 Ond ddych yn ymwneud am y profiad yntaf ar gyfer y gredglisio ond y budyddiaeth. Felly, rydyn ni oedd Cyclwyddoedd yn mynd i gyryd. Rydyn ni'n gallu'n byw'r ddweud yn dweud ar gyfer y cyfeir y buddor yn y cynhyrchu ffysgol. Rydyn ni wedi cyffredd a ymwneud ar ddweud heb y buddor ac rai'n gyfryd y caminodau. Rwy'n het yn dweud o'n rhaid i'r bias ar gyfer y strategiau a'r cyffredd. Rydyn ni'n gallu bobl o'n beth, ac mae hynno ar gyfer y buddor 2012 ar ddweud, I will be interested in and talk about macroeconomic impact and focus on something that people don't talk about, but they ought to in this context, which is the balance payments and the external environment is crucial to everything and it's extremely unfavorable and it could become much more favorable after a Saturday or it could become even more unfavorable and really forecasting in a normal world you produce your forecast and around that there's a range of possibilities in the last four or five years we found ourselves in the most unusual situation where you have scenarios and it could be one or the other but it's not going to be in between, hopefully it's going to be one and not the other in this case. Already we're seeing which under any normal circumstances would be excessive fiscal tightening in the European Union in that Italy, France should not have to tighten their fiscal policy at this point, it's not optimal from an economic point of view normally but when you see risk premium arising the way they are then it turns what would be normal fiscal approach to fiscal policy, a counter-signical fiscal policy turns it on its head. So we're facing a European economy where even if everything is sorted out at the weekend the European economy is not going to grow at its potential growth rate over the coming year and that faces problems first and there's been a downward adjustment in the forecast. If they don't sort everything out well then all bets are off in terms of forecasting anything and if the EU is in recession then the German government will fail to meet its fiscal targets, the French government will fail to meet its fiscal targets, the Italian government will fail to meet its fiscal targets it's just not going to happen. I'm assuming the things are sorted out within a reasonable time scale. The medium term strategy is to return Ireland to a sustainable growth path and need to basically eliminate borrowing by 2016, resulting in a fall in debt GDP ratio reasonably rapidly and to bring down the cost of borrowing. If the cost of borrowing had remained unchanged then one might take a longer period to make the adjustment but given actually the cost of borrowing thanks to the generosity of our partners is very low at the moment but after 2014 we will be on our own two feet hopefully and it will be higher so that changes things. The budget and successive budgets are prosyclical, they're taking money out of the economy when the economy is in recession. Unfortunately and all the rules change in what's optimal policy when interest rates are what I call endogenous they are affected by the amount of borrowing you're doing by the fiscal situation. Once adjustment is completed will we lift off? Who knows? I'll come back to that and say something about the balance of payments. This is just a summary of the amount of money that's been taken out of the economy over the last 2008, 2009, 10, 11, 20 billion in ex ante and by that mean the government have decided to cut expenditure and increase taxes by this amount. As the minister makes clear, as every minister makes clear you don't actually achieve the cuts you intend to make because you deflate the economy and tax revenue falls and unemployment goes up as a result of what you do. So the post effects and I'll come back to that are rather different. In terms of fiscal stance and this I think I found it slightly surprising, this compared to a neutral budgetary policy shows since 1976 Richie Ryan's last budget of 76 which is the toughest budget of all time. It shows whether budget budgets if they're below the line are taking money out of the economy are above the line pumping money in and what you see is an unparalleled string of four budgets so far and this will be the fifth which is taking money out of the economy. Even in the 80s 83, 4 and 83 budget was the second toughest of all time and 84 was pretty tough and then you're rather eased off in 85, 6 and you see 87, 8 there. So the size of the deflationary impact is actually less than people think because with falling prices when you cut salaries, when you cut welfare payments, the impact of that is less than you think so that actually in the 2008 or in the 9, 10 period with falling prices things were not as deflationary. We're looking at a period now when it is likely that prices will rise next year so I'm not sure we haven't done our sums yet on what 2012 will look and it could actually turn out exposed to be tougher than last year although that would be a surprise. The effect of all of this, I just showed the national debt, the fiscal debt is due to government borrowing, liquid assets, we hold a lot of liquid assets and that's cash, our shares that could be liquidated not that many at the moment and it's mostly cash and then the effect of the banks is 40% of GDP. I saw an interesting graph actually which showed figures for a number of other economies and actually the figure for Germany, the cost of the bank failure is 10% points on to the German debt-GDP ratio to be 70% in Germany absent the crisis in banks. It would be 20% points lower in Britain so our 40% is certainly an all-time record and I don't have figures for Iceland but we're not alone. 