 But does anyone here recognize the name Yogi Barra? You do, you do. Well, he at one level was a great American baseball player, but another level for my favorite team, the New York Yankees. But at another level, he was a great American philosopher. Whole books have been published about his aphorisms. And one of his sayings that I am afraid applies to Europe today is, if you come to a fork in the road, take it. This, I'm afraid, describes in some respects the European strategy for managing the economic and sovereign debt crisis of the last two years. By that, I mean that I think that there has been progress. Meaningful steps have been taken, but a decisive effort to get ahead of the sovereign debt problem and overcome the strains that continue to surround the Eurozone has not been taken. I think that Europe is facing a crossroads where they will no longer be able to follow the Yogi Barra strategy. And I am particularly privileged to be here at Ireland's premier forum for debate of international issues today to share some of my thoughts about Greece and more broadly the Eurozone. You, of course, have lived through your own extraordinarily stressful and challenging period of economic boom and in economic bust. And I shall not presume to understand 10% of what you do about the Irish experience. But I do have perhaps some useful overall perspectives that I'd be delighted to share. And then I'm happy to engage in an author record Q&A following this. Let me start with Greece because it is back in the news today for reasons that should neither disturb nor shock us. I am a bit surprised, in fact, by the way in which markets have become so rattled by the difficulties that we are seeing in the Greek election process. We should understand, in my view, having spent a lot of time over the last nine months in Greece, that what we're seeing there is not just an expression of frustration by the Greek people about, quote, austerity, end quote, but an expression of frustrations at what they consider to be three to four decades, a really inadequate political leadership that has led them into this position. My sense, and I certainly don't presume to speak for the Greek people, but I've talked with a lot and not just the political leaders, but a lot of people I had the privilege to live in Athens, actually, for two years as a young naval officer many years ago. And so perhaps I think I have my own touch of Greek roots. And my sense is that there is a profound sense of disappointment at where their political leadership from both of the dominant parties that have guided them over the bulk of these last decades has left them. And a determination to seek new directions, either by new parties, new leaders, or through the efforts of leaders from the old traditional parties trying to convince the Greek people that they see a new way forward. And I think it's going to take some time for this to shake out. And I think we have to be a little patient to allow the Greek democratic process to run its course. And I think it's incumbent upon the rest of us. And I would suggest that that includes other European leaders to pause in what has been a very popular game of telling the Greeks how to run their lives. In my view, there's been much too much of this. We all, of course, are entitled to our opinions. And I think we all have perspectives. But I am somewhat troubled by the frequency with which policy makers around Europe seem inclined to opine on Greece's economic policies and its future. Of course, Greece's future is pivotal to the rest of Europe. And I don't deny this. But we need to allow a little time for the Greek people to find their way forward into new political leadership while respecting the fact that the current government in Greece has in some respects done a remarkable job of steering Greece through a tremendously difficult period. This technocratic government has only been in office now for some six months, I think. And they've achieved a lot. It was my privilege, my responsibility, occasionally, my albatross to work with the Greek government and many private creditors to negotiate the largest voluntary restructuring of sovereign debt in history. I continue to believe that that restructuring can provide, and probably will provide, a foundation at least one of the important building blocks for a restoration of the Greek economy. Today, I know that seems to be a long pipe dream, but what we accomplished in that restructuring of Greek debt was the elimination of over 100 billion euro of claims. Just like that on the day, I think, of March 9 after many months of difficult negotiations, a recognition by Greece's private creditors that it was no longer feasible for Greece, no longer desirable for Greece to try to repay its debts to the private sector on the original terms. A willingness on the part of private creditors, quite remarkable willingness to forego 70% of the value. It was only 53.5% of the nominal claims, but if you use valuation techniques, net present valuation techniques, the private creditors gave up over 70% of the value of their claims. Of course, they have some potential upsides in the future of the Greek economy, and they have some future claims which have been stretched out in very generous terms. We forgave over half of the nominal debt and accepted in return for the remaining portion of the debt, 15 cents on a dollar in cash, and the remainder has been structured into new claims with a 10-year grace period for any principal repayments and a 30-year overall period for the new claims. This, in my view, is a remarkable accord because it was the first sovereign debt restructuring in the capital markets era, that is the last 20 years during which capital markets have been funding sovereigns rather than through loans, that a deal has been negotiated voluntarily. And I think it's a tribute to the Greek leadership, to European