months. with regard to the broadly based outlook for price developments and risks to price stability, new information on indicators of future price developments and economic activity in the euro area continue to provide mixed signals. financial indicators such as the yield curve show that the spread between short - term and long - term interest rates has recently widened somewhat. this followed the decline in long - term interest rates in january to the lowest levels seen since the late 1940s. nevertheless, conditions for investment at the start of monetary union are favourable. this relates in particular to the prevailing low interest rate level, which significantly reduces the costs of financing for investors. recent developments appear to have led to a reduction in some of the uncertainties surrounding the evolution of the world economy in 1999. this mainly relates to the strong performance of the us economy. in the euro area the latest indicators confirm that those risks which were identified earlier have materialised to some extent. real gdp growth in the euro area, which weakened in the fourth quarter of 1998 compared with the previous quarter, suggests that activity has been slowing down in recent months. this assessment is supported by other indicators, such as decreasing capacity utilisation and industrial confidence, both of which have been on a declining trend since mid - 1998. by contrast, consumer confidence continues to present a favourable picture. the level of unemployment has remained more or less unchanged over the past few months. recent price developments are consistent with price stability. the latest data on the harmonised index of consumer prices show that the downward movement of inflation has stopped. the annual increase for february 1999 was reported to be 0. 8 %, the same as in the previous month. the current low inflation rate is partly due to substantial reductions in energy prices over the past half year, which have diminished somewhat very recently. decreasing unit labour costs have also made a significant contribution. in summary, the outlook for price stability remains favourable and, until now, we have not identified any significant upward or downward pressures on prices in the short term. on the downward side, the slowdown in the euro area economy is a cause for concern. on the upward side, increasing wage pressure and a relaxation of the fiscal stance could adversely affect the prospects for future price stability. furthermore, recent exchange rate developments will also need to be monitored closely in view of their impact on prices. in the absence of any strong upward or downward pressure on price developments, maintaining the current stance of monetary policy appeared justified. the governing council therefore decided last week that for the next

##seen under the basel iii agreement must be implemented in such a way that it is not an obstacle to restarting interbank credit, in particular in its cross - national dimension. it is also vital to break the feedback loop between bank and sovereign credit which lies at the very heart of the current crisis. 11 i therefore believe that the financial compact should include a harmonised regime for bank resolution and, further ahead, a single european agency responsible for deposit insurance and for winding down failed banks. fourth, european policy - makers need to take seriously the notion that it is up to them to foster the flexibility of labour market institutions, the mobility of labour between regions and euro area countries, and the integration of european markets for goods and services. much progress remains to be made in order for europeans to live in a truly single market. policy “ report on economic and monetary union in the european community ” ( the delors report ), committee for the study of economic and monetary union, jacques delors, chairman, april 1989. this mechanism was foreseen by eichengreen and wyplosz. see eichengreen, b. and wyplosz, c., “ the stability pact : more than a minor nuisance ”, economic policy, 13, 1998, pp. 65 – 104. bis central bankers ’ speeches initiatives to raise the economic growth potential in the aftermath of this crisis will be welcome. it is crucial that their promoters take the perspective of the single market, as opposed to the perspective of national economies. you have probably noticed that my discussion of how to recreate risk - sharing mechanisms in the euro area made little mention of the ecb. this is because the single monetary policy can at best support the required reform steps. our best contribution will be to provide liquidity to banks so long as they are financially sound and have high - quality collateral, to ensure a smooth functioning of the payment system and, above all, to continue to deliver price stability. conclusion let me conclude. when one thinks about the crisis in the euro area in terms of mechanisms to share economic risks within emu, the following observations emerge. the years between the creation of the euro and the global financial crisis saw an unexpectedly rapid development of market - based risk - sharing mechanisms in emu. however, current account imbalances were not monitored adequately by governments, and risks taken by financial market participants were insufficiently understood. those years also saw, contrary to the provisions of the treaty on