more specifically, moderate wage developments in the euro area as a whole reflect an aggregation of diverse wage developments across euro area countries with important implications for cost competitiveness. indeed, over longer horizons we observe that euro area countries that have been able to preserve a low level of unit labour cost growth have also experienced significant gains in employment. at the same time, when looking at accumulated unit labour cost changes we observe that a number of economies which lost cost competitiveness also experienced a loss of market shares, less gains in job creation and / or deteriorating current account position. despite the decline in the euro area average unemployment rate over the last few years, unemployment remains too high in several countries and regions of the euro area. in these countries and regions, wage increases should not fully exhaust productivity gains in order to provide incentives for firms to create additional jobs. in this respect, sufficient wage differentiation is also required to improve the employment opportunities for less skilled workers where there is high unemployment for this category of employees. the extent to which an increase in nominal wage growth leads to upward pressure on inflation depends crucially on trend labour productivity growth. under normal circumstances, stronger labour productivity growth would justify an increase in nominal wage growth, thus allowing wage earners to participate in economic growth without adding to inflationary pressures. but for the same reason, without sustained improvements in labour productivity higher nominal wages would not lead to improvements in real purchasing power, but fuel inflationary pressures. importantly, industries are characterised by different productivity developments. therefore, wage setting should allow for sufficient wage differentiation and agreements in one industry or sector can not readily be transferred to others. those are the reasons whey the governing council calls for a high level of responsibility from social partners. it is aiming at preserving and improving the situation of employees and of all our fellow citizens in the euro area. such a responsible policy directly benefits those who are unemployed by significantly improving their employment possibilities. it benefits all our fellow citizens by supporting the purchasing power of their income, thus preserving the well - being of euro area households. and it contributes to meeting one necessary condition for sustainable long - term growth and active job creation in the euro area, which is price stability. naturally there are also a number of other factors that are contributing to sustainable growth and job creation, in particular sound public finances and, as i already said, structural reforms that enhance competition, increase productivity and foster economic flexibility in order to elevate the growth potential of our vast euro area economy. augmenting the growth potential

, domestic demand should continue to be supported by a number of factors, including the accommodative monetary policy stance, ongoing improvements in financing conditions working their way through to the real economy, the progress made in fiscal consolidation and structural reforms, and developments in energy prices. at the same time, although labour markets have stabilised and shown the first signs of improvement, unemployment remains high in the euro area and, overall, unutilised capacity continues to be sizeable. moreover, the annual rate of change of mfi loans to the private sector remained negative in march and the necessary balance sheet adjustments in the public and private sectors continue to weigh on the pace of the economic recovery. the risks surrounding the economic outlook for the euro area continue to be on the downside. geopolitical risks, as well as developments in global financial markets and emerging market economies, may have the potential to affect economic conditions negatively. other downside risks include weaker than expected domestic demand and insufficient implementation of structural reforms in euro area countries, as well as weaker export growth. bis central bankers ’ speeches according to eurostat ’ s flash estimate, euro area annual hicp inflation was 0. 7 % in april 2014, up from 0. 5 % in march. as expected, given the timing of easter, the increase was mainly due to a rise in services prices. on the basis of current information, annual hicp inflation is expected to remain around present low levels over the coming months, before only gradually increasing during 2015 to reach levels closer to 2 % towards the end of 2016. new macroeconomic projections by eurosystem staff will become available in early june. medium to long - term inflation expectations remain firmly anchored in line with price stability. the governing council sees both upside and downside risks to the outlook for price developments as limited and broadly balanced over the medium term. in this context, the possible repercussions of both geopolitical risks and exchange rate developments will be monitored closely. turning to the monetary analysis, data for march 2014 continue to point to subdued underlying growth in broad money ( m3 ). annual growth in m3 moderated to 1. 1 % in march, from 1. 3 % in february. the growth of the narrow monetary aggregate m1 remained robust but decreased to 5. 6 % in march, after 6. 2 % in february. the increase in the mfi net external asset position, reflecting in part the continued interest of international investors in euro area assets, remains the main factor