 So, I'm going to talk about the Eurozone and European Union as a whole during and after the crisis. Obviously, I'm particularly focused in the U.K., but I've been watching with a mixture of fascination and horror what has been happening in the Eurozone as well for the last few and so I will try to say very briefly, obviously, since half an hour is not a long time, how what I guess is diagnosis, prescription and prognosis. How did we get into this mess? What have we been doing since we got into this mess and what results have been produced and where do we go from here and what happens next? So, let me start with this. How did we get into this mess? I think the first thing to emphasize, which I think is reasonably well accepted among most economists now, but still not among the general public and not among some of the economists who most matter, whether in Frankfurt or in Brussels, is that while fiscal policy in the run-up to the crisis was clearly far from optimal and that applies to the U.K., it applies to Ireland, it applies to Spain, and it obviously applies to Greece, while fiscal policy was not optimal and had we run more sensible and prudent fiscal policies in the run-up to the crisis, and again that applies to all of the above countries as well as of course to Italy and, well, Greece, it wasn't just a question of running more prudent fiscal policy but really having a fiscal policy at all, a policy on the size and shape of the state and where the money to fund the state should come from. We would have been in better shape to deal with the crisis had we had more sensible fiscal policies, but fiscal policy was not the cause of the crisis. The cause of the crisis for the world economy as we know was a combination of structural imbalances in the, structural imbalances in the system, in particular the excessive current account deficits of the U.S., the excessive current account savings, current account surplus of savings of the Chinese and so on, a combination of that with lax financial regulation in the U.S., one step down the global pecking order in the U.K., and then of course one step further down the global pecking order right here in Dublin, all of the, yeah, these are the causes of the global financial crisis, but then of course following the global financial crisis we then had a secondary crisis caused by the global financial crisis but not the same which was the crisis in the Eurozone and this, you know, does need to be seen as conceptually separate. The U.S., U.K., Eurozone and so on all had the global suffered, the global financial consequence and its after effects and of course we in the U.K. are still suffering its after effects. However the Eurozone had a second crisis which was caused by a combination of imbalances within the Eurozone interacting with the design features of the Eurozone, but once again let me emphasize that there is really little or no evidence suggesting that that crisis was caused by improved fiscal policies among those countries. The imbalances were reflected in large current account deficits by some countries, Ireland among them, large current account surpluses among other countries, Germany among them and it was the unwinding, the unsustainability and unwinding of those imbalances which led to the crisis, which in turn led to sovereign net crisis in this country and in others and but the causality goes that way. And here once again I would emphasize what Paul Krugman has said and Simon Rennlouis in the U.K., that economics is not a morality play, it is not about virtuous savers and profligate debtors, it is not about bad debtors and prudent creditors. Macroeconomics is about trying to, in my view, trying to understand these identities, savings, investment, surpluses of deficits, what and then the causal relationships that underlie them and what you need to do to bring them back into balance in a way which allows the economy to get on with growing in the way which it will do if you can run the macroeconomy in a reasonably sensible way. But let me turn briefly then to this question of current versus capital imbalances, debtors and creditors, chicken eggs and this is quite an important and live debate at the moment. And it does play into this view of economics as a morality play. There is one point of view, let us call it the German point of view, which says that what happened in the run-up to the crisis in countries like Spain, Italy, Greece, Ireland to some extent was that there was a progressive deterioration in competitiveness. These countries allowed their labor costs to get out of control. They were therefore, they were paying themselves too much. They were consuming more than they were producing and in order to, they were exporting less than they were importing and therefore they had to borrow. And so the competitiveness led to the problem of overconsumption, which in turn led to capital flows from outside those countries into places like Ireland to build houses and so on in Spain. The flip side of that of course is that actually it's a capital account story, which is that what happened was that we had imprudent borrowers and imprudent lenders. You and this country know very well that there was a lot of imprudent borrowing going on, both by households and businesses and by the banks here who in order to lend imprudently to households and businesses needed to borrow imprudently, which they largely did on international money markets and alike from ultimately places like Germany. And the view there is that the excessive liberalization and lack regulation of the financial system, part of which I described earlier, led to these capital flows from not just to imprudent debtors, but from imprudent creditors. In other words, the capital account drove the current account. It was these capital account flows from imprudent creditors, including among them clearly German banks and other institutions which participated in international money markets that drove the imprudent debt buildup and in turn drove the excessive consumption in countries like Ireland and Spain. Now, in some ways, establishing causality here is not just difficult, but it's not clear that it's conceptually possible. These are two sides of the same coin. The capital account is the obverse of the current account. And if you don't think economics is a morality play, then it is not really a question of who precisely was being imprudent, but what the mechanisms were and crucially