 So, yeah, as Dan said, I'm about to depart, I thought it's a good idea to sort of think about what might be some lessons of the program that took place while I was here. This is certainly some work that's shared with Craig Beaumont and Ashok Bhatia and so the three of us are collectively responsible for it. So just maybe a brief outline. Of course, I think everybody in the room sort of knows why Ireland got into a crisis and needed a program, so I won't really go into that. I thought it would be good to maybe just remind ourselves of what the situation was like back then and what was the program strategy and then look at how the program worked in practice, what are the remaining challenges and what are some of those preliminary lessons that can be learned from the experience and it'll be good then also to hear from you what you think are some of the lessons. So maybe starting with what was the program strategy, I think the first point to make is that even before the program started, there was already a substantial, large response by the authorities in Ireland that preceded the program, so the crisis really started in 2008 and for two years there's been heavy policy responses in the financial space. You had the government guarantee, you had commercial real estate loans going to NAMR, nationalization of banks and capitalization of banks, there was already a substantial fiscal response and same in the structural area, you had the Croke Park Agreement, so there were already tons of things happening but then still by the end of 2010, the deposit flight and net repayments of debt continued in such a way that Ireland found it impossible to maintain market access and so as a result needed to seek official financing. So the challenges that were there at the beginning of the program at the end of 2010 were that already public debt was very high, it was already over 90% and despite actions to capitalize the banks, it was still unclear how much more was needed. There were sort of rough estimates of 35 billion. The public deficit had become very large because it was very dependent in part on stamp duties taxes and so when the economy collapsed and there were no more real estate transactions, that was one large cyclical factor and generally recovery prospects were in doubt. So basically what we confronted was this famous sovereign bank loop. I thought it was just a good idea just to remind ourselves what that was and in a way perhaps even though the economy is much in a much better state today it's something that could still be there with very large public debt. Basically the point is that with the uncertainty of how much fiscal cost, fiscal support was needed for the banks, you had questions about can the sovereign continue to access the market because the sovereign will have to service all that debt that the sovereign is taking on to help the banks. So this then raises concerns about debt sustainability which then in turn makes it very difficult for banks to access the market because banks are always constrained by the sovereign in which they reside and so you have that loop and then in addition you have these other factors floating around in the background. Would there be bank creditor burden sharing? Would there be perhaps a wider private sector involvement policy? So there were these announcements in Deauville. There were questions around the durability of ECB funding and generally sort of a European solution to the crisis. So the existence of this sovereign bank loop really clouded the recovery prospects. So I'll spend a minute here on this chart, it's a little bit complicated but if you take the walk with me, let's say starting in the top bank health and we'll take the green route first which is with bank health put into question there were large bank support needs which put into question public debt sustainability in turn affecting the confidence of households and businesses who were starting to become very reluctant to spend and invest which in turn depressed growth. Now depressed growth meant that income and employment would be depressed which in turn affected households and small, medium enterprises' ability to service their loans further depressing bank health and also there's an indirect route through the property market if there's sort of a depressed household and SME sector then the demand for property goes down which in turn lowers collateral values which again banks' bank balance sheets look less healthy than they are with higher value property collateral. So that's one way of the relationship between banks, the public sector and growth and households and then the other way around is that with banks in weakened state their ability to lend is reduced so as a result households and SMEs are not investing, are not consuming this affects domestic demand, brings growth down this in turn lessens the revenue base for the government which further undermines questions about public debt sustainability and therefore also the funding costs for banks go up again as I mentioned banks are very dependent on the sovereign under which the jurisdiction in which they operate so you have these sort of multiple complicated interrelations of balance sheets and flows between the various sectors that really fed these pernicious feedback loops so against this context then the priorities of the programme were first of all to address the immediate need which is to restore financial stability and sort of triage the patient and do the first aid and then also secondly to have as an ultimate goal access for Ireland to regain market access by reducing uncertainties with respect to financial system viability with respect to public debt sustainability and with respect to the sustained economic recovery so we'll take a look at both first the immediate need so of course a large wall of money was made available 85 billion of which the Irish authorities themselves contributed 17.5 to restore confidence to show the market here we have resources available to deal with that and then to recapitalise banks because there was all this uncertainty you know how healthy are the banks people didn't want to do business with the banks in order to restore confidence in the banks it was really important to get to the bottom of the vulnerabilities