have a more negative impact on the real economy than anticipated. moreover, downside risks stem from the dampening impact on consumption and investment of further unanticipated increases in energy and food prices. risks also arise from concerns about the emergence of protectionist pressures and the possibility of disorderly developments owing to global imbalances. with regard to price developments, annual hicp inflation has remained above 3 % for the past seven months. according to eurostat ’ s flash estimate, it was 3. 6 % in may 2008. this confirms the more persistent current upward pressures on euro area inflation, resulting largely from sharp increases in energy and food prices at the global level in recent months. looking ahead, on the basis of current futures prices for these commodities, the annual hicp inflation rate is likely to remain above 3 % for some time to come, before moderating only gradually in 2009. we are thus currently experiencing a protracted period of high annual rates of inflation, which is likely to be more persistent than previously anticipated. consistent with this view, the eurosystem staff projections foresee average annual hicp inflation at between 3. 2 % and 3. 6 % in 2008 and between 1. 8 % and 3. 0 % in 2009. compared with the march 2008 ecb staff projections, the ranges projected for inflation in 2008 and 2009 are markedly higher, reflecting mainly higher oil and food prices and increasingly inflationary pressures in the services sector. in this context, it is important to recall the conditional nature of the eurosystem staff projections. they are based on a number of assumptions which are of a purely technical nature and unrelated to policy intentions. in particular, the technical assumptions for shortterm interest rates are taken from market expectations as at mid - may. moreover, it should be noted that the projections are based on the assumption that the recent dynamism in oil and non - oil commodity prices will diminish over the projection horizon, in line with futures prices. a further crucial assumption is that there will be no broad - based second - round effects on wages. in the governing council ’ s view, at the policy - relevant medium - term horizon risks to the outlook for prices remain clearly on the upside and have increased further. these risks include notably the possibility of further increases in energy and food prices, as well as of increases in administered prices and indirect taxes beyond those foreseen thus far. it is also a strong concern that price and wage - setting behaviour could add

a value judgment - it is a fact. i think we have to accept that any set of accounts, however drawn up, is likely to be considerably deficient, taken just as numbers, in terms of outlining the economic realities of risks within the balance sheet. and disclosure itself is arguably inadequate at present in relation to both off - as well as on - balance sheet activity. however much it may be a matter of regret, and despite best intentions, the transparency of today's accounts has become less and the opacity greater than was the case in former days, thereby giving a less than complete or reliable view of overall risks. this is not just a question of spvs ; what is and what is not on the balance sheet ; nor even whether historic or fair value accounting techniques are used. the fact that accounting standards setters are only too well aware of this, and grappling with the considerable issues involved, is very much to be applauded. for this is a fundamentally difficult area. i particularly welcome the efforts of sir david tweedie and his colleagues at iasb in addressing so openly the hugely difficult task of getting the right balance and right principles into place. many of us can see i think that the financial instruments standards ias 32 and 39 have provoked significant and strong views. wisdom, foresight and a certain forbearance will be needed if we are to achieve a good solution. so we should all welcome the present initiative of the iasb in holding a series of roundtables with respondents to their exposure drafts on revisions to ias 32 and 39. debate and efforts in relation to these particular standards seem to me to be vital. they get to the heart of the dilemmas and challenges presented by new financial techniques and often complex instruments. it has after all been shown, in the enron case if no others, that detailed and prescriptive accounting standards, in the wrong hands, can engender a moral hazard in the search for ways round them which investment bankers and lawyers may well be expected to find. a similar logic applies in the prolonged debate between historic and mark - to - market accounting principles. once again, whichever approach is used, neither of them will tell the whole story in terms of the underlying economic realities of a bank's risk and return, nor how the risks are managed. but forms of disclosure may help. looking ahead : the longer term financial stability policy agenda perhaps i can turn now to some observations for the longer term