imply vulnerabilities such as excessive credit growth or dependence on external financing. the challenge of preventing and managing crises draws attention to the need for euro area countries to genuinely treat their economic policies as a “ matter of common concern ” – as they are obliged to by the treaty – and exercise effective peer pressure. intrusive mutual surveillance is a necessary precondition for participation in a highly integrated economic and financial area. as we have seen this year, a failure in terms of surveillance can quickly result in a crisis in a member country which – no matter how small the country – spills over to the rest of the area via cross - border holdings of that country ’ s sovereign debt and more general confidence effects. while these challenges are genuine and serious, i do not agree with the conclusions that some commentators have drawn. such criticisms overlook two very important aspects of the euro area that tell a different story about its resilience. first, the euro has been successful, in its first 12 years, in many important areas which do not require reforms. the euro has brought stability, with inflation averaging 1. 98 % and inflation expectations remaining solidly anchored. the euro has facilitated economic integration, with financial integration increasing by around 25 – 30 % in those eu countries that first adopted the euro and trade integration increasing by an average of 5 – 10 % since 1999. those countries that have remained more competitive have benefited significantly in terms of trade in view of the absence of exchange rate fluctuation. the advent of the euro has also been associated with the stronger correlation of business cycles and a reduction in the dispersion of annual inflation rates and real gdp growth rates across euro area countries. indeed, nowadays such dispersion is comparable to the dispersion seen across the various us states. and the euro has established itself as the second international currency. given these achievements, it would be distressing to imagine a world without the euro. what would have happened to individual euro area economies during the deepest economic and financial crisis in decades? second, the major efforts that are already being made to address the root causes of the euro area ’ s challenges are sometimes overlooked. euro area countries are currently leading the way in prioritising a swift return to fiscal consolidation, which will have important confidence effects. the imf currently predicts that the euro area ’ s aggregate fiscal deficit will be 5. 1 % of gdp next year. this compares with that said, there are still areas of that reformed governance framework where the

, with the provision of such ample liquidity in the market, short - term interest rates are held down virtually at zero. despite ample liquidity we provide in the market, nominal interest rates cannot decline below zero. this is called the constraint of zero interest rates, which i will touch on later. the second pillar is that the bank is committed to continuing with the current policy framework until the core consumer price index shows zero percent or above on a year - on - year basis in a stable manner. this commitment tends to reduce medium - term interest rates along the yield curve. it creates the expectations among market participants that the current extra easy monetary policy will continue for a considerable period. it reduces the level of expected future short - term interest rates and the uncertainty about the future path of these rates. this effect of precommitment policy is sometimes called the " policy duration effect. " the third pillar is that the bank is conducting the outright purchase of long - term government bonds as a means of providing ample liquidity in the market. the monthly purchase now is about 10 billion dollars. deflation is not necessarily new. indeed, we observe a couple of deflation periods in the past. in japan, prices declined by about one third during five years in the 1880s. in the united states, prices fell by a quarter in three years in the 1930s during the great depression. for a little more than fifty years after world war two, however, we had hardly experienced deflation. and, central banks had been mainly concerned with prices " going up " rather than prices " going down, " and worked hard to put inflation under control. i still remember that the federal reserve was very concerned about inflation while i was working at the japanese embassy in washington, d. c. for three years from 1975 through 1978. around that time, the world economy was suffering from stagflation after the oil crises, and the united states, germany and japan were pressured to play the role as the " locomotive " of world growth. thanks to the prudent conduct of monetary policy and such dramatic changes as the entry of emerging countries into the market economy, inflation has been gradually slowing down since the 1990s. and now, we have entered the period of global disinflation. japan is currently in mild deflation after passing a disinflationary stage. the core consumer price index is now around minus 0. 1 percent on a year - on - year basis following the decline of a little less than