continue benefiting from favourable financing conditions, corporate balance sheet restructuring, and improvements in earnings and business efficiency. consumption growth should continue to strengthen gradually over time, in line with developments in employment growth and hence real disposable income. this generally favourable outlook for economic activity in the euro area is also reflected in forecasts by international organisations and private sector institutions. risks to the outlook for economic growth are broadly balanced over the shorter term, although recent geopolitical tensions and their impact on markets are a timely reminder of the uncertainties that we face. medium to longer - term risks lie on the downside and relate in particular to the potential for further oil price rises, a disorderly unwinding of global imbalances and protectionist pressures, especially after the suspension of the doha round of trade talks. turning to price developments, according to eurostat ’ s flash estimate, annual hicp inflation was 2. 5 % in july 2006, unchanged from june and may. in the second half of 2006 and on average in 2007, inflation rates are likely to remain above 2 %, the precise levels depending very much on future energy price developments. while the moderate evolution of labour costs in the euro area is expected to continue in 2007 – also reflecting ongoing global competitive pressures, particularly in the manufacturing sector – indirect effects of past oil price increases and already announced changes in indirect taxes are expected to exert a significant upward effect on inflation in the course of next year. against this background, it is crucial that the social partners continue to meet their responsibilities. risks to the outlook for price developments have augmented and include further increases in oil prices, a stronger pass - through of past oil price rises into consumer prices than currently anticipated, additional increases in administered prices and indirect taxes, and – more fundamentally – stronger than expected wage and price developments owing to second - round effects of past oil price increases at a time of gradually improving labour markets. regarding prospects for inflation over medium to longer horizons, our assessment that upside risks to price stability prevail is confirmed by the monetary analysis. while the data for june 2006 show some moderation in the annual growth rate of m3, these latest developments remain consistent with a persistent upward trend in the underlying rate of monetary expansion since mid - 2004. the stimulative impact of the low level of interest rates in the euro area has been an important factor behind the tendency for money and credit growth to strengthen over recent quarters. looking at the counterparts of m3, the expansion of credit to

peter praet : deleveraging and monetary policy speech by peter praet, member of the executive board of the european central bank, at the hyman p minsky conference, organised by the levy economics institute and ecla of bard with support from the ford foundation, the german marshall fund of the united states, and deutsche bank ag, berlin, 26 november 2012. * * * i would like to thank philippine cour - thimann, federic holm - hadulla and roberto motto for their contributions to the preparation of this speech. it is a great pleasure to join you on the occasion of the levy economics institute ’ s hyman p. minsky conference. the financial crisis erupted five years ago when the leverage cycle that had accompanied the “ great moderation ” abruptly reversed. since then, the euro area and large parts of the global economy have been swept by several waves of financial shocks. and each wave has unleashed strong deleveraging forces throughout the affected economies. deleveraging often reflects a necessary adjustment process. and it does not necessarily warrant policy intervention. at the same time, it bears the risk of becoming abrupt and disorderly, thus threatening price stability by dislodging the provision of credit and the transmission of monetary policy signals to the real economy. in the worst case, it may lead to a full - blown financial meltdown via self - sustained adverse feedback loops of the kind envisioned by hyman p. minsky. central banks have a role in ensuring that the economy does not move towards divergent dynamics that would be inconsistent with price stability. to this end, they have a range of policy tools at their command which may be used to control deleveraging pressures. but, of course, strong accommodative central bank intervention may create moral hazard, thus discouraging needed adjustment efforts and possibly leading to the accumulation of new imbalances. in my remarks today, i will discuss how the ecb navigated through the crisis in view of the complex “ balancing act ” between disruptive deleveraging processes and moral hazard. i will argue that forceful action was needed to fend off acute downward pressures on price stability. in illustrating this point, i will often come back to the concept of the transmission mechanism, which is fundamental to a central bank ’ s ability to maintain price stability. i will also focus on the specificity of the approach adopted by the ecb during the crisis in order to maintain price stability. and i will relate