Joe O'Reilly: Urges Accelerated Infrastructure Delivery

Yeah, I'm very happy to keep the meeting going in the absence of our Dáil colleagues, so I'll just begin by joining in what I'm sure were the Chair's original words of welcome to you and good to have you here. Did Senator Murphy ask his question yet? Senator Murphy, do you want to start off? I can come in later. I'm happy to let you lead, Chair. Sorry? I'm happy to let you lead on. Are you sure? Yeah. Okay, well then we both should be able to get in. I didn't hear you but I have all the material. We were caught with folks in the Senate. In your remarks earlier, you spoke about the need for Ireland to build greater economic resilience in the face of global uncertainty. Looking ahead, what one policy change do you believe would have the greatest long impact on strengthening the Irish economy? What would you think would build in most build in resilience? Or if you want to talk around the topic. I'm very happy to talk about that. It's pretty rare for an economist to give you a simple straight answer, but I'm going to on this occasion. The one thing for me would be to accelerate the development of infrastructure. That is the one thing. Not housing as such, but the infrastructure to create that. And in particular, the process that speeds it up. Because in our view, infrastructure, the lack of it, is acting as a bottleneck to the economy. And whether it's housing, whether it's transport, whether it's energy, water infrastructure, all of those areas need investment. But they also need investment that actually delivers. So it's not a question of committing money. It's more a question of taking the commitments that have been made and making sure they're delivered quickly. Do you want to come in on that? Very much agree with that. But in the spirit of adding some more, you asked for one, I think, and building on the Governor's opening remarks. Of course, investment in infrastructure is absolutely critical. And how we do it in particular. In addition, I would say strengthening the role of indigenous businesses in Ireland. And making sure that they complement the activity that we have from the multinational sector. Then from a fiscal policy perspective, sustainable fiscal policy frameworks. And then last, which is not entirely within our control, but it is really important from a European perspective, taking steps collectively in Europe to strengthen and integrate the single market. Because ultimately, that will help also with some of the above. Thank you. Thank you. Just to ask you a controversial question. Would you see the creation and the support of more existing data centres as part of a necessary infrastructure? A, for economic prosperity and development. And job retention. Yeah. So the way I would approach it is if we look at structurally what is happening in some of the long-term trends, digitalisation of the economy, of everything that we do, is one of those key structural trends. It will happen over time. And data centres is one dimension of that, to support that. But of course, that is one of several of these big long-term trends. Including, of course, the fact that we've got a more fragmented geopolitical environment, is another transition or structural change that we're going through. The fact that we're going through climate change and we have to transition to a low-carbon economy is another transition. And of course, the fact that the population in Ireland is ageing. So there are a number of investments that we have to make in response to these big structural trends. And the reason I'm mentioning this, because we have to think about the interaction between data centres, as you know, they're critical and really important in the context of digitalisation. So you would sustain and you'd develop more using carbon-free energy? Well, that is the link that I was going to make. But of course, they do consume quite a bit of electricity. So we have to be thinking about how does the economy overall transition to a low-carbon economy to reduce emissions, which both makes us more resilient economy, but also makes us more ready for the future. Thank you. My second question is really almost a development or a supplementary to the first one. When you say you talk about housing, transport energy, water infrastructure as priorities, and obviously we just brought in the data centres given its newsworthiness at the moment. I suppose, were you to put these in a kind of a priority, in an order of priority, I know it's not that they're all equally important, but were you to prioritise them, what would you suggest? Well, I would... It's quite difficult to sort of have a black and white sort of prioritisation. I would probably put the emphasis on deliverability. So if some type of infrastructure can be delivered, you don't need to deliver all your water infrastructure improvement, for example, in one go. If you can do something in all of these areas that we mentioned, I would focus on what can be delivered faster. Yeah, that makes eminent sense, Governor. Thank you for that. I may compliment you, if that's okay. So very much consistent with that. So, I mean, when we think about housing, for example, which is the issue that most people are faced with. Exercise. If we think about the delivery of housing, that in and of itself depends on the availability of core infrastructure there, right? So to build new houses, you need electricity and the grid to be there. You need the water infrastructure to be there. So a lot of these core foundations are there to enable the supply of housing. And similar to what the Governor