 The European Monetary Union, as you know, has had ten very, very successful years. But after these ten very successful years has encountered a, what I would call, a very serious crisis. We have seen some progress over the last few months with regard to that crisis, because we have seen a fiscal compact which has been agreed. The ESM has come to life. There is a preliminary agreement at least on what will be a banking union and at least a European single supervisory mechanism. And most importantly, more member states of the euro area have embarked on broader economic reforms. Having said that though, the crisis is far from being over and at least we think progress is too often painfully slow, not in all but in some of the countries involved. Now when talking about the euro, the successes, the setbacks and the way forward, I believe that your country, Ireland plays a very, very important role. Ireland is a very open and flexible economy and as such an open and flexible economy with a, as you know, highly skilled workforce, Ireland very much has seized the opportunities presented to Ireland by the global and especially also by European integration. When you joined the EU in 1973, you were one of the poorer member states. Since then, just to recap, the real per capita income in Ireland has increased more than two-fold and is today among the highest in the euro area still. Ireland has benefited from several factors. First of all, don't underestimate your low barriers in terms of language and culture to the US and to the UK. That has certainly helped but Ireland also has done a lot to raise its growth potential by improving the skills of the Irish labor force by lowering corporate taxes and by maintaining flexible labor and product markets. As a result, Ireland attracted a lot of foreign direct investments and became a, as I just said, remarkably open economy and I say that as a German and we also have a remarkably open economy so I know what I'm talking about. But we also know very well that this remarkable success story in Ireland has suffered a number of setbacks. In the light of the crisis, some economic developments have proved, I would call it, unsustainable. The Irish real estate boom as, by the way, so many other real estate booms actually provided a temporary boost at the time but it raised private debt to worrying levels. I may remind you this was 250% of GDP in 2007 and it diverted capital away from potentially more productive uses. Now, exploding unit labor costs have eroded the competitiveness of the Irish economy at least to some extent undermining the very core of your growth model so far. But even though the last few years have been challenging, I think or we think many signs point to a silver lining. There has been significant progress in reforms with the results to show for it. Let me repeat them or let me reiterate them. One track deficit reduction, falling unit labor costs in Ireland, a positive current account and last but not least a return to positive growth in Ireland. To sum it up, I'd like to say here that I'm very much confident with regard to the Irish case and I'm more and more convinced that we are witnessing a resurgence of, that is instructive for the Euro area as a whole. The problems experienced in Ireland are by no means confined to your country but they are actually typical of what went wrong in the run-up to the crisis in which we are all in. Thus the reforms undertaken in Ireland hold valuable lessons for the wider monetary union but what exactly did go wrong at the onset of European monetary union? For many Euro area member states the introduction of the Euro ushered in a new area of abundant capital. In the case of Ireland for instance, in your case capital inflows amount to about 2 trillion euros between 1999 and 2008. In principle this is exactly what standard economic reasoning predicts and would have predicted. Capital actually was flowing from capital rich to capital poor economies where returns should be higher. Such flows complemented limited domestic savings in capital poor countries and reduced the cost of capital and by that boosting investment and growth. As we all know it did not actually always work like that. Overblown financial sectors channeled the capital flows into unproductive investments. Ireland is certainly a case in point as light touch regulation and tax incentives encouraged the financial sector to balloon. Overinvestment in real estate as well as in public and private consumption failed to boost productivity in Ireland. Unit labour cost soared, competitors in Ireland declined and rigid labour and product markets meant that this process gained unfortunately additional momentum. When the financial crisis broke out in 2007 all these vulnerabilities became very apparent in Ireland. Growth in Ireland imploded deficits which were often already too high before the crisis exploded and cracks in the Irish banking system started to show. As an aside you may recall that these cracks extended by the way right into Germany where Irish subsidiaries or special investment vehicles, special purpose vehicles but their German parent companies into quite some trouble. Not surprisingly investor sentiment began to shift and also interest rates in your country started to rise sharply triggering a major crisis that is still far from being resolved. Now the question I'd like to ask is how could this all go so wrong? Key to understanding the crisis I think is the Euro areas unique institutional setup a setup by the way that easily leads to simple and faulty analogies with other economies. As you are very well aware the Euro area appears a common monetary policy a central monetary policy with 17 national fiscal policies. Firstly this combination gives rise to a deficit bias as it allows costs to be shifted partially onto others. If a worsening fiscal position in one country has repercussions for our monetary union as a whole others may step in and bail out. And secondly central banks balance sheets can serve as a conduit for shifting risks among national taxpayers even if there are no explicit fiscal transfers. Now the founding fathers of the Euro clearly foresaw that risk. Precautions were taking at the outset in the form of the prohibition of monetary financing of government deficits price stability as the primary objective the no bailout clause and the stability and growth pact that was to give tease to the rules on sound public finances enshrined in