 Good afternoon ladies and gentlemen, small bit of housekeeping first. Please turn off your mobile phones or turn them to silent. Exits consist entirely of the doors that you came in. There are no other ways out, so remember the way you came in. We have a very distinguished guest this afternoon to talk about Ireland's macroeconomic outlook. As I observed to Ruri and to Philip before we started, the advantage of this topic is that when you talk about macroeconomics everything is included. So that's a cue for the Q&A afterwards. Philip's address, which I'm looking forward greatly, will be on the record and the discussion afterwards in Q&A will be off the record under Chatham House Rules, which means you may know and discuss what you heard, which you may not attribute it to any source. Our guest, and I'm going to be very brief in the introduction, he needs very little introduction. But I think just to set the picture, Philip's a Trinity graduate who took a doctorate in Harvard, has been an assistant professor in Columbia, came back to Trinity and became the Huytli Professor of Political Economy, a lovely old name incidentally, Political Economy in 2004 and Governor of the Central Bank of Ireland and a member of the Governing Board of the European Central Bank in November 2015. He has a very solid reputation in the area of macroeconomics. He's been widely published in a diversity of topics in that area and is also extremely well known for his research and his database on international financial adjustment. In other words, doing the kinds of things to banks that should have been done a long, long time ago. In 2016, Governor Draghi asked Philip to head a group to look at the development of what might loosely be called a safe instrument in the European Union and that report in the Eurozone and that report is brought forward just very, very recently. And I think it would be very interesting to hear Philip's views on how that will be received and where it will go. It's a subject that we've talked about at some length here in the Institute. I leave the introduction at that because I think that sets the scene. So the floor is yours, Governor. Thank you. It's a pleasure to come back to the Institute, especially at this time of year because the spring time is really a time where many people make plans for the year, both in the private sector and the public sector. So for example, the government next month will submit its stability program update. It's just received the country report from the European Commission, the OECD country study and so on. So now I think it's a good time to talk about the where is the economy, what is the outlook for the economy and I'm also going to talk a little bit about some of the work at the Central Bank. So the first part, my focus is going to be on current prospects and the second part I'll talk, I'm going to go to the housing market at the macro level but also the regulatory levels, whether it's not performing loans or whether it's the tracker examination. So let me start off with the current state of the economy and let me emphasize is that we at the Central Bank in our publications for a while now are saying that the return to full employment is in sight, even if we're not quite there yet. So I think that's important to mark that and to really appreciate the success in the economy but of course I'm also going to emphasize if anything we have this situation at the moment where prospects are good, there's a lot of positive momentum but the tail risks are not saying these are very likely but the tail risks are going up also. So we have this situation where the expectation is good but there's clear and obvious tail risk factors for the Irish economy. In talking about the economy I'm also going to talk about the role of fiscal policy and what's interesting at the moment is what we have going on now is a strong economy but it's not being driven by credit. So in other words, if the conclusion at some point is going to be there needs to be some kind of counter cyclical macro intervention, it won't be coming from the credit policy because it's not a credit-driven recovery, it's going to need a fiscal policy intervention in order to manage the business cycle. This is something which is not so easy to do. It's maybe a little bit unusual in the context of Irish history. It's definitely not the last boomer cycle we had but I think it's important to talk about it. So in thinking about the Irish economy, let me first of all say this is in the context of a strong international environment at the Euro area. Yesterday we got new forecasts at the governing council and we have a fairly positive view about the short term. So the Euro area grew by 2.5% last year. We think it's going to average at 2% this year and next year the year after, which is pretty decent in the context of the history of the Euro area. The slowdown is essentially because there's a slowdown and as you work through high unemployment, the scope for more additions to employment in the Euro area becomes harder. So it's really quite something. In 2013 the Euro area in the aggregate had unemployment at 12%. So if you take the whole Euro area economy, that's a pretty high number. By 2017 that come down to 9.1%. World project is going to be 7.2% in 2020. So if you think about the history of European labour markets, that's a very strong performance. We think with the recovering economy, we're projecting that inflation, which has been below target for quite a while, is on its way back towards the target. We're projecting for 2020, which is the horizon for monetary policy, it'll be around 1.7%. I should emphasise this strong Euro area performance is in the context of a strong global economy. If you read the IMF analysis and so on, what we essentially now have is lots of parts of the world growing well and importantly does not too many red flashing lights by particular regions of the world. Quite often you could have a decent world economy, but it's a clear problem somewhere. Right now, by and large, there's a broad-based expansion. Of course at ECB we will say we've been doing our part to accommodate of monetary policy and we reiterated yesterday the nature of our policy in terms of