Professor Gavin Barrett:

Mr. chairman, President Trichet and Chairman and members of the Oireachtas banking committee, and ladies and gentleman, I'm sure you will agree with me that the paper we've heard delivered today is a highly interesting one. It refers to two different levels, the Irish level and the European level. Part but only part of its focus has been on Ireland's recent past, and I think that focus is entirely understandable. There has been a lot of controversy, it's fair to say, about the ECB's rule in relation to the bank guarantee. I think it's fair to say that that discussion has not always been contextualised by an adequate understanding of the positive role that the European Central Bank has had. The fact that, for example, its liquidity assistance prevented the collapse of the Irish banking sector and with it, the economy. The fact that it intervened effectively to diffuse a sovereign debt crisis that could've destroyed the eurozone. The fact that the banking crisis and a sovereign debt crisis never developed into a currency crisis as well. Now none of that is meant to diminish the importance of the debate about the bank guarantee, but it does put it in its context and I think we do need to remember that context in discussing the role the ECB has played in recent Irish history.

President Trichet's paper focuses just as much, however, on the past, present and future of the eurozone and that's appropriate too. As he points out, since 2010, the eurozone has seen an astonishing level of institutional development. It is rapidly becoming the focal point of European level constitutional change and indeed, not to put too fine a point on it, the eurozone is developing into the new European Union. It's vital for us in Ireland to participate fully in the debate about that eurozone, of which of course we are a founding member. Otherwise, we may miss the larger picture. Now, given that President Trichet's paper is about euro area governance past, present and future, I'd like to make a few brief observations if I may, in relation to each.

So first of all, what can we say about the past of EMU? Well firstly, the eurozone, as designed at Maastricht, was and is, like no other area of European Union integration. For one point, there is a very weak representation of the common interest. Strikingly, the traditional supranational institutions are weak. The Commission, which does enjoy an inclusive right of initiative here, is not to the same extent a policy leader. The European Parliament lacks a role as co-legislator. It's essentially a junior partner, more a spectator, really, than a player. And remarkably ... well, there's also "an executive deficit," to quote Nicolas Véron, and remarkably, the euro group of finance ministers is not even an institution in its own right. Although, it's increasingly important, it's still essentially a forum for discussions.

The major institutional exception in this regard is the European Central Bank. The ECB functions, in effect, as a kind of supranational technocracy. A trustee for the public good of price stability, which Article 127 of the treaty expressly makes the primary objective of the European system of central banks. And what we got, at Maastricht in 1993, when it entered into force, was very much an ECB-centric model of EMU. It's also noticeable that representative institutions, generally, do not take centre stage in the eurozone. The ECB is independent to an unparalleled degree. The formerly dominant and famously independent Bundesbank's independence was and is protected only by ordinary German legislation. In contrast, the ECB's independence is written into the treaties. It is especially forbidden to take instructions from unions or governments by the treaty. It is made deliberately very difficult to remove executive board members from office. And of course, the central bank members on its Governing Council are all themselves representatives of independent institutions.

All that independence reflected two things: a dominant belief in the 1990s in independent central banks to ensure currency stability and also the political reality that Germany, whose participation in the eurozone was necessary in order to give the euro the great significance it has, could not give up Europe's then most stable currency, the Deutsche Mark, without adequate guarantees and stability. And ECB independence gave it that guarantee. In any case, this untypical architecture of EMU was its first striking feature.

Secondly, and as President Trichet has correctly identified in his paper, that same institutional architecture of the euro area, when it was launched in 1999, was incomplete. Although, I'm not sure all of the signatories to the Treaty of Maastricht would have agreed. It was built with a unified monetary policy represented institutionally by the ECB but a far from unified and indeed, inadequate economic aspect. To borrow the words of another great Frenchman, Alexandre Lamfalussy, "the M in EMU was far better developed than the E."

Thirdly, the original model of EMU was never going to last and of course, it didn't last. As Jean Pisani-Ferry has written:

Governance by rules and procedures [and that was the original Maastricht model] can work fine in fair weather conditions, but it cannot be relied on in stormy weather. That kind of weather requires leadership, it requires innovation, and it requires change.

And of course we got the perfect storm of the banking and sovereign debt crisis to drive real change in Europe.

President Trichet quoted in his paper, the Jean Monnet observation that Europe would be forged in crisis. Monnet also added that Europe would be the sum of the solutions to those crises. And that's how exactly how things have worked out. As President Trichet observes in his paper, the pace and scope of institutional reform that the euro area has seen since 2010 has been remarkable by diplomatic standards. Although it's fair to say, it didn't seem that way at the time judged by the demands of rapidly changing international markets. It, at times, seemed painfully slow and very last minute in nature, but it came.