how you deal with them when they come undone. However, I do think it's worth pointing at one piece of evidence. And this is not to say that I particularly take sides on the current versus capital account story. I don't, partly because I do think they are flip sides of the same story and partly because I'm far from being an expert in these. But given that we hear the current account story so much, given that we hear that it's all about competitiveness, all about the fact that Germans drove down their real wages while everyone else was letting them rip, it was all about the fact that other countries didn't increase their productivity. I do think it is worth redressing the balance by showing a chart. This is from Gali et al. a recent paper that suggests that there is at least something in the other side of the story. So this shows changes in relative tradable balance prices. In other words, this is a measure of competitiveness. What happened to the price of your tradable goods? Not prices overall, not unit labor costs, but the prices of your tradable goods compared to what happened in your current account balance in the decade running up to the crisis, 98 to 2007. And so what this shows is really not very much actually. In other words, countries on the far right, well, some countries like Spain did have a substantial increase in prices and saw their current account balance deteriorate. On the other hand, other countries like Italy and Portugal saw very little change in their tradable balance and didn't see much happening. They still got caught by the crisis. On the other hand, Ireland did quite well in terms of its prices of tradable goods actually, and of course did very well in terms of exporting, but still saw a very sharp deterioration in its current account balance. And clearly for Ireland, therefore. So for Ireland, what does that tell you? Well, it rather suggests that the competitiveness story doesn't at least give you a very good explanation of what happened to Ireland. And so for Ireland, at least, you might think that actually the the the improved in borrowing and lending with the emphasis being on the lending just as much as in the borrowing is rather than they, well, you paid yourselves too much and therefore you went out and spent it all on fancy imported wine or BMWs. Now, maybe you did spend a lot of it on fancy imported wine and BMWs, but the reason you could do that was in borrowing and lending. So for Ireland, at least, one might think that some of the causality goes that way. Meanwhile, of course, we see that Germany, well, of course, it has this huge swing its current account balance, wasn't particularly related to it becoming much more cost competitive. It did become more cost competitive, but not by a huge amount. So the so as I said, I'm not taking sides here, but but I think the important thing here is to suggest that it's that there are two sides to this story. And it's rather more balanced picture than we saw. So that is a diagnosis. I'm running behind time. So I will accelerate a little bit. But I think, you know, the as I say, even in that time, we can only talk talk a little bit. So this is some work that we did at a niche here. So this is the the prescription part. Well, what did we get? Well, what we got was coordinated in response to the crisis. And in response to the pullback and to the panic in sovereign debt markets, was coordinated fiscal consolidation. And part of this story actually is to show that the fiscal consolidation was actually coordinated across the the the the EU as a whole, not just the Euro area. Of course, the UK did did a significant fiscal consolidation itself. And indeed what this and because the UK is of course a major trading partner, partner from many EU countries, especially Ireland and vice versa, the spillover effects from the UK to the Eurozone and vice versa are just as important as the spillover effects within the Eurozone. The fact that we have a different currency does not mean we are not part of a an integrated trading area. So what what this tries to show is, and, you know, I was quite pleased to see a piece of analysis from the European Commission just a couple of months ago, which essentially replicates this doing a slightly different model and different specifications that becomes out with basically the same results. But astonishingly, in trying to estimate the impacts of consolidation on output and debt in the EU countries, the European Commission looked at every country on its own. It did not at any point until I say this this paper which came out only a few months ago, did not at any point decide well, hang on, we're telling everybody to consolidate at the same time. We know that the European Union, that while individual European economies are relatively small open economies, the European Union as a whole is a relatively large closed economy rather than like the United States. And we know, of course, that within a large closed economy, fiscal multipliers are, for obvious reasons, going to be significantly greater than for any small open economy in its own. And astonishingly, they didn't even sort of analyze this question and decide it wasn't a huge problem. They actually never actually asked this question. This is something that we produced about 18 months ago. So it's slightly out of date and no doubt the numbers would be somewhat different now. But this is our estimate, both of the impact on GDP of each country's individual fiscal consolidation program, and then the impact on GDP of each country's own consolidation program and the consolidation program that we're going on in other countries. And so you sort of get the headlines by looking at the euro area as a whole, which coincidentally is probably within the margin of area very similar to the UK actually, which emphasizes something which is not often taken into account in the UK that we're actually, we are in this together as far as this particular bit of strategy goes. And what it shows is that at an individual level, the average impact of physical consolidation was about 2%. But if you look at the EU as a whole, or the UK and the euro area widened together, you get a number that's more like 4%. In other words, we suffered, we in the UK suffered just as much from what was happening in the euro zone as we did from our own domestically imposed austerity. And on average, that was sorted through of the euro area as a whole. And you see that