gains in real income owing to generally lower inflation. furthermore, the overall improvements in financial markets seen since last summer appear to be gradually working their way through to the real economy, as should the progress made in fiscal consolidation. this being said, the remaining necessary balance sheet adjustments in the public and private sectors will continue to weigh on economic activity. overall, euro area economic activity should stabilise and recover at a slow pace. the risks surrounding the economic outlook for the euro area continue to be on the downside. recent developments in global money and financial market conditions and related uncertainties may have the potential to negatively affect economic conditions. other downside risks include the possibility of weaker than expected domestic and global demand and slow or insufficient implementation of structural reforms in euro area countries. according to eurostat ’ s flash estimate, euro area annual hicp inflation was 1. 6 % in july 2013, unchanged from june. annual inflation rates are currently expected to temporarily fall over the coming months, owing particularly to base effects relating to energy price developments twelve months earlier. taking the appropriate medium - term perspective, underlying price pressures are expected to remain subdued, reflecting the broad - based bis central bankers ’ speeches weakness in aggregate demand and the modest pace of the recovery. medium to long - term inflation expectations continue to be firmly anchored in line with price stability. the risks to the outlook for price developments are expected to be still broadly balanced over the medium term, with upside risks relating to stronger than expected increases in administered prices and indirect taxes, as well as higher commodity prices, and downside risks stemming from weaker than expected economic activity. turning to the monetary analysis, underlying money and, in particular, credit growth remained subdued in june. annual growth in broad money ( m3 ) decreased in june to 2. 3 %, from 2. 9 % in may. moreover, annual growth in m1 decreased to 7. 5 % in june, from 8. 4 % in may. the annual rate of change of loans to the private sector weakened further. while the annual growth rate of loans to households ( adjusted for loan sales and securitisation ) remained at 0. 3 % in june, broadly unchanged since the turn of the year, the annual rate of change of loans to non - financial corporations ( adjusted for loan sales and securitisation ) was – 2. 3 % in june, after – 2. 1 % in may. weak loan dynamics continue to reflect primarily the current stage of the business cycle, heightened credit

to them the fact that reforms also allow for diversity. for example, it is not enough to merely say publicly that a country ’ s labour market must become more flexible. otherwise, people take this as meaning that it should become easier to fire people. that is wrong. in germany, for example, after the dramatic contraction in demand as a result of the 2008 crisis, firms did not get rid of workers. unions accepted wage reductions or shorter working hours and that prevented a worse decline. thus, despite apparent rigidities, the labour market responded in a very flexible way. also, countries can be wealthy and stable without all having to implement the same policies. the united states and sweden are two good examples : labour markets are very different there, but people in these countries still have a good standard of living. standard : what you ’ re saying sounds good in theory. but within the troika, the ecb has always demanded of portugal and greece that they weaken protection against layoffs and soften collective wage agreements. there hasn ’ t really been that much room for manoeuvre. praet : our job in the troika is to support the eu commission in its work. that is technical work and, at the end of the day, it ’ s the eurogroup that makes the political decision as to which direction should be followed, since it represents the elected governments and therefore european taxpayers. it must also be clear that not every political solution is bis central bankers ’ speeches feasible, as social systems must remain fundable. still, i hope that, in the future, there will be a greater focus on giving countries more ownership of their reform programmes ; they should act on their own initiative and take responsibility. standard : but is it possible to really change a country, when it ’ s trying to make savings? praet : as the crisis took effect, investors ’ trust in the sustainability of several countries ’ debt was eroded. the ensuing adjustment of public finances was therefore implemented looking mainly at the short - term effects. frequently, public investments were cut and value - added taxes were raised in order to obtain quick debt reduction, even if this weighed on growth prospects. at the same time, however, certain countries have reformed successfully ‒ their labour markets have become more flexible and banks have been restructured. that wasn ’ t easy and it was also painful, but they are growing again. standard : but even your colleagues are saying that a radical course of austerity isn ’