the mix of net asset purchases, forward guidance, the low interest rate and so on. So given that broad external environment, we have a second engine here in Ireland, which is again after the crisis, the ongoing recovery and domestic demand. The private consumption is growing, we have government spending recovering, we have the domestic element of investment also growing. So again, if we think the Euro area numbers are good, the Irish numbers are even more impressive. Employment is now back to 2.2 million, which is an expansion of 17% above 2012 at Troff. So that's a pretty big increase in the number of years. Of those employed, more are working full-time and even if you're working full-time, the opportunity for overtime and so on is going up. So the average working week has climbed from 34.9 hours to 36.7 hours. So if you think of all the drivers of household income, the labour market along all of those dimensions is really supportive. We also would point out that the nature of employment is really much more balanced. So back in 2007, one in nine people were working in construction. That's now in 116. I'm not saying 116 is the correct number, but maybe one in nine was maybe overly concentrated in construction. So what we think is we're going to be at an unemployment rate by next year of 5.2%, which compared to the 2012 peak of 15.5 is a really transformed labour market. We don't think that, and we're talking a little bit over lunchtime about this, we also would fully recognise on our own work indicates there's more potential workers out there than indicated by the unemployment rate. So with support of economic policies, we do think more employment growth is possible by increasing the participation rate, especially those who are currently not in the labour market for various reasons. Part of this, market forces will mean that wages will grow more quickly. We're seeing some acceleration in wages, and we think more of that's going to happen this year and next. Given that international factors mean that inflation will remain fairly low, higher wages will mean more purchasing power to be more true increases in living standards, which again will further support the economy. So all of that is really strong news. It's hard to find immediate triggers to say there's an obvious reason why any of that we're going to reverse anytime soon. So you should, you know, we I think we're no different to any other forecaster. When we look at the data and we look at the kind of forecasting techniques, that's where you get to. Under the hand, it's also again, from point of view of policymaking, really important to recognize that intrinsically, inescapably, inevitably, the art economy is volatile. Because our commitment to being a highly open economy means whether it's through trade, through technology, through finance, how we do is so dependent on what's going on in the rest of the world. So from a policy point of view, it's not to build your life around the forecast, but to make sure that whatever decisions you're making are robust to unanticipated outcomes. That if it turns out that those forecasts are too gloomy, or too optimistic, that you haven't overly committed yourself to only one possibility for the world, the decisions you make should be robust to two alternative outcomes. So I, you know, we do forecasting, forecasting is necessary. But from a policy point of view, it's much more about managing the range of possible outcomes. And as I mentioned earlier, we do think tail risk factors are going up. So a tail risk is a risk that it's hard to model, it's maybe not very likely, but if it did happen, it'd be quite likely. And so, let me go through a few of these. I think if you look at any financial stability report, whether it's from us, the ECB, the IMF, any other institution, one clear, possible trigger factor is that the very benign conditions in global financial markets in the last number of years could go into could go into reverse. So essentially, if the investors reassessed what the future was going to look like, whether in terms of expected earnings, or in terms of the distribution of risk, if you had a repricing in financial markets, that could be disruptive to a variety of mechanisms. We had a little bit of adjustment a few weeks ago, but that was kind of more welcome adjustment in some areas. What I'm talking about here is a more significant shift in financial markets. Again, there's no particular reason to believe that's very likely, but if it did happen, it would really be quite a trigger. At the year area level, it remains the case that the resilience of the monetary union needs further work, partly through national macroeconomic policies, through the completion of banking union, through making progress in capital markets union. So that is very much on the agenda for this year in terms of the European Union's work program. I would hope that sufficient progress is made. Let me turn to some issues which are especially important for Ireland. One is the location decisions of multinational firms. So while the recent US tax reform has some clear implications for the treasury operations of US multinationals, the net impact on the geographical distribution of the productive activities of these firms is not so clear, given the complex multidimensional nature of the new tax law. More broadly, if we're thinking about tax regimes in different countries, there are other possible changes in the international tax system, including relation to the taxation of digital activities which may have implications for production here in Ireland. And of course, if there were a widespread adoption of explicit or implicit protections measures, that clearly is a threat to the international trading system. Let me point out another big factor in the location decisions of US firms, which is the dollar-euro exchange rate. So the current rate is broadly aligned with fundamental values, but a more substantial and prolonged depreciation of the dollar would be a material influence in determining future location decisions. So if we take those together, the trade channel, the taxation channel, the currency channel, these downside risks require continuous monitoring and reinforce the