Moreover, this deficit is financed in large part by purchases of U.S. debt securities by Asian central banks and by public institutions from oil exporting countries. Some people call it a “revived Bretton Woods” system and claim it could work for years, if not decades6. I agree that temporary constructs often survive much longer than one could expect; just recall the former temporary Syreny military pontoon bridge on the Vistula river in Warsaw built in 1985, that lasted for fifteen years 7 . However, one can be next to certain that without farreaching reforms undertaken by major stakeholders financial markets may experience significant volatility in the not-toodistant future, with potentially harmful consequences for global growth. The third risk to global growth is the avian flu pandemic. Both the risk and the consequences of the worst-case scenario are impossible to assess, but the potential human and economic costs could be enormous. Financial markets Now let me turn to financial markets. The recent few years are marked by a significant growth in financial transactions, stock exchanges have risen, corporate and emerging markets spreads have tightened, the ratio of non-performing loans has dropped 8 , 9 . According to the Bank for International Settlements, private capital flows to emerging markets have reached the level last seen in 1997, before the Asian crisis. Inflows to European emerging markets have reached all-time highs. Factors responsible for a sharp increase in capital flows to emerging markets can be divided into pull factors (local fundamentals) and push factors (global liquidity, global cyclical factors).

The latest economic data and survey information suggest tentative signs of a stabilisation at very low levels, after a first quarter which was significantly weaker than expected. The world economy, including the euro area, is still undergoing a severe downturn, with the prospect of both external and domestic demand remaining very weak over 2009 before gradually recovering in the course of 2010. This assessment incorporates a number of adverse developments which are likely to materialise over the coming months, such as a further deterioration in labour markets. At the same time, available indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates at levels below, but close to, 2% over the medium term. A cross-check with the outcome of the monetary analysis confirms that inflationary pressure has been diminishing, as money and credit growth have further decelerated in recent months. Against the background of these developments, after today’s decisions we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. All in all, since the intensification of the financial crisis in September 2008, the Eurosystem has taken a series of measures that are unprecedented in nature, scope and timing. As a consequence, we have observed a clear decline in key money market interest rates that euro area banks typically use as benchmarks to reset floating rate loans and price new short-term loans.