 Thank you all for coming. Welcome. We're really delighted to have you here and honored that you would be coming on a kind of a gray Friday morning, but we're going to liven and things up and lighten things up here in at CSS. Thank you. And I would like to say just a sincere thanks to the ambassador for making this possible. We have been working with him for several months in trying to bring a this venue a discussion about about Greece. But but this is a larger conversation. It's a bigger conversation than just Greece. I must say I think it's uniquely ironic to think about that we're holding this conversation about Greece's economic state on the very eve of our collapsing as a government here, okay? It looks like we're going to have a shutdown. I mean so all of those kind of boastful American claims about we're different and we're exceptional. I think we better be modest here today. I would say, you know, Greece has been weathering some tough economic storm and they seem to be having their act together a little bit better than we do. So I think it's ironic that that would be the case today. We're delighted that we can have you here and this is a remarkably important time. Of course from an economic standpoint it's made a little more vivid because of what's going on in Portugal and what's going on in Iceland. Iceland's on the forefront of a referendum on what they want to do about sorting out their economic responsibilities. So it's probably timely in that sense. But I must forgive me. I would also take just a moment to say I think it's also quite timely in a larger sense because of the whole geopolitical dynamic that's underway in the Mediterranean right now. You know, this uncertainty within the Mediterranean geopolitically is I think a very poignant backdrop, you know, to this discussion today because what it says to me is you know, we've got to get over this idea that what's in the meritor training and that's south of the Alps and we don't have to worry about it. I mean, this is a unified Europe that is struggling with a collection of problems together and that has to be part of this formula. I mean Europe to be whole and successful and prosperous cannot just simply jettison the country south of the Alps and say we'll go to a two-track Europe. I mean, that's just not feasible. There has to be an integrated whole and so all of us and I'd say we Americans share just as much an interest in the success of Greece working through its problems. Frankly, they may pioneer some insights for us because I think we're going to be needing them but also this successful transformation of a prosperous Europe. It really does depend on a collective sharing and understanding of what's going on in Greece. And I think that's our purpose today. Our purpose today is not to promulgate answers. Our purpose today is to understand and enliven and enrich our understanding with working with each other. And so I'm grateful for the Embassy letting us have this opportunity for helping us pull this together and it's going to be a very very good morning. Ambassador, let me welcome you to the stage and say just words of greeting to everyone and thank you again for being here. Well, good morning, ladies and gentlemen. It is a pleasure to see you all here this morning. I thank the Center for Strategic and International Studies. It's President John Hamre and Heather Conley, Senior Fellow and Director of the European Programme for bringing us all together. This is a distinguished group of individuals and I look forward to their remarks. I'm particularly happy to have with us fellow Greek Lucas Papadimos who for the past few years has played a very important role in the European economy as Vice President of the European Central Bank. Mr. Kruger of the European Commission who has first-hand experience of what Greece is currently doing since he was in Athens only yesterday. Mr. Konstantin Papadopoulos, Secretary-General of the Greek Foreign Ministry. And Mr. Timothy Adams of Lince Group. This event would not have been possible without the generosity of the Stavros-Nyarkos Foundation which has its hand at the pulse of many issues confronting the global community and is today represented by its Chief Officer of Operation Mr. Tsamis. When John Hamre and I first talked about putting together such a forum to discuss the serious economic crisis in Greece and generally in Europe, Greece was at the forefront making headlines in the US and around the world. During the past year, Greece has become the object of endless analysis often without much knowledge of the country nor the real facts of Brussels politics by journalists ready for a sensational story or academics hoping to prove some theory or another and by economists who base their analysis on purified national data without taking into account the European Union parameter let alone speculators of the world markets. And while exaggerated criticism had a valid starting point, Greece was but one of many countries around the world with financial problems. Only yesterday we learned that the Third European Union Member State has joined Greece in its appeal to the IMF and the European Union. And as a matter of fact, this is the reason that Paul Thompson who was to join us today of the IMF is not here as he has prolonged his stay in Europe. No matter how you look at it, this crisis is global. I do not think it was a coincidence that President Obama intervened by calling Chancellor Merkel on several occasions and Treasury Secretary Geithner personally visited Berlin even recently. I might even venture to say that Greece was single out because at the time it was the weakest link of the Eurozone. Since I believe the Euro and I still believe that the Euro was and is the ultimate target of the markets. Of course, we recognize our own responsibility for our crisis, something the Prime Minister Papandreou has done time and time again. Greece allowed its deficits to balloon and its debt to reach unprecedented heights. Our competitiveness was continuously eroding and our credibility greatly damaged. The irony is that and the Greek