june 2014 continue to point to subdued underlying growth in broad money ( m3 ), with annual growth standing at 1. 5 % in june, compared with 1. 0 % in may. the growth of the narrow monetary aggregate m1 stood at 5. 3 % in june, up from 5. 0 % in may. the increase in the mfi net external asset position, reflecting in part the continued interest of international investors in euro area assets, remained an important factor supporting annual m3 growth. the annual rate of change of loans to non - financial corporations ( adjusted for loan sales and securitisation ) remained negative at – 2. 3 % in june, compared with – 2. 5 % in may and – 3. 2 % in february. lending to non - financial corporations continues to be weak, reflecting the lagged relationship with the business cycle, credit risk, credit supply factors and the ongoing adjustment of financial and non - financial sector balance sheets. at the same time, in terms of monthly flows, loans to non - financial corporations have shown some signs of a stabilisation over recent months, after recording sizeable negative monthly flows earlier in the year. this is consistent with the results of the bank lending survey for the second quarter of 2014 in which banks reported that credit standards for loans to enterprises had eased in net terms. however, they remain rather tight overall, when seen from a historical perspective. in addition, banks reported an improvement in net loan demand by non - financial corporations and households. the annual growth rate of loans to households ( adjusted for loan sales and securitisation ) was 0. 5 % in june, broadly unchanged since the beginning of 2013. against the background of weak credit growth, the ecb ’ s ongoing comprehensive assessment of banks ’ balance sheets is of key importance. banks should take full advantage of this exercise to improve their capital position, thereby supporting the scope for credit expansion during the next stages of the recovery. to sum up, the economic analysis indicates that the current low level of inflation should be followed by a gradual upward movement in hicp inflation rates towards levels closer to 2 %. a cross - check with the signals from the monetary analysis confirms this picture. as regards fiscal policies, comprehensive fiscal consolidation in recent years has contributed to reducing budgetary imbalances. important structural reforms have increased competitiveness and the adjustment capacity of countries ’ labour and product markets. these efforts now need to gain momentum to enhance the euro area ’ s growth potential. structural reforms should

the correction of imbalances. numerous historical episodes have shown that financial markets tend to be too slow and weak in penalising profligacy in normal times, and can suddenly turn disruptive and cause overshooting during crises. in order to contain moral hazard and prevent disruptions, the stability and growth pact was agreed as a complement to the maastricht architecture. the pact set budgetary rules and procedures to reinforce fiscal discipline at the national level. it was intended to avoid gross fiscal policy errors, through peer monitoring and peer pressure, as well as through the threat of sanctions. however, implementation of the pact was rather weak in emu ’ s early years. tensions emerged already in the early 2000s, and in november 2003, when action should have been taken against both france and germany, the ecofin council decided not to act, overruling the european commission. this unwillingness to apply the rules was a “ mortal sin ” : a clear message was sent to the other euro area members that the pact was not there to “ bite ”. weak economic governance in the euro area had three major consequences : – first, inadequate domestic fiscal policies were tolerated, leading to unsustainable fiscal positions in some countries and tensions in the conduct of the single monetary policy ; – second, insufficient attention was devoted to losses of competitiveness and the accumulation of current account imbalances within the euro area ; – third, and probably most important, the correlation between the ability of the financial sector and of the sovereign states to obtain financing was largely ignored. 3. the european challenge : stability, solidarity and prosperity looking ahead, there is no easy or quick way to solve the problems of the european union. these are undoubtedly very challenging times for us all. we have to learn from the past to safeguard our present and build our future. we need stronger and more resilient institutions and rules, better enforcement and control mechanisms and, above all, we must avoid making the same mistakes. from what i have already said, it is easy to conclude that it is paramount to strengthen the economic pillar of emu and to ensure that this pillar is robust and consistent to support the single currency. the single currency and the close integration of european markets have increased the interdependencies among member states and hence the potential for cross - border contagion. the emu must have rules and these rules have to ensure that the policies of one member state do not impact negatively on other member states via the increased