 As part indicated my speech today here is addresses the issue of how to make the recovery sustainable. We are witnessing after a few years of not particularly good figures, a stream of indicators which seem to point in the right direction, everybody knows about the fragility of this, also one knows about the disappointment that we have had in the past, so the point is what kind of policy accompanying this at the national and at the European level one should put in place in order to increase the chances of the recovery being sustainable. Now, over the past months economic news have been encouraging. We have had of the six quarters of contractions in the Euro area, GDP surprised on the upside. We had the second quarter expanding 0.3% compared to the previous quarter. Here is my first slide, I don't have many slides so don't worry about the presentation on the front. So the 0.3% was higher than what it had expected in our spring forecast, and the out turn was driven by positive surprises in a number of large member states, France and Germany, first and foremost, but also from temporary factors like the weather which is not going to continue. We have to say that the recovery and the news was more positive also on a number of vulnerable countries. We had spectacular growth in Portugal, for instance, quarter on quarter, with also the composition of the domestic demand, the bar in red, which after disappointing beyond the negative side for several quarters is now showing the upside. So what would be a positive thing, if confirmed, is that not only we are into a higher growth path, but also the composition of growth goes in the right direction. We want more domestic demand in core countries, we want more export foreign demand in vulnerable countries. To make it sustainable, it has to be balanced also at the euro area level, and this composition is, I think, the right one. Now, this is a hard indicator, it's a Q2, but we have seen in the past several weeks not uniform, but quite a consistent string of indicators actually pointing to the right direction. We can see it here in my other slide. This is the survey indicators, the economic sentiment, the composite output PMI, and actually I was looking in coming here this morning that we have the release on the latest PMI, which is also pointing to the right direction. I think it's 27 months high for the euro area as a whole. So the expansion of foreign demand also would confirm that in a number of more vulnerable countries that outlook for a recovery may gain traction in the course of the next quarter. Now, the picture that I have just painted is also evident in the latest data for Ireland. We just had a few days ago the release on Q2 for Ireland. It came a few days after the Q2 for the euro area as a whole, and the positive growth of 0.4% shows that Ireland is growing again after a challenging year. I especially take comfort in the positive export growth on both annual and quarterly measures. There has been, you will know the features of exports for Ireland. The impressive switch from marchandize export to services in the face of expiring pharmaceutical patents is another testament to the ability of the Irish economy to constantly adjust and reinvent itself, which will continue to pay off as trading partner demand picks up. The Irish households have rightly prioritized paying off debts over new purchases for several years, but the positive growth of 0.7% compared to the last quarter suggests that sustained employment creation and stabilizing house prices that we have seen over the last quarter have a chance to boost domestic demand and put also the Irish recovery on a more sustainable basis. Now, Ireland has made major strides in improving competitiveness, which has resulted in lower inflation and lower increases in unit labor costs compared to trading partners. However, this also affects nominal GDP developments, and it means that via, let's say, the so-called denominator effect, it means the progress on fiscal and debt ratio is lower than one may would like, but we know that the tension here between fiscal adjustment on the one hand and regaining competitiveness, on the other hand, has shown up in the recovery of competitiveness and lower inflation than in trading partners. So it is important, therefore, that when we look at the development of the fiscal data, that this should not be due to lack of efforts, but rather to the double challenge of simultaneously putting public finance on a sustainable footing and restoring competitiveness. Financial markets, they start to recognize that things are getting better. Science of stabilization and normalization are now appealing and coming through. You can see it in these slides. The equity markets have performed well over recent months, underpin by stronger macroeconomic data. They have also been less affected by than some other regions by market concerns over the anticipated, which did not happen eventually, withdrawal of the Fed's monetary stimulus, and have not been unduly affected by the volatility of some emerging markets. At the G20 summit in St. Petersburg only two to three weeks ago, and it was for the first time in a number of years that the euro area was not at the epicenter of the crisis and focusing the whole attention. Obviously there was a parallel meeting in Syria, which clearly got a lot of attention, but when we came to discuss the economy, the issue was the discussion on the tapering by the Fed and the robustness of employment creation in the US, and on the other hand the