in the balance sheet so this is when the famous Pika the stress test in 2011 was conducted it was done with very credible assumptions it was done by an independent third party and so as a result was successful and served as a model how to restore confidence including the communication around it which is very important and so they were further actions you know the ECB made a helpful statement in terms of the durability of the funding it has provided there was a plan for the banks you know viable non viable banks and so forth that helped to bring the situation under control an important aspect was and I'll deal with that in the next slide to clarify the burden sharing by bank creditors of course in Ireland everyone is kidney aware of that situation there were lots of questions whether senior unsecured debt issued by banks should be bailed in or not with arguments on sort of both sides you know of the argument that if you did that it could have a large adverse impact in European banks who were holding that debt but also possibly in Irish banks because all the Irish banks whether they are deemed viable or non viable might be all lumped together and if one of them is bailing in this senior unsecured debt then perhaps it may be difficult for the others to access the market so that was one side of the argument the other side of the argument said well these are people who took the risk they were paid handsomely for that risk and they should bear the consequences of taking that risk in the end lots of discussion in the end the program went ahead without this bail in although Europe has since then changed you now have rules that clearly lay out the hierarchy of risk takers on bank liability so there's been a change and perhaps that there's already implicit first lesson I'll get to that towards the end now as we move away from the immediate sort of policy response when the program started there were other issues as I was saying that the program sought to deal with so in the financial sector it was not only recapitalizing banks but once you had done that you needed to do something with the banks you needed to restructure them to make sure that they would once again become viable contributors to economic growth there was downsizing the famous deleveraging that was in order to bring bank's assets in line with the liabilities that they would be able to maintain over the medium term and then of course as non-performing loans went up it was important to resolve them so as to restore the health of the banks maybe just a moment here on why is it so important that impaired loans are resolved there's one channel which is if a loan isn't paying the interest that the bank thought it would be paying that's of course there's no income coming in so it affects bank profitability directly but it also affects bank profitability indirectly because the funding costs of banks are higher so if there are lots of non-performing loans the market doesn't really know is that balance sheet healthy or not you know what's the degree of provisioning is it appropriate or not so that uncertainty will make lenders wholesale funders whoever make hesitant to lend to banks so they will ask for a higher return which of course increases the costs of the banks also undermining their profitability of course there are other reasons in terms of you know the assets if there's uncertainty about the underlying asset then that asset isn't being maintained properly and investment is subdued so growth is actually less so there are lots of other reasons why dealing with impaired loans is important but anyway so we've got the financial sector of course supervision and regulation was thought to be a contributor to the crisis so dealing with that was important and then the other factors fiscal consolidation I already mentioned the high deficit so that needed to be dealt with and it was decided to do that it was large and front loaded although not as large as in other countries so it was faced over a longer period so as to take into account the harmful effect that fiscal consolidation has on the economy so on the one hand it's needed because you need to restore an equilibrium in the fiscal sector but on the other hand you don't want to do it in such a manner that it you know sets off an adverse feedback loop there were also some structural reforms I really won't focus on them from our perspective there was lots of stuff that could be done but there wasn't necessarily sort of macro critical in terms of addressing the reasons of the crisis the causes of the crisis so the financial sector maybe I already talked about these things so why don't I skip this move on to fiscal consolidation again that's just more detail I want to leave enough time for the discussion so I'll be skipping some of those slides especially when I already mentioned them maybe just one point to make here on containing fiscal prosyclicality there is this issue on and in fact I guess it's in the current debate as well on the sort of the headline deficit as a percent of GDP versus the absolute amount of effort so at the fund we have often stressed to focus on the absolute amount and to not be overly preoccupied by what that means in terms of deficit as a percent of GDP by focusing on the absolute amount there is a way to measure whether you have stuck to your objectives whether you have stuck to what you said you would do so it helps to build credibility and if the world turns out better that means tax revenue is more than anticipated that means you have a buffer and that buffer is important because on the one hand there's always a lot of uncertainty with projections for Irish GDP numbers and also that buffer helps to get to the medium term goal of structural balance and on the other hand if things turn out worse that means tax revenue is less than projected and that means you would miss your deficit as a percent of GDP target but you let the automatic stabilizers work and avoid an excessive tightening that could ultimately trigger a negative feedback loop so maybe just to emphasize at the end of this section that there are these trade-offs and that the program tried to take into account that fiscal consolidation on the one hand was necessary but on the other hand there was a desire to allow