 Thank you. Thank you, Brendan. And thank you all for coming Flattered that so many people will take time out of the day Let's start with a quote one of the most commonly quoted Utterances of a politician over the past ten years or so young John Claude Yonkers saying that we all know what we need to do about economic reform The problem is getting elected afterwards In fact, that's not true. We actually don't know so if you've come here today expecting great certainty About what we should do in Europe You're not going to get it but There will be a whole range of issues and and some thoughts on what can be done But I do stress that from the beginning That there really is a lot of uncertainty around the whole growth picture. Let's just take a long view about economic growth Economic growth is a relatively new thing. It's only since the Industrial Revolution that there's really been any kind of sustained growth before that Over the centuries, there really was very little economic growth. So it's it's it's a new phenomenon and Because it's new and because the economics profession is a young Discipline we really still don't know Robert Solow was one of the people who want to know Bell Prize for his his his work on economic growth And that was a common teammate, which is as true today pretty much as it was when he made it We can see this again as Brendan alluded to on the one hand the two out of the three hand Okay, so here's here's sort of three hands We've we've got three in terms of economic growth three groups Broadly speaking how we got the optimists these two guys from MIT and some other people think that we're on the cusp of a another industrial revolution another Inflection point because of the new technologies that have been developed in recent times all of which, you know We use we know and we become a lot much less productive without and then we've got the growth pessimists This guy from Northeastern University in the US Who believes that we've come to the end of growth that in fact the technological advances that have come about in recent times Are completely different from those advances such as railroads base basic water The steam engine that they really enhance production, but Facebook doesn't And then as Brendan alluded to we have the secular stagnation is if you want to call them back Did we step over that? Yeah, who now Larry Summers the former Former US Treasury Secretary amongst other things Used this phrase a few years ago, and it gained a lot of traction now That's a slot. That's a different argument from the growth pessimists the end of growth argument I won't dwell on it much much more Who? Who supported by the data? Well, let's let's start with the US which for pretty much a century has been at the cutting edge of the Technological advance in the world. It's been the fastest growing economy or sorry It's been the richest economy in terms of per capita output the US Apart from a couple of smaller economy put of all the major economies. It is still a per capita Not talking about distribution, but simply per capita on average still at the top of the pile Now let's have a look at the past six decades of what's happened to per capita growth in the United States As as you can see There if we were to draw a trend line through here, we see a gradual decline Okay, this area here in the late 1990s was a period where people thought okay Maybe the technology picture is kicking in because it did look as though there was a really good sustained period of strong economic growth in the late 1990s That faded as we can see from the from the over the past decade and Even during the late 1990s there are a considerable amount of that boost in per capita income average came from One company Walmart the use by Walmart the growth of Walmart and its use of use of technology And one could question whether in an ideal world one would want a wall martyzed mart Isization of an economy. There are a lot of issues around that Okay, so let's move on have a look at Europe's last half century and again. We see not a particularly optimistic picture We also see that each if we look at each of the peak periods Out of each cycle has been lower each time So the trend in Europe now that doesn't take take account of demographics So it will be slightly flatter particularly in the early part if we took a took account of demographics Widen it out and let's look at the the G7 the big industrial economies that for big Europeans Canada The US and Japan and compare it with the entire world now We know the world has been growing strongly and has actually been accelerating but look at the difference between global economic growth over the past 30 years and G7 the industrial big industrial advanced economies We see a growing divergence So there there there is a problem across the developed world that we're not growing as fast as we used to and It certainly seems that those who are less optimistic about growth have more Of the evidence over the longer term to back them up. It's not to say that the optimist could be proved Right. We never know I was in the forecasting business for a decade. We're not good at forecasting Okay, since the world changed 2008 profoundly things change profoundly since 2008 particularly for us in Europe Before we look at some of the bad things that have happened I think it's always important to focus on strengths one of the big analytical failings in my view whether it's sports analysts or Company analysts or economy analysts is that when somebody is doing well They focus on strengths and ignore weaknesses and when somebody is doing badly They focus on