link between banks and sovereigns by bringing banking supervision and crisis management to the federal level. with the banking union, banks will be considered as euro area institutions over and above their nationality ; it will ensure that credit conditions in the euro area will not depend on where you are but on who you are, which is what should be expected of an efficient financial market. • it allows re - integration of the european banking system. a supra - national supervisor is in fact better placed to assess the risks of cross - border activities and therefore to protect and encourage such activities ; it is not subject to national biases that can lead to the temptation of economic introversion. it is therefore more credible and strengthens stability and confidence in the area ; • moreover, it restores the full efficacy of monetary policy. if our monetary policy impulses are not transmitted uniformly to all of the area ’ s countries because of the bank - sovereign link, it undermines the very foundation of europe ’ s monetary union ; remember that three quarters of the financing of the euro area ’ s economy consists of bank loans. by breaking this link, a banking union would restore the federal dimension of monetary policy. today the first pillar of the banking union is being constructed : the single supervisory mechanism. we are currently working on legal issues, on identifying systemically important banks within the euro area, on the supervisory model, on the future data reporting and, of course, on the asset quality review that will be undertaken before we take on the responsibility of supervision. the governance structure we have adopted will guarantee that, while the governing council will keep the decision power, there will be no conflict of interest between monetary policy and banking supervision. on the contrary, more consistent supervision across the euro area should allow for the early detection of potential risks and imbalances and, ultimately, improve the transmission of monetary policy. this is a fundamental first step and its rapid implementation will be a major success for the euro area. but, alone, it cannot achieve the objectives of a banking union. that is why we must rapidly construct its two other pillars : a supranational bank resolution authority and a unified deposit insurance system. the banking union will deliver a higher level of structural coherence to the euro area ’ s financial system, which has already been considerably strengthened since 2008 : banks ’ capital levels have been substantially consolidated, certain activities have been streamlined and the most stressed banks have been restructured. recent numbers show major advances for european banks in

and its successes. and i sincerely believe that our present monetary policy is very much in accordance with the german values that i fully share : independence, respect of the treaties, price stability and a long - term approach. contrary to what some critics suggest, our monetary policy is not some sort of latin fantasy. it is decided collectively by the council of governors and we take the mission entrusted to us – ensuring price stability – very seriously. this means ensuring that inflation is neither too high nor too low. overly high inflation would have disastrous consequences for the economy – as german history shows. excessively low inflation would have exposed us to deflation, a mortal danger as we know from the 1930s. in practice, price stability was defined by the council of governors as from 2003 as an inflation rate of close to, but below, 2 % over the medium - term. this definition has not changed and is now widely shared by all the central banks in developed countries, including the united states and the united kingdom. up to recent years, the stability of prices in the euro area was remarkable. however, as from 2013, inflation dropped to well below the 2 % mark. our mandate required us to respond so as to bring inflation back to healthier levels for our economies. b ) what is the situation today? inflation is gradually recovering in the euro area, as we had announced : we have gone from a fall of 0. 2 % in april 2016 to a rise of 1. 1 % in last december. this is partly due to the rebound in energy prices but is also the result of our monetary policy : it 1 / 4 bis central bankers'speeches has enabled us to ward off the risk of deflation which was still a threat in 2015. now in contrast, some seem to fear a resurgence of inflation ; this is very exaggerated. we have not yet reached our 2 % target and “ core ” inflation – excluding energy and food – is of only 0. 9 %. the other question mark concerns the differences between countries, with inflation of 1. 7 % in germany. however, following a temporary peak in the first quarter, german inflation is expected to remain under 2 % on average throughout 2017. moreover the inflation differences between countries are consistent with their different national economic situations : growth and employment are also stronger in germany ; and these differences could even contribute, via their impact on relative wages, to correcting the imbalances, hence achieving greater convergence within the euro area. i can naturally grasp the concern of