domestic demand to recover and avoid excessive tightening in the deleveraging space on the one hand one did need to bring banks' assets in line with their liabilities because central bank funding can't be provided forever so there needs to be a path of transition to the new equilibrium but that needed to also be phased because if you insist on a disposal that's too quick then you can have a fire sale situation where you cause more losses than is necessary and same in the loan resolution space that on the one hand you need to deal with it you don't want the banks for some of the reasons that I just mentioned already you don't want the banks to become zombie banks with large amounts of unresolved assets for extended period but on the other hand you need to give time for this restructuring to be durable and to be at a minimum cost so those are some of the trade-offs that we constantly dealt with and it's always hard to know ex ante where exactly you are in these trade-offs so it's decision making under uncertainty so let's have a look at how things worked in practice I think the first point here to make is that we didn't really anticipate how bad the Euro crisis was going to be it was much worse than expected so you can see here some of the sovereign bond yields of four countries in Europe they spiked up significantly and in Ireland the program started at the end of 2010 by mid 2011 you can see that the yields are incredibly high this is around the time that I came and I remember the first thing that I heard everybody was saying the program isn't working the program isn't working, look at the yields and well I'm happy to now see the extension of this chart the yields have come down I think today's 10-year bonds are below 2.5% so of course there are lots of factors that contributed to that, Irish specific and beyond but so what else happened? Well growth, as a result of the Euro area crisis growth turned out to be weaker than had been anticipated so that first row there GDP shows what growth turned out to be so in 2010 minus 1.1 2.2, 0.2, minus 0.3 and in brackets you see the difference to what we had projected so in 2010 this is a projection that was made at the beginning of the program in 2010 actually the economy declined even more than was anticipated in 2011 there was a positive surprise significantly 1.3% and then 2012 and 2013 disappointed relative to projections now it should be said that the book hasn't been closed in 2013 yet just like lots of people in this room we anticipate that the numbers for 2013 may be revised upwards and so that disappointment that you can see there may not be quite as large but so some of that of course as you can see there was driven by the patent cliff that had a larger than anticipated impact on exports now oh what happened here okay well the lines you can just interpolate them in that orange area the point of this slide really is to show so it shows sort of three variables employment, house prices and investment and the two dotted lines that are on either side of that orange rectangle indicate on the left hand side the start of the program and on the right hand side the 2012 June 2012 you know banking union and announcement by the ECB whatever it takes so those were key moments that really contributed to the turnaround in Europe and in Ireland but clearly Ireland managed also to differentiate itself in part because of having built up a lot of credibility and so you know these years 2.5% are a good reflection of that so financial sector progress there's been a lot significant recapitalization banks you know caught here one capital it's very high provisioning guidelines have been tightened there was the balance sheet assessment and banks took that into account and increased their provisions there was significant deleveraging that the program was adjusted to respond to concerns by the authorities that the deleveraging targets weren't set properly so there were sort of lots of fine tuning as we went along so provision was strengthened I guess we can get back to some of those issues later maybe one issue that is still a very is the areas in this case here you see mortgage areas you see how they kept on increasing throughout the program period so it's really only in late 2013 that you saw an initial decline of some of the areas I see the time slipping away so maybe I'll sorry I'll skip this one here just the point about the insolvency reforms they took some time to implement and the fixing of the famous done judgement was somewhat contingent on that so that explains perhaps some of the delay in bringing mortgage areas down but then when this the famous March was implemented that's the mortgage areas restructuring targets that really seemed to get things moving in 2013 so they were introduced in early 2013 and since then banks have been working on that of course they knew that in parallel the insolvency framework was being implemented and so that provided an additional incentive for them to come to bilateral agreements with their borrowers because they might have thought that a mutually preferable arrangement can be found on a bilateral basis as opposed to relying on the insolvency framework but still major work remains with a total of non-performing loans of about 27% of all loans here just the point being that fiscal kept on track despite growth shortfalls so there was really a considerable fiscal effort of course at a cost but that allowed the Irish to maintain credibility and bring down interest costs which is so important in order to ensure a sustainable public debt load part of the program focused on the fiscal framework to strengthen that fiscal rules were strengthened you had the EU fiscal compact going on at the same time the Irish fiscal advisory council was created their expenditure ceilings in place and transparency is generally enhanced also helpful were Euro area support and policies so the loans that island the official loans that island had taken out from Europe margins on them were reduced so interest rates came down again important contributor to making the debt more sustainable because it's not only the number that matters how big your debt is but it also matters when that debt is due so the maturity extension that happened in the summer of 2013 for EFSF