maintained to restore sound fiscal positions, in line with the commitments under the stability and growth pact and the 2012 european semester recommendations. a rapid implementation of the fiscal compact will also play a major role in strengthening confidence in the soundness of public finances. at the same time, structural reforms are as essential as fiscal consolidation efforts and measures to improve the functioning of the financial sector. in the countries most strongly affected by the crisis, noticeable progress is being made in the correction of unit labour cost and current account developments. decisive product and labour bis central bankers ’ speeches market reforms will further improve the competitiveness of these countries and their capacity to adjust. finally, it is essential to push ahead with european institution - building. the ecb welcomes the commission proposal of 12 september 2012 for a single supervisory mechanism ( ssm ) involving the ecb, to be established through a council regulation on the basis of article 127 ( 6 ) of the treaty. the governing council considers an ssm to be one of the fundamental pillars of a financial union and one of the main building blocks towards a genuine economic and monetary union. we will formally issue a legal opinion in which we will, in particular, take into account the following principles : a clear and robust separation between supervisory decision - making and monetary policy ; appropriate accountability channels ; a decentralisation of tasks within the ssm ; an effective supervisory framework ensuring coherent oversight of the euro area banking system ; and full compatibility with the single market framework, including the role and prerogatives of the european banking authority. as the commission proposal sets out an ambitious transition schedule towards the ssm, the ecb has started preparatory work so as to be able to implement the provisions of the council regulation as soon as it enters into force. we are now at your disposal for questions. bis central bankers ’ speeches

intensification of financial market tensions, and its effects on the domestic components of inflation. if not contained by effective action by all policy - makers in the euro area, such intensification has the potential to affect the balance of risks on the downside. turning to the monetary analysis, recent data confirm the subdued underlying pace of monetary expansion. in august the annual growth rate of m3 decreased to 2. 9 %, from 3. 6 % in july. while this decline was mainly due to a base effect, monthly inflows were also relatively contained. conversely, strong monthly inflows into overnight deposits contributed to a further increase in the annual rate of growth of m1 to 5. 1 % in august, compared with 4. 5 % in july. this increase reflects a continuing high preference for liquidity in an environment of low interest rates and high uncertainty. the annual growth rate of loans to the private sector ( adjusted for loan sales and securitisation ) declined in august to – 0. 2 % ( from 0. 1 % in july ), reflecting a decrease in the annual rate of growth of loans to non - financial corporations to – 0. 5 %, from – 0. 2 % in july. by contrast, the annual growth of loans to households remained unchanged, at 1. 0 %, in august. to a large extent, subdued loan dynamics reflect the weak outlook for gdp, heightened risk aversion and the ongoing adjustment in the balance sheets of households and enterprises, all of which weigh on credit demand. at the same time, in a number of euro area countries, the segmentation of financial markets and capital constraints for banks restrict credit supply. the soundness of banks ’ balance sheets will be a key factor in facilitating both an appropriate provision of credit to the economy and the normalisation of all funding channels, thereby contributing to an adequate transmission of monetary policy to the financing conditions of the non - financial sectors in the different countries of the euro area. it is thus essential that the resilience of banks continues to be strengthened where needed. to sum up, the economic analysis indicates that price developments should remain in line with price stability over the medium term. a cross - check with the signals from the monetary analysis confirms this picture. other economic policy areas need to make substantial contributions to ensure a further stabilisation of financial markets and an improvement in the outlook for growth. as regards fiscal policies, euro area countries are progressing with consolidation. it is crucial that efforts are