 Chairman, ladies and gentlemen, good morning and thank you very much for inviting me to speak here this morning. It's great to see you all here. It's great to see the castle looking so well. Things have changed quite a bit since Michael Collins took it over in 1922. You'll notice I was in town this morning when Collins arrived to take it over. He was a few minutes late and the British general in charge reminded him that he was late and he said well lots of few minutes, we've waited 800 years for this occasion. But everything is running very much on time this morning, so I'm very pleased with that. I'm happy to be here. I'm happy to be here for this session on economic governance and economic monetary union and the European Union and understand we're going to have a short discussion afterwards and that will be helpful as well. It's an important discussion as we move into our presidency. It's our seventh presidency and it also marks the 40th anniversary of Ireland joining the European Union. And certainly we have made very significant progress both socially and economically in that 40 years. I'm not going to go into detail on the history of the of the crisis or indeed the history of the development of the economic and monetary union. I'd like to draw some conclusions on what we can learn from the past, though, even from the recent past. The structure of the EU economic governance was clear in the run-up to the crisis. The Eurozone central banks were independent and responsible for monetary policy and the government and the member states were responsible for economic policy, including fiscal policy. And that looked like an acceptable division of labour and one that people thought would work, but under the stress of crisis, well, it didn't work that well. It is clear now that the construction of the EU had policy and practical weaknesses at that time. The treaties established a loose framework seeking to ensure national fiscal discipline and the coordination of economic policy more generally for all the member states of the EU. It is not clear before the crisis if Eurozone governments recognized that the national economic policy had an impact on economies of other member states. One would have thought that it was pretty obvious, but there seems to have been no recognition of the danger of feedback loops coming back to haunt one's own economy. And that's a concept that has been pretty well developed down, we'd say, the risk of it. The stability and growth pact was the main instrument for coordination of the member states and national fiscal policies in the EU, but it wasn't enforced consistently. And I think everybody remembers that some of the big states of Europe decided to ignore the limits of the stability and growth pact and then as an instrument of fiscal control, it no longer worked once the big countries broke the rules. Furthermore, the structure of economic governance was not capable of putting large fiscal and economic imbalances in individual member states. Not only that, but essential structural reforms were postponed. So essentially, therefore, it became obvious as the stability and growth pact proceeded on its course and was largely ignored in some countries that there were weaknesses emerging that had to be addressed. The EU has often been criticized for its slow response to the crisis in terms of introducing improved economic governance measures. And I think it's worth having a look at that here today. In terms of institutional reform, we have the European Union of 27 member states, shortly to be 28. Now can we forget the role of the European Parliament and the government's process of the Union? And change has to be agreed across the 27 and now with the Parliament. So the decision making process is quite complex and it's very often difficult to get quick decisions when we're dealing with European matters. But reforms are needed. We all want to have them implemented swiftly and if we can get a big bank solution, well, that's great. But the changes have to be adapted and they have political consequences for all member states, not just for Ireland. And then we have to bring the public with us as well. So there's a job to be done by all ministers to convince their citizens on the need for change. For example, to have external oversight over their budget processes where none may have existed previously. Frequently put up as a slogan, we're going to lose our sovereignty. We'll no longer be making decisions over our own future. These will be dictated by Europe. And in that space, it's quite difficult at times to bring the people with one. So it's important for many countries and the changes are difficult. But progress certainly has been made and it would be a mistake to think that progress hasn't been made. Very often when you're in a crisis, you don't see the progress. But if you look back, you look at all the changes that have taken place over a two year period and it's worth looking at that as well. If we look at the governance structures that were in place before the crisis, we can see how much has been achieved and particularly in the last 12 months. The EU and member states have taken a series of important decisions that will strengthen economic and budgetary coordination. A significant package of financial service legislation has been developed, some of which has been agreed and some of which remains to be implemented. And I have discussed with Commissioner Barnier how best we can process this because a lot of it will fall into the responsibility of the Irish presidency. Taking into account what will be achieved by the Irish presidency and they are making progress, we will take over the agenda then and advance it further. The financial sector reform has been complemented by financial sector supervisory institutions, which are cross border, whereas previously we had national financial supervision. We have seen the development of the EFS and the ESM structures. So we have bailout funds, we have firewalls now in place when you think that the aid to Greece originally was given on a bilateral basis with a series of arrangements for individual countries. You