a credible long - term plan is announced in time. although fiscal adjustment itself may be gradual, it is important to announce a credible road - map for fiscal consolidation as soon as possible. with a credible road - map, and a consistent step - by - step implementation of the consolidation measures that it involves, the uncertainty diminishes or perhaps even vanishes completely. as a consequence, fiscal consolidation pushes the economy towards a durable recovery. in addition, fiscal consolidation must be well - targeted. permanent measures are preferable to temporary ones. often one - off actions take the form of asset sales or sale and lease - back operations that temporarily improve budget deficits. although such measures temporarily reduce the official deficit numbers, their one - off nature suggests unwillingness to change the fiscal stance structurally and to support them through a credible longer - term policy. in contrast, permanent measures can be expected to lead to positive expectation effects. see trichet ( 2010 ). barro ( 1979 ) and barro ( 1989 ). on overview of empirical evidence on non - keynesian effects is given in briotti ( 2005 ). giavazzi and pagano ( 1990 ) and blanchard ( 1990 ) investigate experience of ireland ( 1987 – 89 ) and denmark ( 1983 – 86 ), and argue that a reduction in public spending, through positive confidence and expectation effects led to expansion in the private sector also in the short term. see table 1 on page 8 in haugh et al. ( 2009 ) for an overview of the literature on the estimated impact of fiscal variables on interest rates. see among other, alesina et al. ( 1992 ), ardagna et al. ( 2007 ), bernoth et al. ( 2006 ). schuknecht et al. ( 2010 ). research suggests that fiscal consolidations targeted at reductions in spending and government wage bill are likely to be more successful than consolidations based on tax increases. one of the possible reasons why increases in taxes can hamper consolidation efforts is that they raise unit labour costs if unions do not accept real income cuts. 22 indeed, often fiscal imbalances and a loss of competitiveness are intertwined. more generally, fiscal consolidation measures that support structural reform and productivity growth will tend to have more positive effects. 2. the role of central banks let me now turn to central banks. their role as anchors of stability is all the more important in times of deleveraging. a credible, medium - term orientation on price

, if the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, we stand ready to increase our asset purchase programme in terms of size and / or duration. let me now explain our assessment in greater detail, starting with the economic analysis. euro area real gdp increased by 0. 3 %, quarter on quarter, in the third quarter of 2016, after recording a similar pace of growth in the second quarter. incoming data, notably survey results, point to somewhat stronger growth in the last quarter of 2016. looking ahead, we expect the economic expansion to firm further. the pass - through of our monetary policy measures is supporting domestic demand and facilitating the ongoing deleveraging process. the very favourable financing conditions and improvements in corporate profitability continue to promote the recovery in investment. moreover, sustained employment gains, which are also benefiting from past structural reforms, provide support for private consumption via increases in households ’ real disposable income. at the same time, there are signs of a somewhat stronger global recovery. however, economic growth in the euro area is expected to be dampened by a sluggish pace of implementation of structural reforms and remaining balance sheet adjustments in a number of sectors. the risks surrounding the euro area growth outlook remain tilted to the downside and 1 / 2 bis central bankers'speeches relate predominantly to global factors. according to eurostat, euro area annual hicp inflation increased markedly from 0. 6 % in november 2016 to 1. 1 % in december. this reflected mainly a strong increase in annual energy inflation, while there are no signs yet of a convincing upward trend in underlying inflation. looking ahead, on the basis of current oil futures prices, headline inflation is likely to pick up further in the near term, largely reflecting movements in the annual rate of change of energy prices. however, measures of underlying inflation are expected to rise more gradually over the medium term, supported by our monetary policy measures, the expected economic recovery and the corresponding gradual absorption of slack. turning to the monetary analysis, broad money ( m3 ) continues to expand at a robust pace, with its annual rate of growth increasing to 4. 8 % in november 2016, up from 4. 4 % in october. as in previous months, annual growth in m3 was mainly supported by its most liquid components, with the narrow monetary aggregate m1 expanding at an annual rate of 8. 7 % in november, up from 8. 0 % in october. loan