on overall m3 growth, as it reduces the attractiveness of monetary assets compared with more highly remunerated longer - term instruments outside m3. however, this impact is likely to be waning. on the counterpart side, the annual growth of loans to non - financial corporations continued to edge up, from 0. 9 % in may to 1. 5 % in june, whereas the annual growth of loans to households hovered over recent months around rates of slightly above 3 %. the overall size of mfi balance sheets has remained broadly unchanged over recent months. where it is necessary to provide adequate scope to expand the provision of credit to the private sector, it is essential for banks to retain earnings, to turn to the market to strengthen further their capital bases or to take full advantage of government support bis central bankers ’ speeches measures for recapitalisation. in particular, banks that currently have limited access to market financing urgently need to increase their capital and their efficiency. in this respect, we welcome the eu - wide stress - testing exercise, which was prepared by the european banking authority and national supervisors, in close cooperation with the ecb. we also welcome the commitment made by national authorities with regard to the provision of support facilities for banks where private sector means are insufficient. to sum up, based on its regular economic and monetary analyses, the governing council decided to keep the key ecb interest rates unchanged, following the 25 basis point increase on 7 july 2011. the information that has become available since then confirms our assessment that an adjustment of the accommodative monetary policy stance was warranted in the light of upside risks to price stability. a cross - check with the signals coming from the monetary analysis indicates that while the underlying pace of monetary expansion is still moderate, monetary liquidity remains ample and may facilitate the accommodation of price pressures. as expected, recent economic data indicate a deceleration in the pace of economic growth in the past few months, following the strong growth rate in the first quarter. continued moderate expansion is expected in the period ahead. however, uncertainty is particularly high. for monetary policy, it is essential that recent price developments do not give rise to broad - based inflationary pressures. inflation expectations in the euro area must remain firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2 % over the medium term. such anchoring is a prerequisite for monetary policy to make an ongoing contribution towards supporting economic growth and job creation in the euro area. at

- starting the capital markets union. financial markets that can absorb shocks efficiently reduce the need for macroeconomic stabilisation and thereby free up costly political capital. structural policies to enhance resilience and feed convergence the second aspect of pre - crisis thinking concerned the role other policy domains should play in supporting the single monetary policy. i will focus here on the structural side and turn to fiscal policy in a minute. although pre - crisis policy advice strongly focused on reducing nominal and real rigidities in product and labour markets, today there are still significant differences across countries in the response to common euro area - wide shocks. my next slide shows two ways of looking at this. 6 / 14 bis central bankers'speeches on the left - hand side you can see ecb research on the extent to which output in each country responds to a common area - wide shock. clearly, there are significant differences, even among countries of broadly comparable size. on the right - hand side you can see eurosystem estimates of the slope of the phillips curve. 8 it shows a high degree of heterogeneity across euro area countries for the sensitivity of core inflation to economic slack. in other words, country - specific factors of inflation remain considerable, for example the degree of wage negotiation centralisation. these factors are also related to national institutions. the upshot is that, in this environment, monetary policy is more difficult to calibrate. different transmission mechanisms propagate the same shock to different degrees and with lags that may vary across countries. minimising these differences in transmission does not require all countries to adopt the same economic structures. 9 what matters is for countries to have institutions that deliver the right outcomes, both individually and jointly. our system of economic coordination, the european semester, still falls short of achieving this objective. 10 and as a consequence, it still falls short of supporting adequately the single monetary policy. strengthening domestic institutions is not only about improving shock absorption capabilities. it is also about cohesion and sowing the seeds for renewed convergence. you can see this on my next slide. 7 / 14 bis central bankers'speeches the more benign pre - crisis view of heterogeneity reflected the fact that the direction of travel was at least similar among euro area countries, and not too different from, say, the united states. as you can see from the chart, the longer we wait to improve the quality of the institutions that underpin domestic growth and living standards, the larger the gap will