Structurally, many studies 3 suggest that the Phillips curve, i.e. the relationship between inflation and fluctuations in economic activity or unemployment, appears to have flattened since the 1980s [slide]. Inflation seems less responsive to changes in economic activity in advanced countries, notably because of globalisation,4 which appears to exert downward pressure on inflation via the decline in imported goods prices and competition from low-wage countries. But a flatter Phillips curve does not call into question this relationship: we are in no doubt about the way we are heading: the recovery and job creations will lead to higher wages and, ultimately, more inflation. But we nevertheless remain less certain as to the speed of this adjustment. We are both confident about the effectiveness of our monetary policy and willing to be patient regarding the time it will take. II. What prospects for the future? Let me now turn to the consequences for our monetary policy. You are well aware that we at the ECB’s Governing Council will decide this autumn on the re-calibration of our policy instruments beyond the end of the year – and, I quote Mario Draghi, “probably the bulk of these decisions will be taken in October”. We are now faced with a simple requirement, in line with our mandate to maintain price stability, and the progress towards our inflation target: we have to reduce the intensity of our net asset purchases, while maintaining overall a substantially accommodative monetary policy.

The concordat recognised the greater roles of host supervisors for supervising foreign banks that operate via locally-incorporated subsidiaries. Some home country supervisory in fact referred to the host supervisor as the banks' "intermediate home supervisor". The framework also recommended a high level of reliance by host supervisory on the works undertaken by the home supervisors in their oversight and monitoring of the soundness of the foreign banks' branches in their jurisdictions. These important principles have become the foundations for the current cross-border supervisory framework and have been the basis for the formulation of the HighLevel Principles for the Cross-Broader Implementation of the New Accord issued in 2003. The Principles have sought to further reinforce the responsibilities of home supervisors in conducting consolidated supervision of financial conglomerates and the greater expectation on host supervisors in the supervision of individual subsidiary banks in their country. The new capital accord is yet another significant development that would challenge the robustness of the cross-border banking framework and principles. The real test would be in translating the principles into detailed policies and action plans that are both sound and practicable. The main challenge in applying the new accord uniformly across the globe is, indeed the complexity of the framework itself. While the underlying intention of the framework to promote sound risk management and best practices is not in question, countries, particularly the emerging markets, are at different levels of readiness to cope with the extensive changes and potential implications of Basel II.