weakness and ignore the strengths and that can cause a problem in terms of identifying When things change or people can be surprised when economy starts doing well, so I think it's always important to say No matter how bad a situation is look at some of the strengths and you know I'll go through these linger on these but relish of political stability may not last They don't take anything granted. There's very few parts of the world where the rule of law is applied effectively as it is in Europe Very high numbers of people in third-level education Physical capital. Yes, we need more infrastructure spending certainly, but say the quality of infrastructure in Europe is very good One that we definitely don't don't give ourselves enough credit for by many measures European companies are the most globalized in the world So just one big macro stat that the amount of FDI foreign direct investment EU 28 companies have Together outside the EU 28 is bigger considerably bigger than the amount of FDI American companies have outside the US So the other measures as well put put European companies high up there in terms of how globalized they are And then we have some highly competitive economies, which is definitely a point. I'll come back to but now The bad stuff it really has been an unprecedented seven years in terms of economic growth We haven't had a period like this. I think in anyone's living memory Anyone here at all certainly back into the first half of the 20th century the next Graphic takes the beginning of 2008 as a starting point and looks at how GDP in Europe the UK and Eurozone excuse me the UK and the US has evolved over time Now what we can see is the US recovery looks pretty usual But in fact, that's the slowest recovery of any recovery In recent decades and the US economy now is about 8% bigger than it was Just before the crisis We look at the UK. It's recently over the past 18 months two years Started to recover more strongly, but it's only just about the same size as it was pre-crisis And we in the eurozone have had a very very weak recovery now There is some sign that the recovery that there is a recovery starting But as you can see the eurozone economy is still smaller than it was when the crisis hit Same presentation format we go back to 2008 and look at the development of the four big economies France Germany Spain and Italy Together those four economies account for 80% of eurozone output So the other 15 Economies in the eurozone combined only account for 20% So when we're talking about the eurozone really the big four are are account for most of most of activity And let's let's look and I think one thing may surprise here, but a lot won't Okay. Now what we see is The two southern economies big economies Spain and Italy have had very deep recessions to very deep recessions And France and Germany now it may surprise France is actually much closer to Germany And the same thing it seems true for employment France has actually had very strong employment growth Over the past five seven years One of the highest at the higher end of the EU 28 and there tends to be a lot of Anti-French kind of talk in the anglophone media in particular which isn't warranted when you look at them They've got their problems, but not not necessarily warranted But we see we've got a very big gap between north and south performance and it's particularly The Italian situation is particularly worrying because they didn't have a bubble They've just had protracted long-term slow to zero growth Now this we get closer to the sort of the nub of the matter and why things are as uncertain as they are with this This is the next graphic shows all 28 EU member states How they've evolved how they've grown since the crisis started or contracted along with Switzerland Japan and the US Now my apologies for the small size but to get all those countries in So as we see in the middle here the EU euro area is still smaller than it was before the crisis What I want to draw your attention to is this group of countries right here We look at Portugal now Portugal had a bailout and has had a considerable contraction and still considerably smaller But look at the country beside Finland Then Spain partial bailout very big property crash, and then we find the Netherlands Then Ireland and then Denmark Okay, now that I point here is that it's not just about north south because we tend to think of the south having Southern countries having gotten into trouble Because of the Spain-Italy picture we sometimes think that it's all a north-south picture But it's much more complicated than that and this is where it really gets difficult in terms of growth There tends to be two broad groups in Europe some of them say we need competitiveness it's about competitiveness Those people tend to be anti-stimulus or Suspect about using about fiscal and monetary policy to stimulate growth Well, it's just not okay. It's simply not all about competitiveness. Why? Finland The world economic forum By their measure and it's a pretty good measure puts Finland as the fourth most competitive economy in the world Now of 180 economies it is highly competitive. It's done a lot of reform a lot of positive things about the fins yet They've had one of the biggest Contractions in GDP and they've also had a considerable employment. So output and employment both down What's another way of measuring competitiveness? The amount you earn from the world relative to the amount you pay out your balance of payments on current account Okay, now let's look at the Netherlands. It has a huge surplus bigger than Germany's so by that measure