importance of making decisions that are robust to such adverse outcomes. So far, I've got to page eight without mentioning Brexit, so let me mention Brexit. The turning to Brexit, of course, any increase in trade frictions between the UK and the EU 27 will generate a reduction in long-term living standards compared to the counterfactual of the UK remaining in the EU. So far, the main channel we've seen is the depreciation of sterling against the euro. Of course, this is affected, exported to the UK, but it's also meant that we've had a windfall of cheaper prices here in Ireland because of cheaper imports from the UK, including consumer durables such as cars. And more broadly, the fact that the other factors are so strong in the Irish economy now, right now, meaning that so far, so far, we've been able to absorb the impact of Brexit. However, as we look to the future, as March 2019 draws closer, the resolution of the current uncertainty about what Brexit means has the potential to generate further volatility, especially if we go in the direction of some harder version of Brexit. And of course, compared to the broader EU 27, we're especially exposed, given our unique links with the UK. And so, I think the two channels to watch out for in the short term is if there's a hit to UK GDP, because the, to all sorts of channels, what happens to UK GDP feeds through here, or a further movement in the sterling euro rate. Let me be a bit more concrete about the consequences of any regime that increases frictions between the UK and EU in terms of trade. There's gonna be a loss, a real loss here because there's gonna be diversion of resources to certain of new logistic systems, new trade processing systems. And if the cost of importing and exporting goes up, including extra transit time, and the additional administrative burden associated with trade frictions, one outcome will be that the range of imported goods available to Irish consumers, and imported inputs available to Irish firms is going to shrink. And also, it's gonna be the case that domestic firms will find it more difficult to access export markets. So, what I've given you so far is a fairly strong projection for the economy, but also it's clear from that list of downside risks that these are risks that we should be planning for. So, if you put all that together, what should the fiscal strategy be? And here, of course, it's important to think about the balancing act. So, of course, as we are accumulating all this good news about the trend for the economy, that should map into proportioned decisions. It does mean more public spending is possible. It does mean that dependent political choices and alterations to taxes can be made. So, the standard, absolutely core political debate about how to use that extra fiscal capacity in terms of provisioned public services, increased transfers, expanded public investment or adjustment in taxes, that has to take place. It is good news that we have so much more resources now. At the same time, it's also the case with the downside risks I've talked about, in combination with the still high level of public debt, means that it's equally part of what should happen is that we should collectively recognize the value of building fiscal butters in good times if we want the next economic downturn to be less painful. If we want fiscal policy to be a stabilizing force in the next downturn, rather than being a destabilizing force. So, this is the balancing act that it's possible to reconcile fiscal prudence with ambitious fiscal plans, but that balancing act has to recognize the genuine trade-offs that exist, especially if the labor market returns to full employment. So, for example, more public investment can, in the long term and the medium term, raise the productive capacity of the economy or assist in the attainment of social objectives. I'll see some parts of public investment are to make for more civilized schools, more civilized hospitals than not necessarily to our nicer parks, better sports facilities, not necessarily to add to GDP, but just it's part of what it means of a civilized society. However, in the near term, public investment raises aggregate demand. And in order to have more public capital while limiting the risk of overheating dynamics, some of the steps you might take would be making sure that you have a phased approach to public investment, rather than trying to do too much too quickly. So, in this spirit, the new National Development Plan recognizes that logic because it's proposing a phased approach to increase in the scale of public investment from where it is now to its medium term target of about 4% of GNI star. So, through that phased approach, the hope is that a stepping up in public investment need not crowd out private activity and private investment. And our research shows that if government investment is financed in a budget-neutral way, so that it's not necessarily adding on net to resource demand on the economy, it is possible to get the benefits of raising public capital without having the overheating costs in terms of increasing costs facing firms or decline in competitiveness. So, this is an example where you have to recognize the trade-off. You can't do everything overnight, and if you want that balance to be struck, I'm not saying it's easy, but it's definitely part of what the government needs to think about. Let me now turn to the housing market. So, last November, we now have this fixed annual cycle where we connect our review of the housing sector to our review of the macro-potential measures, the loan-to-value and loan-to-income rules we have for mortgages. And in our review last year, we did a lot of work, and our conclusion was that house prices at that point were more or less in line with fundamentals. Basically, given the decline in the fall of house values, the fact they've recovered quite a bit, that puts into context. It's not the case of necessarily running ahead of fundamentals, it's still a recovery situation. Let me fully emphasize that fundamental factors mean whatever the market will deliver. It does not mean sustainable or socially acceptable. It is not about, of course, houses, this big affordability issue. Of