economy in light of the significant global, european and domestic transitions taking place may achieve better outcomes for citizens both today and in the future. two of the transitions that i mentioned above will add to demands on government resources in the coming years. first, changing demographic trends will result in an ageing population and an increase in demographic - sensitive spending areas such as pension and health care costs. acting now, when the demographic structure is still relatively favourable would reduce the overall eventual cost of adjustment. second, while significant investment, both public and private, will be required to ensure the delivery of ireland ’ s climate action plan, delaying the necessary measures would result in a more costly transition – environmentally and economically – in the longer term. in my view, an objective of economic policy – at eu and individual member state ( ms ) level – should be to build resilience across households, businesses and the wider economy in the face of these transitions. to meet this challenge, we must continue to focus on fundamentals. successful economies need stable and sustainable macroeconomic frameworks and sound monetary policy that delivers low, stable and predictable inflation. well - regulated financial systems and well - functioning markets are prerequisites for managing the challenges that lie ahead. in the eu, the completion of banking union and further developing the capital markets union are important next steps. fiscal policy has an important role to play to incentivise the achievement of longer - term objectives. in particular, establishing a framework which ensures that excess tax revenue over and above that needed to fund sustainable growth in core expenditure is saved into the rainy - day fund. in fact, i would support re - framing such a fund explicitly as a ’ resilience fund ’. such an approach would help to improve resilience across the economy by building necessary buffers for the public finances ( enabling the state to respond appropriately when negative shocks materialise in the future ) and also by facilitating necessary capital expenditure both now and in the future ( so as to reduce the ultimate cost of adverse shocks when they occur ). the ‘ unexplained ’ corporation tax receipts provide a strong basis for identifying the revenue that could be transferred into such a resilience fund. conclusion on my first visit to connemara, my wife and i went to glassillaun beach. we were faced with what i can only describe as a mediterranean picture : a calm blue sea, a sandy beach and the distant horizon clear and visible. a few days later, it was very

resilient. the capital shortfall of almost €13 billion identified at five german institutions has been made good, and overall the 12 banks involved met the stringent requirement for a core tier 1 capital ratio of at least 9 % on schedule – in fact, they exceeded the requirement by €15. 5 billion. in the past year, the institutions have reduced their claims on debtors in the euro - area periphery countries ; their exposure to greek debt is now negligible. however, german banks still have significant claims on the spanish and italian governments, amounting to €21 billion and €38 billion respectively. their exposure to spanish and italian banks totals around €36 billion and €44 billion respectively. this means that susceptibility to an escalation in the european sovereign debt crisis remains a high risk for the german banking sector. the german institutions have also rendered their balance sheets less vulnerable by scaling down known toxic assets. in the past two years, the 12 large german institutions have cut back their exposure to these asset - backed securities by 30 % to around €116 billion. however, the securities still present a latent risk if their rating structure should deteriorate. if the banks are to build further on the stabilisation they have already achieved, then an adequate earnings situation is of central importance. after the huge collapse in income suffered at the beginning of the crisis, the earnings situation of the 12 large complex financial institutions has recovered in more recent years and has now stabilised at a moderate level. earnings performance at the current end is somewhat modest. earnings for the large complex financial institutions in the first half of this year – a strong half traditionally – were down on the first six months of last year. interest income as well as fee and commission income – major contributors to profit – have so far been lacklustre. volatile trading income in the first six months also came in below the previous year ’ s level. in addition, risk provisioning, which was previously providing support for overall net income, has risen slightly of late. the figures we have so far for the third quarter of 2012 show a continuation of these trends ; overall, however, the results are likely to be an improvement on those for the disappointing third quarter of 2011. thus, the german banking sector has gone a fair way towards recovering from the effects of the financial crisis. however, a glance at the reform agenda shows that over the coming years the pressure on institutions to adapt will not abate. b )