leadership, and perhaps even to the long view of private creditors that this accord was reached. Of course, it will only pay dividends if Greece sustains its economic reform program. And that's where I think the debate today about austerity and growth is missing a little bit, the reality. I'm reminded of a personal experience I had when in the early years of my 30s I was asked by one of my colleagues at the U.S. Treasury Department, why would you possibly go through the last difficult phase of finishing your dissertation to earn your doctorate degree? And my answer was pretty simple because I was working full-time, actually had two jobs at the time. My answer was pretty simple. I've already undergone almost all the pain. Maybe I should at least sustain my effort enough to get some of the gain because I had gone through all the coursework, all the research and two-thirds of the drafting of the dissertation, but it had settled the shelf for a couple of years while I was working and I had to take my vacation time to finish it. Greece has undergone already a lot of the pain of its economic adjustment. It has contracted, it has experienced a contracted economy more than twice of the contraction of the Irish economy, almost 20 percent cumulative by some time this year. It has experienced massive levels of unemployment, dislocation of workers, severe budget cuts, and really a banking sector which has been rendered dysfunctional. If Greece sustains its reform program, a program that I hope will be adjusted and adapted to new realities and I'll come to that in a moment. It's likely that the dividends of their efforts will begin to emerge during the course of the remainder of this year and even next year. You're going to see a few sprouts of hope and confidence and investment. 30 to 35 billion euro injected into the banks alone, which is poised, poised to move. We'll do wonders to start credit beginning to flow again and to keep deposits in Greece. The program which has been negotiated by Greece with its official creditors does contain some very difficult elements, but it also contains another 100 billion euro of funding support for Greece's budget over the next few years. And probably more importantly, the reforms of a structural nature which are embedded in the Greek program and I think you can associate yourself here in Ireland with some of those reforms are essential reforms for improving the competitiveness and the efficiency of the Greek economy, regardless of whether or not Europe and the IMF supported. These reforms are unavoidable. They are inevitable. Greece's departure from the euro is far from inevitable in my view, although I know that many pundits and many critics and many analysts would disagree with that statement. I've been a bit surprised by how many have commented on Greece's likely exit from the euro of the last couple of weeks using the term inevitable. I don't agree at all. I think that it's possible, but I wouldn't call it inevitable and I wouldn't even call it likely because the costs of Greece's departure from the euro for Greece, for Europe and for the global economy are likely each in their own way to be immense. For Greece, it would mean most likely a period of hyperinflation, a further collapse in the economy. Remember Greece is running a current account deficit that last year was still close to 10 percent. That would need to be contracted to virtually zero and the only way to do that in the short run would be to undergo a further severe contraction in economic activity. The recapitalization of the banks which is now poised would not happen and in fact you would have a collapse of Greece's banking system even more than you have today. The strains in the Greek economy and in the Greek social and political system would be such that as a member of the European Union, forget for a moment the euro zone, as a member of the European Union I don't think that other European leaders would have much choice but to try to find some way to continue to support Greece. The contagion effects on the rest of Europe could be immense or Greece to leave the euro in a disorderly fashion and right now there is no game plan for an orderly departure, I can assure you of that. Greece's obligations to the ECB, the European Central Bank, the cumulative obligations of the government, the banks and businesses, more than double the capital of the ECB. I've read that Europe is prepared for a Greek exit, that the markets have priced this in. Far from it, who in Berlin, who in Frankfurt, who in London has priced in a wiping out of the capital of the ECB? Europe would need to deal with the fact that a default of its own loans to Greece would be highly likely. Those loans already equal along with IMF lending, something close to 100 billion euro. The contagion effects of a Greek exit are also in my view likely to be severe. The pressures on Spain, Portugal, even Italy and conceivably Ireland could be immense and the need for Europe to step up with much greater support for the banking systems and the economies of these countries would be substantial. I don't want to even calculate the total cost to Europe of trying to stabilize the eurozone in the event of a Greek exit, but I can tell you it would be huge. From a global economic perspective, we should have learned over the last decades that we are in an increasingly interdependent global financial system where shocks in any economy, large or small, can reverberate quickly around the world. Lehmann was a painful, painful event, the combination of a lot of mistakes leading up to the collapse of Lehmann compounded by what I consider to have been one of the most egregious policy mistakes in modern financial history and that was the decision by the US government and the Federal Reserve to allow Lehmann to go under. The price was a global recession and we are still trying to recover from it. We don't