discussion on the strength of the emerging economies. It was reasonably comfortable, I have to say, being there after many years where we were finger pointed for creating promise for the rest of the global economy. We have always clearly to be careful in this because what we always have experienced in the past is that as soon as we had some reasonably good data, instead of fostering the momentum and using it for doing more and get on more sustainable and sustained recovery, usually policy makers, they say back and say, fine, the financial markets are not worried anymore, so we can relax. So my main message today is that we cannot relax. And indeed we should foster this more positive data in order to make with the right policy choices in order to make it sustainable. So this trend of stabilization driven by economic data, but also by monetary policy actions, announcements and expectations. In spite of this financial markets remain fragile, highly reliant on the market mood and a continuous policy support. Now in most of the program in vulnerable countries, sovereign bonds spreads have narrowed. This reflects reduced political uncertainty and continuous structural and fiscal reforms undertaken by member states, especially the vulnerable ones. It is especially noticeable in the case of Ireland through the successful options of long dated debt and low secondary market yields, which is a testimony of the progress that Ireland has made. Now overall, out of this picture here, the conclusion is that in the global economy we are not anymore in the three speed recovery, which was preached by, especially by the IMF, only a couple of months ago before the summer where the indication was the emerging economies as a block powering ahead. There was a second league of the US and Japan catching up and becoming more robust and the hopeless laggards, which was Europe. I think the picture has become considerably more, let's say, complex and more of, you know, multi-speed than we had only a few months ago. So growth in the major advanced economies outside the Euro area is gradually firming, although doubts on the robustness or job creation in the US led the Fed, as I indicated, to postpone the start of tapering of asset purchases. Emerging markets, economies, yes, growth continues there, but news have been less positive. Growth has lost momentum in China, Brazil and Russia have performed poorly and also concerns on the solidity of the banking and financial system and emerging economies in India in particular have emerged. So we are in for a gradual recovery of multiple speeds. For Europe, I think the recomposition, especially with more doubts on the growth of emerging economies, imply that there are some downside risks from the external side, which have increased. And this, considering also the trade relations that we have with the rest of the world, may not be dramatic provided that we foster the, let's say, domestic momentum for growth. So domestic demand in Europe, Eurozone in particular, has to replace building on the data for Q2, the external demand. Now, overall, the recovery in the euro area is likely to be modest and gradual. Luckless economic growth does not come here as a surprise as it is in line with past experience of recoveries following systemic financial crisis. I mean, the historical experience also tell us that there is, after this episode of financial crisis, there is a need for balance sheet repair by households and firms, as well as sector rebalancing between tradibles and non-tradibles, which typically hold back demand away on labor markets. And this is, you can recognize, is also the experience of Ireland, but it's also true for several other countries for the euro area as a whole. If one looks at the story about what has been called a balance sheet recession, namely the need of the leveraging after a period of bonanza and irrational exuberance, this affects the advanced economies in general. However, the speed of recovery since the great recession, 2008, 2009 has not been the same across the advanced economies. You can see it here. Here you have the gross domestic product with index, so put 100, 2008, and the development since then. I put in also Ireland here for your reference. And we can see that the behavior has been diversified within Europe, but we have performed overall less well than the US. I don't have here other G7 countries, but for instance, if you take Canada, it will be even better than this picture here. So if one then tries to explain what happened here, what underpins this different behavior, the conclusion is that there is one notable factor that is behind this, and it is the more drawn out construction of investment in the euro area compared to other advanced economies compared to the US. In the US investment fell sharply in 2008, 2009, but has registered positive growth in 10 out of 14 quarters since the beginning of 2010. In the euro area, on the other hand, investment briefly picked up in 2010, but then declined for 8 straight quarters thereafter. So the policies that we have to undertake and implement to sustain the recovery have to have a particular look at underpinning investment. So this is, I think, is particularly important, otherwise the recovery is not going to be sustained, and we know that investment has the double feature. It is a component of domestic demand, so it helps on the domestic demand side, but it also helps to build productive capacity, so it is important also from the point of view of medium to long run, the supply side of