guidance on the key ecb interest rates. in any event, the governing council stands ready to adjust all of its instruments as appropriate to ensure that inflation continues to move towards the governing council ’ s inflation aim in a sustained manner. let me now explain our assessment in greater detail, starting with the economic analysis. euro area real gdp increased by 0. 4 %, quarter on quarter, in the second quarter of 2018, following growth at the same rate in the previous quarter. despite some moderation following the strong growth performance in 2017, the latest economic indicators and survey results overall confirm ongoing broad - based growth of the euro area economy. our monetary policy measures continue to underpin domestic demand. private consumption is supported by ongoing employment gains, which, in turn, partly reflect past labour market reforms, and by rising wages. business investment is fostered by the favourable financing conditions, rising corporate profitability and solid demand. housing investment remains robust. in addition, the expansion in global activity is expected to continue, supporting euro area exports. this assessment is broadly reflected in the september 2018 ecb staff macroeconomic 1 / 3 bis central bankers'speeches projections for the euro area. these projections foresee annual real gdp increasing by 2. 0 % in 2018, 1. 8 % in 2019 and 1. 7 % in 2020. compared with the june 2018 eurosystem staff macroeconomic projections, the outlook for real gdp growth has been revised down slightly for 2018 and 2019, mainly due to a somewhat weaker contribution from foreign demand. the risks surrounding the euro area growth outlook can still be assessed as broadly balanced. at the same time, risks relating to rising protectionism, vulnerabilities in emerging markets and financial market volatility have gained more prominence recently. according to eurostat ’ s flash estimate, euro area annual hicp inflation was 2. 0 % in august 2018, down from 2. 1 % in july. on the basis of current futures prices for oil, annual rates of headline inflation are likely to hover around the current level for the remainder of the year. while measures of underlying inflation remain generally muted, they have been increasing from earlier lows. domestic cost pressures are strengthening and broadening amid high levels of capacity utilisation and tightening labour markets, which is pushing up wage growth. uncertainty around the inflation outlook is receding. looking ahead, underlying inflation is expected to pick up towards the end of the year and thereafter to increase gradually over the medium term, supported by our monetary

few cases where hard rules were supposed to apply. we had assumed that countries had sufficient incentives to “ keep their house in order ” and thereby contribute to the common good of the euro area. an overly narrow interpretation of the principle of subsidiarity also shielded national economic policies from what was seen as undue european interference. the experience of the first twelve years of emu suggests that the limits of de facto soft policy coordination have largely been exhausted, with the interdependencies inside a monetary union calling for a stronger euro area dimension. let me now take a closer look at the two emu pillars separately. the “ m ” of the emu the “ m ” of the emu, or the monetary pillar, has performed well. the ecb has a clear assignment : to deliver price stability, which is defined as an annual inflation rate below but close to 2 % over the medium term. and over the 12 years since the launch of emu, the average annual inflation rate in the euro area has been 1. 97 %. this is the best result of a major central bank in the euro area for any such period of 12 years, over the last 50 years. bis central bankers ’ speeches we achieved this during challenging times. over the years, we have had to cope with the bursting of the dot - com bubble, the aftermath of the events of 11september 2001, the jump in oil prices to $ 147 per barrel in 2008, rising prices of food and commodities, and then of course the worst financial and economic crisis since the great depression. yet throughout these very different economic shocks – which could have had either inflationary or deflationary consequences – citizens and market participants in the euro area have remained confident in our commitment. inflation expectations have been firmly anchored in line with our definition of price stability. the “ e ” of the emu it is the “ e ” of the emu, where progress is needed. already the 1989 delors report stated that “ an economic and monetary union could only operate on the basis of mutually consistent and sound behaviour by governments and other economic agents in all member countries. ( … ) uncoordinated and divergent national budgetary policies would undermine monetary stability and generate imbalances in the real and financial sectors of the community. ” what does this mean in practice? it means improving economic governance. it means strengthening the rules to prevent unsound policies. and it means to prohibit individual countries from pursuing policies that can