 Your Excellencies, ladies and gentlemen, well who wouldn't regularly return to the European Institute if he got introductions like that, which I thought was a little understated and short, but it's nearly worth the trip from London to listen to it. In any event, let me say it's a delight to be back in this establishment because I really believe that its contribution, and I say this genuinely not as a sort of flattery, is immense in terms of generating debate and discussion on important subjects. Its unique role in Ireland is something that we greatly value and needs occasionally to be expressed. Somebody, I think it was a Frenchman predictably who made the comment, I know there's a French television station here, who made the comment that to be a prophet, it is necessary to be a pessimist. Let me start by saying that I am not a pessimist about where we are or where we're going, but I hope today to touch upon some of the strategic issues for Ireland in particular arising out of the crisis, which envelops not merely Europe, but spreads and radiates out of Europe all over the world today as a result of the debt problems. And I hope to link our strategic interests in our engagement with the European Union and the current turmoil in a way which expresses at least my view as to the importance of our engagement with Europe. I should say in parentheses at the outset that in 1992 I was asked by the European Council having left the Commission to do a report on how to implement the internal market. And I remember discussing at that time with Jacques Delors the issue of the single currency and it's no harm in reminding ourselves that the single currency came into existence because of the view particularly in Paris, but one which I share, that if we did not have coherence in monetary policy, we would not be able to retain free movement of goods, persons, capital and services in Europe. In fact before the creation of the euro itself, it was said by Jacques Chirac that in the event of continued devaluations of the lira that it would be inevitable that border controls would have to be raised between Italy and France. And it's no harm to mention that because sometimes particularly in Britain where there is widespread support for the idea of the common market, in fact it is what they believe that they joined rather than a European integration process which I believe in, it has apparently escaped the attention of many commentators that there is an inextricable link between the two, a link which would be demonstrated very obviously in the event of a catastrophe which I believe incidentally will not happen but I accept could happen taking place in regard to the disintegration in one way or another of parts or all of the euro zone. The immediate effect obviously would be widespread changes in currencies with strengthening of the core countries particularly Germany to a level which having regard to the fact that I think 43 percent of their experts both are into the euro zone and significantly more into the European Union as a whole would have a hugely disruptive effect and the plummeting value of some other currencies better left unnamed because they haven't got a name at the moment but would have would be something which would not be of great joy even to those who might think that they would have a competitive advantage for a short time having regard to the effect that it would have on the debts that they would carry if their currencies were to reduce in value. I think it's important to make that point at the outset I promised myself that I was going to deliver the speech which I've actually spent some time in writing and I've already spoken for longer than I should on a rather extemporary basis so forgive me for going back to my to my script. The euro itself is in many respects a tremendous success even in recent times it has increased in its value against the dollar it's helped to deliver growth in the euro area in its first decade at a rate per person that is more or less equal to that of the United States and within the euro area there's been an increase of 50 percent in trade volumes over the first years of the euro and that must have had some effect on that and Ireland has been of course a great beneficiary of this. Average inflation over the first 12 years was 1.97 percent which is far better than any euro member including Germany had achieved over the preceding 20 years also looked at collectively the budget deficit of the euro zone is 6 percent as against over 10 percent in the United States today the success of the EU itself and the euro in particular is vital to our national interest because we're a small open economy and all the good things that are happening to us and there are some are related directly to our access to the European market so we have a vital interest not merely in managing our own affairs properly but also in contributing as best we can to sustaining the European project as a whole and sustaining the euro in particular because the European project itself is inextricably linked now to the euro. The successful conclusion of the European summit on the 21st of July last underlined the reality that as Mrs. Merkel said at the time a breakup of the euro is for her and many others unthinkable but if it is unthinkable it needs to be born in mind that many people are thinking of it today and one suspects that on occasion she thinks about it herself she has other used other words such as inconceivable in the past but this constant expression of confidence much though I respected in the durability of the common currency is not an inhibited many familiar critics particularly in the United Kingdom and in the United States from voice voicing their conclusion that the euro is doomed I certainly don't believe that it is but the risk of political accidents is very evident wherever one looks around Europe there are potential political accidents waiting to happen most obviously in Greece but also in a number of the core countries including Germany itself where the political momentum one can see is increasingly in some areas eurosceptic the problem of the rise of parties such as the true Finns in Finland the issues on some of the other core countries such as the Netherlands all give rise to concern but on the 21st of July the decision taken which remains to be implemented in national parliaments around Europe gave some solace to those of us who believe that a common approach is required and the increasing of the funds of the fsf to 440 