They're doing really well, but again big output and employment contractions and Finally Denmark it's got an even bigger balance of payment surplus So it's technically more competitive and again by any measure of competitiveness It does very well, but again a big output and employment contraction. So If it's all about competitiveness, how come these highly competitive countries have done so badly? And it's not just, you know one country like Finland that maybe have the knocky effect It's more complicated than that Then the second group say we need stimulus Let's stimulate our colonies and that will get us out of it now Again, it seems very hard to say that yes, it's just about stimulus Okay, Japan massive stimulus Hasn't seem to work UK had a big particularly monetary stimulus and as we saw earlier it was only much later that it began to even get some sort of decent recovery and Ireland the two Iberian economies and three Baltic economies have all recovered very strongly Particularly the Baltics that's been going on for a long time ours for two years or so And the Iberian economy more recent, but they've always they've almost managed also managed to recover. So Stimulus, it's not just about stimulus either Okay, so Picture is not as simple straightforward that either is that as either of the two big camps would have us believe But what we all agree with is that we need growth Okay, we have become addicted to growth Politically we've become used to having economic growth and without it things start going bad I know we've seen that in in a number of countries and we've seen Change in our politics because of this protracted period of recession We also need growth because the rate at which debt public debt is accumulating Technically theoretically as Japan shows it can go a lot further But there are questions specific issues about about Japan's huge debt And at some point if you have no growth your debt dynamics will Will go out of control and Europe has gone through a very long period of no growth and it's got a high level of debt that's just this For some reason the debt line the red line there the what the fast-rising one is isn't is debt And the blue line is nominal GDP And as you can see debt is rising rapidly to the size of annual GDP So that is a kind of trajectory that even with an activist central bank is is not a good Picture for Europe and if growth doesn't materialize then there will be a rupture at some point Okay, so what are the macro levers we have well, we've got monetary policy QE has started Do we know what QE work? No, we don't Not no certainty at all about it, but The argument one could make the argument and I do that The risks the risks of inaction are greater than the risks of action and therefore it's fully warranted But could could could could monetary policy go further? So the British use the central bank for a funding for lending mechanism where they bypass the financial system and try to get Money to companies directly Possibility certainly there has been a big problem, and I'll talk about that a little later I'm QE for the QE what's called QE for the people now big issues about the central bank sending checks to people in the post But the when you go through the argument, it's not as outlandish as it seems There are big issues politically about it, but it's certainly not as outlandish as it seems If you're mired in debt and you if you're mired in in in low growth, and you need to do something It's certainly an option that Could be should be left open for the future What about fiscal policy? So we have the new Yonker plan Now even if that is rolled out, it's very small amounts and a lot of it is not Really fiscal because it's bringing in private sector money in some way. So it's kind of a An unusual one. So is there a case? To my knowledge, nobody else has proposed this I thought if I can claim originality and I think and perhaps I can't then if anybody knows otherwise Please do tell me but the issuance of short dated Euro bonds maybe three to five years Which there could be a choice come time to repay Where the member states could collectively could repay the given portion or they could be rolled over many of the fears People have about issuing euro bonds is once you do it then you you you lock You create a fiscal union Automatically, I don't think that's absolutely the case if there's agreement on who repays the euro bond there's a collective euro bond issue and If the group the countries at the end can agree to roll it over and issue another one Well, then you get into a fiscal union type structure, but that doesn't have to be the case So if if there was if a euro bond was issued And there wasn't agreement to roll it over Contractually each group of the group of countries standing behind it would then pay their proportion and the whole euro bond would then disappear So issuing euro bond is not a one-way street Another issue that's come on the agenda that certainly warrants a lot of thought and has a potential to do good things is Capital markets Union in some ways in Europe. We've had the worst of capital Movements in terms of very de-stabilizing capital movements that have helped cause the crisis While in other ways, we haven't had good Financial integration so the banking system the retail banking system you often get charged just for using your ATM and another euro zone country that kind of retail banking system hasn't come into being and For businesses, we've still got a big problem with it getting capital getting getting money to businesses and the Ultimately the most one of the most important functions of a