financial markets is that hedge funds, private equity firms and the banks financing these institutions all strongly rely on techniques for credit risk transfer ( crt ) to manage their risks. while crt markets have obvious benefits in terms of allowing effective risk sharing in the financial system, excessive reliance on the functioning of such mechanisms can lead to complacency on risks. in addition, crt markets operate in a rather opaque manner which does not allow for monitoring of concentration and counterparty risks by other market participants or by public authorities. moreover, the growing spreading of more complex structured credit products raises the issue that investors in such instruments may not be able to properly assess the risks they assume. unanticipated changes in the macro - financial environment can cause model assumptions to fail and this may contribute to pricing dislocations and market liquidity problems if many investors decide to exit their positions simultaneously. all in all, i see scope for further cooperation between public and private sector entities to gather information on the crt market to improve the ability to assess potential systemic risks. the state of the fundamentals in the credit markets, crt and unregulated financial institutions can together be described as a potential “ triangle of vulnerability ” in that a shock at any corner of this triangle could have implications for the other two. for instance, a significant turn in the credit cycle could mean that credit protection - sellers, such as hedge funds, could become unable to make due payments to banks. similarly, if widespread problems were to emerge at hedge funds or private equity firms which are active in crt markets, this could even spark a downturn in the credit cycle, if it were to impair the “ originate and distribute ” business model adopted by many banks involving securitisation and hedging of lending exposures. let me conclude by saying that ultimately the triggers for any potential adjustment cannot be predicted with any degree of certainty. all that we know is that the present state of global finance – where we are observing a level of risk pricing which is historically low – is not necessarily sustainable in the long run. all parties concerned should therefore contribute to an orderly and smooth adjustment, when the time comes, and avoid an abrupt and sharp adjustment which would be adverse for the global economy. all parties concerned, public and private, have in this respect a very important shared responsibility. i thank you for your attention.

slower pace of quarter - on - quarter real gdp growth in the second half of this year than in the first. looking further ahead, the conditions remain in place for the euro area economy to grow at solid rates around potential, although some volatility in the quarterly growth rates is likely to emerge around the turn of the year, mainly reflecting the impact of an increase in indirect taxes in a large euro area country in january 2007. global economic activity has become more balanced across regions and remains robust, thereby providing ongoing support for euro area exports. investment is expected to remain dynamic, benefiting from an extended period of very favourable financing conditions, balance sheet restructuring, accumulated and ongoing strong earnings, and gains in business efficiency. consumption growth in the euro area should also strengthen further over time, in line with developments in real disposable income, as employment conditions continue to improve. risks to the outlook for economic growth are broadly balanced over the shorter term, taking into account, in particular, the recent slowing down in the us economy on the one hand and the recent fall in oil prices on the other. the oil price decline – if it were to prove lasting – has the potential to lead to somewhat stronger demand and output growth than embodied in our current baseline scenario for activity in the coming quarters. over the longer term, risks to growth continue to lie on the downside, relating mainly to the possibility of a renewed increase in oil prices, fears of a rise in protectionist pressures, especially after the suspension of the doha round of trade talks, and possible disorderly developments owing to global imbalances. as regards price developments, according to eurostat ’ s flash estimate annual hicp inflation was 1. 6 % in october, after having declined to 1. 7 % in september from 2. 3 % in august. the recent decline in inflation is the combined result of favourable base effects, given in particular the strong rise in oil prices a year ago, and the recent significant fall in oil prices. while the outlook for energy prices remains uncertain, on the basis of current energy prices and the higher quotations on futures markets, inflation rates are likely to increase again in the next few months and early 2007. as a consequence, we expect a high degree of short - term volatility in the annual hicp inflation rate. looking through this volatility, however, hicp inflation will remain elevated at a level above 2 % on average in 2006 and is likely to remain so in 2007. risks to