 In the first session this morning, the presentations by Michael and Alan described the new EU governance system, mainly in institutional, administrative and political terms. I want to look at some of the economic implications of the new system, but in the knowledge that it's still a work in progress, it's a waypoint on the road to a deeper or more complete economic and monetary union. From an economic perspective, which is much narrower than perspective we adopted this morning, I see three important aspects that need to be considered. From an internal or domestic perspective we need to understand how the new system is likely to affect the development of the economy in an era when some crucial aspects of our hitherto national policymaking come to resemble regional policymaking within a federal system. Secondly, from an external perspective we need to explore how these new rules may play out in the larger EU member states and how top-down fiscal and macroeconomic policy is likely to evolve for the EU as a whole. And finally, we need to explore implications of the new economic environment for the effectiveness of future Irish development policy. Now taking the internal perspective, we need to distinguish two separate but interrelated elements of the new system. First, there's the issue of what must be done to meet any mandatory EU obligations in terms of maintaining sound domestic public finances. Such obligations expressed as quantitative targets for government borrowing and for the level of government debt tended to be treated previously as stern guidelines but will now be mandatory. And second, there are the broader economic development exhortations and goals set out in the new procedures, many of which are only partially or indirectly under government control. Examples of policy goals contained, for example, in Europe, the Europe 2020 strategy include creating more employment, increasing investment in R&D, sustainable energy, addressing poverty and social exclusion, fostering competitiveness. There's a tendency to bundle these two components together. For example, in the most recent EC policy guidelines, there's an injunction to pursue what they call differentiated growth-friendly fiscal consolidation. In other words, governments need to obey the new fiscal rules, but to do so in a way that impinges least on wider economic growth. Here the term wider economic growth refers to the international spillovers of fiscal adjustments made in one state for the economies of other states. In the case of Ireland, spillover consequences for the rest of the EU are fairly negligible, but the same cannot be said for adjustments made in larger states like Germany and France, the matter to which I'll return. The onerous terms of the recent crisis-driven process of restoring fiscal stability in Ireland were dictated by European institutions and the IMF as a qualifying condition for access to a financial aid package. Upsent the European institutions and the likely alternative would have been a process dictated by markets with minimal IMF-type transitional financial assistance and with even more draconian actions required by domestic policymakers. However, it may be useful to step back from the recent crisis and to consider some local historical background to the new system. Also, we need to distinguish between periods of fiscal crisis and instability on the one hand and periods of fiscal normality imbalance on the other. When it comes to creating and then dealing with serious fiscal crisis, Ireland has previous form. Policymaking during the years from 1982 to 89 was dominated by a long-drawn-out adjustment process needed to address the destabilizing consequences of the large fiscal simulations of 7781. Unfortunately for Irish policymakers, the early years of adjustment took place during the OPEC II global recession, which further exacerbated the challenge. Now, there can be internal debates how any adjustment should be carried out, particularly in terms of its likely distributional consequences. But the necessity for adjustment during the earlier 82-89 period was as unquestionable as it was during the more recent 2008-13 period. The mainly internally imposed conditions of the 82-89 adjustment were implicit and evolutionary. The externally imposed conditions of the recent adjustment were explicit and formalized. In other words, during times of serious fiscal crisis, domestic policymakers always lose either explicitly or implicitly large elements of policy autonomy that they could exercise under more normal conditions. The Irish public finances have recently been brought under control, but they're still very strained. So the new EU policy rules will oblige Irish policymakers to continue to move in the direction of fiscal balance over the next few years. If strong global growth resumes, this process is likely to be fairly rapid and perhaps relatively painless. However, if global growth remains low, the need for further adjustments will constrain or even prevent any major efforts to design domestic fiscal policies to reduce unemployment and restore levels of social protection to their pre-crisis position. But the requirement to restore balance to the public finances when facing into a crisis may not be a serious constraint in terms of boosting sustainable growth. After the experiences of the Keynesian stimulations of the late 1970s, we now understand that much of the benefit of a demand-side fiscal stimulus leak out of a small open economy as increased imports. Stable public finances are a necessary condition for any resumption of sustainable growth. Even in the presence of binding constraints on the overall fiscal balance, the distributional outcomes that