 Yn yllin arweinydd, ddwy'r gael y byddai ei ddweud yn ddwy'r gweithio, ddwy'r ddwy'r gweithio, o'r drwg, ac ddwy'r gweithio'n ddwy'r iaith. Mae'n ddweud o'r cyfrifio'r cyfrifio. Yn y cyfrifio'r gweithiau sydd wedi'u ffwylo'i cyfrifio'r hwyl, Mae'r gwahydau gyda'r gweithio i'ch dyfodol, i ddysgu eu gyfnod sydd yn gyfnod i'ch gyfnod i'w ddweud. Ond o'r 1930 yma, mae'n gwneud am hynny i'ch tyfu, a'r tyfu'r ddau. Mae'n amserau sy'n gael, ddaw'i'r ffordd yn ei ffordd o gwneud o'r cyfnod sydd yn gyfnod i'r unrhyw sydd. Mae'n amserau yma i'ch cyfnod ychydig i'i gwneud o'r hollu cyrraed. Dyna i'n ddigwyddawad yng Nghymru. Gweithson i'r hollu cyrraed, ddiwylliant i ddannu Llywodraeth Cymru, i'r Hwyddol Llywodraeth, i'r Pwysig, i'r Llywodraeth, a byddai. Rydw i ddim yn gwneud ateb yn ei hollu cyrraed. Rydyn ni'n gallu'r hollwch ar y teimlo'r hollwch i'r hollwch, yn ymweld â'r ffordd yn ymdwyllulau, oherwydd mae ydy'r ffasg. Mae'r ystyried yn ymdwyllwch i weld y dyfodol i gaelio'r ffawr i dyfodol i gaelio'r cymdeithas ysgol. Yn ymgyrch yn ymdwyllai felly bywyd ac i ddiogelio yn YG20, ond YG20 efallai ymdwyllai i ddaeth eu union wedi gwirionedd ac rwy'n ymdwylliant. Mae ymdwyllai i ddweud yr hyn o'r stymulau ffysgol ar y dyfodol i gynyddiol, ac nesaf i'r llwyaf, i'r llwyffwyno i'r llwyffwyno i'r llwyffwyno i'r llwyffwyno i'r llwyffwyno. Yn ystod, mae'n meddwl gyda'r rhannu. Ond y gallwn gwahaniaethau a ddaeth ei wneud yn fawr, dyma maen nhw'n ei ffordd. Yn ystod, ymgylchedd ar gyfer y syniadau ffordd o'r cyfnodau yn ycwmio'r cyfnodau i'r eu dynol, has been found to be extremely limited, partly largely because of excessive debts. Now these debts have ar risen for different reasons in different countries. Some countries it's profligacy over a sustained period of time – one thinks of Greece, obviously. Other countries it's because of the public sector, the government's coming to the rescue of a banking sector that was in need of There's a problem of private debt levels, of course in certain member states. And there are some member states that are perhaps in a position they're not just member states- the union, but some countries that are in a position perhaps to continue with their fiscal stimulus- but do not want to do so for a number of reasons. The second problem is that we realised that we had ignored neglected during the good times a number of underlying structural problems facing our economies. It was easy to ignore them in the good times but slowly but surely the competitive position of some countries was being undermined and affected. Above all, we failed to draw the consequences of our interdependence. We are far more interdependent than we realised before the crisis. But we had not integrated our policy coordination and our instruments for policy coordination to a sufficient level to cope with that. We now know more than we ever did in the past how a housing bubble in, say, Spain can be everybody's problem. A disorderly default in Greece would have consequences right across Europe, whether you're in the eurozone or not, by the way. Maintaining a separate currency does not make you immune from this crisis. No one can escape this interdependence. So the crisis has forced us to review our procedures for economic governance. When Hermann van Rompuy took office as president of the European Council two years ago, just two years ago, he said, I found an empty toolbox. Part of what we have been doing over the last two years is building up a new toolbox. Partly, of course, short-term measures, but also long-term measures to make sure that we don't get into this situation again or make it certainly far less likely. Now, of course, this has been step by step, often criticised for being too slow, too late and always one step behind the markets. But markets move much faster than political processes. They move at the click of a mouse. Political processes, democratic processes, after all, need unavoidably more time. That's not a reason to give up on democracy, by the way, but it's a fact that they take time. And that's why it's been step by step and it's been step by step among a group of member states that haven't always initially at least agreed on the remedies. There have been divergences on the size of rescue funds and rescue mechanisms, on the principle of bonds, common debt issuance or not, on the degree of fiscal discipline that is needed. On all these things, there have been divergences among the member states. And these are issues, after all, where it is not about European Union instruments, it's about coordinating national policies. If you're talking about macroeconomic policy, the EU budget is 2% of public spending, it's almost irrelevant and it has to be unbalanced by law anyway. So we are talking about coordinating national policies. So, unavoidably, we're talking about the European Council bringing together, as it does, the leading political figures in each member state and the President of the Commission having to get to grips with the situation and finding new policy instruments. So it has been slow, been difficult. But I heard recently a speaker from India who started his talk by saying, asking people in the room, how many of you think that Japan handled the Fukushima disaster well? Two hands I think went up. How many of you think that the USA handled its deficit crisis last summer well? I think one hand went up. How many of you think the European