sectors like smes. the ecb has supported the eib and european commission in examining the constraints hindering the development of securitisation instruments for sme loans and the revival of the abs market. bis central bankers ’ speeches we welcome the on - going work by the commission and the eib on joint risk - sharing instruments to support sme lending, which would combine the eu budget resources with the eib and the eif lending capacity4. the european council has supported this initiative and called for these instruments to begin operating in january 2014. in parallel, a more balanced regulatory treatment for abs, acknowledging the past credit performance of these instruments, would ensure a level playing field with other securities regarding risk, rating and maturity. the ecb can support the revival of the abs market, provided that the risk to the eurosystem is controllable, and the underlying instruments are simple and transparent. but it cannot be a substitute for market mechanism, nor can it subsidise risk taking of market participants. concluding remarks let me now conclude. reviving credit growth is one of the most pressing challenges for the euro area today, but it can only be achieved by all actors playing their part. the role of banks has been reduced after the crisis, and the euro area will probably move towards a more balanced financing mix, with a greater role for arms ’ length finance based on capital markets. being more balanced, this model would be more resilient. but the euro area is and will remain a bank based economy. in fact, there are essential constituencies, namely smes and households that still obtain credit almost exclusively from banks. accordingly, there can be no sustained recovery without a healthy, competitive and prudent banking system. cleaning up the banks, as was done at an early stage in the us, is not merely desirable, it is a condition to finally emerge from the crisis and move on. the ecb can help reduce divergences in bank funding. but governments have to ensure that banks are properly capitalised and that their balance sheets are cleaned up. similarly, the ecb can help support the economy and improve the macroeconomic outlook. but governments have to introduce the structural reforms that are essential to open up investment opportunities, and without which banks will not sustainably alter their risk assessments. low interest rates and improved financial market conditions may give a sense that reforms can be deployed over extended periods of time. but reforms are a matter of urgency. deleveraging, fragmentation

jean - claude trichet : economic and monetary issues and euro area enlargement testimony by jean - claude trichet, president of the european central bank, before the committee on economic and monetary affairs of the european parliament, brussels, 20 february 2006. * * * economic and monetary issues at the time of my last appearance before the european parliament in november, i described how the latest available data at that time confirmed our working assumption of a gradual normalisation in the real side of the economy, including a strengthening and broadening in the expansion of economic activity in the euro area. i also noted that, over the past year, the euro area economy has exhibited a notable degree of resilience to marked increases in oil prices. let me now update you on our assessment of how the data have evolved over the past quarter, starting with price developments. in december 2005, the eurosystem staff inflation projections were again revised upwards, on account of further upside surprises in oil prices and the announcement of increases in administered prices and indirect taxes in some countries. as a result, upside risks to medium - term price stability were assessed to have increased, according to our economic analysis. this assessment was confirmed by the monetary analysis in a context of strong monetary growth, ample liquidity and robust expansion of credit. by the end of 2005, the regular cross - checking of the economic and monetary analyses indicated that an adjustment of the very accommodative stance of the ecb ’ s monetary policy was warranted to address these risks. therefore, on 1 december 2005 the governing council decided to increase the key ecb interest rate by 25 basis points, after two and a half years of maintaining this rate at the same historically very low level of 2 %. the information which has become available since our decision to moderately raise interest rates supports the assessment that an adjustment of our very accommodative monetary policy stance was indeed warranted. starting with economic activity, according to eurostat ’ s flash estimate, real gdp growth in the euro area in the fourth quarter of 2005 was 0. 3 % quarter on quarter. although this is significantly lower than the 0. 6 % recorded in the previous quarter, this figure however mainly reflects the significant volatility in real gdp growth rates on a quarter - on - quarter basis. looking through the short - term volatility to medium - term trends, our assessment continues to reflect a progressive strengthening of economic activity, supported in particular, by stronger investment, which should be followed