Prime Minister George Papandreou has often pointed this out that Greece was not a poor country since the vast majority of the people were wealthy. It was simply a mismanaged country. The mismanagement of the economy allowed for growing graft which has undermined public trust, hindered entrepreneurship, wasted taxpayers' money and investors' time and passions. It also created the culture of tolerance towards tax evasion and eroded civic responsibility. So when we talk about the crisis, we must not talk only about an economic crisis. I truly believe that the financial trouble is a symptom and not the cause. The underlying and more profound problem was that of governance and transparency. Apparently, the Brookings Institution studied the Greek economy and concluded that if had Greece been more transparent, it could have saved from 4% to 8% of GDP per year. And this would mean we did not need any loans from the European Union or the IMF to keep us afloat. And here I would like to highlight a point that because usually there is a misunderstanding that this loan is not free money, it is money that we will pay back in full. In trying to recover from this crisis, the Greek people are making very painful sacrifices. Wages were cut by 20% to 30% and in some cases which include diplomats as high as 50%. Pensions were also reduced by 20%. Taxes were high and excise tax was imposed on profitable businesses. Public spending was cut in most areas from defence to transport. This has allowed Greece to achieve the very difficult goal of cutting its deficit by more than 60% in 2010. An achievement few believed Greece could accomplish. The real task, however, and we are only at the beginning, is to make more fundamental changes to create a society of transparency of good democratic governance. We are making major tax reforms revamping our pension system. We are opening up professions for the younger generations. We have also consolidated government from 1,000 to 350 municipalities and from 60 regional governments to 13. When I mentioned this on Capitol Hill, my interlocutors tell me that this would be impossible in the United States, yet it was done in Greece. Before I close, however, I would only simply like to say a few words about the European Union. Having spent ten consecutive years in Brussels, the last six as Greece's representative to the EU, I have had the opportunity to see firsthand how EU mechanisms work. It is a very slow process, at times excruciating slow, since all decisions are based on consensus, but in the end the system delivers. I would stop here and look forward for your proceedings. Thank you very much. Mr. Ambassador, thank you so much for those wonderful framing comments. Good morning again. My name is Heather Conley. We are delighted to see you here on a rainy Friday morning. I think Dr. Papademos got caught in cherry blossom traffic. We just got a message from him saying he's stuck. I've never been so grateful to see a keynote in my life. Welcome, Dr. Papademos. I'm going to give you a minute to have a deep breath. Welcome to you. When we began to talk with the Embassy about this program and develop it, I was concerned, quite frankly, that as other pressing issues came before us, obviously the transformation of North Africa in the Middle East, the tragedy in Japan, that this would overshadow what I believe to be one of the most important stories that will profoundly shape Europe economically and politically for the next decade, is not able to speak through the unbelievable news cycle that we find ourselves in at the moment, but this week proved me wrong. I think in the span of three days, we've witnessed the caretaker government of Portugal to request funding. We've seen the European Central Bank increase interest rates the first time that the European Central Bank has moved on interest rates before the United States. We have also witnessed oil, as if I checked my Bloomberg right before coming, $111 a barrel. We have commodity prices at a two-year high. We have an environment that demands, I think, the greatest attention from our political leaders and our best experts. And I can think of no one better to help us cut through the issues to understand that the key elements of it than Dr. Lucas Papademos, the former vice chairman of the European Central Bank. He now is a visiting professor of public policy at the Harvard Kennedy School and also serves as a professor of economics at the University of Athens and in his spare time, a senior fellow at the Center for Financial Studies at the Goethe University in Frankfurt. His experience and knowledge of both Greece and of the European perspective from the ECB is most welcome and we look forward to your remarks. After Dr. Papademos is finished with his remarks, we'll do a Q&A session. So we look forward to your questions. So without further ado and hopefully I've given you a moment to come in, thank you so much. Please join me in welcoming Dr. Lucas Papademos. Thank you. Ambassador Carxarellis, distinguished guest. First of all, my apologies for being late, but at least I managed to be in time for my remarks. And Heather, thank you very much for your kind words. I would like to start by thanking the Center and the Embassy of Greece. I understand this is a joint event for inviting me to this seminar on a topic whose importance and policy relevance extends well beyond Greece and the European Union. And it's a privilege for me to address this distinguished audience at CSIS, a center that has established a great tradition as a center for the analysis of and as a forum for debate on a wide range of topics that are both significant and topical. And as you just said, the sovereign debt crisis in Europe remains a subject of topicality unfortunately. The crisis erupted more than a year ago, but pressures have persisted over many months, intensified recently, and as you know, two days ago Portugal was the third country that requested financial support in the light of continuing strong market pressures. In my remarks, I will try to focus on three issues relating to the ongoing crisis