structural reforms requires courage and leadership. especially, they may temporarily be perceived negatively by some economic agents. however, after some time, employment is expected to increase, as new products and services are being introduced and fresh energies are being unleashed and made productive. the liberation of large segments of activity that were previously suppressed will soon create a potent constituency for reform and european commission ( 2003 ) : “ jobs, jobs, jobs. creating more employment in europe ”, report of the employment taskforce chaired by wim kok, november. structural advancement. importantly, all consumers and firms which in a regulated environment had to bear the cost of financing the subsidies will immediately enjoy the benefits from the reform. these prospective gains and the tilting of the balance of social preferences that these gains will bring about are often overlooked in the public debate. in fact, for the time being, the challenge to gain the support of parliaments and the public for implementing structural reforms is formidable. it is therefore imperative to make it clear to the public that, if governments and social partners deliver those reforms, the net benefits will be significant for the public at large. fiscal policy implementing structural reforms to raise potential growth is a major challenge for the european economies. but it is not the only one. in any economy, achieving sustainable, non - inflationary growth also requires fiscal soundness. in the absence of such fiscal soundness, price stability can only be maintained at a higher cost in terms of interest rates, and thereby lower growth and employment. what is appropriate for all economies is all the more necessary at the euro area - wide level, where, in the absence of a federal budget, a credible framework ensuring fiscal discipline is a key component for the consistency and the cohesion of our monetary union. sound fiscal policies implying safe budgetary positions in good times are necessary to ensure that fiscal policy has room to cope with asymmetric shocks, which can no longer be addressed by monetary policy. not least for these reasons, it is a matter of concern to the ecb that in a number of member states abnormally large fiscal deficits have persisted over years. the commission has tabled some proposals and a discussion has been launched to consider how to strengthen and clarify the implementation of the stability and growth pact. we can find common ground between some of the commission ’ s proposals and our own thinking, namely, as regards the preventive arm of the pact. we agree that the implementation of the stability and growth pact should be improved. we agree that

by more than the bank had expected, with more muted price pressures across a wide range of goods and services, consistent with the unexpected increase in excess capacity. bis central bankers ’ speeches • total cpi inflation has also been lower than anticipated, reflecting developments in core inflation and weaker - than - projected gasoline prices. • total cpi inflation is expected to remain around 1 per cent in the near term. it is expected to rise gradually, along with core inflation, to the 2 per cent target in the second half of 2014 as the economy returns to full capacity and inflation expectations remain well - anchored. • despite the reduction in global tail risks as a result of a series of actions by european and american authorities, the inflation outlook in canada is still subject to significant risks. • the three main upside risks to inflation in canada relate to the possibility of stronger - than - expected growth in the u. s. economy, higher canadian exports and renewed momentum in canadian residential investment. • the three main downside risks to inflation in canada relate to the european crisis, more protracted weakness in business investment and exports in canada, and the possibility that growth in canadian household spending could be weaker. • overall, the bank judges that the risks to the inflation outlook in canada are roughly balanced over the projection period. • reflecting all of these factors, the bank, on 23 january, maintained the target for the overnight rate at 1 per cent. • while some modest withdrawal of monetary policy stimulus will likely be required over time, consistent with achieving the 2 per cent inflation target, the more muted inflation outlook and the beginnings of a more constructive evolution of imbalances in the household sector suggest that the timing of any such withdrawal is less imminent than previously anticipated. with that, tiff and i would be pleased to take your questions. bis central bankers ’ speeches