2012 now was announced yesterday and the ex-ante cuts are just 2.5% of GDP so it was a pretty tough budget on the face of it. The budgets are meant to become steadily easier although quite gradually out to 2015 and the plan is to take a further 7.5% points of GDP out of the economy. These are pretty dramatic figures by any standards compared to any other European economy other than say Greece or possibly Portugal and it's a very large cuts which are essential if we are to restore the public finances to stability. I think if the EU sorts things out of the weekend you're likely to see some recovery in the European economy certainly from quarter two on next year and I think probably the government will meet its targets. There is some leeway in terms of interest payments where they may have been a bit high and there's other income. There are a range of areas where there's some scope for some slight slippage. However, Brian Lennon left a tremendous legacy for Michael Noonan in the carryover effects of the budget taxes that he announced last year in his budget was 700 million into this year actually was more but some of it was given away since so that the tax cuts which were to being 1.6 billion actually the minister only had to raise a billion because Brian Lennon had raised the other 600 million and taken the appropriate forum. There's much less carryover on the tax side into next year out of this budget and so the next year's budget where he's due to raise a billion will be at least as tough and he's taken some of the easier route so next year's budget is going to be more difficult on the tax side and as against that on the expenditure side there is some carryover. The social welfare cuts and remains to be seen what happens in disability but there's a very long tail to the effects there. They will continue to cut the effects of what was announced yesterday or the day before will have a continuing effect cutting expenditure over the next five, seven years. So there is a carryover a lot of the unpleasant measures to be announced in the next three or four years are already announced and there's one also and I don't know whether anybody from finance here can answer this question if you look at the budget that the pay bill is down by 1%, employment is down by I think 2.25% and I presume the difference is the lump sum payments on the six or seven thousand people who are expected to retire in the next three months and say take six thousand people at a lump sum of 80,000 per head that's 500 million and that would be a once-off payment because you won't see subsequent retirements like this. So the expenditure may be higher this year because of the cost of the earlier retirement so it could be even more than 500 million and the next year you won't have that 500 million expenditure and the fall in numbers will produce a fall in expenditure so actually on the expenditure side things may be less difficult in subsequent years and they look but at the tax side there's going to be a property tax in 2014 but where he's going to raise the billion next year is going to be an issue. The budget could it be better if so how I leave it to you to answer that it could be better it could be worse like my school report and should it be more ambitious and on the tax side coasting through it doesn't feel like coasting with the billion taken out with that but it does mean next year is going to be just as difficult as this one which may be more difficult to live on and you'd like to see more reform in the public sector that's actually the reallocation of staff and in order to do so Croke Park is a constraint where you may have a load of administrators in the HSE I don't know and you may be shorter nurses I don't know but you can turn an administrator into a nurse overnight and it is the inflexibility of not being able to transfer people transfer resources, you've got to transfer people is a problem and so that the reforms in the public sector are less than what it would have liked there are microeconomic issues where a colleague of mine did a study on Italian water which is actually very similar to Irish water and showed you could have the cost of delivering water in Italy and you could probably do the same because we have very similar structure here there are issues for the future which are complicated and may have political difficulties where we could deliver efficiency gains and that's not part of the budget I'm concerned about issues of poverty traps I think we need to go back and look at the interaction of the tax and welfare system and the labour market and because the labour market is going to be very important at the moment there may not be jobs but in a recovery phase there will be and getting people back to work is going to be important and we've seen sort of the issues in disability benefit some of it is dealing with poverty traps and I think that needs further thought Downside risks the weekend delivery and implementation issues we see already signs that they may have to slip on certain issues in the budget what are the consequences of that they'll have to find the money elsewhere if a rot were to set in which I don't actually see happening and then giving ground to a number of different areas that could be serious but I don't see that actually happening and labour market issues that not so much for this budget for subsequent budgets that if you look there's a need to cut social welfare by 500 million in additional cuts I think next year and a total of a billion in additional cuts in 2014 it'll be very difficult that's over and above what's already announced however if the recovery were to start in 2013 and unemployment would begin to fall then a lot of that might turn out to be a reduction in social welfare costs as a result of reduction on employment so when recovery comes getting people back into jobs is going to be really important the upside is domestic confidence could return sometime when return early I don't see anybody feeling happy in the next month or two but it could be 2013 if not that 2014 which could deliver a better outcome I just show here the unemployment data by level of education and if you look at 1990 there 80% of people in 1990 had not completed high school they didn't have a leaving certificate whereas in April 2010 you will see that 60% of people who were unemployed either had leaving cert or university education so the chances of the unemployed today getting jobs in a growing labour market are much higher than it was in the early 90s and the 90s it wasn't at the end of the 90s that we sorted out the unemployment problem given a decent economic recovery given investment in the problem group which is the least qualified that you could see by the second half of the decade a return to unemployment but it will require plans now to prepare people for this particularly the least employable I don't see much point sending a university graduate on a false course because that university graduate will either emigrate or get a job anyway in a recovery but it is the people who don't have skills for the labour market that will be there in three, four years time are a problem and the budget didn't really tackle that issue the economic impact the ex ante cut over the next four years will be 7.5% of GDP but that takes no account of the credibility effect if we bring down interest rates as a result of doing this and there probably would have been