the ecb. as regards economic developments, since september last year the financial turmoil has intensified and broadened. tensions have increasingly spilled over from the financial sector into the real economy. looking ahead, both global demand and euro area demand are likely to remain dampened for a protracted period. at the same time, declining inflation rates should support real disposable income in the period ahead, and the euro area economy should benefit from the broad and far - reaching policy measures that have been decided upon over recent weeks. however, this outlook remains surrounded by exceptionally high uncertainty. overall, risks to economic growth remain clearly on the downside. they relate mainly to the potential for a stronger impact of the financial turmoil on the real economy as well as to concerns about the possible emergence and intensification of protectionist pressures and to possible adverse developments in the world economy stemming from a disorderly correction of global imbalances. to lay sound foundations for sustainable growth, all parties concerned should live up to their responsibilities. in this respect, it is crucial to maintain discipline and a medium - term perspective in macroeconomic policy - making. to pursue a stability - oriented and sustainable policy approach is the best way to preserve and enhance confidence. the significant measures being implemented by governments to address the financial turmoil should support trust in the financial system and ease constraints on credit supply to companies and households. monetary trends in the euro area support the view that inflationary pressures are diminishing. notably, the latest evidence confirms a moderating rate of monetary expansion. the governing council has repeated its commitment to keep inflation expectations firmly anchored in line with its definition of price stability of below, but close to, 2 %. this supports sustainable growth and employment and contributes to financial stability. it is against this background that the governing council decided last week to reduce the interest rate on the main refinancing operations of the eurosystem by a further 50 basis points to 2 %, bringing the total reduction since 8 october 2008 to 225 basis points. medium - term price developments and the process of disinflation let me now look more closely at the medium - term outlook for price developments in the euro area, and in particular at the process of disinflation we are currently observing. i will thereby address the first topic proposed. it is essential here to draw a clear distinction between disinflation and deflation. disinflation is a process of falling inflation rates. this process often stems from cost - saving developments

differentials, induced by structural inefficiencies or misaligned national policies, including wage - setting policies, might have adverse implications for the cost competitiveness of individual countries. national authorities have the responsibility to address competitiveness losses accumulated over recent years by implementing structural reforms and ensuring more moderate price and wage developments. regarding fiscal policies, we welcome the european council ’ s reconfirmation of its full commitment to sustainable public finances. the current economic situation calls for prudence with regard to the adoption of extensive fiscal stimulus measures, taking into account the particular fiscal situation in each country. as i have said before, countries can use all the room for manoeuvre provided by the stability and growth pact but only the room for manoeuvre that is in the pact. the significant fiscal loosening and the implied increase in government debt should in no case risk undermining public confidence in the sustainability of public finances, thereby detracting from the effectiveness of a fiscal stimulus. second, i should like to turn briefly to financial supervision issues. the financial crisis has heightened the importance of addressing issues relating to financial supervision in a comprehensive and coordinated manner, both globally and at the european level. as regards the european level, the crisis has highlighted the need to analyse long - term solutions to the structure of supervision. to that end, the proposals which will be put forward by the high - level group chaired by jacques de larosiere will represent an important contribution to the policy discussions. considering the possible options and as underlined in particular by a number of members of parliament, article 105 ( 6 ) of the treaty explicitly mentions the possibility for the member states to decide to confer upon the ecb specific tasks in the domain of financial supervision. reflections have started on the specific role that could be played by the ecb and its governing council should this provision of the treaty be activated. at this stage the governing council has not yet taken a position on this topic. i will not fail to report to you the outcome of these reflections.