course, it's a big supply issue. If those are solved, great. But subject to what we have now, which is high rents, limited housing stock, and so on, the market says these prices are the prices you might expect to see. And also, while we're not seeing that credit dynamics are playing an essential role, and we now have a quarterly meeting about credit, we have this committee called the Macro-Predential Measures Committee, and we published a minutes on our website where our assessment is it remains the case on net aggregate credit conditions remain pretty quiet. Yes, there's more new lending going on, but there's plenty of mortgages that are being repaid. There are people that are paying off their mortgage, lots of people saving, getting out of it, the credit they built up during the boom years. So my point here is just because you're saying current prices are more or less aligned with fundamentals, does not mean one should think that housing is one way bet. Because essentially, a lot of those fundamentals could go into reverse. I've given you reasons why the macro fundamentals could go into reverse. All of those tail risks, the tax issue, the trade issue, the exchange rate issue, Brexit, long list of reasons why a fundamental decline in house prices could happen. So, and the big one is if, as housing supply expands, so investment in housing construction is going up, and depending on delivery of government policy, more can be done, but as the supply of housing expands, then rents will come down compared to the counterfactual and house prices will come down. So given that fact that there's an intrinsic dynamic which will give a significant way to some downward pressure on house prices, this is why it's so essential we have our macro potential rules. Because limiting the loan to value ratio and the loan to income ratio protects individuals and protects the system against a reversal in house prices. So by the way, it's not the only measure we take. There's also those involved in providing mortgages face a higher risk rate in lending and mortgages given our history. And we also impose extra capital buffers on our systemically important institutions. Let me turn to two legacy issues through the housing market. One is relation to managing NPLs, non-performing loans. And the other one is the conduct issues concerned with the mishandling of tracker mortgages. So non-performing loans is maybe a topic that's got a lot of discussion internationally in the last while. But of course here it's been a longstanding priority. It's a priority for us at the central bank from a financial stability point of view, from a prudential supervision point of view and from a consumer protection point of view. And throughout, our goal has been to make sure that's been a fair treatment of those bars who are in trouble through our consumer protection framework while at the same time making sure that banks have enough capital and enough provisions and enough operational capacity to resolve arrears. So no doubt, but here and across Europe the stock of NPLs has been shrinking compared to the growing economy, but it remains the case more needs to be done. And we essentially, the way to think about it is in the absence of proactive efforts, if we go into a future downturn with all of these non-performing loans around, then that's financially destabilizing. So if ever you're going to tackle non-performing loans, the current benign conditions are the time to do it. And this is why it's a priority for us and for the ECB. Now, it's very important to say is that under the ECB guidelines, banks are required to define their own NPL resolution strategies and define the most suitable solution for each relevant portfolio. There's many channels to which NPLs can be resolved, restructuring, foreclosures, workouts and sales of non-performing loans. The central bank and the single supervising mechanism has no institutional preference for any particular workout modality. This is for the executives and the boards of the banks to decide. Now, in relation to the sale of loan portfolios, this is one option and let me emphasize, it can play a role in mitigating systemic risk since a wider distribution of loan ownership does facilitate last sharing in the event of a future downturn in the economy. Now, in cases where banks do choose to sell portfolios, our position is that the consumer protections travel with the loans and that debtors are protected in accordance with the framework. And this is institutionalized through the 2015 Credit Servicing Act, which ensures that relevant borrowers remain protected in terms of the consumer protection code, the code of conduct and mortgage arrears and also for SME loans in terms of the SME regulations. And we can do this because no matter who owns the loan, the servicing of that loan has to be by a regulated firm that we authorize and regulate. Now, if you look at what's happening in terms of mortgage arrears, what we've seen in Ireland is quite a lot of effective management of short-term arrears, but a problem with long-term arrears. So if we see an engaged debtor in early arrears, a lot can be done. However, there's been an unusually large stock of really deep long-term arrears in Ireland where basically two years have gone by, days passed through in terms of mortgage payments. So one way to think about it is, the most recent data we have at the end of quarter 3, 2017, given the scale of the crisis here, 16% of mortgages on owner-occupied homes had a restructure. A lot of mortgages had to be restructured here. That's a lot. But what's interesting is of those 120,000 restructures, you know, that's a lot of restructuring. 