##ide, posing important challenges for policy makers that require the contribution of all areas of economic policy at both the national and the euro levels. challenges and the way forward in the euro area in the current circumstances, synergies among economic policies should be better exploited with a view to maximizing the stimulus to aggregate demand and to accelerate the recovery. there has been progress on structural reforms in recent years, particularly in those countries most affected by the crisis. on the fiscal front, the consolidation process has paused somewhat and, according to the spring - 2016 european commission ’ s forecasts “ fiscal policy is expected to be slightly supportive to growth this year ”. there are also important political challenges ahead. the management of the flow of refugees, the referendum that the united kingdom will hold next month on its eu membership, and, more recently, the negotiations with the united states to sign the transatlantic trade and investment partnership ( ttip ) are leading sometimes to heated debates on the institutional framework of the eu. in connection with these, and other, challenges, i would like to recall the roadmap drawn up in the five presidents ’ report published last year, which delineates steps for further economic integration within the euro area through both real convergence and some mutualisation of risks. making progress along the lines suggested in the five president ’ s report would not only improve the resilience of the euro area to future shocks, but would help building up the necessary confidence to create employment and lifting growth potential. monetary policy i would like now to make a few comments on the main features of our monetary policy scenario. since the beginning of the crisis weak domestic demand in the euro area has pushed down core inflation well below the medium - term objective. the subsequent fall in oil prices has bis central bankers ’ speeches aggravated this situation and core prices have grown in the last years at very moderate rates, around 1 % or less. the extent and scale of the actions taken in the euro area since the spring of 2014 to address the risks of too low inflation have been unprecedented, covering four strategic lines : negative remuneration in the deposit facility ; communication policy and the use of forward guidance ; several programs aimed at restoring the bank lending channel of monetary transmission ; and the program of quantitative easing that entails large scale purchases of private and public assets. since october 2014, the size of the eurosystem ’ s balance sheet has increased by 50 % up to €3tn with the implementation of the extended asset purchase program, whereas the

luis m linde : macro vulnerabilities, regulatory reforms and financial stability issues speech by mr luis m linde, governor of the bank of spain, at the international institute of finance ( iif ) spring membership meeting, madrid, 25 may 2016. * * * i would like to thank tim adams, president and chief executive officer of the international institute of finance, for his kind invitation to participate in your annual spring meeting. in my speech i will try to cover three topics : macro developments and challenges both in the international context and in the euro area ; the stance of monetary policy in different areas ; and regulatory changes. the international context today, the recovery of the world economy remains disappointingly uneven and weak. global gdp growth in 2015 was 3. 1 %, the lowest figure since 2009, and projections by most of the international institutions have been revised downwards again. in spite of that, financial markets have experienced a favourable trend in recent months. the more accommodative tone of monetary policy in most of the world, some macroeconomic data that, although not too buoyant, moved away expectations of a new recession and, in a number of cases, corporate profits, better than expected, helped reverse the worrying trends that markets showed at the beginning of the year. however, serious risks remain. many developed economies have recovered the level of activity prior to the crisis, but their growth rates have been low by historical standards. something similar happens with inflation, which in most cases remains below the central banks ’ targets. in the united states, recent indicators suggest a moderate rebound of activity in the second quarter, although for the year as a whole analyst´s projections point to a growth rate below 2 %. underlying inflation is below the fed ’ s target but it shows slight upward trend. these new data, jointly with the improvement in financial and external conditions, the publication of federal open market committee ( fomc ) minutes and statements of some of its member have changed market expectations. an increase in the federal funds rate during this year is now fully priced in and markets allocate a probability of 20 % to a second increase. because of its systemic importance, china is indeed attracting a great deal of attention. the management of the structural reforms pointing to change its model of development is complex. a key element of this process is the reform of the financial sector. as for the situation in latin america, although there is considerable heterogeneity by countries, these economies have been experiencing