shocks, hicp inflation has been above - and sometimes significantly above - 2 % for quite some time. but inflation always bounced back following these shocks and today the outlook for price stability is once again favourable. a second related point i would like to mention is the medium - term orientation of our policy. as a central bank, we only affect prices with long lags and we cannot steer trends in prices with high precision. our focus on the medium term helps to avoid overly ambitious attempts to fine - tune inflation developments. you might ask what “ medium term ” means exactly. it is certainly not a fixed time horizon, as some have argued. experience in recent years has taught us that flexibility in this respect is very important. from this point of view, the ecb ’ s monetary policy strategy is different from pure forms of inflation targeting. this leads me to my third issue, which is that one cannot simply rely on a single inflation forecast to conduct monetary policy successfully. experience suggests that it can be very misleading to summarise the assessment of medium - term inflationary pressures in one single figure, even when a measure of statistical error is attached to it. unfortunately, monetary policy is not so simple and the repeated significant forecast errors by all major institutions over the last few years provide evidence of this. indeed, i agree with alan greenspan who once said that central bankers should be less reluctant to admit that they sometimes do not know. instead of relying on a single forecast, our monetary policy strategy emphasises this fundamental uncertainty. our strategy builds on several forecasts and indicators and includes a cross - check of the information from the economic analysis, which is relevant from the short to medium - term perspective for inflation, with that from the monetary analysis, which is important for the medium to long - term outlook. in this respect, the fourth point that i would like to discuss today is that over the last few years we have seen that monetary analysis is not only an important, but also a complex business. i have no doubt that inflation is a monetary phenomenon over the long term and that we are right in attributing a prominent role to monitoring monetary developments in our monetary policy strategy. a fifth point i would like to make is that it was difficult to gauge the effects of global interdependencies when we began to conduct the single monetary policy. what we have learnt, in particular, is that global linkages go well beyond the international trade channel, which was traditionally considered to be the main,

recession should take a more forceful orientation to stimulate consumption or a more prudent approach to discretionary fiscal policy making. in my view, while the operation of automatic stabilisers, whose impact on activity, income distribution and the sustainability of public finances is reasonably well understood and comparatively easy to predict, discretionary changes – particularly if they are temporary – have mostly a short - living effect on demand. the carscrapping schemes implemented in several countries are a good example. schemes geared towards car purchases certainly stimulated demand in a period of high uncertainty. but such influence has not affected the underlying trend of demand of automobiles. in chart 5, which shows the level of car registrations in the euro area, germany and spain illustrates that indeed car sales have benefited initially from these schemes. however, it is also visible that the increase of demand for cars was mostly an anticipation of future demand. it may however have contributed to the swift recovery of the industry. so far i discussed the main determinants of private consumption demand on a euro area aggregate level. let me, however, also mention that the aggregate developments in the area mask heterogeneous and even divergent changes in different member countries that have been subject to shocks of a diverse nature. chart 6 shows that, while the downturn of retail trade was a common feature of most euro area countries, there were significant differences across countries between the levels of retail sales in 2010q2 compared with the time just before the financial crisis in the autumn of 2008. although it is clear that retail sales have contracted in most countries, it is also clear that differences across countries are quite significant. [ the volume of retail trade in greece, for instance, stood almost 20 % below its level in 2008q2, which compares with a fall of 2. 0 % in the euro area as a whole. ] before coming to an end, let me touch on my final question on the future outlook of the overall economy and consumption and retail in particular. [ slide 7 ] recent statistical releases and survey evidence continue to be consistent with the picture of a positive underlying momentum of the recovery in the euro area. the global recovery is expected to continue. at the same time, private sector domestic demand should gradually strengthen further, supported by the accommodative monetary policy stance and the measures adopted to restore the functioning of the financial system. however, the recovery in activity is expected to be dampened by the process of balance sheet adjustment in various sectors. we expect private