jurgen stark : taking stock – where do we stand in the crisis? speech by mr jurgen stark, member of the executive board of the european central bank, at the bmw ( bayerische motoren werke ) stiftung herbert quandt, washington dc, 15 april 2010. * * * ladies and gentlemen, introduction : macroeconomic developments and outlook in autumn 2008, the world economy entered the worst financial crisis and the deepest recession since the great depression. both monetary and fiscal policies responded vigorously to this exceptional situation and contributed to the emergence of a recovery in the course of 2009. hence, after falling last year, global activity is expected to grow by around 4 % this year, while global trade is expected to grow by almost 6 % ( imf january weo update ). strong growth in emerging market economies in asia is a major driving force behind these figures, while growth in many advanced economies is forecast to be weak. questions can be raised as to whether such an uneven pattern of the recovery will prove sustainable. in the euro area, recent information indicates that the recovery has continued to expand in the first few months of this year. looking forward, euro area growth is expected to remain moderate, owing to ongoing balance sheet adjustments in the private sector, weak prospects for the labour market and low capacity utilisation. available growth forecasts for 2010 put it at, on average, around 1 %. the crisis is also expected to have lasting effects on our economy, as both the level and the growth rate of potential output are most likely reduced for a longer time. turning to price developments in the euro area, according to eurostat ’ s flash estimate, annual inflation increased to 1. 5 % in march, from 0. 9 % in february. this was higher than expected. while this does not change our assessment, it is important to understand whether the surge in inflation in march is temporary or more lasting in nature. this is difficult to assess without a breakdown of developments in the overall hicp, which will only become available tomorrow ( 16 april ). however, it seems reasonable to consider energy and food prices as the main drivers behind the higher than expected inflation outcome in march. looking ahead, we expect inflation in the euro area to remain moderate over the policyrelevant horizon. the outcome of our monetary analysis confirms the assessment of low inflationary pressures over the medium term, with money and credit growth remaining weak. at the same time, we need to monitor price developments in the more dynamic regions

up inflation to levels not seen since the introduction of the euro. in response, we started a gradual reduction in our asset portfolio and we increased our policy rates by a total of 450 basis points. our strong reaction was key to prevent a deanchoring of expectations and to curb inflation. in terms of economic activity, the slowdown has so far been contained and gradual. however, the incoming data indicate that the future remains uncertain, and the prospects tilted to the downside. the inflationary shock that we were confronted with following the energy crisis has been particularly challenging : it occurred in an already difficult environment, with the world economy recovering from the pandemic and global supply chains still disrupted. furthermore, supply side shocks are particularly difficult to manage using monetary policy instruments. in this context, sustainable and investment - oriented fiscal policies aimed at promoting the energy transition, strengthening the resilience of supply chains and increasing euro area productivity are supportive of our price stability goal. structural reforms and investments to enhance the euro area's supply capacity can help reduce price pressures in the medium term. in this regard, we very much welcome the agreement on the eu's economic governance framework reached a few weeks ago. it is a powerful signal to markets as it reduces uncertainty about fiscal rules in the eu. the reformed framework will help strike a balance between sustainable public finances and sufficient debt reduction on the one hand and room for reforms and investment on the other, while supporting 3 / 4 bis - central bankers'speeches countercyclicality of fiscal policies. achieving this balance turned out to be less straightforward than we might have hoped. it is now crucial that the new fiscal framework is implemented properly and without delay. thank you for your attention. 4 / 4 bis - central bankers'speeches