 It's a great pleasure for me to be here in Ireland. And I think it's an interesting time for the euro by now. But it's like in medicine, if a doctor tells you that you are an interesting case, it's not a sign that your health is in very good shape. I think that's maybe the same thing with the euro. So it's interesting. But I think the situation is really, really difficult. And I think after the events of this weekend, it has become even more difficult. So I think the best is to give you a certain overview of how I see the situation right now. And like on cigarettes, I have to also to add a kind of warning sign this. So my position is not a typical German position. So don't take it as the German view on these topics. And I also want to say I'm a member of the German Council of Economic Experts. And it's important to know that this is an independent advisory party. It's not like the Council of Economic Advisers in the United States, which is a part of the administration. So we are nominated by the government, but we are completely independent in our reports and everything. So otherwise, I couldn't talk here as I do. But I think it's important to know, to understand how this council is working. OK, so what I want to do in these 20, 25 minutes is to discuss with you the main misperceptions or pitfalls in the management of the euro crisis. And I think it's obvious that something has gone wrong. Because now we are in the fourth year of the crisis. It started somewhere in 2010. And now we're in 2013. So we're entering the fourth year of the crisis. And I haven't seen it so far. I don't have the impression that things are really getting better. And so something must be wrong in this crisis. So if you are with a doctor and he's treating you for three years and your health is going worse and worse, you would also ask, is it really the best doctor? Maybe should I take another one? So what are the main misperceptions, pitfalls? I think one of the misperceptions of the last almost nine months was the worst is over. So after Draghi had announced he will do whatever it takes to save the euro, we have seen that the risk premium have come down, that the bond markets are stabilized. And many people thought now it's getting better. We see the light at the end of the tunnel. And so we can relax and things will really turn to the better. In my view, this was always a misperception because the situation in bond markets is certainly important for the euro area. But the problems are much more deep seated. And I think a way to describe it, this is kind of a vicious circle or vicious triangle of the euro area. We have three interrelated areas which are causing problems. I think it started with the banking crisis, especially in this country. And this banking crisis led to a crisis of public finances because the government was taking the responsibility for bank debt and the need to reduce deficits relatively short period of time, turn the whole thing also into a macroeconomic crisis. And these three dimensions of the crisis are intensifying each other mutually. If the economic situation gets worse, if the recession gets stronger, then of course the situation in the banks gets worse. If the situation of the public finances is deteriorating, then of course the situation of the banks get worse because they are holding all the government bonds. And if the macroeconomic crisis also has a negative impact on public finances. And so what Draghi did, in my view, did not very much to change this setup of the problem. So the stabilization of the bond markets was maybe a good thing a little bit for the banks. It helped a little bit the banks. For public finances, it had only very marginal effect for the new, if governments were issuing new debt, they got a little bit cheaper. But the overall problem was not really changed by this intervention of Draghi. And if you look at the three areas, macroeconomic crisis, public finances, banking crisis, what one could see even now before the situation of last weekend, this Cyprus crisis, is that the real economy was going to deteriorate in this year. So in all the major problem countries, with the exception of Ireland, the recession that started last year, it was clear it will continue this year. The unemployment which increased last year, it was also clear that it would also increase this year. So it was clear the macroeconomic crisis would not stop. The macroeconomic crisis would continue. The euro area itself was already in recession last year and it will remain in recession this year. So that was clear to me that this part, this is part of the overall crisis, that no improvement is inside. And as far as the crisis of public finances is concerned, was also clear that in spite of austerity policies, the debt to GDP ratios would increase. I have this data for 2012 and 2014 for almost all countries, it was clear the government debt will increase. So the crisis of public finance, there was no, it was clear that this crisis of public finances would not be ended. And the third dimension of the problem, the banking crisis, if you look at bank lending in the euro area countries, you could see that until now the stabilization of bond markets, the stabilization of the financial system in general did not have a real impact on bank lending. You can see that this kind of deleveraging continues that they have negative growth rates of bank lending in all the problem countries. So also on this account, the crisis of the banking system, no real improvement was inside. It's interesting to look at this data because they have the growth rates for bank lending, although in the boom years, if you look here in Ireland, you had growth rates of more than 20, almost 30%, here in Spain, 25%, Greece, all the more than 20. So in retrospect, it's just as an aside, it's interesting that the smart people of the ECB that nobody looked at these charts because these data were publicly available, and I think if you have a big