particularly as you would expect for countries like here, the Netherlands didn't consolidate very much, but still has suffered quite a bit from what's happening elsewhere, while we know that the Netherlands is a huge, is a very small, very open economy. So, and then, of course, well, what did that do to the actual objective of all these programs? That's, that is the get GBP story. The interesting thing here, of course, which a number of people here, possibly some of this room remarked on when I published this, is that actually the one country where actually, even after taking into account the spillover effects, things worked, you know, at least there was some result in the sense that the fiscal path was slightly better than it would otherwise have been, even if the level of output was less. Why is that? Well, Ireland is not only a small open economy, but it is a more, it is an economy that is more open to the rest of the world than some of the other EU countries. So, you know, Ireland has what the same, you know, I'm not sure what the, what's the population of Ireland? Four and a half million Greece is, Greece is bigger. But, you know, in say, in terms of the proportion of exports outside the EU to GDP and imports from outside, Ireland is considerably bigger, you know, has a much higher proportion than Greece. Hence, even taking into account what was going on, the multipliers are, at least in our model, are just less in Ireland. That doesn't itself mean that we're not, I'm not saying that the fiscal consolation program in Ireland was optimal, but at least it probably did have somewhat, one of the reasons Ireland has done somewhat less badly, apart from having, you know, obviously some important structural advantages, but compared to, to say, Italy, is that it is more open to the, to the rest of the world. Now, the countervailing narrative in this, which some of you may say, well, again, going back to the, to the previous discussion, was that it was all about structural reform and the lack of structural change in various economies, in particular, you know, Italy, Spain, Portugal and so on, Greece, in the run-up to the crisis. And so, some of you may see this chart, which purports to demonstrate that. This is from Padawan, Carla Padawan, the chief economist of the OECD, and Mario Marco Bouty, who, as you all know, is the EG, the director general of ECFA, in the commission. And this is a chart they recently produced showing that there is a positive correlation between some measure of potential growth between 2003 and 2008, and the extent to which countries undertook structural reform, as somehow measured between 1998 and 2003. Well, this is, I have to say, not the most convincing chart I've ever seen. Yeah, I'm all for structural reform, although structural reform means different things to different people and means different things in different countries. But to suggest that this chart explains why countries were hit by the crisis and why some countries were hit by much worse than others and why some countries have done much worse than others since the crisis hit, seems to me to push. And the response here is from Antonio Fatas, at Barcelona, who produced a rather different chart showing simply what had happened to GDP and compared to what had happened to government spending during the crisis period. Again, this chart doesn't prove anything, obviously, in itself. It's just a simple correlation. But if you're going to make simple correlations and do simple charts, you get a much more better explanation of what is actually happening by just look at the extent to which countries have or have not consolidated or maintained government spending during the crisis. So where are we going now? This, that quote at the top is not me, I hasten to add. That is the commission from its report of last week, I think, or possibly two weeks ago. It's an autumn review. How do we sustain the recovery that's now underway? Well, the recovery that's now underway, according to our forecast, is that one on the left. And I think the commission's forecast is a little bit more optimistic than that, but really not a lot. That is not much of a recovery. We, if the commission's ambition is that we should have half or 1% growth for the next two or three years, that is not going to feel like much of a recovery to much of Europe. And you can see that in the chart on the right. We don't see, and I don't think the commission does either, see any sharp fall in unemployment in Spain, Greece, Italy or France over the next year or two. I know unemployment is coming down a bit in Ireland, but it's still, it's still at remarkably, remarkably high levels. And that leads me on to a much, not better chart, but I think, sadly, rather more revealing chart also from the commission, from the report that the, a different, and in my view, much more sensible directorate general of the commission, the one on economic, labour and social affairs produced about nine months ago, looking at long-term unemployment. So this is long-term unemployment, it's a percentage of the active population showing what's happened between 2008 and 2011. And I have to say what really struck me, and now this is 2011, so I'm not sure what's happened here since. But I don't, you know, although the Irish economy is in some sort of recovery phase, I haven't seen anything just long-term unemployment is falling, perhaps somebody here knows the stats. But what really struck me was that not that long-term unemployment, say in Greece, went from 3% to 8% of the active population, you know, that I guess, you know, it's horrible, but we knew that. We could have guessed it. It's what, that even in countries where, which are being pointed to as being relatively successful adjusters, Latvia and Ireland, I think, are the two ones that the Commission would certainly point to, where, you know, supposedly this pain was necessary, but it's been a successful pain, and it's leading us on to some of that plans, and things will get better. Even in these countries, we've seen really quite remarkably, remarkable rises in long-term unemployment. So we've, you know, that suggests that in Lithuania, Latvia and Ireland, long-term unemployment has gone from about 2% of the population to about 8% of the populations, an extra 6% of the population in long-term unemployment. Now, if that is allowed to persist, that does an awful lot of long-term damage to a country. It does a lot, you