can see now that there are central funds in place with several rooms to intervene in any country in difficulty in the future. And there have been various important and targeted interventions by the European Centre Bank. I think Mr Draghi has built on the progress made by his predecessor and is creative and flexible and certainly if you look at the spreads on the bond markets you can see the influence of Mr Draghi on a policy basis. The stability and growth pact was reformed by measures including a set of five regulations and one directive adopted in November 2011, affectionately known as the six pack. These included reform of the excessive deficit procedure for all member states, providing for shorter deadlines, greater focus on debt and not just on deficits. There is also the imposition of sanctions using reverse qualified majority voting in the event of failure to comply with the requirements of the EDP process. This means that a qualified majority vote is required to reject the European Commission recommendation to impose sanctions. In addition to the six pack the European Commission proposed two further regulations colloquially known as the two pack. These draft regulations proposed common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficits in the euro area member states that strengthen economic and budgetary surveillance of member states in the euro area. While there has been significant work on the two pack at the council and in the parliament it has not yet been agreed but the separate government is quite active in its dialogue with the parliament and we would hope that the two pack will be implemented before we take over the presidency. We can see further changes in the European semester process the Europe 2020 program the Europe plus packed and regular European summits. We intend to progress the European semester process to a successful conclusion as part of our presidency and we'll provide a comprehensive roadmap for 2013 European semester process next month to the general affairs council. Clearly the pressure on all of the states is to engage with their forms and you know get the necessary systems in place that regulate the very complex human which is now emerging. Then as well as the big event that's remembered in Ireland in terms of these these issues is the fiscal stability and we put that through in May of last year. It requires the budgetary position of general governments to be in surplus or in balance and this will be deemed to be the case if the structural balance of general governments is that our medium term budgetary objective or agreed adjustment pat towards it unless exceptional circumstances apply. There's a debt rule also and the debt rule requires that the GDP ratio in excess of 60 percent has to be reduced or 60 percent by 120 each year. Some aspects of the introduction of these measures involve treaty changes and for example the introduction of the reverse qualified majority voting rule that could only be reduced by a treaty change. So again if you look at summary of her I've got to in these few words. We had a Europe where independent banks and the sovereigns looked after monetary policy. Independent governments and the sovereigns looked after fiscal policy on the general guidance of the stability and growth pact. People didn't keep the rules on the stability and growth pact and when the bigger countries broke the rules the rules didn't apply any longer as far as at the rest of the year were concerned. So to protect the currency when the crisis hit a whole series of measures had to be retrospectively fitted and that's where we're at now. So you had the six pack you had the two pack you had the European semester you had the stability treaty and various other measures around the edges all in place now and if they were all done together it would look like a major piece of work but because they were done seriatim and because there was insufficient debate about them and because quite frankly most people don't know what's meant by the six pack or the two pack you know they didn't make the necessary impact but it's not true to say that Europe has been floundering for the last 12 months and hasn't been taking action to address the crisis it has and in a very real way. There are implications of course for Ireland as well and we know what the difficulties were over the last couple of years. We've made substantial progress in our financial affairs and we have made substantial progress in resolving the difficulties of our financial institutions. We've improved our competitiveness very significantly and most importantly we have we're in a space now where there's this growth in the economy again and where job creation is coming through especially on the multinational side but we still have to move on. It was in part the weaknesses in the design of the EMU which in part led to unbalanced and unsustainable growth in Ireland and to the difficulties which we went through and the rules now require better discipline and that's not a bad thing. Fiscal discipline is not the same as austerity and I think we should remember that as well and you know what is the alternative to the programs that we are engaging in. One could pile deficit on deficit and debt on debt as the model and pretend that some small section of society can pay for it tax the rich but we tried that and it didn't work and there aren't that many more models around so we have to pay our way in a big bad world. We have to get our budgets into balance. We have to get our debt under control and we have to deal with the structure of the economy to continue to make it competitive so that we can create those goods and services that other people want to buy and as we do that successfully they'll be employment for our people. That's the model. It's very straightforward and very simple and it's considered as described as the austerity model but as I say getting your fiscal arrangements right is not the same as austerity. That's the model we're on. So that's where we came from and that's what the government's decisions that have been taken over the last 12 months or so in a particular