in Europe and in Greece in particular. First, I would like to briefly review and assess the causes and some of the contributing factors to the crisis in order to link these causes and factors to the policy objectives that must be pursued. Without an accurate diagnosis of the problem, prescriptions and therapies will be ineffective and may be even harmful or counterproductive. Second, I will focus and this will be the main part of my remarks on the main policy challenges being faced in Greece but also the risks and the opportunities associated with implementation of the economic adjustment program as well as some essential conditions for success. And finally, I would like to share some thoughts with you on what is being done and what should be done at the European level in order to resolve the debt crisis and strengthen the economic policy framework in the European Monetary Union. Now, the sovereign debt crisis initially erupted in the Greek government bond market so it's natural also that this is the first event in a series to understand on the European Economic Sovereign Debt Crisis. Intensified in April and reached the peak in May when the rescue package for Greece was agreed and the economic adjustment program was adopted. And at the same time, the European Financial Stability Facility was established. But after some short-lived period of reduced overneasing of market pressures, the turbulence spread to Ireland and more recently to Portugal as other risks materialized and affected bank balance sheets and fiscal positions. The deepening and widening of the crisis I believe is reflected in the way it has been referred to by market analysts and economic commentators. Initially it was referred as the Greek fiscal crisis. Then it became progressively the European sovereign debt crisis. More recently the Euro crisis or Europe's crisis. Articles have appeared with titles such can Europe be saved? So I think there is a lot of concern, uncertainty and anxiety on how this specific crisis will affect the functioning of monetary union as well as the European Union as a whole. However the causes of this crisis are fundamentally national in origin. They stem from imprudent, irresponsible fiscal policies as well as inappropriate labor market policies and practices that were incompatible with the stability-oriented policy of the ECB and the requirements of the monetary union. At the same time, however, it is correct to say that the crisis revealed that the economic policy framework that had been adopted when the Euro was created had proved ineffective and incomplete. It failed to effectively coordinate national fiscal policies so as to prevent excessive deficits and to correct them when they emerged. It also did not focus sufficiently, some say not at all, on the monitoring of other macroeconomic imbalances other than fiscal imbalances. For example, the erosion of competitiveness and the associated large current account deficits that could become sources and did become sources of instability and systemic risk in some countries. Now the financial and economic crisis experienced in Greece, Ireland and Portugal is a consequence of the effect of many factors but there are three factors that are common although the relative contribution of each differs across these three countries. The first is the size of fiscal deficits and rising public debt due as I said to imprudent budget policies or more in the case of Ireland as a result of the need to rescue or support financial institutions that had been affected by the crisis. Now in the case of Greece the size and persistence of fiscal deficits was the main though not the only cause of the problem. The second common cause of the crisis, this is the second of the three common causes was the large erosion of cost competitiveness as measured by relative unit labor costs. The degree of erosion of competitiveness since the establishment of monetary union in all three countries is roughly of the same order of magnitude as nominal unit labor cost rose by 25 to 30 percent during that period and by the way in two or three other countries that have not been affected by the crisis also the increase in nominal unit labor cost was of that order of magnitude. Now this was partly a consequence for the three countries that are under pressure of certain common underlined forces for example the catching up process but it mainly it reflected a lack of appreciation both by policy makers and social partners that the labor market policies and practices that were being implemented that were being pursued were incompatible with what I called earlier the stability oriented policy of the ECB that is a policy that secure inflation for the euro area as a whole of close and actually a little bit below 2 percent and therefore inevitably the labor market policies had adverse consequences on external balances and growth and employment in the long run. Now the third common factor that contributed to the build up of imbalances was the fast pace of credit expansion in a benign macroeconomic environment of low inflation and also with relatively low interest rates in countries compared to the past that fuel a property price boom that turn into a bust adversely affecting fiscal positions and bank earnings and balances as I said before the factors are common but the relative importance differs across countries and on top of it there are specific factors that they don't have the time to elaborate here but I would like to make two brief points to conclude this part of my remarks the first is that the recent experience demonstrated that these factors interacted in a manner that worsened fiscal deficits and dead dynamics either directly because of the direct impact on the deficit or indirectly through their impact on economic activity. Now the second remark is that to note that the build up both of the fiscal and other macroeconomic imbalances had become evident well before the global financial crisis erupted but appropriate corrective actions had not be taken at a national level and as I said earlier the stability and growth pack proved