the economy and therefore the impact on the performance of the economy, competitiveness, and the labor market. So what then, the subsequent question is, how come investment behaved so poorly in the euro area, not uniformly, but certainly less well than, for instance, in the US. And I think in the literature there is a rather general consensus or emerging consensus that the bank balance sheet repair is what is underpinning this. I mean, we have not in Europe done early on in the initial phase of the cycle, the balance sheet repair that the US did successfully in 2008 and 2009. So bank balance sheet repair has been markedly slower in the euro area, and this slow progress is weighing on both credit demand and credit supply and thereby on investment. Now, in Ireland both banks and households have made considerable progress in reducing the pre-crisis buildup of debt. Banks are no longer excessively dependent either on volatile market funding or on euro system liquidity. For households initiatives underway to deal with unsustainable mortgage debt will eventually improve the outlook for private consumption. Now, balance sheet repair in the euro area has been also hampered by what is by now the well-known faults in the architecture of monetary union that we are right now trying to mend. In particular, the absence of a proper banking union uncoordinated national responses to banks balance sheet difficulties have led to a negative feedback loop between sovereign and banks. And all this has resulted in a damaging degree of fragmentation across the single financial markets. And this has been reflected in large disparities not only in yields on sovereign bonds but also in lending conditions to enterprises. And you can see it here clearly in this slide. You have three groups. So loans to enterprise new business maturity up to one year and you can see the three groups. You have a clear differentiation between here Germany, France on the one hand on the opposite side of the spectrum. You have Portugal, Greece and you have those in between also. This is a financial fragmentation which is clearly hampering the functioning of the single market but also hampering the recovery. So I think proceeding speedily as agreed to banking union and we have the next steps which are clearly laid out and I think is essential to overcome the problems that we can see here which hinders the recovery. Clearly if one has to identify what would be the main obstacles the main risks to a continuous recovery and as I mentioned before the external side one can talk about also the geopolitical risks we know that oil price, energy, the events that we have witnessed in the Middle East now but if one has to pinpoint one risk only as the major one for me it would be the lack of delivery on commitments taken at the level of the euro area and the level of member states. So we have to make sure that we do not run this risk and we continue to deliver according to the calendar that has been agreed upon. We are clearly in a position which is considerably better, enormously better than we were only 18 months ago or even less than that when there were looming risks of disintegration of the euro area these have vanished I think delivering commitments on the ESM, on banking union that especially on the announcement of OMT clearly led the markets to put aside catastrophic risks of euro area break up but we have to make sure that we do not end up in a situation in which these catastrophic risks of euro area breaking up would be replaced by a prolonged period of stagnation which I think would be extremely hard to take and would be politically and socially unsustainable so this is what is in front of us Now coming to the policy responses I think they come out quite naturally from what I have said so far but I think the policy agenda that we need to pursue I think has to include a combination of targeted and self-reinforcing measures aiming at restoring a fully financial system and enhancing the growth prospects in the medium term Action is needed at the European and at the national level both on the demand side by boosting investment demand and on the supply side by accelerating the much needed structural change in the economy Delivery in three key areas is important First, banks balance sheet repair and overcoming financial fragmentation as part of the progress towards banking union First area Second is the structural reform agenda and third is a differentiated and credible fiscal policy stance Now on the first one the completion of a fully fledged banking union is critical to ensure financial stability reverse the process of financial fragmentation and restore the flow of credit to the corporate sector Delivery on banking union is essential to preserve and to restore the integrity of the single market to make sure that adjustment within the euro area functions properly and third to underpin the recovery so it is really absolutely key The European Union has made good progress in developing the pillars of banking union as a corner store of EMU Now the adoption of the single supervisory mechanism on the 12th of September by the European Parliament represents a major success in a critical step In front of us we are going to have the asset quality review now dubbed balance sheet assessment and stress test which will have to be carried out in advance of the transfer of the supervision mandate to the ECB and this process here will be key to dispel any remaining uncertainty around the underlying health of banks balance sheet and therefore