in the euro area somewhat preceded them and was more prolonged. i will now turn briefly to macro developments, both in terms of inflation and economic growth. figure 7 since last april headline inflation has turned positive but remains very low, affected by the renewed decline in oil prices. core inflation, excluding food and energy, continues however to firm, reflecting the ongoing economic recovery which is evolving in accordance with our baseline scenario. the latest round of our staff macroeconomic projections indicates that by 2017 inflation will be below, but close to, 2 % and that gdp growth will also be hovering around 1. 9 %. we do not deny that there are risks and shortcomings associated with the type of policies that we have been forced to adopt in view of our mandate to safeguard price stability in a symmetric way. very briefly i will refer to several of these : medium - term inflation risks are very low and central banks have enough instruments to deal with them. the exit strategy may involve the possibility of losses for the central bank. however, as ben bernanke has said, this is a possibility that, measured against the gains from a stronger bis central bankers ’ speeches economy and the previous contributions to government budgets, is “ not a true social economic risk ”. 4 financial stability risks, stemming from search for yield and higher leverage, are real, but monetary policy cannot be inhibited in the pursuit of its priority goals. those risks must be addressed by macroprudential policies of a regulatory and administrative nature, and the policy toolkit available to central banks in this respect should be enlarged for that purpose. potential laxity of credit risk management by financial institutions in a climate of low rates. supervision, appropriate risk management governance and the regulation of provisions should deal with this problem wealth effects and increased inequality. the stronger economy and lower unemployment that result from the lsaps mitigate but do not eliminate this possible side effect. sometimes the criticism directed at our policies implicitly attributes responsibility for the low interest - rate environment to central bank policies. but the truth is precisely the opposite : central banks are simply reacting to and trying to correct a situation that they did not create. indeed, medium and long - term market interest rates are mostly influenced by investors and market players, as the recent so - called “ bund tantrum ” illustrates. more importantly though, it should be pointed out that for a few decades now we have been witnessing a sort of secular trend towards lower real interest rates. this trend is related to secular st

lucas papademos : ecb financial stability review june 2009 – opening remarks opening remarks by mr lucas papademos, vice - president of the european central bank, at the press briefing on the occasion of the publication of the june 2009 ecb financial stability review, frankfurt am main, 15 june 2009. the original speech, which contains various charts to the speech can be found on the european central bank ’ s website. * i. * * introduction my colleagues and i would like to welcome you to today ’ s press briefing on the occasion of the publication of the june 2009 edition of the ecb financial stability review. the financial stability assessment contained in the review has been prepared with the close involvement of the escb banking supervision committee. the review examines in detail the main trends and events that characterised the euro area financial system over the past six months 1 and it contains 15 boxes and five special feature articles that address topical financial stability issues in a more focused and analytical manner. as done for the first time last december, we have prepared a summary note that highlights some key messages of our analysis and assessment. many of the downside risks to euro area financial stability that were identified in the december 2008 issue of the fsr have crystallised. 2 in particular, the further significant deterioration in global macroeconomic conditions as well as sizeable downward revisions to growth forecasts and expectations have added to the stresses on global and euro area financial systems. the contraction of economic activity and the diminished growth prospects have resulted in a further erosion of the market values of a broad range of assets. the adjustment of bank balance sheets has adversely affected the market pricing of assets and the financial intermediation role of banks in channelling funds from savers to investors. moreover, there have been increasing signs of an adverse feedback loop between the real economy and the financial sector which poses new challenges for the safeguarding of financial stability. ii. sources of risk and vulnerability ii. 1. risks in the global macro - financial environment the primary objective of the financial stability review is to identify the main sources of risk to, and vulnerability for, the financial system stability in the euro area and to provide an assessment of the system ’ s capacity to absorb adverse disturbances. as the global financial and economic turbulence is still ongoing, let me start by examining risks to euro area financial stability stemming from developments in the global macro - financial environment. the analysis and assessment contained in the review is for the most part based on information that was available until the “