal.

But what we are going to do is this. Before the general election, the individual parties spoke to the troika and made it clear that we would have a different view from the memorandum of understanding that was drafted between the troika and the previous government. And the IMF, in particular, said this: If you come forward with a stronger and more aggressive job creation program, if you come forward with a series of proposals for a leaner, more efficient public sector, public service area, we would be very interested in hearing what it is that you propose to do. And they informed us that they'd be willing to consider that on a case-by-case basis.

So from the memorandum of understanding drafted with the original government, we've already introduced changes. We want to reverse the minimum wage cut, which was -- which was introduced by the previous government, for the reason that it only affects less than 2 percent of our workforce, and you don't want to race to the bottom in terms of wages.

But the quid pro quo for that is in adjustment in fixed rates of employment for (weak ends ?) that have been there for very many years, and an adjustment in the way we look at the structures that affect employment, like PRSI, like VAT. And we're going to reduce those, pay for them by a levy on the pension industry, which has already been agreed. So our jobs initiative, if you like, is not a normal, conventional full-year budget. It's designed deliberately to provide an injection and a stimulus to the indigenous economy where that confidence that I spoke of earlier can be -- can be, you know, realized, and that people who have serious savings put away will begin to understand that they should be able to spend, spend -- (inaudible).

We're also going to introduce a partial loan-guarantee scheme. One of the biggest problems in our country has been the small business, particularly those who were involved in the manufacturing or the export business, have not been able to get credit from banks. Overdrafts have been cut and no credit allowed, employment dries up and the thing just goes on into a black hole.

So what I'm going to do is introduce a partial-loan guarantee scheme there to give greater flexibility to banks to allow that to happen. So we hope that that's going to provide an indigenous stimulation to the indigenous economy, which could be -- which could be very good. I don't say that it's going to by any means end all of our unemployment problem, but it's going to provide what we said it would, which is a local stimulus.

In respect of the -- of the banks restructuring, well, I mean, we heard all these reports commissioned one after the other about what happened, what didn't happen and where we were. The end result was complete confusion, complete frustration, complete uncertainty. So the government made a decision to end all of that and to put in place two pillar banks, and as I said, split them in -- have them split their business into core and noncore; allow for a deleveraging of that which will provide credit for access to business. And that plus the partial guarantee scheme should bring that about.

So that's in place. We're not going to tolerate a situation where you had all of these obscene bonuses paid to bankers. One --

HAASS: Be careful in this room. (Laughter.)

KENNY: I understand that. But in our country, I would make no apology for saying it. One person received a salary of over 3 million (dollars) and walked away from it last November and was paid that, despite the fact that the bank itself had record losses.

I know (this applied ?) in the United States where bankers have, as it were, seen the insides of prisons in some cases and have served sentences. In our country, nobody's gone to jail. One or two have been called in for questioning by the (fraud squadron ?), by the police authorities. But nobody's been -- nobody's been penalized, as it were.

And the public demand for some retribution for taking away salaries and the reduction of salaries, not for one generation but for a generation and a half, is very sore indeed when you -- when you understand that on the basis of reckless lending that exceptional bonuses we're paid out in our country. And I'm not talking about anything that might have happened in the United States.

So we've made that decision. The governance of banks for the future will be very different. The European Union has responded by putting in place a directive saying that bonuses can't be paid -- (inaudible) -- unless the (deal ?) is reviewed after five years and it actually worked. So it's not a case of the more you lend, the more you get immediately, but we -- conditions (fall in there ?). And we hope that that certainty, having come through those stress tests, will provide the basis for future growth and future expansion. And that's where we're going to make it work. We have to. We have no option.

HAASS: Mr. Devavorse (ph).

QUESTIONER: (Off mic.) There seems to be some debate in Europe at the moment about whether countries should be permitted to restructure their debt. Your minister has acceded Ecophon. Are you concerned about contagion if Greece were allowed to restructure, for example? How will you instruct your minister?