Union has handled this crisis well? An equally small number of hands went up. But it shows that the handling of crises is not something that is easy. That's why they are called crises. They pose new challenges, challenges that you have not found before. What has been done over the last two years, before I get on to the new treaty that's being negotiated now, is that we've put in place in Europe a triptych of new instruments and pressures that did not exist before. Institutional pressure, peer pressure, and there is anyway enhanced market pressure. Institutional pressure means what we have done in law in terms of changing our procedures and the requirements that are laid down on member states. We've after all established the three financial sector supervisory bodies, such as the European Banking Authority and the overall European Systemic Risk Board, instruments and tools that we didn't have before that were lacking. We've reformed the excessive deficits procedure providing for shorter deadlines, a greater focus on debt, not just on deficit, and accompanying it set up a new macroeconomic surveillance procedure, looking at other imbalances than just debt and deficit. Debt and deficit are far from being the only issues. We've explored for the first ten years of the euro other macroeconomic imbalances like asset bubbles, current account divergences and so on. Now we will have a tool to look at those, examine them and take corrective action. We established the EFSF and the future longer term European stability mechanism to provide emergency loans to countries that need time, need help and time to turn around their situation. A tool that didn't exist before, needed national ratification everywhere. It's a slow process but it has been achieved. It doesn't mean it's the end of the story because it's the question of levels and so on. We may come back to it but that instrument is now there. We now have a legal requirement that every member state has to have independent statistics on its economic situation, that it is not just a government department that provides the statistics. Grease may have been in everyone's mind when that rule was adopted but it's important that it applies equally to all member states. The commission has strengthened the role of the relevant commissioner in this field, and now a vice president of the commission upgraded to give a greater focus to that in its work and give a face to the person dealing with it. So those are the institutional changes. Alongside that we have more peer pressure. We have more peer pressure than ever before because now every minister for a start realises that his neighbour's problems are likely to be his own problems a few months ahead and they probably didn't quite appreciate to the same degree in the first ten years of the euro. That context gives more teeth to the extra peer pressure procedures that have been set up. The European semester whereby every member state will compare their economic statistics, their assumptions on growth, inflation etc. before they draw up their national budgets. Can even comment on each other's proposals as regards national budgets. Before the national budget is submitted to the national parliament which remains sovereign and responsible at the end of the day but you will have a process of comparison that didn't exist before. We need to fine tune this a bit and make sure that documents don't turn up in other countries' parliaments before they've turned up in their own parliament but nonetheless it's important that this procedure exists. There's the euro plus pact for countries that want to work together and most countries do on working on their long-term competitiveness position in certain fields. There's the Europe 2020 strategy benchmarking those things that are important to address structural shortcomings in our economic performances and focusing taking over from the old Lisbon strategy but with a much more focused set of indicators and a tension to specific things that really matter. There is the agreements for each last October that member states will consult each other before the adoption of any major fiscal, new fiscal economic policy reform plans so that they can benefit from each other's comments and be aware of what each other are doing. It didn't exist before. Even such a basic thing didn't exist before. All these new mechanisms of peer pressure, as I said in a context where peer pressure is likely to work more than before, reached a culmination with Eurozone summits so that the sort of things that were left to the Eurozone finance ministers will now be dealt with when necessary at the top level of the political apex in each country at the level of the head of state or government. So peer pressure, institutional pressure, all in the context where there is more market pressure than before. The market slept for the first ten years of the Euro. They rated Greek bonds at the same level as they rated German bonds simply because they were in the same currency without thinking further about it. They are not going to make that mistake again. They may now be overreacting, but they're not going to go to sleep again. That in turn affects the other procedures. Even a commission warning, even a lively peer pressure discussion could trigger a market reaction. It's the interaction of all these three things together which mean that we have made a significant change to our methods of