december 2013 eurosystem staff projected hicp inflation at 1. 1 % for 2014. in the most recent projection round of june 2014 – that is, about six months later – inflation was expected to be only 0. 7 % in 2014. while surprises were initially more in headline ( as opposed to core ) inflation and stressed ( as opposed to non - stressed ) countries, very recently the surprises have been more in core inflation figures, and in non - stressed countries. the reasons are well - known : • a mixed bag of supply shocks ( energy & food ; structural reforms in strained countries ) and persistence of underutilised capacity in a wide area of the euro area … • … in a context in which banks ’ credit – a critical ingredient to a self - sustained recovery of investment and durable consumption – was withdrawn in many countries and / or made available to companies and households at interest rates probably only partially justified by increasing lending risk. to address risks and implications associated with a prolonged period of low inflation, we have to ensure that the developments do not become entrenched in inflation expectations. this is why we further cut our interest rate last month in the context of a broader package of mutually reinforcing measures aimed at addressing impairments in lending conditions and the knock - on effects that these impairments are having for the real economy and inflation. loan growth is still contracting ; lending rates have not declined in line with improvements in financial markets. while the lending rates ( for stressed countries ) reflect credit risk, borrowers ’ credit risk is in part endogenous. high lending rates contribute to higher loan delinquencies, which in turn increase the need for banks to make provisions on past legacy loans by increasing lending rates ; so, ex post, higher delinquencies justify high lending rates, and there is a mutually reinforcing spiral of high lending rates, high credit risk and poor macroeconomic conditions. the tltros are designed to contribute to breaking this spiral. they are expected to ease overly tight conditions through several channels. • the first and most important channel is through a reduction in term funding costs for banks. note that the interest rate on the tltros will be fixed over the life of each operation, at the rate on the mros prevailing at the time of take - up, plus a fixed spread of 10 basis points. so if a bank does well in its lending performance, it enjoys very attractive refinancing conditions for up to four years. funding relief

shall focus on the multilateral relations which the ecb - and more generally, the eurosystem - maintains with other policymakers at the international ( ie neither euro area nor european union ) level. these relations are promoted within organisations such as the imf, the oecd and the bis, as well as in fora such as the g7 and the g20. i shall first provide a brief overview of the current relations of the ecb and the eurosystem, both from an institutional angle and from the point of view of their rationale. without wanting to be exhaustive, i shall then highlight a few challenges which the ecb - and, more generally, the international official community - may be confronted with. in this context, i shall outline the ecb ’ s assessment of a more specific issue, namely the issue of private sector involvement in the resolution of financial crises. 1. the ecb and the process of international cooperation institutional framework the treaty establishing the european community ( the “ treaty ” ) stipulates which european institutions are allowed either to speak or to act on behalf of the euro area at the international level. the euro area, like the eurosystem, has no legal personality. this implies that the euro area cannot negotiate and conclude public international law agreements or become a member of international organisations. this also implies that the euro area has to be represented externally by community institutions or bodies which have a legal personality ; this means : ( 1 ) the council of the ministers of finance and economy of the eu ( “ ecofin council ” ) ; and ( 2 ) the ecb and, in accordance with an ecb decision, one or more ncbs. while the treaty provides for interaction between the ecofin council and the ecb in a number of cases, these entities have well - defined responsibilities. this legal framework provides guidelines to give the euro area a voice at the international level. in particular, when the external representation of the euro area in the field of international cooperation involves the tasks entrusted to the eurosystem, decisions are centralised in the hands of the governing council of the ecb. this facilitates the decision - making process with regard to external representation. while ncbs may participate in international fora depending on their respective memberships ( eg g7, g10, g20 ), the participation of the ecb in all relevant fora gives continuity and visibility to the external representation of the euro area. the roles the ecb plays in