institution like the ECB, there's so many smart researchers who write so many sophisticated research papers while not even one took the time to find, maybe something's wrong, yeah. That's all the retrospect is interesting to look at. Nobody realized it and it's also interesting that people who were the chief economist of the ECB in these years are now running around criticizing governments and many other people and not feeling responsible for not realizing what's happening there. So the first, I think the very dangerous misperception of the last few months was the burst is over because it has led to a kind of passive attitude of the governments, also Germany, there was no feeling that one has to use this time. Of course it was some kind of breathing space that was provided by Draghi's remarks or the situation markets has become more stable and that would have been a good chance somehow to improve the situation, to think about institutional changes and other things, but this time was not really used. It was just to say, well, it's now, it's rise over, there's not very much we have to do. So now I think that was kind of the crisis. In Cyprus was now the wake-up call, maybe also elections in Italy was the first wake-up call and now the crisis in Cyprus, the second wake-up call, the crisis is not over, not yet over, in the middle of the crisis. And we did not use the time that was provided the last nine months to do anything to improve it. Now the situation, really in the middle of this crisis and as I said, the real economy is in recession and it's a strong recession in many countries. Government debt will increase and bank situation of banks has also not been improved. So what went wrong? And this, in my view, these are these pitfalls. I think one of the main problems was that the fiscal consolidation was excessive in the Euro area and you can see it if you compare the Euro area with the United States and you can say the United States is a perfect monetary union. They've done all the structural reforms. It couldn't be better. But nevertheless, if you compare the Euro area and the United States, you can see that the US needed a very strong fiscal impact to keep their economy going, to get the unemployment down and that they really used this, the fiscal instrument to maintain the momentum of the economy. And I think that's completely different. If you look at the fiscal balance, a completely different approach in the US than the Euro area. They're very, very strong fiscal deficits. They maintained it for quite a long time and I think the outcome is quite surprising. That was quite obvious. No, it's not surprise, it's obvious. It's really obvious. So really, they both had almost 10% unemployment here in 2010 and now the US are below eight and the Euro area, it is approaching 12 and maybe we'll continue. Really think it's important to make this comparison because the US have everything that we are longing for in the Euro. They're really completely optimal currency area and all the structural form, everything flexible, wonderful, nevertheless, they needed a lot of fiscal stimulus to keep the economy going. I think it's really important to have that in mind. If it were the other way around, that the US would have been able with these Euro area deficits to keep their economy going at 2% growth, the blue bar was the Euro area deficit. Then we could say about that. Now you can see the effect of structural reforms and it's much better, but it's the other way around. So even the US needed so much fiscal stimulus and I think it was the right strategy because they had the same crisis more or less in the Euro area that a real estate crisis had a financial crisis of the financial system. And I think their approach was that to give the private sector time to recover, to reduce their debt, to repair their balances, giving time to the real estate market to stabilize. I think that was a much more sensible approach. And the question is that if I say that in Germany, people are of course shocked and say, how can you say we need more debt to solve the problems of debt? This is completely wrong and how can you do that? It's really dangerous to make such statements in Germany. But the answer is, it's not that we are trying to therapy debt with debt, what most people said, but we are trying to therapy excessive savings with excessive debt because in the global economy the last few years if you have excessive public debt or very high public sector deficits, of course it's logical that on the other side there must be excessive private saving. That's pure bookkeeping logic. If public deficits are extremely high, then the private sector financial balances must also extremely high. That's what you can see here in the global economy, these are the financial savings, financial balances of the private sector in the last 15 years. And you could see, well, there was a period until 2007 where there were some countries having high financial private financial savings, there were countries with some financial deficits, but it has turned around and the whole global economy is now characterized by huge private financial savings. And so what we are doing with the deficits is a therapy to excessive private financial savings. That's a quite different story. So we are not curing debt with debt, but we are curing excessive savings with high public deficits. I think that's really something important to have in mind because most people overlook that, look this, but it's of course only the other side of the same metal. So it's the same thing. And so in my view, the US approach was much, much better approach. Of course, in the Euro area, we did not have this alternative because each country had to try to fight on its own and all the countries came under a strong pressure of financial, the problem countries came under a strong pressure of financial markets. So they did not have the comfortable position of the United States, okay, we just keep our deficits