And that leads us on to the present of the eurozone - where are we now? And the answer is that we are in a quite different place to where we were before. I would see three huge changes. Institutionally, we've seen the creation of bailout funds undreamt of, indeed, thought by some to be illegal at the time of Maastricht. We saw, first of all, the two temporary funds, the EFSM, the EFSF and now the permanent European stability mechanism, now, of course, given the imprimatur of the European Court of Justice in the Pringle case. That's a €500 trillion institution ready to lend to sovereigns and, if necessary, recapitalise banks to rescue them from insolvency.

Secondly, we have seen the SGP transformed into a vastly more comprehensive, if still not proven, suite of budgetary legislation in the form of the six-pack, the two-pack and the fiscal stability treaty and that, of course, takes into the macro-economic and balances procedure and the European semester.

And thirdly, we have seen the creation of a European banking union, including a single supervisory mechanism and a single resolution mechanism involving the very new role of banking supervisor for the ECB.

We have also seen the ECB, however, take on an evolving and at times controversial role. It has played a key role in efforts to re-establish economic, financial and fiscal stability. I'm not sure that every signatory to the Maastricht treaty anticipated the extent to which the ECB would be so involved and, indeed, it's noticeable that despite the importance of financial stability as a classic central banking tool, the drafters of the Maastricht treaty didn't include that as an objective of the ECB, although they did give it some legitimatising mention in the treaty. Overall, however, and fortunately, they left the ECB the legal flexibility to act subject, I should say in that regard, to what the ECJ decides in the Gauweiler case in which the outright monetary transactions policy is being challenged but the advocate general has already reported in that case and expressed approval of the OMT programme.

So that's the past and the present. What can we say about the future of EMU? As Mr. Jean Pisani-Ferry, another Frenchman, has written most, perhaps not all, but most of the architects of the euro, expected monetary unification to be a stepping stone. In other words, they regarded choices made at the time of the Maastricht treaty, namely monetary union without a significant federal budget, limited co-ordination of budgetary and structural policies, no integrated financial supervision, no strong political counterpart to the central bank, as temporary. They regarded these things as temporary and that's where president Trichet's paper is particularly interesting. It contains, as we have heard, suggestions of three kinds. First of all, suggestions aimed at securing the economic viability of the eurozone as a single currency area. So, Mr. Jean-Claude Trichet makes suggestions concerning an embryonic federal budget, possibly centralising, for instance, part of unemployment insurance. And I think, surely, if one is seeking to safeguard a currency union against asymmetric shocks, the development of some kind of federal budget, at least initially embryonic, is a step we have to be thinking about, instead of the current exclusive reliance on strict budgetary discipline to provide member states with the latitude to dig themselves out of difficulty alone, albeit aided, if necessary, by eurozone level loans.

Secondly, ... yes ... one minute. That's all I need.

Secondly, we see suggestions aimed at remedying the ongoing institutional deficit at eurozone level. There is no doubt, I think, that the eurozone is inadequately institutionally served. It suffers from an executive deficit and weak representation of the general European interest. The Eurogroup of eurozone finance Ministers, for example, don't even enjoy the decision-making capacity of the ECOFIN Council at EU level, so I think the setting up of a eurozone ministry and minister for finance, perhaps modelled on the high representative for foreign affairs and security policy, seems a sensible way to unify and professionalise tasks currently scattered across the Council of the Commission, European Council of the Eurogroup, and the economic and financial committee.

Thirdly and finally, president Trichet has suggested ideas for combatting the democratic deficit - he has correctly, I think, in his paper, identified the Achilles heel of EMU in his observation that the ultimate question of democratic legitimacy in Europe is still not sufficiently addressed. His suggestion the European Parliament be used as a democratic arbiter of disputes concerning recommendations under the SGP and the imbalances procedure may or may not be the way forward. Personally, I would be nervous about squaring off national parliaments and the European Parliament, but there is no doubt that this kind of innovative thinking is exactly what we need to be doing in the eurozone, and, in particular, we need to be doing it in Ireland. The late Garrett FitzGerald pointed out that small member states like Ireland can punch well above their weight in the marketplace of ideas. It's one place we can make a difference. The IIEA has played a huge role in that regard and I hope that today's event not only looks at the controversies of the past, as important as these are, but also makes some contribution to the broader ongoing debate about which way the eurozone should develop.