. 5 % this year, before declining to 1. 3 % in 2014. these levels are historically very moderate, and remain in the lower part of the range of values that the ecb ’ s governing council has identified as consistent with the ecb ’ s quantitative definition of price stability. bis central bankers ’ speeches that said, inflation expectations continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2 % over the medium term. and the risks to the outlook for price developments are expected to be broadly balanced. finally, monetary and, in particular, credit dynamics remain weak. the annual growth rate of loans to the private sector has remained well in negative territory ; and the pace of contraction has actually accelerated over recent period. certainly, weak loan dynamics can largely be explained by the current stage of the business cycle but we have to be attentive to alleviate structural and supply - side factor that may hamper credit provision. the significant improvement in the funding situation of banks since the summer of 2012 has partly offset supply - side restrictions. but it will be some time before the more permissive funding conditions faced by many banks will be turned into an active spur for credit creation. the strategy of euro area policy - makers against this background, how should policy - makers respond to the still fragile macroeconomic recovery? in my view, we need a three - pronged strategy : first, monetary policy has to remain consistently supportive of the baseline outlook and mitigate the risks that surround it. our price stability mandate is sufficiently precise to keep us concentrated on that mission. but preserving monetary accommodation is a necessary but not sufficient condition for the recovery to take hold. a second essential ingredient is that countries continue the adjustment of their domestic policies in a way that removes structural impediments to their economic potential and fosters long - term fiscal sustainability. monetary accommodation can accompany and facilitate such regime shift in economic policy. but we know it can never replace it. third and equally important, europe has to continue the reform process in its banking sector. sound finance is part and parcel of a dynamic economy and banks remain a major conduit of finance in the euro area. hence, we must establish conditions that align incentives of individual financial institutions with those of society. let me explain the measures that european policy - makers are taking in each of these areas : monetary policy ; fiscal and structural adjustment ; and banking reform. monetary policy let me start with monetary policy. as you know, the

mario draghi : the euro area economy – current prospects and challenges ahead speech by mr mario draghi, president of the european central bank, at the economic club of new york, new york, 10 october 2013. * * * ladies and gentlemen, i am delighted to be here with you today and i would like to take this opportunity to talk about what is happening in europe right now. as you know, the euro area as a whole is undergoing a process of fundamental reform. the overarching objective is to lay the foundation for recovery and more jobs, foster financial stability and fiscal sustainability and enhance international competitiveness for the benefit of all parts of the economy and wider society. reform will be a lengthy process but while it is far from complete, perhaps for the first time we are seeing signs of significant progress. national policy - makers in europe are able to focus a little less on short - term difficulties and a little more on their longer - term responsibilities to strengthen the resilience of their domestic economies while developing their growth potential. and the monetary policy that we at the european central bank ( ecb ) are implementing will accompany the reform process by maintaining the degree of accommodation that is most appropriate, given our economic outlook and the risks that surround it. the economic situation and outlook so let me start with an overview of the current situation and outlook for the euro area economy. recent data releases support our baseline outlook of a nascent economic recovery over the coming months. following six quarters of negative output growth, euro area real gdp rose by 0. 3 % in the second quarter of this year. although more recent data has pointed to a fairly slow start in the third quarter, survey - based confidence indicators give some comfort that the turning point in economic activity that we saw earlier in the year is not reversed. taken together, incoming information has confirmed the growth outlook from the september ecb staff projections. while these projections still see real gdp shrinking by 0. 4 % this year, a positive growth rate of 1 % is expected for 2014. but the pace of recovery is going to be subdued and uneven across countries for as long as it is meaningful for us to look into the future. the unemployment rate, currently standing at 12. 1 %, remains unacceptably high, and the risks around the outlook continue to be tilted to the downside. in keeping with the broad - based weakness in aggregate demand, underlying price pressures remain subdued as well. annual euro area headline inflation is projected to reach 1