and EFSM loans was again an important contributor to make debt more sustainable and also the famous promissory no transaction really allowed island to access low cost target to financing for an extended period which again also helps to make it more sustainable as long as the government bonds that the central bank holds are being sold according to the established schedule I've already mentioned these key turning points there in general Euro area crisis fighting the June 29th banking union and all it takes announcements sorry this also didn't come out so clearly this was going to show you how island's target to balance has declined quite a bit from what is that June 2012 to March 2014 you have a huge reduction from about I have to tell you because you can't see it from around 100 billion euros in June 2012 to around 55 so significant reduction half and that is also coinciding with the reduction in Irish bond deal so so you know quite some success here and as usual both on the downside in the crisis and on the upside usually effects are felt in financial variables first they are the ones that react first and real variables take longer to react island then successfully took advantage of these positive market developments and reentered the market step by step very skillfully taking advantage of some of these announcements that took place with the first treasury bill issuance shortly after the summer 2012 announcements and then reopening some issues having syndicated bond issues and finally getting regular bond auctions back which in turn also helped to get these upgrades by Moody's and SNP and so forth which took comfort in the fact that as interest rate was coming down the debt was becoming more sustainable and allowed them to give ratings upgrades and the banks followed right along with the sovereign with you know these are just a couple of mostly covered bond issues but also the black one is the Bank of Ireland senior unsecured bond issue you can see how also here as the sovereign recovered that allowed banks to recover to some extent as well so what are the remaining challenges debt is still very high last year we estimate it was 124% of GDP and that will unfortunately require sustained primary surpluses for quite some time to allow paying back the debt directly but at the same time also hoping for GDP to improve that number as well and so the process of expenditure reforms and tax base broadening would need to continue in order to allow that to happen banks capacity I was talking about the high NPL number actually still affects banks capacity to support the economy so that needs to be resolved so that they can help make this a investment to help promote investment in the economy essentially of course with very high private debt households have 200% of their disposable income in household debt that remains a challenge because households you know there's actually very high savings rate in Ireland but all these savings are diverted towards paying debt and as you pay off the debt you're not really contributing to growth so that balance sheet repair presumably is going to continue for some time and then of course raising employment from low levels remains an important challenge these are just some detailed slides on the challenges but let me get to the last section here so we have some time to discuss and that is what are the preliminary lessons that I talked about at the beginning I didn't mention at the very beginning so let me say it now there will be a separate exercise by a completely independent team in the IMF that will conduct an ex post evaluation and they will draw their own lessons from the program they will check on us they will check on everybody how it went and so that will be the final account so therefore these are just preliminary so this is not intended to be a whitewash it's not intended to be a greenwash it's just a sort of a look back so maybe the first point is that the program bought some time that was used wisely for reforms and of course the resources and the confidence that the program brought with it allowed the authorities to implement quite a range of significant fiscal and financial reforms and that was also fortunately accompanied by significant reforms in the Euro area so the scale of some of these problems especially with respect to debt sustainability and the non-performing loans was reduced as a result of this problem maybe then the second point to make here for the overarching theme of the program is the importance in arresting pernicious feedback loops you have all these negative interactions between balance sheets going on so just to give one example there's always a lot of emphasis on the negative impact that fiscal consolidation has on growth we know that it has a negative impact it's always hard to estimate the quantity of what the quantitative impact is but one should not focus on that in isolation because fiscal consolidation is taking place in the larger economy so what you have going on at the same time is banks that are not landing households that are not borrowing because they are servicing their debt so there are lots of other factors happening at the same time that undermine growth so therefore it is extremely important to try and arrest these negative feedback loops both through domestic policies but in a monetary union also with the help of the partners in that monetary union with respect to the program one lesson that the fund had already learned from the Asian crisis and tried to apply in Ireland was macro-criticality of policies so in the Asian crisis the fund had lots of conditions on all sorts of things that we didn't really have lots of experts to deal with and also it was hard for us to follow it was hard for the authorities to focus their attention because there were so many different conditions so one key lesson was for us to focus policy-making on the key factors that contributed to the crisis that were significant causes in the crisis and that needed to be addressed in order to make sure that the same kind of crisis cannot occur again and to bring the country out of the crisis so there were lots of things in my three years here lots of you guys, lots of people came up to me wouldn't it be nice to do this, wouldn't it be nice to do