financial system is to get money from people who have it now But don't need it to people who need it and have a good idea to invest it now Some issues about over the longer term if we look at what's happened to credit to companies After each recession over in recent decades We see a pretty depressing picture So in the 1970s credit recovered quickly in the 1980s less quickly In the 1990s the different recessions, but in the current recession Credit is actually contracted Over that period borrowed from the European Commission a recent report They issued So how could we improve what do we and that's really bad in Europe because our our companies depend so heavily on bank lending In other countries, it's very different particularly the US so in the US companies instead of going to the bank for money They issue their own IOUs the corporate bond market in the US is much bigger And this just gives an idea of how different it is So the US 75% of their borrowing Comes from the corporate bond market so they issue bonds directly themselves and they bypass banks Eurozone it's a very small amount Another issue in terms of European companies accessing money for investment is the stock market European companies are much less likely to go to the stock market and raise money in the stock market Then even some much less developed countries now This is a whole bunch of countries and the amount of Shares outstanding at any given moment in 2012 that happens relative to GDP And you'll notice the red countries are non EU countries and you'll notice they tend to dominate the upper end So European companies don't access the stock market or do so much less than many other countries So you'll see even India there in the middle has a higher level of Equity company shares relative to the size of his economy then many European countries which are much more developed an Agenda the Commission puts a lot of focus and securitization. I'm running a little late. So I'm not really go into that. It's I Would question whether securitization is the way to go given what a bad history. It's had not just in recent history But over the longer term more focus on knocking down those barriers that prevent companies from issuing their own IO use and bypassing banks and More work on helping companies to list on the stock market Earlier and to do some more easily And this issue of the ECB Whether or not it could have a more active role Another big area in the sort of micro area is services The market for services now has come to dominate all developed economies and Let's just look at services as a percentage of GDP across a group of countries And we see that the trend is universally upwards So services come to dominate its economies become more advanced Services come to dominate and that is universal I don't know of a country any country where that is not if that trend is not the case. So in in advanced companies Between a third and three quarters of output is accounted for by services What about jobs there's a lot of talk these days about jobs being disappearing because of technology Certainly, I don't think there's strong evidence for that because the number of people employed of mostly across the world continues to rise But what we also see is that it is the case of manufacturing and agriculture We look at a 10-year period up to the crisis here and we see in Europe We see that all employment growth in the advanced 15 most developed you country the long-term members All employment growth came from the services sector So it's a bigger chunk of output. It's accounting for all net employment growth And for that came more quickly And in terms of services that exports there hasn't been as Much growth as one might expect that there's an element to that the exporting services in many cases is very difficult because inherently if You know the classic case is a haircut You can't give somebody a haircut in another country that you consume you provide and consume a service in some cases You have to be in the same place That said one of the things that's striking about this graphic is that Europe's services outside of Europe the growth in services and Growth within the EU has been pretty similar. In fact, it's been stronger Outside the EU now. What does that say about the single market? We're supposed to have a single market in Europe yet Our services exports are growing more quickly outside the EU then among ourselves One reason huge amount of services are excluded from the services directive and again that this is an issue the Commission is pushing as a way of Unleashing growth although there are plenty of questions not least political questions around that so Is there any certainty about any of those things? No, we could become more competitive and it may not unleash growth We could introduce big stimulus and it could act as a sugar rush Could get the economy going for six months a year and then Peter out and we're back Where we started but with more debt and a central bank with a bigger balance sheet We don't know but what we do know is that without growth We are certainly coming going into more difficult times politically and financially in terms of the the coming closer to To a default and we certainly know from recent years how big a shock that can be for the system Therefore, what should we do? Well, perhaps a ground bargain perhaps do everything you keep both sides of the political spectrum happy and Because we don't know what creates growth what guarantee that anything is guaranteed to create create growth If you use a scattergun approach and try everything hopefully something will work. Thank you