need another global recession that could well be as severe if not more severe than we experienced in Lehmann Brothers. Let me talk a little bit about the broader strains facing Europe today and then I'll be glad to come back to the Greek situation if you wish. One final point I would share about Greece and again I think you and Arlet would understand this better than most, there has already been a serious I would even say severe budgetary correction in Greece and this is simply not widely known or appreciated. In fact, I worked on sovereign debt restructurings in Latin America and Asia for the better part of my career and I don't think I ever recall one where the underlying fiscal position of the debtor country was adjusted on the order of 11 percent in the first two years of the program and that's what happened in the case of Greece. It wasn't fully evident in part because of the collapse of the economy around this fiscal adjustment but the measures were taken not always fully implemented in part because of a remarkably weak revenue system and in part because of a remarkably weak economy but I think we should bear in mind how much Greece has already undergone in terms of adjustment. On the broader European landscape, I think it's important to note that important steps have been taken over the last two years to underpin the Euro and I will just mention a few of those very very briefly. First of all, the adjustment efforts of these individual countries themselves have gone some meaningful distance to underpinning the credibility of the Euro, the adjustment, the bolt I would say adjustment efforts in your own country along with those in Greece, Spain, Italy and Portugal have demonstrated that by and large governments are prepared to stare down the reality of their own mistakes and to try to rebalance their fiscal and economic positions over time. Secondly, the Eurozone authorities have mobilized substantial funds first bilaterally and now multilaterally through the ESFS and soon to be the ESM in order to support these adjustment efforts. Thirdly, and I think this is quite critical, countries have embarked not only on past the fiscal adjustment but paths of structural reform. I'll come back to this because it's not at all clear to me that those efforts are sufficiently robust or are sufficiently being supported by the Eurozone. But labor and product market reforms and fundamental structures of government spending are clearly in need of reform in many countries in the Eurozone and that process has begun as you well know here in Ireland. The crucial role of the ECB should not be underestimated in supporting the efforts of Eurozone authorities over the last two years of this sovereign debt crisis to come to grips with the challenges surrounding the Eurozone and I particularly commend the measures over the last six to nine months which have involved the liquidity support programs of the ECB and easing in the basic stance of monetary policy and where needed direct purchases of sovereign paper through the stabilization programs of the ECB. These measures by Eurozone national governments and by Eurozone institutions have made some progress I think forward some meaningful path forward but I think it would be naive of any of us to believe that Europe has done enough to overcome the doubts and the difficulties which now surround the Eurozone. My thoughts therefore focus on what I think are seven additional steps where the current strategy needs to be adapted, strengthened or substantially reinforced. I don't think as a former naval navigator I don't think that we're talking about 180 degree course change here but we aren't talking about a significant course change perhaps 45 60 degrees and it's one that has to be accompanied by short term measures and a fundamental reaffirmation of Europe's commitment to economic financial and most likely eventually political integration. It's been 61 years I think, 1951 when I think six states joined to begin. Dotti will correct me if my dad is wrong. Six states began what was a call the the coal and steel union and huge progress has been made since that time and this progress hasn't been always steady or pretty or without serious bumps in the road you can easily all recall that the efforts to build toward a common currency with the currency arrangements which were built and then pulled apart and then rebuilt back in the decades of the last few years. I recall as a young Treasury officer watching European leaders convinced that if left to the vagaries of a week dollar and their own national currencies that that life in Europe would be difficult who came together in the late 70s and early 80s and began to build on this initial vision to forge a vision of a common currency and I continue to believe that vision has validity but I think we have to recognize that that vision began to go off track when European leaders in my view failed to grab the opportunity that had been presented by many including former Chancellor Cole who argued that a common currency should have a common fiscal framework as well for a variety of reasons which we need not go into today that did not happen and I think that that structural flaw at the heart of the Eurozone weighs heavily on current efforts so my thinking is that a combination of short-term measures and a fundamental reaffirmation with a clear game plan including a timetable moving toward fiscal convergence and fiscal union is probably the best and maybe the only way that European leaders can regain control of what remains an unstable set of circumstances surrounding the Eurozone. My first suggestion would be to adjust for most countries undergoing economic or foreign programs whether under IMF and Troika auspices or not to adjust the pace of short-term fiscal consolidation. Ireland has found something that in my view is close to an appropriate pace of fiscal consolidation