that? Yes, there are lots of economic rationales to do all sorts of things but from our point of view it was important to stay focused on what really is important to make sure that gets carried through then another sort of lesson adaptability so I mentioned earlier the deleveraging targets were changed so early on in the program there were targets based on loan-to-deposit ratios it was hoped that by having targets like that banks would sort of bring down their loan assets and deleverage on the basis of that but instead what happened was that there was competition amongst the banks in the deposit markets and deposit rates went up and that was not what was intended and so as the program went along this was then changed to focus more on the net stable funding ratio which is a requirement that sort of is scheduled to come in through Basel III regulations anyway so it was important to be able to recognize problems in the design and to adapt and change safeguards were quite important so not to have fire sales both in the deleveraging space but also in the sale of state assets it was quite important to make sure that we wouldn't be forcing fire sales prosyclicality I already talked about that was important to avoid sort of introducing more problems by excessive tightening early on that could have resulted in a negative feedback loop so it was quite important to have some of these safeguards in place to deal with these trade-offs that I talked about earlier ownership was very important the authorities took a very strong stake in the program what we said all the time was true we had negotiated the overall envelope of the consolidation but it was up to the authorities to decide how to get there of course we would have opinions on that and we would express these opinions but it was up to the authorities to decide how to get there and that ultimately meant that they owned the program and that they executed it and saw it through and made sure that these measures were actually taken even if sometimes they may have been a more efficient solution or some kind of solution that we might have preferred so this ownership was very important and also arguably helped buy and in turn helped social cohesion although I suspect that might become part of the discussion with respect to the financial crisis a key lesson is in a systemic bank crisis speed and decisiveness are very important so early on in the crisis between 2008 to 2010 it appeared that the policy response was based on the assumption that banks have a liquidity problem as opposed to a solvency problem for example the guarantee is one example of that so one lesson could be that it's important to err on the side of caution and think that it is a solvency you can never decide this when you're in the middle of it of course but if you're cautious and think that there could be solvency problems then you catch them earlier you can act early on and prevent problems from becoming worse and so you have the traditional once you've identified viable banks you recapitalize them, restructure them, restore to functionality and the non-viable banks need to be resolved and the sooner that takes place the quicker the economy recovers but of course it's not always easy to make that distinction and maybe just a point there that recapitalization by itself is not sufficient it's important like it happened here in Ireland that it must be followed by reforms fiscal policy here the point really is that so fiscal policy was phased in Ireland compared to some of the other countries in Europe as a matter of fact the 3% deficit target that had originally been set for 2014 was stretched out to 2015 and some people argued that it's necessary actually to keep consolidation you know more upfront and quicker to make sure that the turnaround happens and that actually all that consolidation is actually carried out in order to restore sustainability but Ireland is an example where you can have a phased consolidation and maintain the confidence of the market at the same time and in fact re-access the market despite that phased consolidation so it arguably did work thus far in terms of accessing the market at very low rates okay I mentioned these other points already now with respect to debt of course the point being that debt and growth matter so you know this phased consolidation so of course an effort to try and bring down debt without killing growth too much but also with respect to burden sharing the key point being here that risk takers should be allowed to incur losses so that they take gains on the upside they must take losses on the downside and that's important not only from a sovereign debt sustainability point of view but also from a political sustainability point of view because as you remember in 2011 there was a lot of political debate around the discussion of the bank debt in fact that I guess hasn't quite vanished yet and so a formal framework as has now been established in Europe actually helps to set the expectations right so if a formal framework had been in place in 2010 it would have been much easier for Ireland to bail in senior unsecured debt because that's what would have been expected so this framework that's now in place should be helpful and maybe the last point being that engagement was quite important from our perspective both you know within the trigger for the IMF it was a new construct to be working with other partners the ECB and the Commission we were quite intensively had long debates that's where all my wrinkles and gray hairs come from sitting all night trying to collaborate to seek common positions and also then to cooperate with the authorities which you know were very competent and had established this ECU external program compliance unit that was for me I had worked on a lot of program countries it was a great invention to have one go-to unit that would help in the cooperation and communication and then also of course stakeholder dialogue and media contact were quite important in terms of hearing what people have to say listening to them understanding how macro policies drive considerations in the day-to-day life and also in turn trying to explain why certain decisions were made so that's it, thanks very much much appreciated happy to answer any questions thank you