economic governance and their likely impact. We have a toolbox that we didn't have two years ago. And now the debate is about whether we should have a further step with this new treaty, this locally called the fiscal compact treaty. As you see it's only a compliment to what has already been a very important set of reforms. But it's designed to show that we are focusing as well as much on the long term as on the short term that we are determined to put into treaty law things in some cases that may exist already in ordinary legislation but is upgraded. Somebody characterised it as the captain of the ship tying himself to the mast. You know, you've set a course, you're not changing the course, but it shows that you are determined to set that course and see it through for some aspects of this treaty. It's also important to address the long term to show public opinion and show markets that what we are doing is not just a set of sticking plaster to get us over the immediate problem and then everything will go back to the way it was before. No, we are laying down things for the long term as well. That's an important symbol. It was also important in a different way that the European Central Bank which is an independent bank, takes its own decisions by majority. Nobody can instruct it what to do, but the bank has been, as you know, intervening in markets. It has a margin of manoeuvre to do so, but it's made it very clear that it would not do so unless it was guaranteed that the national governments were moving in a way that will guarantee a degree of certainty for the future that the reforms put in place are sticking. Once agreement was reached on the 9th of December to proceed with the new treaty, almost within a few days the central bank intervened to a greater degree than it had and introduced the new measure of 1% loans to banks which have been taken up to such a large extent and which have been used among other things for banks to purchase bonds of countries issuing bonds in the last few months and helps banks make it easier in some cases for them to move towards meeting their new capital ratio requirements. It's a very significant step, but it needs to be seen in the context of, I think, I can't speak for the bank, it's independent, it takes its own decisions, but I think that this context was very important in allowing the bank to take those decisions. Now, a separate intergovernmental treaty rather than doing this through the existing treaties was not everybody's first preference. I think it's actually safe to say that a large majority of member states in the European Council meeting on the 9th of December preferred the proposal put forward by Hemann Van Rompuy to say, let's do what we can by means of amending protocol 12 of the European Union Treaty, which the European Council is already empowered to do by the Maastricht Treaty by a simple decision of the European Council without needing subsequent ratification. Some countries need parliamentary approval for it before the decision, but at least you know before the decision rather than take a decision and then wait for a long period to see whether it's ratified. However, such a decision needed unanimity and that unanimity was not forthcoming at the European Council meeting in particular due to a situation in one member state which I won't name, not very far from here. In that situation, the route of changing protocol 12 was blocked but also the route to amend the European Union treaties was blocked. You couldn't do it. And in that situation, very quickly, the mood in the meeting changed to saying, well, if we cannot do this and we cannot do that, then we accept the only way to go forward is to do it by a separate treaty, this inter-governmental treaty that is being discussed as we speak. Having a separate treaty has disadvantages, may have some advantages, but some people have said it's a very barock procedure because you're having a separate treaty which a colleague of mine said, no, no, no, it's not a barock procedure at all, it's gothic. The European Union and its treaties are like a gothic cathedral, a big solid structure. Inside that cathedral there are some chapels for the more fervent members on monetary union, on Schengen and so on, but crucially inside the cathedral. We had a bit of problems with the foundations, but one of the owners wouldn't let us carry out the necessary work to deal with those foundations. So what we are building with this new treaty is a flying buttress, supporting the structure from the outside. It's not a separate cathedral, not a separate chapel or any building, it is a means of strengthening our cathedral from the outside by providing support. That is, I think, a rather neat way. I mean, it's from my colleague Luke van Middelhaar, a Dutch philosopher and speechwriter to President van Rompuy, but I think it sums it up very neatly. But what are the specifics? What is this buttress? What does this buttress actually do? What added value does it bring? The first thing it does is address the one point that you really couldn't address without looking at dealing with it at treaty level. It's to do with how the excessive deficit procedure is triggered. If a country is not respecting the agreements it's made in terms of debt and deficit, and deficit especially, at the moment you need a qualified majority in the council to trigger the procedure. With the recent