although many would argue that even that pace is a bit too rigorous but certainly the pace of fiscal consolidation that has been injected into the programs of Greece and I would say as well Portugal and Spain have not been productive. Each round of budget cuts has contributed to another round of economic weakness which has deepened the fiscal hole in the short run which has forced yet another round of budget cuts. Instead of building fiscal credibility this has actually led to undermining fiscal credibility and I think that if current fiscal targets over the next 12, 24, 36 months in many of these countries were stretched out by another 12 to 24 to 30 months that you would find that these adjustment programs are on much more manageable paths and paths that are much more compatible with the notions of renewing and reviving growth. Of course it's important to stress that there are no easy solutions here and if countries are to ease their short-term budget adjustment paths it's essential that this be accompanied by convincing plans for medium-term fiscal consolidation and this is where I think the focus needs to go and this in my view is what has been lacking there has been so much focus one might even say obsession on short-term budget cutting in many of the economies of Europe that the focus has not been adequately brought to bear on the need for credible medium-term fiscal consolidation plans that's where I think ultimately market confidence has to be one and that's where my own country is sorely lacking today and many of the European economies are sorely lacking in my view in order to place economies on a credible path toward medium-term fiscal consolidation you need to go well beyond short-term budget cuts you need fundamental reforms in the structure of government spending you need fundamental reforms in entitlement areas as we call it such as health care you need fundamental reforms in the way in which labor markets and product markets operate these reforms are in my view inevitable they are not necessarily what the IMF and the European Commission and the ECB are good at we're all to a certain degree captive of the institutional strengths and weaknesses of the institutions within which we operate I serve for five and a half years on the board of the IMF I've worked with it throughout my career it's a very strong incredible organization in many ways but it's forte is short-term budget cutting not medium-term structural reform and what Europe needs today in my view is less of the former and much more of the latter and this includes pushing through the difficult and challenging and difficult labor market reforms which you and Arlen know are so essential to create flexibility in the factors of production so that capital labor can go where it wants to go without the undue burden of the government restraining it and weighing on it now if that is to happen in an environment where unemployment is already at remarkably a lot high levels and if we are to downsize government sectors which is part and parcel of what needs to be done in my view then it's important that in my view the eurozone harness its collective strength mobilize a worker solidarity fund probably needs to be on the order of 50 billion euro at least maybe a bit more that can be used to support worker dislocation and training this is a challenge you face here in Ireland but is faced in spades throughout the adjusting countries are the workers who have been displaced able to regain employment opportunities it should not be in my view just a burden on the back of the Irish or Greek or Portuguese or Italian or Spanish taxpayer but something that should be a collective responsibility if the eurozone leaders are serious yesterday I read that Chancellor Merkel said and I only read this in the paper so I'm passing it along second hand but I can imagine it's an accurate quote that the eurozone the euro is not just a monetary project it's a political project well I would welcome seeing follow-through translating that broad idealistic comment into meaningful political commitments of solidarity and I think one area that is sorely needed is in this area of support for worker adjustment in retraining another element of the adjustment that needs to be made if the eurozone is not just to survive but to thrive is the creation of a larger and more flexible use of funds in the ESFS and the ESM and here I congratulate the authorities of the eurozone for working as hard as they have to build a credible fund but it is not in my view sufficiently large nor sufficiently flexible it would be welcome in my view if this fund could directly invest in weak financial institutions across the eurozone landscape with either equity or debt and avoid having to channel these funds through government budgets which only distort and bloat already burden government budgetary positions this may well be needed in the case of Spain the Spanish government is making an heroic effort in my view to cope with its banking sector strains and it may well be that Spain will be able to deal with the strains in this banking sector with its own resources but Spain's fiscal position is not that strong and they're trying to go through their own very difficult and challenging fiscal budget reduction exercise so I would suggest that again the eurozone harnesses its collective powers it has been said so many times that if you view the eurozone economies in their collective perspective that this is a rather strong bold and important economic zone and that's true but if eurozone leaders are not prepared to back up their statements about political project with meaningful commitment of collective funds to important dimensions of solving the current problems then we may be in for a continued difficult road ahead if such efforts are made with direct utilization and if the authority is created for direct utilization of