the Maastricht Treaty. However the fiscal rules I just mentioned were breached and they were not only breached once but they were breached numerous times by the way not least by Germany and France. In addition investors made hardly any distinction between the bonds of individual member states in the Euro zone. I leave it to you to decide whether this was because the investors neglected the growing differences in the economic fundamentals or because they never really believed in the first place that the no bailout clause would hold once the going got tough. While the provisions against unstable fiscal positions proved to be insufficient the institutional framework took no account of other macroeconomic imbalances risk stemming from divergences in competitiveness or risk stemming from exaggerations in national real estate sectors were not considered in the design of the European Monetary Union. Hence even countries that had impressive fiscal data before the crisis ran into deep trouble once the enormous implicit liabilities in their banking sectors became apparent Ireland unfortunately was one of those countries. Assessing the Irish economy in 2007 the IMF and I quote the IMF for pure convenience not to blame it. In 2007 the IMF wrote and I quote fiscal policy in Ireland has been prudent with a medium term fiscal objective of close to balance or surplus in line with fund advice in the past couple of years windfall property related revenues in Ireland were saved and the fiscal stance was not pro-cyclical in lined with funds advice. End of quote however once the risk of the financial sector materialized and the government had to step in Ireland's fiscal position as you know deteriorated very very quickly. To overcome the current crisis and to prevent future crisis I think we have to address these problems I've just described and this has to happen both nationally and at the European level. So far a number of steps have been taken at the beginning of my speech I mentioned for example the ESM to which I may add the fiscal compact and the new excessive imbalance procedures that have been established to prevent market economic developments from diverging too much in the future. Nevertheless the painful task of correcting past mistakes lies mainly with the member states. In this context I wish to point to Ireland as a good example of what has to be done and what can be achieved. In this regard I view Ireland actually as a role model for the countries in the European periphery. I have already mentioned the decline in competitiveness that occurred prior to the crisis and this respect Ireland certainly had a steep mountain to climb. In 2008 let me remind you the Irish unit labour cost as an indicator of competitiveness Irish unit labour cost were more than 40% higher than at the launch of the European Monetary Union. Still the not least thanks to flexible labour markets the necessary adjustment has been swifter in Ireland than in other member states. There was a similar experience with the bubble in the Irish real estate market your problems became apparent earlier than in other member states with property prices starting to fall in the last quarter of 2007. Hence Ireland responded earlier than other countries and it responded in a determined manner to a shock which as of today has cut property prices actually in half. As a result the restructuring of the banking sector is more advanced in Ireland and costs for bank loans to firms are now lower than in countries such as Italy or Spain. This highlights the fact that it is sometimes better as I would call it to take a big bath rather than just a shower and it's better to take it as soon as possible because as we all know the water typically gets colder as time passes by. But the situation in your country also highlights something else. It highlights the dangerous link between banks and sovereigns. Looking to the future this leak has to be broken or at least it has to be weakened significantly considerably to prevent history from repeating itself. Let me first step back and take a look at why the close link between banks and sovereigns has proven to be so problematic and so dangerous in this crisis. If many banks run into trouble at the same time possibly on account of a large asset bubble bursting financial stability as a whole is threatened. The government then often has no option but to step in if it wants to prevent the meltdown of the real economy. But such a rescue can place a huge burden on government finances and no country knows they're better than Ireland where support for the financial sector was a major factor why the debt ratio in your country soared from 25% of GDP in 2007 to 108% in 2011. Conversely weak government finances can destabilize banks either directly through the exposure to sovereign bonds or indirectly through worsening macroeconomic conditions. That is also what we are witnessing at this very moment. This is why I believe that breaking the link between banks and sovereigns is so vital for making the EU area more stable. Now a banking union can very well be a major step in that direction but by harnessing the disciplinary forces of the market by harnessing the disciplinary forces of the market not by doing away with them. Core elements of a banking union therefore have to be first a comprehensive bail in of bank creditors and second an appropriate risk weighting of sovereign bonds. In order to minimize the risk that bank rescues post to government finances creditors at least we think have to be first in line when it comes to bearing banks losses. Implicit guarantees have to be removed as taxpayers money can only be the last resort. By the same token sovereign bonds need to be risk weighted appropriately when it comes to the adequacy of capital buffers. Riskier bonds have to become more expensive in terms of the amount of equity that they tie down actually as is already the case for non-sovereign bonds. This basically serves two purposes on the one hand surcharges of this kind should translate into lower demand and hence into larger spreads which gives a disciplining signal to the respective sovereign and on the other hand banks would become more resilient in the event of a market turmoil. Adequate risk weighting of sovereign bonds helps to prevent fiscal difficulties from translating directly into financial instability. This is crucial if fiscal autonomy is to remain with national member states which is by the way still the