high and if necessary, we finance it with our central bank. And so we don't have to care about financial markets. So that's of course, as each country in the Euro area had to fight on its own, this option was simply not available. And so of course, what was adopted was severe, so-called problem countries were severe austerity policies and these austerity policies were lead us to a third misperception or pitfall is that the fiscal policy multipliers were very much underestimated. I think it's interesting to see that here for Greece, maybe I have to explain a little bit the chart. In 2010, these are the forecasts of the EU Commission for Greece. In 2010, they thought in 2011, the GDP increase would decline by half a percent. Then they made the next forecast in 2010, 2011, and then they said, well, it could be three point something. Then in 2012, they made the forecast for 2011, then they realized what it really was. In 2011, it was minus seven, yeah? And well, the European Commission is in charge with the Troika, with all this program and it shows, and more or less, they did increase what they were told, especially in the first years. And so obviously, the multipliers were very grossly underestimated. It's funny that the ECBs now and also our German Finance Ministry say it's wrong. The multipliers were not underestimated, but if I look at the situation of Italy or Spain, which are all in a strong recession, it's difficult for me to see why, so obviously the multipliers are much stronger than people expected, and you can obviously do the same exercise for other countries. The Commission very much overestimated growth rates, which meets the underestimated multipliers. I think Greece is really a shocking example, if you see how much, how wrong these forecasts were. Okay, so that's the third misperception and it's a little bit related to the fourth misperception. That is that if you consolidate, you mainly do it via expenditure cuts and not via increased revenues. This is from the OECD and it shows expenditure plans for 2013 and 14. It's from the OECD Economic Outlook. The red means spending cuts and the blue is increases in revenues. You can see it's very much biased towards expenditure cuts. And I think that also explains the high multipliers because expenditure cuts have a higher multiplier than increases in revenues. And it also, of course, explains that the political resistance is growing because expenditure cuts, of course, are more hitting the poorer people than increases in revenues. But that's mainly the, I think you can also have the charts later on if you want, probably not everybody can see them very clearly. But that explains also very much the resistance of many citizens. And if you really see the crisis as a crisis that was caused by financial markets, it's also not clear why the mistakes by the financial markets have to be financed by average people, by people with low incomes, why they should be responsible for what went wrong in financial markets. They were not very much profiting from the boom and now they have to pay the bill. I think that's also, I think the public resistance and the protests are also really warranted. So the next, another misperception is who has to adjust? And we have, as an additional problem, we have the problem of competitiveness in several countries. And these competitiveness problems have also to do something with Germany because also we were one of the strongest economies of the euro area we were pursuing in the first half of the last decade, a very restrictive wage policy, wage moderation, as we called it, was kind of a mercantilist approach, saying we want to become more competitive and we want to boost our exports at any price, which means that for a long period of time our unit labor costs in Germany were almost stagnant. And of course that created problems for the other. It had a negative impact on domestic demand in Germany. So the economic growth in Germany was relatively low, which of course dampened the overall developments in the euro area. At the same time in other countries, especially also in Ireland, unit labor costs were increasing much more than warranted by productivity growth. So you've got this gap. Somehow the gap has closed, but not totally, not still some difference, especially compared to Italy and Spain. And the question is, who has to adjust? I think in your country, a lot of adjustment has taken place. It's something one can see. I think Ireland is one of the countries where the wage adjustment has been very pronounced and strong. I think that also explains why you are doing quite well in terms of exports. I think that's something specific to Ireland. And of course you're also profiting from the fact that you are very open economy. So that's the same strategy. It's much more difficult to pursue for Greece or Spain, which are relatively close economies traditionally, which have not a very large share of exports. So of course you are in a kind of quite positive situation that if you reduce wages, the negative impact on domestic demand is more than compensated or largely compensated by stronger export growth. So that's a situation which other countries don't have. But the interesting question is, what can Germany do for many years? Our wages have not been growing sufficiently, they're doing a little bit more. And I have made the proposal in Germany say, well, why not have an additional wage increase this year by two percentage points? It's a kind of positive contribution and as a kind of adjustment of the surplus countries. And that's, you know, it's an old discussion among economists. I think John Maynard Keynes was very much focusing on this topic, who has to adjust the surplus country or the deficit country? And the German approach is, of course, the deficit countries have to adjust. They have made all the mistakes. Why should we adjust? It's really, and I've just made this proposal to stimulate a little bit discussion. Let's have