##ntial supervision of credit institutions and the stability of the financial system ”. bis central bankers ’ speeches the ecb has already taken over some tasks in european macro - prudential supervision which was established with the european systemic risk board ( esrb ) in january 2011. the ecb is an integral part of the esrb, providing analytical, statistical and administrative support. this is a clear recognition of the important role that central banks have gained over time in monitoring financial stability and the acquired stock of financial market expertise. in principle, the active use of macro - prudential policy could provide a new array of “ ex - ante ” policy instruments which can lean against financial imbalances and asset bubbles. as it may require time to unfold its strength and it is yet too early for a thorough assessment, the impact of the esrb, as far as i perceive it, seems rather limited so far. the recent events in the crisis have revealed vulnerabilities in the monetary union, reflecting an incomplete financial architecture. two prominent examples are the sudden and large reversals of financing flows and the degree by which banks and their own sovereign have become intertwined. effectively, these developments endanger the financial stability in the euro area as a whole. neither the financial resources of some member states nor the institutional framework proved adequate to solve the problems on the level of the member states. therefore we are invited to rethink elements of the financial architecture at the european level, including the tasks of the central bank. in my view, a future european financial architecture should include a fully - fledged financial market union which rests on three pillars. • first, a european banking supervisory authority with sufficient instruments and competencies to implement on a level playing field the regulatory framework in the euro area. this authority should in particular have the competence to order the closure and the resolution of non - viable institutions. the resolution of non - viable banks should no longer be a rare exception in europe. here we can learn a lesson from the us where 464 banks were closed since 2008. 8 • second, a resolution authority and a coherent regulatory framework for the resolution of systemically important banks. the costs of a resolution shall ultimately be borne by a fund. this fund needs to be financed by the financial sector itself to unwind systemically relevant financial institutions without relying on public finances and ultimately taxpayers ’ money. • third, deposit insurance should be organised or at least further harmonised at the european level. while it is clear that moving

the external environment, global economic growth has become more balanced across regions and, while moderating somewhat, remains robust, supported in part by lower oil prices. external conditions thus provide support for euro area exports. domestic demand in the euro area is also expected to maintain its relatively strong momentum. investment should remain dynamic, benefiting from an extended period of very favourable financing conditions, balance sheet restructuring, accumulated and ongoing strong corporate earnings, and gains in business efficiency. consumption should also strengthen further over time, in line with developments in real disposable income, as employment conditions continue to improve. this outlook is also reflected in the new ecb staff macroeconomic projections. the projections foresee average annual real gdp growth in a range between 2. 1 % and 2. 9 % in 2007 and between 1. 9 % and 2. 9 % in 2008. in comparison with the december eurosystem staff projections, the ranges projected for real gdp growth in 2007 and 2008 have been revised upwards, largely reflecting the strength of gdp growth in the second half of 2006 and the lower energy prices, which, if sustained, would have a positive impact on real disposable income. in the governing council ’ s view, the risks surrounding this favourable outlook for economic growth are broadly balanced over the shorter term. at longer horizons, risks lie mainly on the downside. the main risks relate to the possibility of a renewed increase in oil prices, fears of a rise in protectionist pressures and concerns about possible disorderly developments owing to global imbalances. as regards price developments, according to eurostat ’ s flash estimate, annual hicp inflation was 1. 8 % in february 2007, unchanged from january 2007. the fall in headline inflation rates since the summer of 2006 has been predominantly due to lower energy prices. looking ahead, last year ’ s volatility in energy prices will lead to significant base effects, affecting the profile of annual inflation rates this year. on the basis of the current level of oil prices and oil price futures, annual inflation rates are likely to fall during the spring and summer before rising again towards the end of the year and then most likely hovering again at around 2 %. the new ecb staff macroeconomic projections foresee annual hicp inflation averaging between 1. 5 % and 2. 1 % in 2007 and between 1. 4 % and 2. 6 % in 2008. compared with the december 2006 eurosystem staff projections, the upper bound of the range projected for inflation in