ineffective as a mechanism that would prevent excessive deficit or promote their timely correction. Indeed in 2004 you may remember it was revised in order to become more realistic or more flexible and indeed it was applied in a very flexible manner. At the same time financial markets did not contribute either to fiscal discipline as they grossly underestimated the risks associated with excessive fiscal deficits and public debt accumulation. Now let me turn to the policy challenges being faced in Greece on its path towards sound public finances and improving its international competitiveness and also to point to risks and opportunities associated with the implementation of the economic adjustment program adopted last May. Now over the past year we're actually approaching one year when the economic adjustment program was adopted. Since then important fiscal measures and structural reforms have been implemented in order to reverse the explosive trajectory of government deficits and the declining cost competitiveness witness during the previous 10 years. As a result the government deficit declined by at least 5% of GDP an impressive amount admittedly from the exceptional high level of 15.4% of GDP finally recorded I say finally recorded because as you know there were successive revisions of this figure. At the same time unit labor cost growth decelerated and indeed became a little bit negative last year for the first time primarily as a result of the larger adjustment of nominal wages in the public sector but also of the moderation of wages in the private sector. Importantly pension reforms enacted last year is projected to drastically contain the growth in government pension related expenditure both in the short term and in the long term thus addressing a major vulnerability in the country's long term public finances. Before that reform Greece had the worst expected ratio of spending relating to pensions and other social security entitlements than any other European Union country and the ratio was expected to rise substantially in the years to come. So all in all the measures taken since last May reverse the direction of the country's course to fiscal to fiscal catastrophe and initiated the consolidation process towards a sustainable sound fiscal position in the future. Moreover improvements in cost competitiveness and the first round of labor market reforms are helping to increase efficiency and contain the country's current account deficit by enhancing its export performance. Nevertheless now comes the nevertheless. The road to fiscal sustainability is going to be long and difficult and this is highlighted by the fact that despite the sizable reduction in the budget deficit in 2010 and the projected further decline in the deficit this year and in the coming years the country's debt to GDP ratio is projected to rise and exceed 150% of GDP by the end of 2011 and more than that by the end of 2012. Clearly a reduction in the government deficit even when significant is not sufficient to rein in on public debt accumulation. The deficit must be reduced to a sufficiently low level so that its primary component that is the part of the deficit excluding the expenditure on debt servicing turns into a surplus that can be used to reduce the public debt. Now although developments on the debt front will get worse before they will get better they will get better provided the economic adjustment program is implemented effectively and consistently over time. This conclusion which is in line with the assessment presented in the latest review of the IMF the European Commission and the ECB is based on reasonable and by that I mean reasonably realistic assumptions concerning future trend growth and expectations of interest rates. And the projected path of the debt to GDP ratio according to the baseline scenario declines the pace of decline depends of course on certain assumptions and although there may be adverse scenario that suggests that the debt to GDP ratio stays flat for a while or even rises there are no scenarios that show at least that I know unless there are of course extreme circumstances that one cannot predict that suggests that there is a prospect of debt non-sustainability. Nevertheless that's a second nevertheless market conditions remain unfavorable and economists have expressed the view that the combination of the debt size a worse than projected growth path and persistent funding market pressures are likely to result in a vicious circle a vicious circle of weak economic activity and higher than planned deficits requiring additional fiscal consolidation measures thus fueling the vicious circle and leading to a non-sustainable outcome such a scenario need not materialize. Indeed the adjustment program itself includes policy measures and reforms which provided that they are implemented effectively and in a timely manner should minimize the likelihood of such an outcome as the pace of economic activity should pick up over time in response to the cumulative impact of growth enhancing measures and the reduction in the debt burden. In making assessments about debt dynamics one should not focus on what is happening the first few quarters or one or two years following a very strong adjustment effort but should look at the average growth trend which is expected to prevail over the medium to longer term. Now in my view the key to the success of the economic adjustment program is implementation and as I have already noted the implementation of the envisaged policy actions must be effective, must be tightly, timely, must be coordinated across areas and be consistently applied over time. Now one factor underlying the persisting market pressures is the concern that the country's capacity to achieve the set objectives may be adversely affected by structural or behavioral factors, social tensions or political uncertainty despite the government's stated commitment to fully implement the economic adjustment program. And this observation brings me to some remarks on specific policy issues that must be addressed in the associated opportunities