have boosted construction activity. however, the high growth rate in the first quarter might be partly offset in the second. it is therefore more appropriate, in order to avoid being misguided by highly volatile quarterly results, to evaluate the first two quarters of 2008 together. in line with available forecasts, both domestic and foreign demand are expected to support ongoing real gdp growth in the euro area in 2008, albeit to a lesser extent than during 2007. while moderating, growth in the world economy is expected to remain resilient, benefiting in particular from continued robust growth in emerging economies. this should support euro area external demand. the fundamentals of the euro area economy remain sound, and the euro area does not suffer from major imbalances. against this background, we expect investment growth in the euro area to provide ongoing support to economic activity, as capacity utilisation remains solid and profitability in the non - financial corporate sector has been sustained. moreover, employment and labour force participation have increased significantly, and unemployment rates have fallen to levels not seen for 25 years. these developments support disposable income, although purchasing power is being dampened by the impact of higher energy and food prices. this outlook is also reflected in the june 2008 eurosystem staff macroeconomic projections. the projections foresee average annual real gdp growth in a range between 1. 5 % and 2. 1 % in 2008 and between 1. 0 % and 2. 0 % in 2009. in comparison with the march ecb staff projections, the current range projected for real gdp growth in 2008 is within the upper part of the range published in march 2008, mainly as a consequence of the better than expected outcome in the first quarter. for 2009, the range has been adjusted downwards, following the increase in commodity prices over recent months. the year - on - year growth rates which i have just mentioned need to be interpreted with particular caution on this occasion. while the annual rates suggest that growth may be weaker in 2009 than in 2008, they mask the fact that on a quarterly basis real gdp growth is projected to reach a trough in 2008, before gradually recovering thereafter. in order not to draw the wrong conclusions about the growth dynamics implied in the staff projections it is important to keep this distinction in mind. in the governing council ’ s view, the uncertainty surrounding this outlook for economic growth remains high, and downside risks prevail. in particular, risks continue to relate to the potential for the financial market turbulence to

commenting on the financial sector these days. but we should not forget the successful practical precedents to underpin these calls. for example, the nordic banking crisis in the 1990s provides a case study of how decisive and well - targeted crisis management can mitigate and shorten the damaging effects of deleveraging stress. 8 with an external crisis constraining the room for manoeuvre for monetary policy and fiscal policy alike, the authorities addressed balance sheet repair headon. they first forced a comprehensive recognition of losses on their domestic banking systems. then, they recapitalised institutions subject to stringent stress tests, sorting institutions based on viability, and dealing with bad assets through disposal. and, finally, they ensured a reduction in excess capacity in the financial system. more recently, we saw important financial reform put into practice in some euro area countries. most notably, one year ago, the spanish banking system was ostracised in the inter - bank market and deserted by capital investors and depositors. adverse selection was in full display : uncertainty about the location and extent of exposures to the real estate sector for an overview on the swedish case, see ingves, s. and g. lind ( 1996 ), “ the management of the bank crisis – in retrospect ”, swedish riksbank quarterly review no 1, pp. 5 – 18. bis central bankers ’ speeches was heavily weighing on the stability and viability of the spanish banks. the authorities, within the new european stability mechanism framework for financial stability assistance, took an approach in many respects similar to that followed 15 years before by sweden. first, they embarked on a serious mapping of the problem through a detailed, state - of - the - art stress testing exercise. second came a surgical separation and removal of assets of dubious quality for those banks which had detected capital shortfalls and proved most vulnerable to future shocks. third, loss recognition and recapitalisation took place by activating the european stability mechanism. fourth, they put in place a comprehensive and innovative regulatory reform which empowers authorities to take timely and decisive action for bank recovery and resolution. it is too early to declare victory. and many challenges still loom ahead. but today, many of the banks that had suffered from a generalised loss of confidence have returned to the market and see their funding gaps decline rapidly. in fact, in a sign of normalisation, some of them have participated en force in the early repayment of the long -