8  BIS central bankers’ speeches  In that light, it is important that any future EU legislative measures, designed to meet the needs of deeper integration in the euro area, do not adversely affect the Bank of England’s ability to ensure the stability of the UK financial sector or compromise the single market. It is desirable, particularly given the weight of the ECB and of the members of the single currency within the EU, that there are clear principles to safeguard the interests of non-euro member states. The future direction of EU financial reform should recognise that the EU comprises multiple currencies with multiple risks. Such principles would enable the Bank of England to continue to ensure that EU membership contributes fully to the attainment of the Bank’s statutory objectives. *** Overall, EU membership has increased the openness of the UK economy, facilitating dynamism but also creating some monetary and financial stability challenges for the Bank of England to manage. Thus far, we have been able to meet these challenges. Our efforts have been helped by the strong domestic framework for financial stability that has been put in place post crisis. Going forward, these should be further buttressed by an evolution of the EU regulatory framework that continues to work for all members of the EU. The increased resilience that brings is a necessary condition for dynamism. And a dynamic, resilient domestic economy will enhance the prosperity of the people of the UK and beyond. And for those still looking upwards in wonderment?

Due to the appreciation of the Swiss franc, export-geared companies are exposed to strong price competition. In manufacturing, in particular, margins are under very strong pressure in some cases. However, survey results still suggest that robust foreign demand allows for good utilisation of capacities and supports exports. The short-term outlook also remains good for domestic demand. Construction investment is benefiting from favourable financing conditions, while higher capacity utilisation should stimulate equipment investment. Demand for labour is likely to firm further. For 2011, the SNB is maintaining its forecast of real GDP growth amounting to around 2%. Monetary and financial conditions Monetary conditions were again characterised by the divergence between low interest rates and the Swiss franc, which appreciated significantly in the second quarter. Since the last monetary policy assessment, the three-month Libor has persisted in the lower part of the target range. With inflation expectations rising slightly, real interest rates have remained low and even, in the short-term range, negative. In general, although long-term interest rates have risen since their low point in August 2010, they are still at a low level. By contrast, the real export-weighted Swiss franc appreciated further in the second quarter and has reached an all-time high. By the beginning of May, the US dollar – mainly – had weakened significantly against the Swiss franc. Thereafter, renewed concerns about stability in the euro area also led to a depreciation of the euro. My colleague, Jean-Pierre Danthine, will speak about the situation on the international financial markets in more detail later on.