and risks. I believe there are four key economic policy challenges that must be tackled in an appropriate and decisive way in order to ensure the program's success. The first relates to the objective of increasing tax revenue relative to national income to a level close to the European average and not by increasing tax rates or the tax burden of those who pay but by increasing the tax base and improving the efficiency of the tax collection system. Now the ratio of tax revenue to GDP in Greece is the lowest in the euro area as a result of the large fraction of self-employed persons and of small and medium-sized firms especially in the services sector that evade taxes. Increasing the tax income by a few percentage points in a permanent manner is a necessary and I believe feasible objective that will make a major contribution to achieving a sustained reduction in the deficit. It is also appropriate to broaden the tax base for reasons of social justice and also for strengthening the support of the public for the adjustment program. Second, it is imperative given the poor fiscal record of the country over a long period of time that Greece's commitment to sound public finances over the long run is demonstrated through appropriate institutional reforms and legal provisions. Markets, the country's lenders and the Greek public itself need to be reassured and convinced that the ongoing fiscal consolidation is not a temporary effort pursued in view of the risk of insolvency but it represents the beginning of a new era of fiscal prudence and discipline of a permanent commitment to sound and thus sustainable public finances. The new office on the budget that was established in the parliament can play a key role to this end but the adoption of appropriate and binding legal provisions defining credible fiscal constraints that are supported by hopefully all but at least the majority of political parties will reinforce Greece's commitment to fiscal prudence over the long run and such a credible commitment would favorably influence financial markets and reduce funding costs. Let me also emphasize that agreeing on the objective of healthy public finances which are essential for the country's sustained growth and stability leaves plenty of room for the political parties to differ in their approach to how on the ways and means this objective will be achieved. At this juncture, however, I believe it is essential that priority be given not on whether we will proceed by moving on the left or on the right side of the road but on taking concrete steps together that will move the country forward rather than backward. The ongoing crisis provides an opportunity. I've talked on challenges but now I think we have to talk of opportunities to abandon once and for all the stop and go fiscal policies of the past that very often have been implemented under the influence of electoral cycles and also to abandon the improved and government spending based on borrowed money and borrowed time. Now, a third key challenge is the achievement, this is rather specific but important, of the recently adopted objective of increasing government revenue by expanding the privatization program and by maximizing the revenue that can be generated from the better use of public sector assets. Now the goal of raising 50 billion euro, that's about 70 billion dollars from privatization and the sale of publicly owned assets or through swaps and leaks contracts, they do not need not be direct sales is an ambitious one, admittedly, but I believe it's also feasible. And attaining this goal will require systematic and coordinated efforts by the responsible authorities and by the government but it is essential for reducing the debt mountain faster than it can be reduced than it can possibly reduce through deficit reduction and it will thus help address market concerns about the sustainability of debt dynamics. Now the fourth and crucial challenge and this is the last that I will emphasize is how to speed up the necessary increase in competitiveness and trend growth and how to support economic activity over the medium term so as to offset the temporary adverse impact of fiscal consolidation on activity and employment and emphasize the word temporary because the final objective of this difficult and painful process of fiscal consolidation is to establish conditions that will permit the sustained growth of the economy. Now meeting this challenge is vital for the success of the program. It is vital for avoiding the potential materialization of the vicious circle that I described earlier of weak activity and higher deficit. It is vital for mitigating the short term impact of fiscal adjustment on unemployment especially unemployment for the young which is very high and as a result it is important in order to create a perspective of optimism about the outcome of the adjustment effort. Now some would argue and indeed some have argued that this is the most difficult challenge to meet in the light of the recent experience the country's competitiveness position and its investment record. Now without underestimating the difficulties to be encountered I'm more optimistic. Increasing the economies efficiency, adaptability and expert orientation can be achieved by implementing measures included in the program as well as other tax reforms that can eliminate the well-known and documented obstacles to growth associated among other things the excessive bureaucracy the unnecessary and ineffective regulation and the cumbersome legal system. Now the country has comparative advantages in several sectors has untapped growth potential in fields such as alternative energy resources and it has an educated human capital that can provide the engine for growth and I believe the crisis provides the opportunity to remove the obstacles and exploit the advantages in order to improve the competitiveness and growth performance. Now ladies and gentlemen I have provided you the rather detailed though not exhaustive list of challenges and opportunities is facing Greece today as it tries to resolve its financial and economic