will be fixed at the average rate of the mros over the life of the respective longer - term refinancing operation. let me now explain our assessment in greater detail, starting with the economic analysis. following a contraction of 0. 2 %, quarter on quarter, in the second quarter of 2012, euro area real gdp declined by 0. 1 % in the third quarter. available statistics and survey indicators continue to signal further weakness in activity in the last quarter of the year, although more recently some indicators have stabilised at low levels and financial market confidence has improved further. over the shorter term, weak activity is expected to extend into next year, reflecting the adverse impact on domestic expenditure of weak consumer and investor sentiment and subdued foreign demand. a gradual recovery should start later in 2013 as our accommodative monetary policy stance and significant improvement in financial market confidence work their way through to private domestic expenditure, and a strengthening of foreign demand should support export growth. this assessment is reflected in the december 2012 eurosystem staff macroeconomic projections for the euro area, which foresee annual real gdp growth in a range between – 0. 6 % and – 0. 4 % for 2012, between – 0. 9 % and 0. 3 % for 2013 and between 0. 2 % and 2. 2 % for 2014. compared with the september 2012 ecb staff macroeconomic projections, the ranges for 2012 and 2013 have been revised downwards. bis central bankers ’ speeches the governing council continues to see downside risks to the economic outlook for the euro area. these are mainly related to uncertainties about the resolution of sovereign debt and governance issues in the euro area, geopolitical issues and fiscal policy decisions in the united states possibly dampening sentiment for longer than currently assumed and delaying further the recovery of private investment, employment and consumption. according to eurostat ’ s flash estimate, euro area annual hicp inflation fell to 2. 2 % in november 2012, down from 2. 5 % in october and from 2. 6 % in the two previous months. on the basis of current futures prices for oil, inflation rates are expected to decline further to below 2 % next year. over the policy - relevant horizon, in an environment of weak economic activity in the euro area and well - anchored long - term inflation expectations, underlying price pressures should remain moderate. this assessment is also reflected in the december 2012 eurosystem staff macroeconomic projections for the euro area, which foresee annual hicp inflation of

euro. clearly, the introduction of the euro has had important implications for international capital markets. this has been the case not only because a number of the currencies which have now been replaced by the euro played an important international role in the past, but also because the euro has become the currency of an economic area which roughly equals the united states in terms of economic size and external trade, and which has the world ’ s second largest capital markets. the international role comprises a number of functions, which can be distinguished according to the official use of the euro and its use for private transactions. concerning the former, the euro might be considered for official interventions in the foreign exchange market and similarly as a currency for official reserve holdings. moreover, in the context of formal exchange rate arrangements, those countries that previously pegged their currency to one of the participating euro area currencies might, in future, peg their national currency to the euro. private investors will use the euro for the international exchange of goods and services and for all kinds of portfolio investment. with regard to portfolio investment, the private use of the euro spans a broad spectrum from currency trading, bond and securities issues to investment in stocks. one of the key elements encouraging international portfolio diversification in favour of the euro is the creation of a large, liquid and integrated capital market in europe that began with the launch of the euro. for short - term instruments, we are now dealing with a broad and liquid european money market that ensures very similar short - term interest rates for comparable instruments and credit risks. the development of this market has been strengthened by the eurosystem ’ s operational framework of open market operations, which is mainly based on reverse transactions, and the implementation of the new target real - time gross settlement payment system in participating countries. at the longer end of the maturity spectrum, market integration was jump - started by the re - denomination of outstanding government debt in euro and by the convergence of interest rates to narrower spreads following the elimination of exchange rate risk. the elimination of this risk will also foster the development of uniform market standards so that government bonds in the euro area will become relatively close substitutes, creating a large and liquid bond market. obviously, this requires sound and sustainable budgetary policies that ensure that credit risk spreads remain small. among the important determinants of the international role of the euro two factors stand out, namely the size of the financial market and confidence in the currency. it is widely recognised that a large degree of openness of