able to start loaning to businesses again, and notably to small and medium - sized enterprises. the assessment of banks ’ balance sheets that the ecb is undertaking this year is key in this regard : if it is perceived as being sufficiently strict and objective, it will foster renewed confidence in the banking sector. would it be advantageous for the euro area to develop market financing of the economy, like in the united states? yes, even if the idea is not to copy the united states. european growth is based almost exclusively on financing of households and firms by banks. for a long time that worked well, european banks did their job. but the 2007 global crisis and then the euro area crisis revealed that depending so exclusively on one sole method of financing constitutes a weakness. developing market financing via abs, i. e. asset - backed securities ( secured corporate debt ) or, for example, bond issuance by medium - sized enterprises would make the financial system more balanced and more resistant to shocks. this is essential as, by definition, we do not know where the next crisis will hit. with this in mind, the ecb and the bank of england are suggesting to revise the european rules on abs. how? the european regulators are discussing this because the euro area needs these instruments. it ’ s a medium - term project whose purpose must not in any circumstances be to recreate the securities market as it existed before the crisis. the “ new abs ” must be different from the previous ones. if they are more transparent and simpler then they will be less risky – the rules could take this lower degree of risk into account, in particular for the capital requirements applying to banks and insurance companies. it ’ s not a question of going back over the need to raise the moral standards of finance, which has been advocated since 2008, but to promote instruments that finance the economy. might the normalisation of us monetary policy push european interest rates up? it should be remembered, first, that if the us federal reserve system has decided to gradually taper its asset purchases in the markets, it is because it considers that the us bis central bankers ’ speeches economy is improving and that the recovery is sound. that ’ s good news for the global economy. recovery in the euro area is behind compared with the united states. we are therefore working to ensure that this differentiated recovery does not harm monetary conditions in the euro area. the ecb ’ s adoption of “ forward guidance ” on its monetary policy has enabled european short

non - financial sectors, both inside and outside the euro area. in addition, low capacity utilisation rates are likely to dampen investment, and unemployment in the euro area is expected to increase somewhat further, thereby lowering consumption growth. for these reasons, the euro area economy is expected to grow only at a moderate pace in 2010 and the recovery process could be uneven. the governing council continues to view the risks to this outlook as broadly balanced. on the upside, there may be stronger than anticipated effects stemming from the extensive macroeconomic stimulus being provided and from other policy measures taken. confidence may also improve further, and the global economy as well as foreign trade may recover more strongly than projected. on the downside, concerns remain relating to a stronger or more protracted than expected negative feedback loop between the real economy and the financial sector, renewed increases in oil and other commodity prices, the intensification of protectionist pressures and the possibility of disruptive market movements related to the correction of global imbalances. with regard to price developments, as expected, euro area annual hicp inflation increased further in december 2009 to stand at 0. 9 %, after 0. 5 % in november. the rise mainly reflects upward base effects stemming mostly from the drop in global energy prices a year ago. inflation is expected to remain around 1 % in the near term. looking further ahead, inflation is expected to remain moderate over the policy - relevant horizon, with overall price, cost and wage developments staying subdued in line with a slow recovery in demand in the euro area and elsewhere. in this context, it is important to emphasise, once again, that inflation expectations over the medium to longer term remain firmly anchored in line with the governing council ’ s aim of keeping inflation rates below, but close to, 2 % over the medium term. risks to this outlook remain broadly balanced. they relate, in particular, to the outlook for economic activity and the evolution of commodity prices. furthermore, increases in indirect taxation and administered prices may be stronger than currently expected owing to the need for fiscal consolidation in the coming years. turning to the monetary analysis, both the annual growth rates of m3 and loans to the private sector were negative in november, standing at – 0. 2 % and – 0. 7 % respectively. the concurrent declines to historically low growth rates recorded in these two series over the past months support the assessment of a decelerating underlying pace of monetary expansion and low inflationary pressures over the medium term. looking ahead