 So, I was asked to speak about completing banking union challenges ahead, so we'll spend the rest of the week and the weekend here in order to enumerate all of them. But if I thought I'd speak a little bit on what got us into the crisis, not about Ireland, or in general, and how we might emerge both in institutional structural terms and in terms of how this will be affecting our economies. So, obviously, things are considerably better than they were a year ago, as evidenced by our meeting on Monday next, which will be the final, final meeting of the Irish program. And that's the last thing I'll say about the Irish program unless you ask me to do so. But how did we get in to all of this? And there are people who tend to think that we are in some kind of isolated incidents of over indebtedness. But if you look in that it's a Portuguese issue and a Spanish problem, and of course a Greek problem, and yes, a Cypriot problem. But if you look at data for all industrialized economies worldwide over the last 15, 20 years, then you see immensely rising debt levels. In some countries, debt levels of the sovereign, in some countries, debt levels of corporates, in some countries of households, and in a few unfortunate countries, many of them together. And this is not just something that happened out of the blue. It is very tightly correlated with how we are affected by globalization. And globalization is a phenomenon that came on stream with full force in the 90s. And very, very few politicians were capable and able to deal with this change in comparative advantage in the way that it would have required. In many countries, as more and more sectors felt competition from, let's say, China. People got unemployed, wage, relative wages, the curve went from flat to steep. They started throwing money at the problem in order to try to cover it up. Not to solve it, but just to cover it up. In other countries, you had a huge increase in mortgage-related household debt, which enabled private households to smooth their consumption patterns over 10, 15 years, despite all the challenges to their nominal income due to globalization challenges. And in other countries yet, my prime example is Italy. You had a huge increase in corporate debt. If you look at the last IMF Global Financial Stability Report, you will see that they calculate a corporate debt overhang, however that is defined, of around 150 billion euro in the Italian corporate sector. And so this is not a euro area crisis. It is rather a crisis of how industrialized countries dealt or didn't deal with globalization. There are very few examples. Norway, Canada, Australia, Switzerland. Usually the resource-rich countries, Switzerland, of course, having a natural resource called banking secrecy. That combined with, I think we don't reflect often enough on the role of U.S. monetary policy in creating the crisis, that combined also with bad regulation and even worse supervision landed us in a situation where most economies of the industrialized world were over indebted. And then we indeed had a specific add-on-euro area twist because exchange rates as a matter of equilibrating external imbalances did not work any longer, and our societies, our policies, our economic policies were not used in order to have the requisite internal adjustments instead of the disappeared exchange rate adjustment possibilities. So how did we then end up in Europe with a financial system which still has not adequately restructured, which has not adequately deleveraged, and which has not recovered? And I think the problem goes back to early 2009, when we still thought that we had a banking crisis because of those Americans. And there was the first realization that there is an important euro area dimension to it. And the then EU presidency, President Sarkozy called for a meeting of the, I think we were 17 at the time, 17 heads of state and government. There is always a surprise visitor there whenever, at the first meeting of the Eurogroup in 1999, the surprise visitor was Gordon Brown. At the meeting of the euro area heads of state and government, the surprise visitor was Gordon Brown. But they discussed what can we do in order to coordinate our response to this important banking crisis. And essentially what they said after lengthy, lengthy discussions, they said, well, let's just respect the EU state aid rules. I'm being only slightly nasty. And then everybody went back home and thought, okay, I'll do whatever I will do. And the example of how things then went in capital, I'm not saying it went like that in Dublin or that it went like that in Vienna, but the stylized facts, I'm afraid, are correct. The CEO of a bank then went to the prime minister or the finance minister and said, minister, I've got to be recapitalized terribly sorry. The minister said, all yours, have as much as you want. And the CEO said, you must be bunkers. If you give me lots of money to recap my nice little bank, who will come along, Almonia. And Almonia will tell me to change my business plan and my business model. He will tell me to sell my subsidiary in Romania, Portugal, wherever. The blighter will even tell me to stop giving forex loans to unsuspecting foreigners. I said, the finance minister, we don't want that, do we? Okay, so we'll just recap you a little. But we'll give you nice core tier one equity. Come to that. Give me just some other kind of capital and why is that? He said, well, in five years time, you're going to sell your shares in my bank. And I know you're going to sell them then on the stock exchange and then some German will come along or some Russian will come along and buy up shares in my nice little Sparkasa, Kacha, Kess DuParn, Kasa, Dirich, Sparemio, what have you not? Good grief, can't let the foreigners into our market, can we? So the whole thing was very much an industrial policy type approach to recapitalizing national banking systems. And you had 17 distinct little pillars. Even the German pillar was a little pillar standing next to each other. And what was the result? They recapitalized by just the bare minimum. What did the Americans do? They got all of their bankers into the room and told them to get on with it, recapitalized them up to here, write off all your challenged loans, dubious assets, write it off, get on with it. And lending restarted a couple of years later to the economy, which is not the case in Europe. And it was because we had 17, 18, 28 very, very national strategies of supervisors cooperating with their politicians because banking was the industrial policy darling of the last 15 years. Many decades ago it was steel, it was automobiles, then it was electronics, now for 15 years it was banking. This industrial policy type