line with the governing council ’ s policy intentions. in july last year we therefore clarified the orientation of monetary policy going forward : we offered forward guidance on the future path of policy conditional on the evolving outlook for price stability. all our measures, standard and non - standard, have been taken to serve our primary objective of maintaining price stability. and they have delivered : since june 2009 ( i. e. the start of this legislature ) the average inflation rate in the euro area has been 1. 8 %. in exceptional circumstances, our measures were exceptional. but our commitment to our primary objective has not changed, and our strategy has remained the guide of our action. our credible commitment to these core elements is reflected in medium to longer - term inflation expectations remaining firmly anchored in line with the governing council ’ s aim of keeping inflation rates below, but close to, 2 % over the medium term. five years of economic and governance reforms – the euro area is more stable and resilient the last five years have not only seen effective monetary policy - making in the euro area – we should also remind ourselves that much has been achieved in the field of economic policy - making. four years after the first member states requested financial assistance, today we can safely say that the worst has been averted. the political will of all actors involved has been strong enough to defend the integrity of the euro area. many had underestimated this will. and more than that : contrary to the bleak picture that some are trying to paint these days, the euro area is – in terms of economic fundamentals and institutional set - up – on a better footing than it was at the beginning of this parliament ’ s mandate. it is clearly moving in the right direction – the glass is at least half - full. to a large extent, this can be attributed to the correction of economic policies at the national level. imbalances are receding and foundations are being laid for improved competitiveness and stronger growth. this is especially true for programme countries, which have undertaken bis central bankers ’ speeches a remarkable effort to consolidate public balance sheets, repair their financial sectors and reform the structure of their economies. beyond national policies, the euro area as a whole has become more resilient. in these turbulent years, when the return to national remedies often looked tempting, the european parliament with its true european perspective played a crucial role in ensuring truly european solutions. i am aware that the institutional approach that had to be taken at some instances has

expected to remain weak but should decline less strongly than was the case in the first quarter of 2009. looking ahead into next year, after a phase of stabilisation, a gradual recovery with positive quarterly growth rates is expected by mid - 2010. the significant policy stimuli in all major economic areas should support growth globally, including in the euro area. in the view of the governing council, the risks to the economic outlook are balanced. on the positive side, there may be stronger than anticipated effects stemming from the extensive macroeconomic stimulus being provided and from other policy measures taken. confidence may also improve more quickly than currently expected. on the other hand, concerns remain relating to a stronger or more protracted negative feedback loop between the real economy and the turmoil in financial markets, further increases in oil and other commodity prices, the intensification of protectionist pressures, increasingly unfavourable labour markets and, lastly, adverse developments in the world economy stemming from a disorderly correction of global imbalances. with regard to price developments, annual hicp inflation was, according to eurostat ’ s flash estimate, - 0. 1 % in june, compared with 0. 0 % in may. as explained on previous occasions, the further decline in annual rates of inflation was anticipated and reflects primarily base effects resulting from past sharp swings in global commodity prices. looking ahead, owing to these base effects, annual inflation rates are projected to remain temporarily in negative territory over the coming months, before turning positive again. such short - term movements are not relevant from a monetary policy perspective. consistent with available forecasts and projections, looking further ahead, inflation is expected to remain in positive territory, while price and cost developments are expected to remain dampened in the wake of ongoing sluggish demand in the euro area and elsewhere. in this respect, indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the governing council ’ s aim of keeping inflation rates below, but close to, 2 % over the medium term. risks to the outlook for inflation are broadly balanced. on the downside they relate, in particular, to the outlook for economic activity, while on the upside they relate to higher than expected commodity prices. furthermore, increases in indirect taxation and administered prices may be stronger than currently expected owing to the need for fiscal consolidation in the coming years. turning to the monetary analysis, the latest data confirm a continued deceleration in monetary dynamics. in may, the annual growth rate of m3 declined