KENNY: Well, there were attempts to kind of lump all countries together who ran into difficulties. The circumstances are different in each case. In the case of Greece, Ireland and Portugal, you can't actually say that they are similar. There were different reasons why they -- why difficulties occurred. We're actually in a different position than either of the other two countries, because we've got -- we've got a very strong structural base; we've got, you know, a hundred of the world's best companies situated in Ireland exporting very strongly. The situation here was that a measure of incompetence, of lack of regulation, of gross overlending and overspending, with no assessment of how public monies were being spent, higher wage -- higher wage packages led to all of this coming together.

Now I was in -- at the meeting in Brussels where the heads of government met, and obviously Prime Minister Papandreou from Greece was looking for a reduction in his -- in his interest rate and a longer extension of the period of repayment. And while he wasn't in bailout deal in the context of the IMF/EU, an interest rate reduction was given to him.

And it was agreed at that meeting in principle by the heads of government that countries in the bailout package could have an interest rate reduction applied to them. Ireland would look for such an interest rate reduction and is looking for it.

It wasn't concluded at that meeting, as some countries were looking for conditions to be attached to it about changes in corporate tax rates, which I wasn't prepared to agree to, but because the stress test had not been finished in our banks, it was decided to let the ministers of finance continue their negotiations on that, and that is happening.

Since then, Portugal has now come in, 78 billion, and their problems are different than Ireland. Their economy in many ways doesn't compare with its capacity and potential in the way that ours does. But be that as it may, the detail of the Portuguese bailout are not known to me yet, but that has to receive unanimous agreement at the meeting of the 16th and 17th of May.

And so we don't -- we want to meet our targets, we want to pay our way, we want to play our part. We want to continue to be central to the European process, as we've always been. And despite the fact that some people say, well, Europe's going to collapse, and the euro's going to be no more, that's not the case. And Germany and France and the other countries will see to it that that won't happen.

And I'd make this point to you, because your question is a valid one. In a political sense, Europe has responded very well to the requirements of the political European Union. The big countries worked with the smaller countries, and agreement is reached by the -- by various methods, either referendum or parliamentary majority or whatever, to agree on a series of referenda and treaties.

The Lisbon Treaty, which is the latest one, gives the opportunity for the union, the commission, the council and the parliament to really achieve, you know, the very highest level of performance. In fact, 12 or 14 years ago, Europe intended to compete against the United States in terms of manufacturing and all job creation schemes and all the rest of it, but it didn't measure up because it was too broad an agenda and national interests came first.

Well, just as the political end of things has worked pretty well, there's a need for a focus on the monetary and economic development of the European Union. And one of the difficulties that you have with a 27-member -- 27-member union is that as elections occur at different times in different -- in the different countries, prime ministers can have a different view. For instance in Finland, you might have a situation where they have to say, on the run-in to an election, you can't give any country in difficulties any concessions, whereas that might be to play off, you know, a party competing for votes in a national sense against a party in government.

I serve as a vice president of the European People's Party, which is the largest voting bloc in the European Parliament and from which come the president of the council, the president of the parliament and the president of the commission. So it's a large voting bloc comprising parties from across those countries. And I do see a need for the politics of Europe to address in a more effective way the economic plans and the plans for the economic expansion of the union in the same was as happened in terms of the policies for the politics of the union. And that's something that I think the leaders have got to work at in the time ahead.

HAASS: We could go on, but we're not. The prime minister has another commitment and approximately -- starting now. (Laughter.) I want to thank him for taking time out of his schedule here in this visit to the United States to come here. We obviously look forward to the footage of the president when he comes to Ireland in a couple of weeks. Thank you all for being with us today. (Applause.)

KENNY: Well, I'll just say -- may I thank you -- may I thank you for your attention and for your listening. I'm going to tell you now that Richard Haass has undertaken to fulfill the role of President Obama, who has been unable to play me in a golf match due to his schedule. (Laughter.) So Mr. Haass here is going to come to the green fields of Ireland and play some golf course, and I'll represent you on his behalf. (Laughter, applause.)



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