collective funds through the ESFS and through the ESM to support the banking system at Spain this provides some fertile ground for your authorities to explore options for realigning the way in which your banking sector has been stabilized decisions were made and I think it's easy for us to apply 2020 hindsight in debate whether those decisions about how the banking sector strains in Ireland went out with I'm not going to get into that debate but I would say that going forward the capacity of the ESFS or the ESM to inject direct funds into banks if it applies to the case of Spain and perhaps other eurozone members provides an opportunity for your government to explore with eurozone authorities different ways to deal with some of the strains that remain in the Irish banking sector the pace of regulatory reform and deleveraging also needs reflection and review if Europe is to recover and to see some signs of growth this debate about growth and austerity has to be taken down to the nitty gritty of what will produce growth what it will incentivate renewed investment growth will not come just from government spending it will come from renewed flows of credit and renewed flows of investment capital we know that's where in growth come from and from the flexibility to move labor or capital and credit wants labor to go if this is to happen we must work our way through and probably pull back from this current phase of massive deleveraging which is taking place throughout eurozone banks some of this was necessary Irish banks were not alone in being over leveraged although the Irish banks stood out in this respect but other banks throughout Europe and in the United States were over leveraged but you know you can swing the pendulum too far in this world and I think that's what we've seen the appetite not just for regulatory reform which will probably regain momentum now in light of recent developments has swung the pendulum of capital and liquidity reform in my view a bit too far too fast measures like additional capital surcharges which are being applied for so-called globally significant financial institutions or systemically important financial institutions probably could be delayed by a few years without any loss of stability perhaps allowing a little more breathing space for banks on the continent and perhaps here in Ireland to renew credit flows if you look at the numbers over the last two months of last year in the first three months of this year on credit flows within Europe they are dire dire numbers and some of this was reinforced by what I thought was well intended but particularly ill-time decision of the European Banking Authority in October to require banks to meet new capital requirements of some nine percent of Core Tier 1 capital by June 30th of this year a move which forced further deleveraging and actually forced banks to unload some of the holdings of sovereign debt which governments were on the other hand trying to stabilize I think we need to review the pace not the overall direction and overall end goal of regulatory reform but the pace at which it is being pursued another element that I would suggest should come on to the agenda in Europe today and it is to a certain extent in Greece and Portugal but probably insufficiently on the agenda is privatization Portugal has made an important start in this direction but I would encourage your zone leaders to take another hard look at what scope there is and what need there is for unloading a variety of government owned or government managed entities which probably are no longer in need of government ownership and probably benefit little from the inefficiencies which often come sadly in almost any country anywhere anytime from government ownership I'm a bit surprised that privatization hasn't come to the fore in the debate about renewing the eurozone's competitiveness but competitiveness can come from competitiveness gains can come from a lot of different directions and certainly I've seen over the years many impressive efficiency and competitiveness gains for economies through privatization programs the two final suggestions I would make is part of a renewed revitalized approach toward the eurozone problems are a continued active role for the ECB goes without saying that without an active strong European central bank that you're going to have severe difficulties continued liquidity support continued selective participation in their stabilization programs and a willingness when called upon to further ease the overall stance of monetary policy in my view will need to be an essential ingredient of Europe working this way through the current strains finally all of this implies doesn't it a willingness on the part of eurozone leaders to mutualize the fiscal strengths and weaknesses of individual economies and move seriously toward fiscal union and eventual political union I don't think the yogi bear away works anymore I don't think being half pregnant works anymore I think this is what we're hearing from the people in Europe and this is what we're hearing from the markets for once the voice seems to be converging if you're serious about European economic financial and eventually political integration then you'd better get on with it and in my view the best way to demonstrate that commitment would be to agree to issue common debt in selected circumstances some version of Euro bonds and set out a timetable for fiscal mutualization and fiscal union this would be a bold measure some would say is politically undoable and we can think of some countries where this might be the case but in the absence of that combining a short-term set of measures with a reaffirmation of what this whole project is supposed to be about in my view is a way to resurrect the confidence capacity and competitiveness that I am sure is still inherently embedded in the European economy thank you very much for