emerge from working within such constraints will continue to be driven by local political choices. In such circumstances, domestic policymakers need to ensure that acceptable and sustainable distribution choices are made. Here history also provides lessons suggesting that step changes and progress are still possible even during regimes of tight fiscal constraints. For example, the switch from tariff protection to export-led growth that took place during the 1960s had a dramatic effect on the performance of the economy, yet was implemented under a regime of strict fiscal balance. The prerequisites for the dramatic leaping growth that took place during the 1990s, the real Celtic tiger, as distinct from the Celtic bubble, were put in place at a time when the public finances were also under severe pressure. Economic policy in Ireland has always been at its most effective when targeted at improving the competitiveness of the private productive sector, where competitiveness is used in its widest definition and not just in terms of lower wage costs. Increased growth generates the extra resources that permit improvements in the provision of social services and facilitate further public investment in infrastructure, human capital and R&D. Turning to the external perspective, here are some troubling questions about the adequacy and completeness of the new economic governance procedures that arise. The fact that the monetary union was originally established in the absence of a complete fiscal union meant that whereas the Eurozone could operate a unified monetary policy in response to external shocks, it was unable to operate a unified fiscal policy. To the extent that one can talk of EU fiscal policy at all, it only exists as the summation of all the disparate policies operating in the separate member states. Here the difference between fiscal policy operating at the level of the Eurozone as a whole and fiscal policy at the level of a small open economy like Ireland is crucial. Compared to Ireland, the EU economy is relatively closed. At the level of the EU as a whole, the leakages out of any fiscal stimulus would be far less than say the leakages out of a purely Irish fiscal stimulus. Unfortunately, in recent years, when the interest rates set by the ECB were effectively zero but the Eurozone economy still stagnated, there were no easy ways of engineering any EU-wide fiscal stimulus. Furthermore, the dominant economy, Germany, as well as other northern member states were extremely reluctant to act unilaterally as national locomotives of demand-side stimulus in wider EU growth. The German interpretation of the crisis within the Eurozone was primarily one of national budgetary policy failures of individual countries and not one of deficient demand within the wider EU. The fact that the new procedures currently being implemented deal only with the early stages of the formation of any deeper economic and monetary union is a consequence of the absence of agreement among the member states as to how far along this road they wish to travel. The German view is of particular importance since the German economy plays a dominant role within the Eurozone. Chancellor Merkel's statement at the June 2012 European Council was uncompromising in this respect, and I quote, it is not the aim of these governments to establish a fiscal union but rather a stability union would have you to establishing central budgetary control including the right to intervene in national budgets. The compromise that has emerged places great attention on the instruments of budgetary policy supervision, the six and the two-pack as well as the fiscal treaty, but there has been a reluctance to tackle the larger question of fiscal capacity at the EU level. The stability union created by the new procedures is designed to prevent future asymmetric, i.e. country-specific shocks, arising from within member states as a result of poor internal economic governance and from fiscal instability in particular. Symmetric shocks, shocks that affect all EU member states at the same time, will continue to be handled by monetary policy measures even in circumstances where symmetric shocks at the EU level have asymmetric consequences across the individual member states due to the heterogeneity of national economic structures. Although the size and relative closure of the economy of the EU as a whole would suggest a supportive role for EU-level fiscal policy, there will be no mechanism and no funds to permit the implementation of any such counter-cyclical actions. Policy coordination measures that are part of the new economic governance procedures are designed more to enhance longer-term competitiveness and growth rather than to address serious cyclical downturns. What are the likely implications for Irish economic policy? If the binding elements of the new economic governance procedures operate successfully and prevent future within-country policy areas, errors of the kind that have led to the recent crisis, the looser economic policy coordination guidelines leave local policy makers with a considerable degree of discretion. In such a world, Irish interests and objectives converge with the interests and objectives of other advanced, export-oriented EU member states and in particular Germany. The German emphasis on the need for greater efficiency in labour and product markets and greater external competitiveness in the context of a social market economy sits well with long-term Irish policy aims and objectives. Ireland's role in the continuing discussion on the future governance of the Eurozone would be enhanced if it built on the commonalities between its own self-interest and the self-interest of other advanced