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Olli Rehn: "The financial sector has misallocated resources in the economy and then stopped working. It needs reform." Virginia Mayo/AP
Olli Rehn

Rehn's parting message: "Europe stands by you"

The European economics commissioner affirms European support as Ireland begins the painful road to economic recovery.

OLLI REHN HAS COMPLETED his two-day visit to Ireland with a speech affirming Europe’s backing to Ireland as it tries to rescue its financial sector – but reminding Ireland that turning itself around take not only time, but “determined and sometimes painful decisions”.

Speaking at the Institute of International and European Affairs on Dublin’s northside, Rehn said that Ireland was undergoing an “important structural adjustment” in an attempt to remove its economic reliance on the construction and property sectors.

That imbalance, he said, was not caused by improper budget management, but because Ireland had taken on private debt as public debt, and because the financial sector had “misallocated resources… and then stopped working”.

Rehn admitted, however, that greater economic scrutiny on the part of the EU itself could have helped to avoid the economic climate having wrought such damage on Ireland in particular.

Read Olli Rehn’s IIEA speech in full >

In that regard, the EU’s Stability and Growth Pact had failed because it was not applied as rigorously as had been intended, but also because it was not broad enough in scope. Reforming the EU’s economic governance must therefore, he said, address those shortcomings.

Elsewhere, Rehn praised Ireland for having confirmed its desire to bring the budget deficit back to within EU limits by 2014, saying similar medium-term objectives “and their concrete implementation… should become a permanent feature of fiscal policy making in Ireland.”

The Finn concluded by noting that the role of the private sector in the Irish economy was far greater than in other countries, with the sector’s “economic dynamism and relevance” contributing massively to the country’s previous success.

Stimulating the private sector and “taking the necessary structural measures to support fiscal adjustments will pay off in the medium and long term for both sustainable growth and job creation.”

Rehn closed by saying the while it was probably a “small consolation”, he had “no doubt that Ireland too will overcome this crisis. You are smart and stubborn people,” he said, “and Europe stands by you”.

Rehn had earlier met with opposition finance spokespersons, where he had said the €15bn target for adjustments required in order to meet the 2014 deadline was negotiable depending on Ireland’s economic performance.

Yesterday, he had repeated his earlier insistence that Ireland would have to abandon its ‘low tax’ principles in order to survive the current problems.

The price of Irish ten-year bonds, which according to Bloomberg stood at 7.902% as Rehn began his address, had risen to 7.938% as of 4:15pm this afternoon.

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