to inflation variance, we see larger standard deviations than in the middle of the past decade but lower values than in the first years of emu. secondly, it has to be stressed that the monetary policy decisions of the ecb governing council are focused on the euro area as a whole and not on the specific needs of individual member states, let alone individual banks with funding problems. consequently, developments in individual member countries are relevant to monetary policy only insofar as they have an impact on price stability in the euro area as a whole ; this can occur directly via their impact on aggregate inflation, but also indirectly, say, if the monetary policy transmission process is affected. finally, heterogeneity is not a problem per se, that is to say it is a problem neither for the single monetary policy nor for the individual member states : persistent heterogeneity in growth rates might simply reflect differences in potential output growth caused, for example, by differing demographic developments or the catch - up processes in some member states. rather, what we should be concerned about is heterogeneity in terms of the member states ’ bis central bankers ’ speeches ability to cope with − and to live up to − the challenges of a common monetary policy. however, in such cases, policies other than monetary policy are required to remove existing deficiencies and to ensure the ability of member states to respond to asymmetric shocks : in particular, i would like to mention fiscal consolidation to restore confidence in public finances, thereby creating fiscal room for manoeuvre ; structural reforms to improve the flexibility of product and labour markets ; and better financial regulation to enhance the resilience of financial systems. 5. conclusion ladies and gentlemen there are considerable heterogeneities within the euro area. nevertheless, it can be argued that disparities are more likely to narrow than widen over the medium term. some euro - area countries, including germany, have recovered very dynamically from the economic crisis. other countries, particularly those at the periphery, are persistently suffering from structural adjustment requirements and are constantly under the scrutiny of financial markets. nevertheless, the implementation of necessary reforms and adjustment processes is the only viable way of returning to a sustainable growth path. on the other hand, we should not overestimate germany ’ s economic strength over the medium term. the economic crisis has subdued the potential growth of the german economy. we assume that potential growth will go up again slightly to no more than 1 % by 2012

their capacities rather than just replace existing equipment. housing construction is expected to go on benefiting from historically low funding costs, whereas public investment is expected to drop sharply given the phasing - out of stimulus programmes and the considerable need for consolidation. even private consumption is providing us with some good news. having been sluggish in the past upswing and resilient during the crisis, it showed perceptible growth of 0. 4 % in 2010. the very positive household sentiment indicates that the upward trend will become even stronger both this year and next. what underlies this remarkably positive household sentiment? quite obviously, it is the improved labour market situation and, hence, higher labour income expectations. consumption activity might suffer, however, from the significantly gloomier price climate that will probably continue over the next few months. according to the flash estimate, the annual inflation rate ( hicp ) rose to 2. 2 % in february. even though this is clearly lower than the bis central bankers ’ speeches current uk inflation rates, it is the highest figure since autumn 2008. the price climate has therefore deteriorated, although it should not be forgotten that, up to now, this has been due mostly to exogenous shocks, particularly from energy prices. we expect the german economy to grow on average in 2011 considerably faster than the 2 % we projected in early december : 2½ % should be a realistic figure as things stand at present. as a result, the german economy should regain its crisis - related losses in output by about the end of this year. there will be a further decline in unemployment owing to companies ’ marked willingness to recruit new staff. the fall in unemployment in germany is not just cyclical, however. germany is currently reaping the benefits of the sometimes painful reforms introduced over the past decade. this teaches us the important lesson that reforms pay off. furthermore, robust employment during the crisis was the dividend of greater flexibility in german wage agreements and was also supported by temporary government measures such as the shorttime working, which proved to be an attractive option. this is not to deny that major challenges remain : the reforms have tended to reinforce the segmentation of the labour market, and unemployment among the low - skilled as well as long - term unemployment remain at a high level. nevertheless, current data are impressive : at a rate of 7. 3 %, german unemployment is now below its pre - crisis level, and the average number of employed persons was at its highest ever in 2010