approach to the crisis in the first years will stay with us for quite a couple of years because it will color the way how we come out of the recession, out of the problems, and how we will be able to generate lending again to the economy. However, here comes Banking Union. We'll see if it helps. I believe it does. So what will change? As of late next year, we will have a single supervisory mechanism, a single supervisor in Frankfurt supervising directly 128 banks and indirectly the other nearly 6,000 banks. Just as an example, what does this change? Had we had a single supervisor four years ago, the CEO would have gone to Frankfurt to Daniel Nguy and said, dear madam, can I have a little money? And she said, you'll take a hell of a lot of money. They said, no, but then I have to change my business model. And she would have said, that's the point. Things would have been totally different. The banks would have sold their subsidiary in Romania and in Portugal, they would have stopped doing this. They would have written off very much of the assets that are still in their balance sheets four years after. And lending to the economy would have started again. So the single supervisor, I think, will be the largest change to the economic policy landscape in Europe since the introduction of the single currency. And over time, it will completely change the way monetary union functions. And if I say monetary union, it is, of course, intellectually wrong to say that because a single supervisor is something that is very closely associated with an internal market. Our financial systems are so closely intertwined that having 28 different financial supervisors sitting next to each other, sometimes with each other, sometimes next to each other, 28 for banking, 28 for insurance, 28 for securities markets. This simply does not work well. However, an island to the east of you which is slightly larger than this one decided that it had something to do with monetary union and therefore, we are all pretending that the single supervisor is something to do with monetary union, but it is internal market in reality. And that is also why there is a possibility to opt into that single supervisory mechanism for those countries that are not part of the euro area and some of them I am very sure will tell us next year once our legal situation has become clearer, they will tell us that they will want to be participating. Now, if you are a single supervisor newly setting up shop, unfortunately, I shouldn't say, but I'm not a friend of central bankers doing supervision. Having the ECB do it is a very good solution, it's a very good second best solution. In an ideal world, you would not have a central bank doing it, maybe with the next treaty change one will be able to not physically but legally change the situation. Anyway, if you're a new supervisor and have a very, very good reputation and your interest is in retaining that very, very good reputation, what do you do when you get a present? You open it up and have a very, very close look at what the present looks like. You have an asset quality review. An asset quality review, as it says, is a snapshot in time of the assets of the 128 banks it's supervising, going to supervise. And then they run a stress test on that and then in the autumn of 2014 the single supervisor will tell each and every bank one figure, the one figure can be zero or it can be larger than zero and if it's larger than zero then it's the shortfall of regulatory capital which they've got to fill. Now, we've had a history of stress tests in Europe and the history has been an unfortunate one and why was it unfortunate? Well, largely because EBA who was designing these stress tests started out very ambitiously saying we need a stringent, transparent, etc. stress test always adding like the Americans. And then national politicians started getting worried. Banking industry started getting worried. You can't do that because then the recapitalization needs will be too large and it's all at the same time and markets are stressed and the finance minister would chip in and say I'm not going to spend any money to recapitalize you. So all of a sudden the standards went down and markets made fun of us. So the stress, the past two stress tests simply were not credible. It was not the supervisors running the stress test. It was the people sitting on EBA and the supervisors. But this time it is different. How do you sit on the ECB? My experience is that if you try to sit on the ECB it gets harder, not softer. So maybe if you want a very stringent stress test sit on the ECB. It's very unsit on a bull. And simply psychologically it is in their interest to have as stringent a stress test as they believe is necessary. And out will pop then this one figure of a shortfall of regulatory capital and it's my expectation that they will then tell the bank you've got half a year or so, cover it in the markets. And then they turn to us, the ECB did and said, Backstops, what's a backstop? A backstop is if somebody, if I run out of money and you're my backstop I turn to you and ask you for a little bit. So we clarified about two weeks ago, three weeks ago how the waterfall of events would be once a bank had been identified as having such a capital shortfall. First it goes to the markets. If it can't raise the capital there it turns to the government which may recapitalize it in agreement with the European Commission following state aid rules which say that as a minimum equity and junior bond holders need to be bailed in. If the sovereign in question has impaired access to markets then this sovereign can ask for a program, an ESM program analogous to that of Spain. There the jury is out. We have not finished discussing it. If the bail-in also need to go as far as senior bond holders we will know more about that early next year. And if all of that fails because of even more impeded complete loss of market access then there can be a direct recapitalization of the bank concerned by the ESM in which case there would be mandatory bail-in of equity, junior bond holders, senior bond holders. Now the bail-in and this is a source story of how this has developed maybe too slowly for the taste of some is of course that there has been increasing political political realization and pressure to minimize costs to taxpayers and that was one of the main areas of negotiations in recent months in the so-called recovery and resolution directive which intraalia prescribes how as the name says the recovery and resolution of banks in problem are dealt with and in which sequence bail-in and up to where bail-in of creditors is to happen. The European Parliament has been working on its position which we will be confronted with