crisis. The outlook can be and should be positive provided some risks are avoided and some conditions are fulfilled. Which are the main risks and what are the necessary conditions for success? The two are related. The main risks are implementation and political risks. I stress before that effective, timely, coordinated across areas and consistent over time implementation is essential for the success. It's therefore imperative to improve implementation now and address problems that are becoming visible. Second as I also emphasized in the past an inevitably difficult and likely adjustment process after a period of protracted excesses requires the support of all political forces and all social partners in order to establish a sense of common purpose and solidarity that can facilitate the performance of tasks and the achievement of goals. It is essential that what we call in Greek I'm not sure the translation is good micro-politics and short-term is do not hinder the broad based political consensus which is necessary for achieving the twin objectives of sound public finances and improve competitiveness which I think everybody agrees but somehow it's forgotten during a public debate that these are foundations for sustained growth and prosperity. We should not forget what Benjamin Franklin said in another context and let me paraphrase it only slightly. He said if we do not hang together we will be hung separately but if the Greek people and the political forces hang together and the challenges are referred to are addressed effectively and simultaneously then the implementation of the various reforms will have mutually reinforcing effects then can speed up the debt reduction and the recovery of the Greek economy. Now in recent weeks I'm sure you have all heard voices of skepticism and doubt about the outlook for debt control and management and these voices of skepticism and doubt have increased in number and intensity. Debt restructuring has been proposed as a desirable, necessary and according to some inevitable means to lighten the debt burden and enhance the prospects of fiscal consolidation and economic recovery. Is this really the case? Let me first note that the notion or concept of debt restructuring can have different meanings with correspondingly very different consequences. Debt restructuring can entail haircut value losses for the holders of government debt. It can also involve a voluntary agreement to extend the maturity structure of the debt with terms and conditions that effectively do not result in any significant change in the net present value of the securities. Now in my view the first form of debt restructuring the one that involves haircut losses for investors is not desirable and it's not necessary. It is not desirable because its potential adverse consequences are likely to exceed the perceived benefits and it's not necessary if the adjustment program is implemented appropriately as I believe it can be and it should be. Think about it, a debt restructuring of the first kind will not help address any of the four key challenges that I applied earlier that must be addressed in order to achieve sustained growth and prosperity. Now let me now turn and conclude by referring to challenges and opportunities posed by the debt crisis for the European Union and more specifically for the Euro area. Now the crisis provides an opportunity to reinforce the economic policy framework in the monetary union to make it more effective and more complete so as to prevent future episodes of instability. Now needless to say the resolution of the ongoing crisis is the immediate priority but improving the economic governance in the Euro area is the fundamental long-term objective which should be consistent with the arrangements for crisis management in which the long-term can facilitate the resolution of the present crisis. Now last month the European Union leaders reached a broad political agreement on a number of issues concerning first the reform of the Euro area economic governance and second the strengthening both of the current temporary stability facility and the future permanent stability mechanism, the so-called rescue fund facilities. Now the main elements of the package I'll be very belief just to refresh your memory on the main elements which will be approved formally in June and further elaboration of its features and modalities are first a new pact for the Euro. Now in general objectives are to prevent future crisis by introducing reforms to improve competitiveness and to better control public finances so as to ensure fiscal sustainability. Now what is envisaged for achieving this objective includes the close monitoring of wage developments and competitiveness indicators the translation of the provision of the stability and growth pact into domestic fiscal rules under national legislation and third the introduction of additional legislation on banking regulations. The second part of the agreement concerns the rescue funds the effective lending facility capacity of the permanent European stability mechanism was agreed to be 500 billion euro which is about 700 billion dollars and the effective lending ceiling of the current support mechanism was confirmed at 44 billion euro and this will be achieved through higher increased guarantees and through capital injections. Financial assistance will be provided in the form of loans and this is a new feature which is in the form of purchases of securities in the primary market. However so far no decision has been made for the FSF to be given the flexibility that we allow it to intervene in the secondary government bond markets or to lend funds to a country in order to purchase his own debt. In other words to undertake the so-called debt buyback operations. Finally there was an agreement also to speed up and finalize the six outstanding legislative acts that include the specific and detailed provisions on economic governance. Now these decisions I believe are important steps forward towards the reinforcement of the economic policy framework in the euro area what we often say strengthening