status quo in the EU treaties. Banks have to internalize the fiscal positions of sovereigns in a similar manner as they take into account the risk of corporate bonds or loans. Otherwise the envisaged recapitulation of banks via European funds could turn out to be a backdoor for mutualizing sovereign-solvency risks. I therefore believe that these two regulatory reforms a comprehensive baleen of creditors as well as an adequate risk weighting of sovereign bonds need to complement the envisaged European supervisory mechanism. As I said in principle the single European supervisory this single European supervisor can help prevent future crisis by enforcing the same high standards irrespective of the bank's country of origin and by taking transnational interdependencies into account. At the moment as you know it looks as though this task shall be carried out by the European central bank. This is first of all an expression of confidence in the competence of central banks in general and in the ECB in particular. Conducting monetary policy and financial supervision though does not come without risks. If the institution responsible for ensuring the financial soundness of banks simultaneously influences banks' financing conditions via its monetary policy conflicts of interest may arise. Besides the resolution of banks implies intervening in property rights which requires democratic accountability. In the ECB if the ECB is to be tasked with supervising European banks there will have to be a very strict separation of monetary policy and supervision. Such a separation will be difficult but not impossible from both a legal and an organizational point of view. In this respect there's still a lot of questions that need to be resolved and we hope for them to be resolved. A banking union will contribute to financial stability if its designs preserves sound incentives for all actors involved. This holds true not only for future risks but also for risks that have already materialized. Economically speaking a banking union is basically an insurance mechanism and as with any insurance only future losses or damages that are unknown ex-ante can be covered. Let's have no doubts the banking union is a very important building block for a more stable monetary union but as such it is meant to mitigate future risks and not to cover past sins. In this context I fully understand that Ireland is closely following the conditions under which EU area member states will provide financial assistance to Spain for the recapitalization of its financial institutions. One specific point is the degree of bondholders participation in the Spanish restructuring process. The EURO Group stated in July with respect to Ireland let me quote that our cases will to be treated equally taking into account changed circumstances. End of quote. However as this issue is I understand currently under discussion in Ireland I prefer abstaining from public comments instead I would like to share my view with you on the issue of legacy assets in general. Legacy assets are those risks which evolved under the responsibility of national supervisors. As I've already said it follows that these assets have to be dealt with by the respective member states. Anything else would amount to a fiscal transfer. It may be that such fiscal transfers are desired and even deemed necessary but then they should be conducted via national budgets and subject to approval of national parliaments rather than under the guise of a banking union that would then have to start under a heavy burden. And in the event of such transfers the proper sequencing of events is very important and key. We should not end up in a world where risks from bank balance sheets are rapidly neutralized while an effective single supervisory mechanism would be slow incoming. A banking union will therefore not be a quick fix but it can be an important milestone towards a more stable and prosper monetary union and it may well be instrumental in regaining confidence in the euro area. Now Ireland has already come a long way in this regard as your successful return to the capital markets in July has shown. Trust has been regained because if I may say so, Ireland has walked the talk and I'm sure you agree any deviation from this climb when the mountaintop is already inside would prove both short-sighted and costly. More precisely, when listening to the discussion on more leniency for Greece I can understand that demanding similar adjustments to the Irish program seems tempting at first glance but we have learned I would say I would add the hard way over the last years. Trust is as easily lost as it is hard to regain. Ireland has made what we think enormous progress in the process of regaining trust and confidence. Important financial market indicators are an expression of that regain of trust and confidence. CDS Premier, just to pick one example for the Irish sovereign have fallen continuously this year. In the meantime, Irish CDS Premier are below those of Spain and even Italy. The same development can be observed for the spreads over German bunds. All of these developments are the result of leading by example with structural reforms. Hence I see no reason for Ireland changing the course and I doubt that this would truly be in Ireland's best interest. I really suggest not to jeopardize what has been achieved so far which has been very much. Ladies and gentlemen, when we talk about Europe Ireland is such an interesting example for a number of reasons. First, it highlights the benefits of a unified Europe which still leaves its member states enough room to establish their own model of success and Ireland has certainly seized that opportunity. But the Irish experience at the same time also illustrates some of the things that have gone wrong in Europe over the past decade and I have mentioned many of them in my short speech. Nevertheless, and even more importantly the Irish experience holds valuable lessons on how to overcome the current crisis. Of course Ireland has not yet overcome all of its problems. Every country is different and challenges are never exactly the same but I believe we all can learn a great deal from the Irish way of handling the crisis and that's why I would say as goes Ireland so goes Europe and there should not be a question mark. Let me conclude my speech with the single most important and most encouraging lesson we can draw from the Irish experience. Yes, it can be done. Thank you very much.