policy report assumes that it will hover around 4 % for some months. after the publication of the previous report, private inflation expectations for this year increased in line with that report and have remained at a higher level since then. at one to two years ’ term, expectations remain at or around 3 %, which is the target set by the central bank ( figure 1 ). in the first quarter, domestic output and demand grew slightly more in annual terms than was expected in march. this was visible in private and public consumption, and in investment in construction and other works, with the resulting increase in growth in construction, trade and some services. however, march figures and incoming indicators suggest that the recovery of bis central bankers ’ speeches growth in the remainder of the year will be somewhat slower than expected. this is reflected by several indicators, such as retail sales, imports of consumer goods and business and consumer expectations. particularly worrisome is the possibility of consumer and business confidence remaining in clearly pessimistic territory, a situation that, if not reversed, will hinder the recovery of growth in the second half of the year ( figure 3 ). the evolution of credit also reflects weak private spending. annual growth of consumer and commercial loans is still bounded, despite the low interest rates. job creation in the private sector has also been in line with the economic slowdown. hiring in the most cycle - sensitive sectors, such as manufacturing and construction, post negative y - oy rates of variation, which however have moderated in recent months. nevertheless, the stronger increase in employment in agriculture and services, especially some linked to the public sector, has led total employment to grow by about 1 % annually. the unemployment rate remains low, because the slower employment growth is matched by also slower growth in the labor force ( figure 4 ). nominal wages continue to grow strongly, slightly more than 7 percent. the empirical evidence suggests that this owes mainly to the indexation to higher past inflation. although this phenomenon is not as intense as it was in past decades, it is still significant. there is still the risk, however, that if wages remain high, the convergence of inflation may take longer. another risk is that the evolution of wages may be reflecting a narrowing of output gaps with respect to the baseline scenario and, therefore, increased inflationary pressures. world economic data have shown lower growth in the us and a strengthening of the more positive outlook in the eurozone. although the worsened us data for the first quarter are

jens weidmann fears that the ecb ’ s monetary policy is financing fiscal deficits. draghi : no, the governing council disagreed with that view. what has been decided is a monetary policy measure. there is a fundamental difference between buying on the primary market, which is forbidden because the money would go to the government, and buying on the secondary market where the money does not go to the government but to bond holders. article 18 of the statute states that the ecb may “ buy and sell [ … ] marketable instruments ” as part of its mandate, if necessary to achieve price stability, of course always respecting the treaty ’ s article 123 on the prohibition of monetary financing. sz : where does the german opposition come from? draghi : it comes from the history of the country and the fear of inflation. but it has to be clear that in the case of efsf / esm support, the parliaments of the euro area countries will be involved. sz : but the parliaments do not decide on the amounts that the ecb is going to risk … draghi : no, because monetary policy has to remain independent, and it is a prerequisite for the governing council to consider the specific monetary policy measures. sz : many germans were against the euro, because they had doubts about the economic policies of countries like greece or italy. now they feel that they were right. draghi : the euro has delivered price stability to an entire continent. it has removed exchange rate risk, fostered economic cohesion, employment and growth. germany has benefited greatly from all these accomplishments, as well as from price stability that is greater than in the years before the euro. sz : the ecb will be getting even more power by supervising the european banking industry. so, will the ecb always bail out ailing banks by printing money? draghi : no, we have to organise ourselves and keep banking supervision and monetary policy strictly separate. this has been done in many central banks. we are not mixing anything ; fundamentally, there will be a chinese wall. sz : chinese walls in regular banks have collapsed. draghi : not in central banks. sz : how can the ecb do a better job than the german bafin? draghi : it is not about doing a better job ; it is about making sure that uniform supervisory practices are applied across the whole single currency area. the more detached you are from national government, the more objective you