expect a stringent and I expect and the commission is going to push for a highly credible exercise This is the first point which is the implementation of the single supervisory mechanism from the legal adoption which has just taken place to the actual implementation and with ECB taking over the responsibility for supervision in the banking union but we have other pillars of banking union Bank resolution across member states cannot be led with divergent approaches so we need to make progress in establishing a robust harmonized resolution framework at the European level and this is a natural complement of supervision at the European level Reaching a swift agreement of the bank resolution restructuring directive the deposit guarantee scheme directive will be the critical step in this direction All this along with agreed capital requirement directive and regulation will be critical in establishing a set of harmonized rules that can ensure a level playing field across member states The commission has proposed a single resolution mechanism In July there is a commitment of the council to adopt it to discuss and adopt this quickly by the end of the year and we have to make sure that the proposal of the commission is adopted will be negotiated but the key elements which is a robust single resolution mechanism with a single resolution fund and a withhold in the process of negotiation Now Ireland is also taking important steps to ensure that these banks are in the best possible shape as the banking union enters into force next year The authorities are carrying out a balance sheet assessment this year to inform banks and assessment of impairment provision going forward Efforts are also being made to ensure that banks deal decisively with mortgage arrears in an ambitious but differentiated manner offering sustainable long term mortgage restructuring solutions to genuinely distressed households and all this while restoring payment discipline in other arrear cases Only then also only after the asset quality review will see tangible results in reducing the still growing stock of non performing loans which in turn will enhance profitability prospects and fully alleviate concerns about banks solvency And all this will help inspire new lending to underpin the recovery of the Irish economy So 5 years after the start of the crisis it is critical that banks here in this country elsewhere in Europe make real progress in addressing these issues We have also on the financial fragmentation and financial market functioning there is the issue of access to financing by SMEs which is also vital given the essential role this sector plays in employment creation specific efforts should be made to restore credit flow to SMEs in the vulnerable countries of the euro area they are the main driver of investment employment in Europe and they have been overly hit by financial fragmentation We are working with the European Investment Bank and also with the ECB to finalize an SME initiative and we call upon the ecofin council and the European Council to make the necessary decision to implement it swiftly Sustainable growth must be underpin by reforms that will address productivity and price and non-price competitiveness So this is the second area the structural reform side to facilitate rebalancing reallocation resources mitigate the risks of hysteresis effect in the labour market and this need to foster structural reforms holds through both in vulnerable countries as well as in core countries of the eurozone Member states especially the currently most vulnerable ones are making big effort to tackle the serious structural problems that built up over the last decade wide ranging reforms have been implemented in recent years to correct the imbalances built up in the past and shift the economy onto a more sustainable growth path While some of these reforms will take time to produce the full effects improvements are visible already IGLAND has made an impressive start in this adjustment process both in terms of the policy initiatives from the government resilience and determination shown by citizens throughout this difficult time all this I'm confident will pay off nevertheless we should also acknowledge that Member states can and should still do more to boost their competitiveness of the economy labour costs play an important role in this contest that must be kept in line with productivity growth that prescribed in the country specific recommendations adopted by EU as part of the so called EU semester and this is essential to bring down the unacceptably high level of unemployment stronger competition in product and service market is also essential to enhance productivity levels and lower prices and it's also important for the rebalancing of within the euro finally Member states clearly need to step up their innovation efforts and continue to shift production patterns over high value added activities now experience has shown that reforms in different area support each other and they will help make the recovery sustainable by facilitating the allocation of labour and capital this in turn will benefit employment situation and also ensure that the recovery is increasingly based on domestic demand very, very high unemployment in Ireland is part is in large part a legacy of previous over reliance on construction sector Ireland is on its way to rebalancing its growth model the performance and efficiency sector has been impressive for instance but extensive policy actions such as the labour activation measures and reskilling