billion with I believe a real potential a real potential which may be part of the solution to this to leveraging in one way or another that 440 billion into an even larger some is an important step forward Greece of course as I've said is a reason for concern if Greece were to unilaterally default on its obligations other than true some agreed restructuring program the likely effect would be a contagion which would not merely affect other program countries such as Ireland but even possibly Spain and Italy and the size of the issue one would be talking of in the latter case would be enormous this would threaten the whole edifice so also would what Philip Rosler the German economics minister and leader of the free democrats who have been in their difficulties over this issue has described as an option which certainly in my opinion should not be one namely I quote an orderly bankruptcy of Greece we in Ireland I believe have a brief opportunity now to put clear blue water between ourselves and others in the program countries the peripheral economies as their sometimes described and to perhaps surprise the markets with a demonstration of our resolve in fact I agree with Jürgen Starks I don't agree with everything he said but I agree with Jürgen Starks conclusion that the government should capitalize on improving marking sentiment towards Ireland by front-loading cuts outlined in the Bayne plan to some extent at least although I recognize the political difficulties that this would entail the plus side of doing it would be that it would be a dramatic and perhaps even an uncalled for affirmation of a willingness to resolve our own problems faster than otherwise would be the case because by such front-loading you would obviously potentially bring back the period required to 2015 during which we would have to resolve our problems and the prize would be great indeed because it would indirectly help to open up credit again in the economy and through the funding opportunities that would result and would assist in a momentum gathering from the figures which came out today also in terms of our improving economic situation which would be very valuable and confidence is a key to regenerating growth in this economy or in any economy but particularly here where we have this very high savings rate of about 11.9 percent and where both in commercial areas and investment by companies will also have an issue in terms of generating growth and employment because our job of course must the government's job must primarily of course be to relate to the issue of employment and I'm talking of employment increasing not decreasing by the front-loading because I believe that that's what it would happen the improvement in the way we are viewed as the result of our economic and political response to the demands of the EU institutions and the IMF is already very positive we are already being presented but we should remind ourselves we have been in the not too distant past past been presented before as a poster child for how to do it rather than how not to do it we will remember when there was the change in terms of public sector pay and the fact that this was seen as it as it was a demonstration of resolution which was of great importance and for a while that poster child image attached to where we were but it went this time we have to maintain it and I think what we are doing at the moment is extremely positive in terms of addressing the issues so I'm not complaining about it I'm not complaining about the course that we're taking I'm just saying that perhaps we could look at augmenting it tweaking it in a way which would make it even more positive one of the reasons why we're doing well at the moment both in terms of exports obviously in terms of inward investment is that we are doing something to improve our competitiveness but also one reason may be that Ireland's global companies are better placed to bypass the difficulties in the banking sector in raising credit to do things with money and create jobs and employment than elsewhere in Europe or indigenous firms within Ireland the spread between German and Irish bond yields and their reduction is evidence of where we're going and how we're sustained where how we are how we are viewed however we should never forget and sometimes in recent times one feels that some commentators are forgetting the fact that in 2010 the deficit was 12 percent of GDP I think that's an equivalent to about 11,164 euros per head of population the public debt to GDP ratio was 96.2 now going up obviously and the bottom line is that our deficit is higher than many of those who are considered to be in dire straits now admittedly in the case of Greece their debt ratio is very much worse two days ago the IMF projected a fiscal deficit for Ireland of 10.3 percent in 2011 and 8.6 percent in 2012 with Greece running at 8.2 percent for 2011 so it points to the fact that the issues are extremely grave here and the basis for the trust that is developing is fragile and the key responsibility of the government as it has done to date is not merely to maintain it but to increase it that's not an easy task because global growth and European growth in particular forecasts are being reduced but there's no way of avoiding what we must do we have to deliver a budget deficit reduction of 3.6 billion at the very least and I believe preferably more in this context it's worth noting that since January of this year our international funders have agreed to release to Ireland 30.5 billion euros and this is a startling demonstration of our current dependence that we must reduce and deserve to be recognized deserves to be recognized in internal debate and that also can be augmented by a discussion which I'm not going to go into here about what the ECB is doing in terms of maintaining liquidity in our banking system I don't want to recite for a bottom what Professor Philip Lane amongst others has written recently but his logic is unimpeachable and the bottom line is that taking account of various factors not recognized in our program we have to look again at the 3.6 billion to see to establish if it is enough and what we can do about it our GDP growth forecast for 2012 may change one way or another one could imagine difficulties on the other hand we've had favorable figures apparently this morning in regard to the current impetus in terms of our affairs but whatever about our affairs it is correct to say that the next few weeks in Ireland could be pivotal for our economic