a one-time additional wage increase of two percentage points, which is not huge. But even the German trade unions did not want it. So I was really, that's true. The head of the metal workers union, which is the strongest, he was really criticizing me. So he said, why should we support with our wage policies Chinese companies? And so the perception that we are sitting in the same boat and that there's a need to adjust and that both sides, the surplus and deficit side, need to adjust, that's not a perception that is very strong in Germany. As I said, no, why should we get to become less competitive? And I said, well, if we are not contributing with the adjustment and if we want all the adjustment to be done in countries like France or Spain or Ireland, the deflation of tendencies in these countries will increase. And you get the problem if private sector debt is high, you get a problem that Irving Fischer was called debt deflation. And I think that's very easy. Irving Fischer said, deflation is not such a bad thing. But if deflation comes after debt has increased heavily, then deflation is a disaster. That's why he calls it debt deflation. Of course, if you have high debt and then your wage goes down by 10 or 20%, then you really are in trouble. But the perception that something has to be done in Germany, that maybe the wage increase are a little bit higher this year. But the idea that we have a responsibility for the whole union, for the whole euro area is not very strong. I think the only thing we do is if it's really burning, if there's an emergency, then we are coming. But the idea is there's not an idea that we need to act on a preventive base, doing something to stabilize the system before it's burning up, before the disaster is there. So we are really waiting until the disaster. Then, of course, there's a kind of emergency care. We are coming, but that's I think not a good solution either for the deficit countries, not for Germany. OK, then we come to another misperception, is that's the role of structural reforms. And so if you ask the typical Troika economists, what about growth in your austerity scenarios, they say, well, growth will come from structural reforms. So that's what really helps, a kind of magic potion that is really helpful. And what I find interesting is to make this chart, I compare the UK and France. And we all know that the UK has done all structural reforms. It's really all OECD indices for everything there, really leading in terms of structural reforms. And France is awful, the government and they have these high government expenditures. 56% of GDP is almost a socialist country, it's terrible. And the interesting thing is, if you look at GDP growth rates, France and UK, the last nine years, they're almost the same. And you could also do the same exercise with export growth and kind of from trade competitiveness, you wouldn't see a major difference. The only difference is that, just like US, that the fiscal deficit of the UK is much higher than France. Almost twice this year, it's almost twice than the deficit in France. And so, even if a ferry could change the structures of France into the UK structures overnight, it's not a guarantee that we really see much more growth. And so I think these structural reforms, I wouldn't deny the usefulness of structural reforms, but I think they're really overestimated. If you look at some of the structural reforms, I'm not sure whether they're really contributing very much to the growth of the economy. Whether the opening time of pharmacies is longer, whether the fees of notaries is reduced, if there's more competition between lawyers, I think that's all things. We could say, well, yes, it might be useful. But it's maybe like if somebody has a very strong heart attack, you tell him he should brush his teeth more carefully and take more time, which would say, it's good, yes. Yes, it's helpful, but for the heart attack, maybe it's not really the best thing to anyhow. So I will have some more when I come to the end relatively soon. Another misperception is that in order to stabilize the situation on financial markets, there was no willingness, especially in Germany, to discuss any forms of joining several liabilities. Our council has made the proposal of a debt redemption fund. The idea is that countries should be allowed to transfer the public debt that exceeds a 60% debt threshold into joint Euro bonds with the joint and several liability. And the idea is that that would lead to a fund of about 2.6 billion trillion euros. Ireland is not even look for Ireland here. When we developed this, we said it's only for countries which are not yet programmed countries, but that's something one can think of. But the idea was we have a common fund. And these bonds that are held in joint and several liability, they have to be repaid in 20 or 25 years so that after 20 or 25 years, each country has only then its national debt, debt for which it is liable by itself, and which conforms to 60% criterion of the Maastricht Treaty. That was a little bit the idea. So it is a kind of Euro bond scheme, but we don't call it Euro bond because Euro bond is a terrible word which we should definitely not mention. But it is joining several liability. It's limited in size. Government debt exceeding 60%. And it's also limited in duration. It has to be repaid after 20, 25% years. And this proposal has received a lot of attention outside Germany, but in the German public Germany, the Greens and the SPD have shown a lot of sympathy for that proposal. But Ms. Merkel, she said that Euro bonds, she would not agree in her lifetime. So that's where we are. But the problem is not having such a mechanism was led to a situation where this joining several liability had to be provided by the ECB. So it's a kind of, yeah, I don't know. So it's not, by not discussing this, the whole responsibility is with the ECB. So far it worked, it has worked. This drug is announcement, but the