was saying, I mean, in terms of prioritisation, these are big decisions for government, but some of the key principles would be things like, for example, what is it that only the public sector can deliver, where the public sector really has a kind of big value added in terms of delivery, to then enable the private sector? Or what are some of the areas of investment which would then spur and encourage additional private investment from the private sector? These are some of the factors that one might consider in thinking about prioritisation. Thank you very much. I just have three more before I get my colleague who has immense experience in this whole area in. You explained that the central bank's role is approving prospectuses, that your role in approving prospectuses is governed by EU law rather than by domestic political or other political considerations. How can the central bank better communicate that distinction to the public in general, so that confidence is built more in your decisions and that understanding exists? Could you do more to explain that to the public? I'm happy to take all advice on how to improve our communications and explanations to the public. I mean, we've tried in the correspondence that we've written to the committee, and which we've put up on our website, we've tried to be as clear as possible. And I will go back and we'll see whether we can do something better and clearer on this. I think fundamentally it's about explaining what our role is and what the limits of our role are. And one of the examples we can use, which I've used in this committee, is the distinction between what's happened in the case of Russia, which also used to have a prospectus in this jurisdiction or applied for one to get approval. Russia was then sanctioned by the EU, which effectively meant that all of that stopped. There is nothing equivalent to that in existence as far as Israel is concerned. Now that could be a way of explaining to people why it's happened in one case and not the other. But fundamentally, our role is, I mentioned earlier, that this is a disclosure regime and it applies not just to prospectuses issued by sovereigns, it also applies to prospectuses issued by corporates. And its objective is to make sure that the investor knows all the risks, all the facts, before they make an investment. So we don't endorse the securities at all, whether it's a corporate or a sovereign. All we are required by law to do is make a decision on whether everything that needs to be disclosed is disclosed, that it's complete, that it's comprehensible, and that it's consistent. And once we've done that, then we've performed our functions under the law. I mean, there's the other issue that we were discussing earlier about transferring jurisdiction to make that assessment to somebody else, which we can also do. But we're not a place that the task we're given is not one which asks us to assess the us to assess the value of the investment. We're not giving advice on whether to put your money into this. We're simply saying this meets certain rules and it's the investor's decision whether they want to put their money into it. I can explain that, you know, we can try and explain that as much as possible. It would help, actually, if the committee, and to be fair, its report does a pretty good job of that, but if its report could be communicated to everybody to help everyone understand what our role is. I know there are committee members where we disagree on certain aspects of the law, but essentially what our role is, I think, is set out in the committee's report from last year. So communicating that, us playing our role, that would better inform the public, perhaps. Thank you. Thank you. I'll just add one point to that, because I think it's a really excellent question, and I'd like my colleagues to be really grateful for the committee's interest in the matter. I think part of the answer to your question, Senator, may be also for us to understand our role in the EU and the EU as a concept. So there's a reason that the prospectus regulation is set at EU level. It's so that an Irish business, and you spoke about the growth of Irish indigenous businesses, can take a prospectus to the Central Bank of Ireland, have it approved, and it is then entitled to make an offer of those securities anywhere around the European Union. So the reason for setting this at a European Union level is so that offers can be made across the European Union. The quid pro quo of that, of course, is that we're all following the same rules and standards, and that we do so consistently, and consistently over time. And as the governor said, in the case of Russia, and we did have quite a number of applications from Russia in the past, the EU made a decision to impose sanctions at an EU level. So I think there are benefits to things being done at an EU level for the economy, and I think if people understand, that's a component perhaps as well of just, especially during the presidency, getting people to understand that. Thanks. I can appreciate that. Yeah, just two left. You discussed the recent High Court judgment on the fitness and property regime, and the changes that have followed, the changes that have followed that. How will these reforms improve fairness and transparency while ensuring that the Central Bank continues to protect the public finances? And the public interest, right? I'll ask Colm to come in on this. Yeah, thank you, Senator. As you said in the opening remarks, the fitness and property regime, it's been described in the Inria report as a cornerstone of our framework, making