legislation, subsequent steps can be by what's called a reverse qualified majority. The commission proposal will stand a necessary majority against it. But the initial decision you needed a qualified majority to say, yes, this member state is violating the rules. And it very rarely happened. And certainly if a large country like France and Germany, 2003, 2004 were violating the rules, it was very easy for them to get a blocking minority to stop that decision because the onus was a qualified majority. Qualified majority is over 70% of the votes in the council under the current formula, so it's a high threshold. Very easy to wriggle out of it, certainly for the larger member states. To change it to a reverse qualified majority needed a treaty change because it's in the treaty. You couldn't just do it through legislation. This has been done for the subsequent steps in the procedure to implement such a decision in the recent six pack legislation as it's called. So you needed to address that at treaty level. This new treaty does that in a rather clever way. It says that the signatories of this treaty undertake always to vote in favour of a commission proposal that finds that a member state has an excessive deficit. Unless a qualified majority among them are of a different opinion. So in a backdoor way you've introduced a reverse qualified majority rule into the procedure to start off the excessive deficit procedure. This is something that you couldn't do without addressing the matter at treaty level. And in doing so you actually make it more difficult for member states to... I mean people thought it's difficult enough anyway to get finance ministers sitting around the table to wrap each other over the knuckle and say, you know you're being a bit naughty here. But when the onus was that you needed a huge majority of them to do so it didn't work. Now the onus is the other way around and it's much more likely to work. So that's the first plus that this new treaty could achieve. Other things are to agree things that have been done or could be adjusted through legislation. But by enshrining them in the treaty you're giving them extra political visibility, extra legal status and making it more difficult to reverse because you'd need to change the treaty again. That applies in particular to the so-called golden rule that member states would undertake not to have a structural deficit of more than more 0.5% of GDP unless they're under the 60% GDP debt level in which they could go higher. But for those above it you would have that rule. Now a structural deficit is measured across the economic cycle so it does have that degree of flexibility into it and there are methodological problems of how you define an economic cycle when you know your economic cycle has ended you usually only know when you're in the next one. But those are small print arguments which are being looked at. The principle is agreed by all the member states party to the negotiations which are 26 member states as things stand. Introducing that would also require member states to introduce it into their national procedures. The treaty says preferably at constitutional level but member states I think the Danes had a problem and some others about it being a requirement to put it in a constitution. Constitutional systems are different in different countries so it can be done by legislation. The key thing is that it has to be has to have an effect on your budgetary procedure. It's not just an exhortation if your budgetary procedure violates that rule you need to have a mechanism for rectifying it. So that would be a second benefit of this new treaty. There are a couple of other aspects I think that are worth dwelling on. One is that the separate ESM treaty which is also going through the permanent lending mechanism the bailout fund as it's often called to be eligible to receive a loan from that would in due course be conditional on the new treaty being ratified. That is without prejudice to existing loans and existing programs. It would also have a transitional period it would only come into force later on but in due course that would become a condition for receiving loans which therefore is also an important pressure on countries to stick to the rules. The final point worth mentioning is the conditions for ratifying this treaty because it's not amending the European Union treaties which would require every party to the European Union treaties to agree and to ratify because it's a treaty in its own right under international law as with most treaties in international law you set your threshold for it to come into force and the threshold that has been set is that it would come into force as soon as I think it's 12 the latest figure member states ratify it would come into force among them of course those who've ratified it. You don't need to get all 27 or 26 17 eurozone members to ratify it as soon as 12 eurozone members have ratified it would come into force among themselves. That's one advantage of an international treaty you can proceed in that way which of course changes the nature of the debate if there were any country that was reluctant to ratify that country is not faced with the choice of do we block this or go ahead it's faced with the choice are we joining in or are we staying apart which is a slightly different choice than is customary in the European Union framework and of course if we stay out what