infinite if we didn't do it then the effects could actually be positive if interest rates came down to 3% in 2014 I don't see that but certainly it's a necessary action the deflationary impact of the budget with standard measure is going to reduce the level of GDP by 2015 by 2.5% each budget will knock at least 1.5% probably more than 1.5% of the actual growth rate so instead of financing 1.3% this year the growth rate this year will be over 2% absent the budget it is significantly deflationary but the other aspect of it and it's what I want to end on is the balance of payment surplus will be 4% points higher by 2015 Ireland is running a balance of payment surplus last year a bigger one this year and the reason is exports have done well but also the government have knocked hell out of us we're not spending any money we're not investing and the balance of payment surplus is rising all of the time and also the effect of these cuts while it's 7.4% is the actual cut the reduction in the deficit as a result of the cuts would be 4% points of GDP you're coming down from 10 down to 3 so about 3% will be because of growth of 3% a year in 2013-14 Focusing on the balance of payments I disagree with the Department of Finance numbers on this they're suggesting a balance of payment surplus of 3.7% GDP in 2015 without the fiscal adjustment there will be a deficit on my numbers if they weren't doing the fiscal adjustment and everything else went on as normal or abnormal as the case may be there would be actually a balance of payments deficit the balance of payments would get worse in spite of the fact that exports are doing well and nobody's spending any money at home that doesn't stack up and I think that this Department of Finance have seriously underestimated the cumulative effects of what they're doing on the balance of payment surplus by 2015 every euro of exports produced is probably about 0.3, 0.2, 0.3 on to GDP when you net out imports and factor payments and so on and you are seeing exports actually doing reasonably well so the balance of payments surplus could go over 5% if exports continue to perform and if nobody wakes up and spends money of course if we all go out and spend and splurge there won't be a balance of payments surplus but there won't be a government deficit either I just show here the last few years where the money is gone in green the government are borrowing like mad on our behalf but the people of Ireland, we the people of Ireland are saving like mad we're saving more actually than the government are borrowing both the company sector and the household sector and we're not spending the money so we're repaying foreign debt more rapidly than the government is borrowing and it has implications and over the four years 2012, 2013, 14, 15 the private sector will repay 40% of GDP in debt abroad net and that is assuming the Department of Finance figures on balance payments surplus if the balance payments surplus is larger the repayment will be larger at some stage people will have restored their balance sheets and remember it's not just the highly indebted people there are loads of people in their late 20s, early 30s who are wise enough or too young to buy a house who have actual financial assets who have jobs and at some stage that will turn round it is not sustainable for an economy like Ireland to have a balance payments surplus of five or seven and a half percent of GDP in the subsequent five years how will that change and the way it will change is that people will go out and either invest or spend to bring the balance payments surplus down to a more normal level we're not the Chinese economy we're not going to run huge balance payments surplus forever we'll probably need a small one and every one percentage point reduction of the balance payments surplus could be a one percentage point depending on what people spend their money on will improve the government's finances by one percent so if the balance payments surplus is five percent of GDP in 2015 if the government's deficit were still three percent of GDP I think finance of 2.9 that would translate in the immediate subsequent years into a government surplus of two percentage points of GDP without the government raising taxes or cutting expenditure it suggests that we're doing a lot of heavy lifting in the current years which will produce a benefit and the economy could round bound back and I think that we need to pay more attention to what's happening on the balance payments because it is also telling you what households and companies balance sheets are doing and the key to recovery in this economy will not be the government stopping to cut or stopping to raise stopping raising taxes but it will be when we the people of Ireland decide to go out and invest our buy conclusions the effects of the budget are totally dependent on the restoration of EU growth and that goes without saying I think providing that there is an outcome a reasonably successful outcome before the end of the year I think we will see enough growth in Europe to make the Department of Finance forecast sustainable in which case they should meet their targets there's a little some room for slippage it will continue to impact on growth next year in that the growth rate would be over 2% not for what the government has to do but the restoration of the public finances does go hand in hand with balance payments surplus and that balance of payments surplus is the sign that this economy unlike many others is in a sustainable position and it's interesting to look I gave a paper in Brussels two weeks ago looking at the adjustment across a range of countries the countries which had property or investment bubbles were Latvia, Estonia Ireland Bulgaria Spain and investment was a huge share GDP and investment collapsed and there are massive adjustment to balance payments in Ireland, Estonia, Latvia not as much in Spain and they've all moved into surplus but the effect of a collapse in the building construction sector is in every single one of them unemployment rates rose by 9% points or more in the economies which have balanced payment surplus but didn't have an investment bubble like Portugal or Greece or Hungary and the problems are more difficult but the rise in unemployment has been less but for Ireland once you've reached that balance payment surplus once you are repaying your debts forget what the government is doing, net the thing out you are in a different position and it is only a question of time or you see a real recovery in the economy thank you