early next week and they have completely different views on bail-in at present than the Council of Ministers. So but if you have all of these instruments then obviously you want to have a mechanism which prescribes how resolution of a bank is done and as we are speaking negotiations somewhere on the continent are ongoing and we will be negotiating that next Tuesday, Jim and I will be there and hopefully we will emerge Wednesday 5 in the morning with a result on the single resolution mechanism. In the Q&A if that is of interest to you we can go into the questions which are still open but such a mechanism also of course needs money and it needs the money in order to put into banks to be restructured once a certain level of bail-in has occurred and whenever money is concerned people start getting extremely nervous the idea is to fill up this so-called single resolution fund which may be composed of national resolution funds or be one big European thing by filling it up with 55 billion euro over 10 years. What happens if we have a crisis in the first 10 years? So we are negotiating how should we fill it up more rapidly than that possibly by giving loans to resolution funds either from the ESM or from sovereigns that will be decided on Tuesday. Then you also need a backstop in the steady state i.e. if in the year 2030 the single resolution fund is completely emptied because of major banking catastrophe in Germany and if there's zero money in there who's at who's around in order to help out this fund and if you say well it's the member states who jointly and severally guarantee and would fill up the bank then all of a sudden you are with more than a big toe in fiscal union because you have taken away the prerogative of the sovereign to decide exclusively by himself on how his budget remains are utilized. So this will not happen but we will have I think as a backstop for example the ESM which still keeps our constitution ensures the respect of our constitutions and all of that to be complimented by agreement on deposit guarantee directive of which I will say not very much because as you know in the crisis deposit guarantee schemes played if at all a very very minor role. So the question is then when and if we complete nearly complete banking union in the coming year and years what will change? First as I said the address C of concerns of banks will not be the national supervisor the direct address C of the large banks will be the single supervisor also for only indirectly supervised banks the national supervisors will have to act in agreement with a single supervisor in Frankfurt. There will be developed a single handbook on how supervisors should be acting and behaving and sitting in a country with a high standard of governance you may think this is not necessary. I can tell you there are a couple of member states who would profit enormously from having considerably higher degrees of standards of governance than they have at present. You would be able to do away with supervisory action at the national level which ring fences liquidity within a single market. You may think that this is not important. Go and ask which is not one of the smaller European banks. Baffin the German supervisor has been ring fencing liquidity of the German subsidiary for years in Germany and therefore has a significant positive balance with the ECB. The parent company in Italy has a significant negative balance with the ECB so in a normal firm in a normal internal market liquidity would flow from Germany to Italy and only credit would have a more or less balanced balance liquidity balance with the ECB this is not the case and is of course a direct if you compare what they get at the ECB and what they pay at the ECB it's a hell of a cost element for only credit many other such examples exist I will not go into them because it is I take I like to take this example because it shows it's not only the south which are doing things which impede the internal market and lead to market fragmentation as things then unfold and we have cross board emerges and acquisitions as liquidity can flow without any further impediments between member states we will I believe not overnight and not within a week but we will be able to see a defragmentation of the of the internal market of the European Union at least for those countries which are under the single supervisor however of course that still begs the question where will growth come from where will credit come from in future years and we are faced with a very difficult situation that banks have to build up capital they have to deliverage whole sectors of the economy will continue to deliverage for the foreseeable future this is with us for the next for the rest of this decade balance sheets of banks will shrink and where will lending to the economy come from obviously we will all have to shift much more to an American model of funding via the capital market many of the large corporates are already tapping capital market so that means that many mid caps SMEs will have to go that way which means that they will have to turn to investment banks there is not a single investment bank in Europe that can afford so we will have to have a totally different business model for investment banking cheap off the shelf investment banking in order to ensure that these firms can actually finance their investments where will long-term financing come from not from commercial banks not long-term financing of normal investment projects but infrastructure financing and more risky R&D financing and the finance ministry here in Dublin has been leading an expert group for the past year approximately which has been dealing with exactly these questions so at present I think we have lots of questions and some but not very many answers but very much of this will simply lead to structural and behavioral changes within the European banking industry and therefore over all financial markets and therefore all for all of us as consumers as savers as investors and as taxpayers but I believe coming to an end but I believe that what we are doing in Brussels and what we are doing in Frankfurt and what we are doing in all capitals by complimenting the currency union that we have even though it's an internal market issue by complimenting the currency union that we have with a banking union we are moving a very very very significant step towards stabilizing the Euro area as a whole have we there will done everything that needs to be done my personal conviction is that no you still need to move further you have to move further into some elements of fiscal burden sharing and risk sharing if you don't do that there's still more work left we'll leave that to our successors Jim thanks very much