happens to our eligibility for the ESM what happens to our credit rating might be a factor that would feature in the debate on whether to join in or not. Now one criticism of course is that all this is about austerity, it's an austerity pact but I'd point out that it has no requirements to limit public spending how much you choose to spend is up to you up to each country domestically it's simply saying that you should finance such spending by taxation not by borrowing not by excessive borrowing anyway not by excessive deficits which is one of the lessons of the crisis too many Member States of the European Union had built up to high levels of debt and high levels of debt are anyway not a good thing it means that more and more of your tax revenues are being spent on servicing your debt rather than on public services or investment I recall in the early 1990s when Belgium's debt level was 132% of GDP it was spending far more on servicing its debt than it was on health or on education that is not a healthy situation for any country to be in so to characterise this as an austerity pact I think is somewhat simplistic very simplistic but the other thing to bear in mind is that this treaty as I said is addressing one part of much wider package wider package in terms of reform of economic governance of the euro but also a wider package in terms of the wider debate on where we go from here economically President Van Rompuy's hope is that the European Council on the 30th of January will not be a negotiating session on this treaty that it will have been agreed but the latest if there are still open questions now but the latest by the Finance Minister's meeting next week and that the European Council can just sign off on it and focus the debate then on growth and drops it's important that the public sees that we are not just debating fiscal austerity for the long run and doing nothing in the medium and short run about growth and drops now of course the main responsibilities and the main instruments to do something about that remain national but there are things we can do at European level I mean sorting out the debt problem is itself restoring confidence is the biggest thing you can do in the short term in itself restoring confidence is essential beyond that there is potential at European level potential to make even more than we have of the single market the digital single market, the services single market still have enormous potential a very significant precise point is to sign off by the end of this month on the patent question where there is still a dispute even after all these years holding that up on the question of the location of the patent court it's about time we sorted that it's something that could cut the cost for a European firm of registering a patent across 27 countries from over 30,000 euros to less than one tenth of that under 3,000 it's a huge difference and if you look at how much it costs a European firm to register a patent across Europe to what it costs an American firm in America it's a huge competitive disadvantage to Europe so just that point alone is significant and it would have symbolic value as well third thing that you can do at European level is look at our trade policy further we are about to embark on free trade area negotiations free trade negotiations with Japan, India and others those two offer enormous economic potential we've been too slow in moving those forward if we can speed them up that can also be an extra contribution by the EU at EU level to jobs and growth I wouldn't dwell on the fact that we currently have a lower exchange rate of the euro nobody wants to talk the euro down but it is a fact that it's not as high as it had been recently which also helps in that respect in terms of trade policy and finally there will no doubt be a discussion at the next European Council on whether those countries that do have a wider margin of manoeuvre for fiscal stimulus shouldn't actually use that margin of manoeuvre there was after all agreement on such language at the G20 summit in Cann recently and it included, I think it was very clear which European Union member states were being referred to and there I think will be renewed pressure in that respect while talking about that member states I suppose I should mention the question of whether the short term rescue mechanism the EFSF or the ESM when it becomes permanent should not have a higher level than the 500 billion currently attributed there was agreement that this would be discussed again by the European Council in March that was agreed before we knew we would have a January one I think that discussion will start already at the end of this in 10 days time from now as yet another part of this set of building blocks which I hope I've conveyed to you that we've done over the last two years it's been a slow difficult process getting political agreement across 17 or sometimes 27 sovereign countries rightly aware of their own sovereignty of their own democratic procedures that need to be respected reaching agreement on all these points step by step by step has however transformed our methods of macroeconomic governance in what is still the world's largest single market and where we've realised that our degree of interdependence whether we like it or not our degree of interdependence is such that we have no choice but to find common solutions to common problems thank you very much