amount. Now the next big project of course is banking unit and it's worth reflecting on banking unit. My very first remarks I said that go back a little bit and banks were the responsibility of sovereign governments. We're moving now to a situation not exactly like the United States but it's worth thinking about what happens in the United States in banking to see where we might end up. Where you'll have a central European United banking system and of course that's a big project. If you were designing a banking unit when there wasn't a crisis you might decide that you wanted the banking unit for reasons of the single market. That would be motivation for a banking unit to get your single market working more effectively and certainly it would be benefits for that for there but this particular banking unit that's being proposed is not motivated by getting the single market working more effectively it's motivated by supporting the currency and you know depending on your starting point you're going to arrive in a different space so we have to be very conscious of the single market as the banking unit develops but that's not the motivation for the banking unit the banking unit's motivation is to underpin the currency. Now the elements of it are straightforward and you're familiar with them the supervision first of all then resolution and then deposit guarantee systems. The supervision part of the project is running fairly strongly a lot of work has been done and the commitment is that it would be completed in January and that there would be a system in place then which would supervise the banks across Europe. There has been some debate and some difference of opinion on whether all the banks should be supervised and today are just some of the systemic international banks. The policy position as enunciated by the Commission and which we'll be driving forward during our presidency is that all of the 6000 banks or so in Europe will be supervised in a unitary supervision system. The legal mandate for supervision will be vested in the European Central Bank in Frankfurt but they will decentralize part of the supervision to the local regulators so you'll have a legal mandate allowing for supervision across the Union emanating from Frankfurt that will give rise to a rulebook being developed in Frankfurt which will be applicable everywhere. Manuals and protocols will follow and then you know there'll be direct supervision of 2025-30 systemic international banks out of Frankfurt. The others will be decentralized and the regulation will take place by local regulators but operating to European mandate and operating to very precise rulebooks and manuals and protocols and these are being developed as we speak. There will be an override vicinity for Frankfurt so if they're worried about a particular institution they could come in and do the direct regulation in cooperation with the local regulator but of course the bank in Frankfurt will have the legal mandate to come in and supervise directly. As well as this project isn't being conducted so that supervision will be less thorough than it is now so in very simple it means it sounds obvious but it's worth saying in simple terms we want regulation to be at least as good as the best in Europe and probably better than anything that's happening in Europe now and that would be the objective so there's not pulling back of standards or reducing of standards the objective is to increase standards. Another very important issue as well is to make sure that the monetary policy role of the ECB is not confused with the regulatory role and that there isn't a spillover and that there'd be kind of monetary policy through regulation so it'll be very important that you know the functions are absolutely separate and seem to be separate and the bank as regulator will operate as the bank as regulator the bank as a monetary authority will operate in that space and that they will not be crossover. Now who's going to join the banking union? Well it goes into three groups of people. There's all of us who are members of the Eurogroup. We're the insiders and we'll be involved in the banking union. Then there's the other ten who are not in the Eurogroup and remember I said the motivation is to underpin the currency so if you're not in the currency you don't have the same motivation but there are countries that have international banking systems that trade into Europe and they divide into two groups again. They're the people who are outside of the currency but want to be in the banking union and although they're those who are outside of the currency and who don't want to be in the banking union I suppose the first group Sweden and Poland would be very very good examples of the first group but obviously the supervisory regime has to accommodate them and at least you can't have people supervised who don't have a say in the method of the supervision so accommodation must be made for those countries who want to be part of the banking union and yet are not at present within the group that have a say in these matters. Then there are other countries the United Kingdom is the best example who are totally in favor of a banking union who are totally in favor of a successful Euro currency who have a huge interest in financial services because the city of London is the biggest center of financial services in Europe and who want to make sure at a minimum that nothing is decided in Europe that affects their position adversely but at the same time are not going to go in and be fully participating members of a banking union so there's a difficulty there and this has to be worked out. So in terms of the banking union on the mainstream a lot of work has been done and it wouldn't be difficult now to get the supervisory mechanism in place along the lines that I described for the 17. It's when you go beyond that to the people outside of the 17 and different dispositions that the accommodations have been made but the policy is to ensure that it is open to all members of the union to participate in banking union and in the commons supervision. The resolution mechanisms aren't as