know, and countries, you know, we in the UK found that out the hard way in the early 80s and the early 90s. There are still large parts of the UK which have never fully recovered from, not in my view, from the structural transformation of the UK economy, which happened in that period, which was that, it seems to me, was painful but necessary. We had to close the coal mines at some point. What we didn't have to do was allow those people and the communities that they lived in to essentially fall into long-term unemployment and then in activity. And I think, given where we are now, the challenge for the countries where a lot of the heavy macro-lifting may have been done, although there's plenty still to come here in Ireland, I understand, but the challenge is really given where we are now, regardless of what we think about what the policies have been so far, is to ensure that those structural, that the structural economic and social damage that can follow from long-term unemployment is not allowed to become embedded. I mean, I think, you know, Ireland, I would hope, has the resources, you know, institutional human and so on to stop that, but you can't start too soon. There are some countries like Latvia where I, one worries that actually the interaction of this with the demographic, the demography of Latvia, which was pretty bad already, combined with what happens when you have an open labour market and your young skilled people, you know, if they are not getting the jobs they want, can simply pick up and leave, whether you worry about where Latvia will be in 10 years, and I mean, that is a quite literal sense, who will be in Latvia and what will they be doing. Ireland is not in that situation, but as I say, addressing long-term unemployment seems to me and youth unemployment seems to be to be the policy priority. So this is a chart I styled from Karl, who I think in turn took it from the OECD, this is the OECD chart. But so what about structural reforms, which are always being thrust upon us by the Commission, as both, as I said, the call, the not doing enough structural reform is why we are in this mess and doing structural reform will help us get out of it. As I said, you know, I am a microeconomist by training, I do believe that ultimately that in the long run growth, prosperity, all the rest of it is primarily driven by the supply side of the economy and if by structural reform we mean getting the supply side right, I think that's, you know, it clearly is a sensible thing to do. However, I picked this chart because what it means suggest to me is frankly that well, let's look at this. These are estimates done by the OECD of the uplift in GDP over the next about 30 years that would come from an ambitious set of structural reforms. And so one might look at the two outliers, or well, a couple of the outliers, you might look at Italy and say, okay, well Italy is a complete mess, we all know that labor market is a mess, product market is a mess. So yes, that sounds right. And then look, I don't know what to say, the Netherlands, well the Netherlands is a small, open, flexible economy that exports a lot, potential for gains there is not very, okay, that sort of makes sense. But then you look at a bit more and you think, well, potential for increasing GDP by structural reform is the same as in Germany is in Greece. Really? The potential for increasing GDP structural reform in Luxembourg is almost as inefficient as Italy. And France is far, far more inefficient than Spain. I just find, you know, I'm quite prepared to believe that there is substantial potential for improving our long-term economic prospects through structural reform probably in most countries, but certainly in those crises most, those countries most affected by the crisis. But what I think this illustrates is that there is absolutely no sensible, credible consensus among economists as to what structure, what structural reform is, what the most important structural reforms are, or what the precisely are the right structural reforms for any given country. And that is something I think we have to hold our hands up rather than trying to produce charts like this or scatter plots that tell you that structural reform is the way out of this. Individual countries within the EU and the EU as a whole, I've got a lot to sort out. But equally, I think that counting on that to get us anywhere very quickly is a mistake. It's not an excuse for not doing it. So stepping back, how do we get out of this mess? You know, briefly sum up, I say fiscal cannot be necessary in some places, but is not the cure in itself. In the short term, we have got through the short term thanks to the ECB and there was no alternative to that and there still isn't. We need to restore balance growth, which is a mixture of things. And I don't think it's, you know, it's far from clear exactly what is needed where. And we need a sensible macro policy at the Eurozone level. In particular, we need much looser monetary policy for the ECB. And that seems to me to be the single most obvious and most important priority in the short term. Since I wrote this slide, I think, in fact, we've seen new inflation figures suggesting that the ECB is, the Eurozone is tipping or teetering on the edge of deflation. We've also seen, you know, the rather interesting this intervention by Larry Summers yesterday, not yesterday, a few days ago talking about the sort of long run risks of deflation or near deflation and the need for aggressive monetary policy. But there's the politics, which we were discussing over lunch of this are all pretty horrible at the moment. And this is what worries me most is that while we are in this this lull thanks to ECB action, none of these really big political issues have really been addressed, or if they have been addressed, they've been in addressed in the negative in the sense of things have been ruled out on the grounds that they're politically impossible in Germany or elsewhere. So I am still worried. I'm worried about this and certainly very worried about this in the case of the UK. But no doubt if I lived in Greece or Spain or Italy, I'd be equally worried that the politics on the ground are going to outrun the economics. You know, I'm not saying that is what will happen, but that is certainly what worries me most. So I have overrun my time. So I will shut up there. There's a lot of material there and I'd like to hear what people have to say.