in december 2011. in south africa, headline inflation increased markedly, from 3. 5 percent in december 2010 to 6. 1 percent by the end of 2011, slightly breaching the upper end of the medium - term target range of 3 – 6 percent. this was attributable, in large part, to an increase in the price of food. bis central bankers ’ speeches as anticipated in last year ’ s monetary policy statement, domestic inflation was above the medium - term objective range of 3 – 6 percent throughout 2011, due mainly to higher food prices. other causes of rampant inflation included the increase in administered prices for fuel, public transport and electricity. inflation then rose from 7. 4 percent in december 2010 to 8. 5 percent in the first quarter of 2011, as a result of the increase in private school fees and petrol prices. after easing slightly to 7. 9 percent in june 2011 following the reduction of telephone tariffs, inflation resumed its upward trend and reached 9. 2 percent at the end of last year, in response to the upward adjustment of fuel prices and transport fares, as well as the increase in the cost of food, health services and household durables. all measures of inflation went up last year. when administered prices are excluded, inflation rose, although at a slower rate, from 7. 1 percent in december 2010 to 7. 5 percent by year - end ; similarly, the trimmed ( 16 percent ) mean measure of core inflation increased from 7. 7 percent to 8. 5 percent. the effect of demand on inflation was limited since economic activity remained below long - term levels. furthermore, the modest public service salary increase of september 2011 meant that household demand remained constrained. in addition, government expenditure growth was similarly tight with a view to balancing the budget by fiscal year 2012 / 13, the objective of which has been more than attained in view of the budgeted small surplus. nevertheless, faster credit expansion helped to stabilise aggregate demand. for instance, bank lending to businesses increased by 41 percent last year, compared to only 11. 3 percent the previous year ; and credit to households rose by 15. 8 percent in 2011, which is higher than the 12. 5 percent growth rate of the previous year. overall, the annual growth in private sector credit more than doubled in 2011, from 11. 9 percent to 26. 4 percent. besides the domestic and external inflation environment of 2011, monetary policy was conducted against the background of global economic instability and uncertainty, to which i referred

necessity to agree on a common framework for the conduct of fiscal policies. ladies and gentlemen, one characteristic feature of the arab world is the low degree of regional trade links. intra - regional trade accounts for only 8 % of the total trade of middle eastern and northern african countries. 2 this differs markedly with europe. in the light of these figures one might feel tempted to ask why, on a conference like this, i am devoting so much attention to regional integration efforts. the reason is – and once again i refer to the european experience – that regional cooperation does not imply increased intra - regional trade at the cost of less trade with countries outside the region. emu has not resulted in so - called trade divergence effects. in other words, developing a closer regional integration in the arab world seems to be an important prerequisite to strengthen economic links between arab countries and europe, too. these will include product as well as financial markets. it will have consequences for the banking business and it will shape the way in which the future economic dialogue between europe and the arab world is framed. looking over the programme of this conference all these topics will be discussed in greater detail in the various workshop sessions and plenary rounds. i am confident that the broad programme framework will mean that the conference results will meet everyone ’ s expectations. the current global economic conditions are well suited to enhance economic cooperation between europe and the arab world. under the surface of oil market developments, which absorb so much regional and monetary integration in the member states of the gulf cooperation council ( gcc ), forthcoming ecb occasional paper. public attention in europe, when it comes to economic debates about the partnership between europe and the arab world there are interesting ongoing developments in arab countries which, in my view, do not get the attention they rightly deserve. economic cooperation in a region where economic fortune has all too often been hampered by regional tensions and conflicts should be a central concern for all of us in europe. i am glad that conferences like today ’ s are shaping our understanding of the vital importance of economic partnerships between both regions.