the E in the EMU by doing so by fairly concrete measures that will enhance competitiveness and align budgetary policies towards fiscal sustainability and with the requirements of the monetary union. Now the question is will this package when fully elaborated and formally approved prove sufficient to resolve the euro area sovereign debt crisis and prevent the occurrence of such episodes in the future. Now the answer crucially depends on a number of factors let me mention three. The first is the country's political commitment to the pact for the euro. The second is its effective implementation in practice at the European level and the third is the pursued appropriate policies at national level. Now I would expect that the lessons of the crisis will provide strong incentives to respect the new framework. Nevertheless in my view some further strengthening of its features in the direction first of greater automaticity in the enforcement of rules and procedures and second in the direction of timely implementation of corrective policy measures is wanted. Moreover I believe that the effectiveness of the rescue funds in helping resolve the current crisis would be enhanced if the EFSF had the flexibility to intervene in the secondary sovereign debt market to improve market functioning and to contain market pressures. Now the persistently high government bond yields have serious adverse effects on the financing cost of banks. They obviously have adverse effects on the financing cost of the government but what I want to emphasize is their serious adverse effects on the financing cost of banks and other private sector firms in the fiscally troubled countries. And these constraints and effects entail financial stability risk and a delay in the economic recovery. So in a crisis situation the responsible authority for safeguarding financial stability and this is the EFSF now should have the powers tools and flexibility to intervene appropriately to achieve its objective. The persisting pressures in these markets despite the strong and corrective policy actions taken so far may reflect political uncertainty and concerns about the capacity of countries to achieve ambitious consolidation plans. I'm not saying that there is no reason behind this pressure but the point is that these pressures are a source of financial and economic instability and further reflection and decisions on how to deal with this problem is urgently needed. Ladies and gentlemen to sum up and conclude the sovereign debt crisis in Europe is testing the ability of countries and of the Union as a whole to deal with the challenges caused by inappropriate policies at a national level and an inadequate policy framework at the European Monetary Union level. Resolving this crisis will take time and will involve difficult policy choices and actions. I am convinced however that the necessary further steps towards resolving the crisis and creating a more solid economic policy foundation for the euro will be taken and this is not wishful thinking from a former European Central Banker. My conviction reflects two complementary underlying forces driving the European integration process. First, a common economic interest of all euro area member states in preserving the benefits stemming from a stable and credible common currency. And second, the political commitment of European Union leaders to address the challenges being faced in a spirit of cooperation and solidarity. The events of the past year may have raised doubts about the validity of these two propositions but I believe that the European Union member states will act in accordance with their common economic interest and political commitment and dispel these doubts in the future. And needless to say, the European Central Bank will preserve the stability and the credibility of the euro and the market I believe are convinced of this fact. Thank you. We just have about maybe 10 minutes. Don't leave, we have some more for you. About 10 minutes of questions. We have microphones. Please raise your hand. Please give us your name and your affiliation and because we're a little pressed for time keep the comments short and the questions focused. That would be very helpful. Thank you. I'll let you select the questioners. Jacob Kierkegaard from the Peters Institute here in Washington. You mentioned quickly towards the end the issue of bank financing. And I was wondering if the issue of cost of financing for banks and those types of issues and I'm sure you will be also familiar with this aspect that the ECB has suggested implementing potentially a new medium term liquidity facility for banks in basically replacing the current full allotment unconditional full allotment fixed rate auctions. Are you in favor of that? And if so, should access to such a facility be conditional? And if so, what type of conditions? Well, I would have to say that this is for the ECB now to answer. And I'm no longer associated with the ECB. But I think the general idea is is appropriate. But the conditions, of course, will require some careful analysis and thinking before they are established. So I will let my former institution to answer your question. Sorry. If you want another question of a different nature. Okay. Gentlemen in the back. Sir, my name is Dominic. I'm with the Foreign Service Institute. You mentioned early in one of your four key challenges, the revenue collection improvement. And I'm curious about the your view on the political will in the short term to actually independently improve revenue collection and how big of an impact that might have on the overall debt crisis. Is your question related on the political commitment? Or on other factors, political factors that may affect the development? Because I think the political commitment is clear there. I think the Prime Minister is fully committed to achieving the full implementation of the economic adjustment program. This has been repeated many times and all the actions that have been taken so far are fully in line with what is in the program. I did mention that there are some signs of implementation