80% percent were appropriately sustainable. They were meeting the terms of those restructures. So the concern that it's impossible to restructure non-performing loans, that there's a lot of achievement there in terms of delivering that. It remains the case that 10% of private dwelling homes are in arrears, of loans on those homes are in arrears. And 7% are in these deeper arrears beyond two years. That's about 30,000 cases. So let me also emphasize is, we've emphasized here restructuring that that can deliver a lot of sustainability. But it remains also the case that the cornerstone of a secure lending market is the ability to acquire the underlying collateral. Some level of repossessions should be considered normal in a functioning system. And again, if you look across countries, across your area, the high volume of cases and extended timelines associated with repossession proceedings here indicate it's quite a challenge to deliver on repossessions here. Let me also tell you in terms of the data, since quarter 309, there've been 8,195 private dwelling homes which have resulted in loss of ownership. Most of those have been through voluntary surrender. 5,474 through voluntary surrender. 2,700 from a repossession through a court order. So what we've seen so far is that there's been a lot of restructurings, there's been a degree of loss of home ownership. But both banks and non-banks have been pursuing restructuring where possible. We're saying that the management of arrears is within a pretty robust policy framework which provides considerable protections for households through all of that legislation and of course to the insolvency legislation as well. So it's really important that the policies community here has responded quite a bit in terms of protecting consumers. Let me turn to the financial conduct issues. So I just thought there in some grand macro way about the overall statistics, but of course for individuals, the mortgage each individual or household might have is by far the most important obligation an individual has. And so it's vitally important that the lenders act in the best interest of consumers in the handling of those accounts. And there's no doubt that what we've seen through the Tracker Mortgage scandal has had a negative impact on trust and confidence in our lending institutions in terms of their capacity and delivery in consumer protection. It's clear that there's an insufficient attention paid to consumer interests and how these mortgages were handled. So we've indicated before that by the end of last year there's been a payout of 316 million to affected customers. This bill will rise as more of those identified receive redress and compensation and we are continuing to engage with the banks to make sure that all of those that should be included are included in the redress and compensation schemes. We're gonna have more data at the end of March and we'll do a new public report in April. So in terms of the lessons we're drawing, the lesson we have is that we're not seeing from that history there that the boards and senior management of the banks are delivering in terms of promises to put the customer at the heart of their business that that promise needs to be delivered upon. By the way, this is not a uniquely Irish issue to being at many misconduct scandals around the world in recent years and this concern that it's bad enough on its own terms but the broader corrosion of trust in the financial system is really a reason why we as regulators and globally the regulated community is putting a lot of focus now on governance and contract issues. We've seen by the way examples internationally. So the recent decision by the Federal Reserve that they're going to seriously restrict the growth of Wells Fargo until it improves its governance and controls was a significant interventionist step. Mark Carney remarked last year that these misconduct episodes are calling to question the social license of finance and requires regulators to be more intrusive in terms of the cultural dimensions of financial services. So what's happening here is we are undertaking behaving culture assessments of the each of the five main landers which will be aggregated into reports to the Minister of Finance in June. How we go about this is based on we have a consumer protection risk assessment model which really is a way to think about how are these firms identifying and managing consumer risk. And we are also being supported by the Dutch Central Bank which is a recognized global leader in the supervision of behavior and culture. So depending on what we uncover we may reshape our future supervisory and engagement strategy and in terms of mitigating actions this could include requiring landers to have an annual audit of culture. It could require the board's set of ethics subcommittees and making sure that incentive schemes do not reward inappropriate behavior towards customers. Now it's critical in terms of the scope of what we can do is that we have a full toolkit to promote ethical compliance by firms and by the individuals working in these firms. So recently we made a number of recommendations to the Law Reform Commission that would strengthen the accountability of senior personnel in regulated entities. Now, you know, regulatory effort is one dimension. Of course, investors also care because for example with the tracker mortgage examination at the current estimate is the landers have collectively made provisions of 900 million. 600 to pay out to customers and 300 million for the cost of running this examination. So, you know, if this becomes very expensive for investors then at the investor oversight of these firms will also go up. So let me conclude, essentially I've given you two parts of each. One is to convey my view on what's going on in terms of the economic data where I've tried to blend pretty strong positive central scenario with the fact that I do think tail risks are significant as well. Those tail risks also explain our attitude to the housing market, which again, there's a lot positive going on but those tail risks do mean we have to guard against downside risks and that's why we think the macro potential framework is so important. We're also emphasizing that during good times is the time to really address these legacy issues, the high NPL stocks and also to complete the tracker mortgage examination. And I'm emphasizing the way to think about the tracker mortgage examination is it's reflective of a common regulation concern now which is in the end, we have to make sure that these firms put this consumer first. That's in their own self-interest and it's the interest of consumers that that happens. So let me stop there and I'm very happy to take comments or questions. Thank you. Thank you.