unneeded to forcefully bring down unemployment especially for those who have been out of work for a long period the benefits of these structural reforms will only be seen over time as I indicated before but nevertheless we urge the Irish authorities to push forward as much as possible in this area after years of effort reform fatigue is discernible in a number of member states but now it is not the time to relax our efforts so this is on the structural reform side and finally a differentiated incredible fiscal consolidation is also key in paving the way to sustainable growth in the current juncture the primary objective is to reduce currently elevated debt ratios which are present in many countries this is essential to bolster economic growth and dispel market concerns about fiscal sustainability especially in the euro area furthermore medium term objectives need to take into account also the medium to long term challenges to public finances such as the projected increase in age related health and long term care system of expenditure in the euro area each member states faces a differentiated pace of fiscal consolidation according to its initial budgetary position and hence its fiscal space economic conditions and sustainability positions this means that efforts are inevitably larger in member states facing more restricted market access and lower for member states with greater fiscal space in addition given the focus of fiscal consolidation on the medium term it is normal that consolidation strategies take into account country specific elements now island has made progress towards putting public finance in on a more sustainable footing but the fiscal deficit remain large and the debt ratio high other challenges to public finances such as weak growth and ageing population steam loom large the authorities should continue to stick to their outline course and thereby continue to honor the commitments under the financial assistance program in a way that is as equitable durable and growth friendly as possible for the euro area the sizable fiscal efforts undertaken so far and the deterioration of the economic situation in 2012 have led to a moderation of the consolidation plans in some member states since last spring this moderation was done in line with the flexibility offered by the fiscal surveillance framework which makes a clear distinction between the underlying consolidation effort and the budgetary impact of the economic development that are not under the control of governments so it is expected that in 2013 2014 the impact of fiscal consolidation growth would recede overall the medium term plans presented by the member states in spring in their stability programs are appropriately differentiated large adjustment already undertaken should allow a less negative impact of future consolidation on growth however efforts on the composition so the quality of the adjustment need to be pursued to preserve growth friendly expenditures and tax reform should be carefully designed also to preserve equity monitoring the appropriateness of fiscal consolidation strategy is a continuous exercise in this context the commission will carefully review the upcoming draft budgetary plans in the euro area all countries of the euro area have to submit that this autumn and also provide an assessment of the overall situation in the euro area now to conclude ladies and gentlemen implementing rapidly and with determination the self reinforcing measures that have outlined here would support confidence the exceptionally high level of economic and policy uncertainty while also paving the way for more robust medium term growth in the euro area as a whole and also in Ireland the benefits of dispelling policy uncertainty should not be underestimated there is empirical evidence that uncertainty can significantly in negatively way on public understanding and economic growth by giving agents an incentive to postpone investment consumption and employment decision you can see this in this slide here which my final my final one which you can see the very close correlation between investment as a ratio to GDP and an indicator of policy of policy uncertainty so you can see that when policy uncertainty increases and here is in the downside you have a negative impact on investment so dispelling policy uncertainty stick into the commitments I think is the name of the game at the national level as well as the euro area at the euro level as a whole higher confidence lower uncertainty and the success to credit would support firms investment and short term economic growth would also make more ambitious the effects of structural reforms in a say virtuous cycle procrastination would be a big mistake now so we have to and this is a light motive I repeated several times to the announcement made and not reverse decision on which we have commitments at the highest level island has been leading the way for vulnerable countries with its commitment to adjustment and stay in the reform course and the countries effort are paying off and we need to return to growth renewed investor confidence access to market again but it is definitely and I think is very clear from what I have said repeatedly is not time to rest on our laurels instead we must continue to work so that the vicious circles that have marked the euro area economy in the past are turning into a powerful virtuous cycle where it fits confidence and confidence further underpins the recovery if we relax the efforts now the hard won gains achieved so far will be lost thank you