member states. Whatever about the political implications and acceptability of facing such constraints, in narrow and strictly economic terms, they do not represent any additional significant loss of economic sovereignty. Embracing them with enthusiasm seems to represent the best means to put the Irish economy in a strong position to benefit from whatever movements may be made in the future towards a deeper fiscal and monetary union. And finally, turning to Irish enterprise strategy in a more interconnected EU, although the main focus of the new procedures is on fiscal stability, this is merely a necessary condition for development and prosperity and certainly not a sufficient condition. The German economy is strong, not merely because it enjoys enviable financial and fiscal stability, which it does. Its trend comes from the competitiveness and dynamism of its enterprise sector, particularly in the range of small and medium-sized companies of its middle stand, which are highly innovative, export-oriented and provide a large number of jobs and are extremely productive. The great success of Irish industrial strategy in attracting foreign-owned high technology manufacturing and tradeable services is obvious. And it was the presence of the mainly foreign-owned modern enterprise brace that supported activity in the economy through the years of austerity when domestic demand was very weak. The absence of such a production base made this task very difficult for Portugal and almost impossible for Greece. But the dangers of relying excessively on the attraction of a low rate of corporation tax are very obvious. The advent of increased foreign direct investment in internationally traded market services during the last decade has generated considerable concern in the larger EU economies, who fear erosion of their tax bases. Ireland may very well retain its low rate of corporation tax, but the benefits as a key attractor of inward investment may be attenuated by actions taken by other states. Fresh thinking is needed if we are to build a stronger indigenous enterprise sector a task that is more complex than the more transparent process for attracting inward investment. Any outsider reading the extensive Irish enterprise strategy documentation would be left with the belief that trade was all-knowing and regarded its main task as pushing advice out to a fairly passive private sector. The very strength of the two main Irish development agencies, IDA Ireland and Enterprise Ireland, has made it difficult for non-government organizations such as Ibeck and the ICTU to research and promote much by way of independent work on longer term enterprise strategy. Unlike the situation in Germany where the equivalent organizations are heavily engaged in independent work on maintaining the competitiveness and strength of German enterprises, employers organizations and trade unions in Ireland over the past few decades have tended to operate within the defined terms of reference of a social partnership with a focus more on defending the distributional interests of their constituencies. This view of the role of the state is served as well. Viewed from inside actual businesses, the state's efforts at formulating strategic policy can sometimes appear to be biased towards multinational corporations in the more fashionable sectors and technologies rather than towards the domestic SME sector. For example, the kinds of inter-firm and product market linkages that come automatically as part of the deal with foreign multinational companies have to be painfully built from scratch in the SME-dominated indigenous sector. It's not until one moves to the regional and local level of individual enterprises and people that you begin to understand how small innovative firms can start to survive and thrive in regions. The methods that entrepreneurs use to grow their businesses and how they often manage to turn what initially looked like locational disadvantages into gateways to opportunities. The famous German middle stand or regional groups of dynamic innovative SMEs are at the heart of German competitiveness, but we find no similar process in Irish enterprise. With the right support, this cohort of Irish enterprises has the potential to play an even greater role in our economy. Not just nationally but also regionally where they are crucial for job education and growth. To an extent SMEs have been under-acknowledged and undervalued and a strong regional enterprise strategy is required if we are to harness the growth potential of this sector in the future. In terms of enterprise strategy it is what goes on inside firms that really matters in terms of new firm creation, survival, growth, diversification, partnering, internationalization. German policy makers both in the public and private sectors talk of little else and place regional policy enterprise policy in international competitiveness at the center of their economic discourse and strategy. The German reluctance to embrace prematurely a deep and genuine economic and monetary union opting instead for a stability union needs to be interpreted in this light and Irish policymakers need to draw the appropriate conclusions. The danger is that the public authorities and the social partners in Ireland could look to the post crisis era as an opportunity to restore the status quo ante in terms of clawing back lost increases in income rather than as an opportunity to build a stronger more dynamic and competitive economy within the constraints of more stable management of the public finances. In adapting to the new reforms in European economic governance it is vital that Ireland takes the necessary steps to support economic growth and innovation.