question is what will happen if this period of tranquility will be over, if people will realize it's difficult to form a new government in Italy. And if the new government in Italy is not doing exactly what the ECB expects. Because the ECB say, OK, we will only support a country if it applies for a program. And of course, it has to do what the program envisages. But what happens if an Italian parliament is not agreeing to some, I don't know, reform of labor law? So then the ECB say, I stop my support. And then risk is then being confronted with the risk that Italian bonds will collapse or what will be happening. And so I think the announcement was helpful. But making it contingent on programs makes it also difficult. So I had more sympathy with the approach of Mr. Trichet, who said simply bought the government bonds. He said, OK, we have instability. We have disorderly markets. And as a central bank, we have to intervene if markets are not functioning orderly. Full stop. That's enough. But if you say we do it only after a program has been adopted, you somehow agree, you somehow say, well, the markets are functioning well. Because a program is needed. And I think that's very flawed. And so I think we could also see a problem. OK, the last one is now what we have seen right now, last weekend, the bail-in of private depositors and bail-in in general. In principle, one can say, yes, bail-in is a good thing. It's the principle of a market economy. If you invest your money, if you give your money to a bank or to somebody else, you have to ask yourself, is it really a solid institution? That's OK. But in the current situation, I think bail-ins are very, very dangerous. Because if you are living in Spain, for instance, you don't have to be a depositor with a Spanish bank. So it has no need for you to keep your money with a Spanish bank. And if now the rules of the game will be changed, that bail-ins will be a part of the normal life for bank depositors. Then, of course, the behavior of depositors will change. And as somebody living in Spain, then I will transfer my money to Germany or to Switzerland or will exchange into cash. And so bail-ins, in principle, of course, from the logic of market economy, it's OK. It's sensible. Yes, there should be some responsibility. But in the current situation, bail-ins is really playing with the fire. Because if living in Spain, one asks, well, let's get the money to Germany. That's a good thing with the monetary union. It's completely free to transfer your money from one country of the monetary union to another. And if they do that, the Spanish banks who have already lots of problems will get even more problems. And it's a really destabilizing element. And so I think it's extremely dangerous. The question then, of course, remains, but who then will be held responsible for the losses of the banks? And if the losses of banks go beyond the capacity of the government, what can you do? In my view, one solution would be to have the one-time wealth taxes. So we had that in Germany after the Second World War. It was called Lasten Ausgleich, equalization of burdens. And after the Second World War, there were some people in Germany who were happy enough to still have high financial wealth. And they had to give up 50% of this wealth in a kind of wealth tax over 30 years. So the inflation helped to reduce it somehow. But I think at one time, if it's really necessary, then I say, OK, the euro area cannot, the taxpayers of the euro area cannot be held responsible for the losses in special countries, then I think a one-time wealth tax is definitely a better solution than these bail ins. But if bail ins become the rule, I think the life in the euro will become even more interesting than it already is. And of course, the worst thing is the bail in of small depositors, which one can really, it's really difficult to understand how these finance ministers could come up with such a solution. That's really, it can only be explained by the fact that they decided in 3 o'clock in the morning also. But even then one can ask, why do they take their decisions at 3 o'clock in the morning? The nice driver who brought me from the airport to this location said, if you have people, pilots in planes, you do not want to have a pilot who has to not have enough sleep. And why do we have decision makers in fiscal policies? Why do we expect that decision makers, politicians, will find the right decisions if they don't have enough sleep? Yes, that was a good point from him. He had very good points. I said, he can give the talk if he was. Because he was really saying, if you want, you can do it. And he told me I could use it free of charge. So that's what I did now. OK, but that thing, that's also it. So ending with this whole list of misperceptions, I think if you want the euro to survive, we really need a U-turn. We need a paradigm change. Continuing like this will lead to disaster. That's my very strong conviction. If we just continue with austerity policies and now some more bail-ins and no measures which support growth, only hoping the structural reforms will do it. If we have no kind of joint and civil liability, just hoping that the ECB somehow will do it, I think that will not lead to a happy end of the story. And so we really need this kind of paradigm change. And I think the most important element of the paradigm change is that politicians in Europe will have to wake up and realize we are all sitting in one boat. It's not that we are sitting in 17 boats. I think that's the German perception. We have the German boat. And if the boat from Cyprus is sinking, maybe it's too bad for them, but it does not affect us. And I think we only want to overcome the crisis if we realize it's one boat. And we need joint efforts. Everybody has to contribute to rescuing, bringing the boat through the storm. And if this perception is not there, it will be very, very difficult time. Thank you very much for your attention.