bank ’ s views on the domestic economy at some length in our quarterly inflation report only last month. but in summary we have seen a gradual pick - up in the pace of activity over the past year, driven by domestic demand - notably consumer spending - so that the money supply and both demand and output are now growing at above - trend rates. other things equal we would expect that to continue. the picture is, however, complicated by the exaggerated strengthening of sterling since last summer - particularly against the european currencies - which probably reflects uncertainties affecting the continental countries at least as much as developments in our own economy. this strength of sterling poses, for the time being, a genuine monetary policy dilemma. it will lead to a fall in inflation in the short run - over the rest of this year - as import prices fall. and it makes life very difficult for uk manufacturers exposed to international competition, so that our external trade position is likely to deteriorate - and that may have a longer - lasting effect on inflation. but these effects may not be enough to offset the gradual emergence of inflationary pressure looking forward to next year, stemming from continuing above - trend growth of domestic demand. on that basis we advocated a moderate tightening of policy in order to slow the domestic expansion to a pace that can be sustained in the medium and longer term. let me be quite clear, for those who insist on over - dramatising these things, we were not calling in the inflation report for “ an immediate interest rate hike to bring an incipient boom to a juddering halt! ” i should like to think that in the present more stable environment that kind of language is anachronistic. what we in fact expected over the next couple of years is continuing growth somewhat above trend with inflation picking up towards 3 %, though rising which by our own past standards is a relatively benign outlook. what we are seeking to do is to moderate the pace of expansion before inflationary pressures begin to build in order to ensure that the outlook remains benign next year, and a year after, and well into the future. and that, mr. chairman, is precisely what most business people - whether in industry or commerce or financial businesses - tell us they would want us to do. it is also the purpose of the government ’ s inflation target. let me then turn to europe and the question of monetary union. i do not think anyone questions that economic prosperity in europe is crucial to economic prosperity in this country. our

mario draghi : overview of economic and financial developments in italy concluding remarks by mr mario draghi, governor of the bank of italy, at the ordinary meeting of shareholders, rome, 31 may 2007. * * * ladies and gentlemen, i wish to pay grateful and affectionate tribute to the members of the directorate who left the bank in 2006 after decades of dedicated, rigorous and judicious work. they accompanied me in my first steps in this institution, providing the support of their loyalty and experience. vincenzo desario, who was appointed director general in 1994, served the bank in the exercise of highly sensitive functions, notably in the area of banking supervision. he led the bank on an interim basis after the resignation of antonio fazio. he stamped his mark indelibly on the bank ’ s approach to prudential supervision, principles of internal organization and daily administrative practices. the board of directors has named him honorary director general. pierluigi ciocca, who had been deputy director general since 1995, gave the bank the benefit of his profound, original thinking and his vast economic and legal knowledge. he promoted the study of law and economics, inspired research for many years and helped to refine the analysis of the functions of central banking. in 2006 the directorate acquired new members with expertise and experience, some of it gained abroad. fabrizio saccomanni, who as vice president of the european bank for reconstruction and development was in charge of risk management at that institution for three years, has been director general since october. ignazio visco, central manager for economic research and previously chief economist of the oecd for five years, and giovanni carosio, formerly central manager for banking and financial supervision, joined antonio finocchiaro as deputy directors general in december. the directorate ’ s new membership combines valuable experience in the international arena with intimate knowledge of the bank, analytical and research skills with specialization in the area of regulation and central banking. the bank ’ s new statute was approved last year. it modifies the operations of the bank ’ s decisionmaking bodies : the board of directors, the board of auditors and the directorate. it establishes the principle of collegiality for measures that have external significance. the bank intends to renew itself, and has already begun to do so. the reorganization taking place affects the functions of the head office, the branch network and the representative offices abroad ; it provides for the full integration of the italian foreign exchange office. the