risks that have to be addressed. We all know and indeed this is one reason I mentioned it as the first challenge. The tax revenues were below projections last year and they are below projections and expectations in the first three months of this year. But this is not a consequence of a lack of political commitment. It's a consequence of the capacity of the mechanism to deliver and improve its efficiency in a short period of time. Now I think you are aware and others are aware that there is an ongoing political debate in Greece concerning the appropriateness of the program and different parties have expressed different views. I think the alternative views concerning what I call in my remarks the ways and means of achieving an objective are to be respected and they have to be examined thoroughly to see whether these views can help achieve the desired outcome. But I think what is important is to achieve the broad-based consensus for attaining the objective. And the main objective is fiscal consolidation, sound public finances, improving competitiveness, improving the market efficiency and flexibility so as to increase the expert orientation of the country. And I would believe and I hope that all political forces can agree on these main objectives and orientations. Now sometimes the debate either in formal fora or on the TV may suggest otherwise. I'm not going to comment on this. But I think what has to be taken into account which is very important taken into account by all of us here but also by the politicians is that I believe the vast majority of the Greek public understands the need for change, understand the needs of putting public finances under control and on the sound footing, understand that all these rigidities in the functioning of markets and the system have to be lifted. Now as the adjustment program goes on of course it has economic cost and one can see the implications of these costs on the social mood and the political environment. But I think it's essential to try to understand that these costs are temporary. They are the inevitable short-term consequence of an adjustment that tries to correct imbalances that are big and tries to change practices that have been in place for many, many years and to try to look forward and see how we can all contribute to this end. So it's partly a conviction, partly a hope that all political forces at the end will support a common effort even if they agree, even if they disagree on specific aspects and on the tools to be used to achieve them. Yes, please. Hi, I'm a student at the LA School of International Affairs. I was wondering, you spoke of the financial sector failed to underestimate the risks of indebtedness of these countries and did not discipline them by charging higher interest rates. I'm interested in considering that they are all earning all their money back and have conceded in earning all their money back. What risks do you think the bailouts of these economies has for the future of the financial markets to discipline these countries? What mechanisms do you think will prevent future government from running? Well, the plan is that what we call formally a new framework for economic governance or an economic policy framework that will actually have teeth and bite, will monitor imbalances very, very closely and give what one can call strong and early warning signal to the countries to take the corrective action. In the event that they don't take the appropriate corrective action on the basis of some more now specific benchmarks and procedures, then there will be penalties and means to force them to take corrective action. However, what I think is also important and it's part of the political agreement that was reached by the leaders in March is that the provision of a pact which is being set at the European Union or Euro area level are being translated into national legislation at home so that there is national ownership and then governments and parliaments feel committed and obliged to pursue policies that are in line with the objective. So the main, to put it very shortly, very briefly, the main tool is not the only tool but the main tool to try to avoid the recurrence of episodes like the one is to have a better overall economic policy framework and also at a national level to ensure that economic policies are compatible with the new environment, the new monetary environment which is created by the introduction of a common currency and the implementation of a single monetary policy. I also believe that the experience of the last few years has really been very painful. I don't think we should look it a bit theoretically of what is happening whether some indicators go up and down. I think in all the three countries, for example, that have been subject to strong market pressures, the adjustment that has taken place, nominal wages in real incomes is really huge. So people realize that if the right policies are not pursued, sooner or later there will be a consequence and a cost. And I think this memory, I don't know maybe whether it will be forgotten 200 years from now, but I think it's going to last for quite a while and will play an important role in preventing excesses like the ones we have experienced. Just to give an example, I don't know how many of you are familiar with the details, but in the first year of implementation of its program in Ireland, of its own adjustment program before it received the funding from the union and the IMF, the policies that had been pursued in the year before required reduction in nominal wages in the public sector of more than 12%. And at the time we were saying in Greece, and actually we were saying at the ECB and the European Union Forum, Ireland provides an example of how strong adjustment which is necessary is taken to achieve a result. And later on what happened in Greece after a period of, let's say, thinking or hesitation on what to do on the front of nominal wages, as you know nominal wages in the public sector declined last year by average close to 14%, 12% to 14%, and this is an average because some civil servants,