prospects at the decisions that are taken are vital importance some commentators have been particularly critical about the eurozone member states response to Ireland's case and much of this criticism has been unfair in my opinion but on the other hand aspects of the behavior of our partners has been has left very much to be desired in particular the linkage by France in particular and of the issue of corporation tax to the interest rate payable by Ireland I think was extremely regrettable but whatever about that on the other hand it should be under underscored that the interest payable to the ECB for the 89 billion currently advanced to our banks has been incredibly low at 1.5 percent also the core countries which maintain reasonable discipline over their own finances of their own political problems about what are easily if inaccurately described as to their electorates as handouts to countries which have lived and still live beyond their means the one element of that inaccuracy is that much of this if not a very substantial part of this money of course is not being given as a gift but as a loan which will be recoverable the question is legitimately asked why countries with large fiscal deficits continue to maintain costs in their economies that are far higher in particular areas than in the donor countries who are bailing them out and we have to ask ourselves that question and we have to be given the information that allows us to do a comparative assessment of where this is taking place because it comes out in drips and drabs but we know that there's a lot of truth in that criticism some have been highly critical therefore of the negative comments by people like Jurgen Stark and I think it'll be far better to answer his points of criticism if we can than railing against them most of what he said seems to me to have more than a germ of truth in it so assuming the eurozone passes through the next weeks relatively unscathed and that is a big assumption and the system holds together in a perfect way what is required to sustain the euro and the future of the euro in the medium term it is clear that the Maastricht Treaty failed to protect the currency because it didn't go far enough if you agree to have a common currency you have to have a rule system a rule based system that precludes a country or countries from destroying the credit of the currency of which they are members it doesn't take a genius to recognize that that is the case and yet the growth and stability pact contained the headline requirements in regard to budget deficit ratios and debt ratios and so on but it didn't provide the means to keep these under surveillance to view them in advance in terms of the budgetary strategy of the member states concerned it didn't provide any element of control control is perhaps the wrong word but it didn't maintain any mechanism for ensuring that national budgetary policy when it is being made will bring about compliance with the requirements in respect of the fiscal deficit I think it is absolutely required that that is done now whether we talk of that in terms of a constitutional requirement a superior legislation requirement or whatever I think every member state of the European Union and the European Commission's proposals in this regard are perhaps the ones that we should look most closely at should have a requirement that this cannot happen again in terms of domestic legislation the growth and stability pact of course we know was first breached by Germany and France with apparent impunity and many at the time said well the big boys break the rules and then everyone else has to comply with them well and I know this is going to some of this is going to be on French television so it gives me some particular pleasure in making the point I think I think it is worth making the point very clearly that that culpability is part of the problem that we have but I don't think it provides us with an explanation or a justification for what we ourselves did in terms of our responsibilities because whatever about the breaches that took place then they were infinitesimal in comparison to what was to follow to provide for future discipline the euro plus pact has already been effectively agreed and its adoption I think will be necessary to maintain the continued support of Germany and indeed others and I agree with the position of Germany and those others in this respect it's clear that the european currency does require substantial powers of oversight and influence over national economic and budgetary policy to ensure that national policies conform to european obligations without this the euro can't survive and it can't have the credibility that it is required to have in our interest none of this in my view requires tax harmonization that is quite a different issue it does not require power to influence and determine precise elements of the policy mix that goes up to provide compliance with the growth and stability pact and to confuse those two is mischievous in terms of what is required to deal with the situation that we're in if you went down that road you could be into all sorts of degrees of harmonization which nobody believes in including personal tax harmonization and it that I said that to one side because it's it's not going to happen in recent days the Dutch prime minister and his finance minister have jointly spoken about the need to anchor what has been agreed more firmly and to take tougher action to enforce discipline in the future so what i'm saying in a word is that we should be out front in support of that not simply following it we should be expressing and I think it would be I hope it would be the government's view that we should be positively involved in that debate as one of the peripheral economies perhaps at the moment the only one of the peripheral economies who having regard to compliance with the bailout plan is leading from the front we should leave from the front on this as well it must in in my view involve the issue of sanctions against those who breach agreed obligations I believe too that member states should be required to include some form of budget provision as I've said in some form of superior law and I think in conclusion that we have reached a situation now which allows us some confidence about our future provided we will remain resolute and determined to remain part of the front rank of countries in Europe that believes in european integration and believes in the common currency thank you very much indeed