advanced as the supervision mechanisms but we're working towards it. The commission published a proposal on the 6th of June 2006 on resolution. The framework provides for comprehensive and effective arrangements to deal with failing banks at national level as well as more complete arrangements to tackle cross-border banks. There are three distinct phases in the framework. Preparatory and preventive measures, early intervention and resolution tools. The commission characterizes the overriding objective of the framework to ensure that institutions and difficulties can be allowed to fail without risk for financial stability while avoiding costs at the taxpayer. We're fairly familiar with this phase. We had Anglo Irish Bank in Spain that had bankia. By the way, if you only had supervisory rules for the top 30 banks in Europe, neither Anglo or Bankia would have been caught on the supervisory mechanism. So you can see why many of us think that all the banks have to be supervised right across Europe because very often the trouble doesn't come from from the international systemic banks. The trouble comes from kind of smaller medium-sized banks and you can see the potential for contagion and those two examples. So certainly they'll be within the supervision. So we've learned a lot ourselves from resolution and we have our own resolution legislation but of course what's going to happen is that sovereign resolution arrangements are going to be blended into a European wide resolution mechanism and what the timeline for that is not clear yet but I would prefer it sooner rather than later. It has implications of course. How would it be funded? Would the charge in some kind of fund for resolution purposes be put on the banks? Or would it be put on the sovereigns? Obviously our preference would be that it goes on was on the banks. It's also worth thinking is there's no point in going down this road if the supervision is less effective. So with better and a more effective supervision the consequence should be that you'd have less need for resolution and working out of insolvent banks and then if there's a fund, a mutual fund, how far down the road towards mutualization of exposures is there going to be in Europe and ultimately it's not a pay-to-bill and this is why Germany are insisting that the supervision goes into place first. It has to be effective and working and then we'll see about resolution. The other pillar, the third pillar is the deposit guarantees scheme and the current proposals represents a recast of the existing directive. The aim of the proposal is to enhance deposit's confidence by a higher level of coverage, faster payout and improved funding of deposit guarantees schemes and we are fully in favor of a robust deposit guarantee scheme that promotes greater confidence. There has overall been a substantial degree of welcome to the Cyprus presidency on the banking union package. It is expected that not all of the banking union package will be completed before the end of 2012 and it will be a priority for our presidency. It is important for Ireland and for our debt sustainability that this package of measures is agreed and introduced. It is of course important also for the European Union as a whole. Finally, we have the four presidents paper. What to read as you'll see that is in mind and what the vision is for Europe. It's one important element but it came out in June and subtitled her as a genuine economic and monetary union and it laid out four areas of necessary progress. More integration in our financial budgetary and economic policy frameworks and enhanced democratic legitimacy and accountability. And this paper is correctly looking ahead more strategically to the wider reforms that may be necessary for a more stable and prosperous human. Professor President Van Rompuy presented an interim report to the European Council last month on economic and monetary union in which he brought forward ideas in relation to European fiscal capacity and arrangements of contractual nature between member states and European institutions. Others have floated ideas such as possibly European budgetary, budget commissioner or super commissioner. This isn't a very new idea on the competition side. The competition commissioner has the right to intervene directly without going through the College of Commissioners for direction. And if you had something similar on the financial and monetary side maybe Commissioner Arlie Rain would have the same kind of ability. That would be one way of doing this and because there's a precedent it doesn't like a huge leap in policy but it's only at the initial stages of discussion. So when you think of what the presidents have said in their paper and when you think of the enhancement of the democratic legitimacy of all the new initiatives it's quite far-reaching in terms of the structures of Europe. And you're looking at a Europe that will be integrated on a banking policy and a fiscal policy to a more developed single market. And when all that happens we'll see where the debate goes on democratic control but as the debate develops and economic on democratic control it seems inevitable that there's going to be movement towards a more centralized political Europe. And I think it's in that space that there's going to be a very interesting debate indeed because all the building blocks that are now being put in place in my view inevitably lead to some form of political union whether it's loose or tight and I think that's where the great debate is going to be over the next number of years on how the European project continues because governance is necessary. Governance is essential. We saw that the failure of governance got us to but governance has to be legitimate as well and the only legitimacy of governance is if it has the will of the people behind it and that means political structures to reflect it. So if you read the President's paper it was fairly clear signals reading the lines and reading between the lines of what the vision of Europe is coming from the four presidents and it's a view that's shared by by very many people. So thank you very much.