sure that the people who become entrusted with customers' money are fit and proper to hold those positions. There's been a number of measures introduced that are outlined in the opening statement, and there's quite a list of reforms, particularly by the Individual Accountability Framework Act. But key amongst those to give a flavour is that has now formalised a number of the steps in our investigation process, so there's a formalised approach to, first of all, notifying the person that we intend to commence an investigation before we do so, they get an opportunity to, because we recognise that even commencing an investigation into an individual can have significant implications for that individual. So that's an example where we believe through the course of the investigation that we may be about to reach adverse findings in relation to the individual. We will now provide them with a statement of grounds and give them an opportunity to respond at an early stage with that. As the Governor said, we give more transparency through the process as it proceeds. And the legislation is also now, and our guidance is clearer on the grounds for discontinuing an investigation, which we also do. Not every investigation runs its entire course. I don't see the provision of those kind of rights and entitlements to the individuals that we investigate as sort of taking from our powers or our ability to do our job. It's the legal framework in which we have to operate, and all of that, of course, predates this High Court judgment, which, as the Governor said, sort of somehow confusingly relates to an investigation that was done under processes that were before all of those reforms. But I wouldn't have any concerns that the reforms that we're talking about or the High Court judgment limit us in doing our job. It's just a set of rules we have to follow in doing so. Thanks. Thank you. Thank you. My final question, and I think it's one that the public watching online, insofar as there are people watching, would interest the general public, this one. You noted that inflationary pressures remain despite some positive economic indicators. And what are the biggest risks, in your view, to Ireland's economic outlook over the next year? And how should policymakers prepare for these risks? I think that question would interest a lot of viewers. Let me start. I mean, I think there are two things in particular that are top of my mind. One is the, which I'm sure anybody watching is very aware of, is the impact of the crisis in the Middle East, which is actually a symptom of wider geopolitical uncertainty. And the fragmentation of the global economic system that's been going on now for more than 12 months. That continuing will have a negative impact on a small open economy like Ireland. And we need to keep a very close eye on what happens there. The second thing that I, and you've asked for two, but maybe I'll drift into three, if I may. And maybe my colleague here will have some more. But the other thing that I do think is important, and the next two I'm going to say are related. Firstly, I do think it's important that fiscal policy, that's the government's borrowing and spending and taxing, actually doesn't push against what we're trying to do in Frankfurt with monetary policy. So it's important that fiscal policy doesn't essentially add to the pressures in the economy, to the pressures on prices in the economy. So I think that's, for me, is very important. But related to that is our ongoing, and this is not a new risk, but the more it goes on, the more concerning it is, the concentration risk that we have in the state on corporation tax, which has become a big part of government revenue, and where a significant proportion of it is paid by some very few corporates, and where the activity is unrelated to what's happening domestically. It is a risk that that source of revenue could disappear quickly. So one has to be very careful about sort of spending plans that assume that revenue is ongoing, and it will be better for the system if we address that and had a change in the basis of the tax system, so that concentration around corporation tax was less. So those are the two things that are top of mind for me in the time scale that you mentioned. To build on this, let's say similar to what the governor was saying, the main risks facing the Irish economy at the moment are largely external in nature, whether that is because of the ongoing war in the Middle East and the impact of that on inflation, supply chains, or because of the risks around global fragmentation of the economy, of the international economy, or sudden changes in trade policy or investment policy, which should then have an impact on Ireland, given how open the economy is, how highly globalised, and how big the dependence is on the multinational sector, as the governor was saying. You also asked about what could be done, and the way we think about it is, well, there are these big external shocks. Some of these are not necessarily controllable, but the focus can be on what is within Ireland's control, which goes back to some of the issues that the governor just mentioned, and were also in his opening statements, and we were discussing earlier whether this is about the sustainable fiscal framework, or about delivery of infrastructure, or about indigenous businesses. So, controlling the controllables. Ultimately, when we think about this, yes, we live in a very uncertain world, but there is a window of opportunity to build strong foundations for the future in Ireland, and it's important that that opportunity is grasped.