have diminished somewhat over recent weeks. as regards exchange rates, we confirm our position, expressed when the euro rose sharply, that such moves are unwelcome and undesirable for economic growth. turning to prices, annual hicp inflation was 2. 3 % in december according to eurostat ’ s flash estimate, up from 2. 2 % in november. annual hicp inflation rates of above 2 % are likely to persist over the coming months, notwithstanding the recent oil price decline. looking further ahead, however, the available information indicates that, barring further adverse shocks, hicp inflation will fall below 2 % in the course of 2005. moreover, the latest indicators do not suggest that underlying domestic inflationary pressures are building up in the euro area. wage increases remain contained, against the background of ongoing moderate economic growth and weak labour markets. in the context of what is a broadly favourable outlook for price developments over the medium term, upside risks to price stability need to be taken into account. given past oil price rises, there is a continued need to avoid second - round effects in wage and price - setting throughout the economy. responsibility on the part of social partners remains very important. moreover, developments in indirect taxes and administered prices require close monitoring. turning to the monetary analysis, the latest data confirm our previous assessment. monetary and credit growth strengthened in the second half of 2004, largely as a consequence of the prevailing low level of interest rates. given the strength of monetary dynamics over the past few years, there remains significantly more liquidity in the euro area than is required to finance non - inflationary growth. overall, the monetary analysis points to upside risks to price stability over the medium to longer term. at the same time, the combination of high excess liquidity and strong credit growth could in some countries become a source of unsustainable price increases in property markets. to sum up, the economic analysis suggests that underlying domestic inflationary pressures are contained but upside risks to price stability over the medium term need to be monitored closely. in this context, it is crucial that there is no spillover from current short - term developments in consumer price inflation to long - term inflation expectations. cross - checking with the monetary analysis supports the case for continued vigilance with regard to the materialisation of risks to price stability over the medium term. with regard to both fiscal policies and structural reforms, the governments and institutions of the european union will have to confront many important challenges in the course of 2005

the economy. there are two things i can say in response. first, i do not see that regulation keeps banks from their traditional business of financing the economy. loans to private households and smaller companies are treated very favourably when it comes to capital requirements. think of the support factor in article 501 of the capital requirements regulation. this factor was introduced to facilitate the financing of small and medium - sized enterprises. i also do not see that regulation keeps banks from developing new business models – those, for instance, that follow from digitalisation. second, critics neglect the benefits of strong rules. strong rules prevent crises, and crises hurt the economy. 1 / 2 bis central bankers'speeches at the end of the day, it is only well - managed and well - capitalised banks that are able to finance the economy – even when the going gets tough. they can finance the economy throughout the entire business cycle. poorly capitalised and poorly managed banks, on the other hand, cannot support the economy during downturns – they get into difficulty themselves. strong rules therefore help the economy in a sustainable way. and even if we only consider the banks, we still see benefits. stronger rules increase trust. and as a result of the crisis, a great deal of trust was lost. and that ’ s a problem for banks because trust is a crucial asset for them. trust has a positive impact on funding costs for banks, and it determines how attractive a bank is for business partners who think long - term. strong rules thus help the banks, too. altogether, i am convinced that the benefits of regulation are greater than the costs. but rules can only take us so far. ultimately, it is people who make good or bad decisions. and this is where banks ’ risk managers come into play. they are the first line of defence against excessive risks. thank you for your attention. 2 / 2 bis central bankers'speeches