also, the composition of the board and the imfc should remain aligned. the mandate of the fund should be updated. i favour the formal extension of the fund ’ s jurisdiction over capital account transactions. the world bank group has shown its commitment to assist developing and transition countries in dealing with the aftermath of the multiple crises they face in a more flexible fashion, by stepping up its lending capacity and by speeding up the delivery of its assistance. however, the world bank group ’ s capacity to respond to crisis situations should be further enhanced. responding to a rapidly changing environment requires some important institutional and organizational changes. the bank needs to evaluate and reshape its lending toolkit and its decentralization policy in order to be able to respond more efficiently and effectively to these challenges. work is ongoing, but it needs to be accelerated. during the past year, the bank has been stretching the use of its capital in order to increase its lending capacity in response to the crisis. the question is whether a capital increase at this stage is necessary. therefore, the bank should analyze and assess in more detail postcrisis demand for world bank lending and explore other options before resorting to a general capital increase. as a result of the crises, the number of people living in extreme poverty has increased significantly. the bank group should not lose focus on this vulnerable group. in this respect we call upon all donors to secure a sufficient replenishment of ida - 16, for which negotiations will start soon. the second phase of voice and participation reform should be concluded within the agreed timeframe. this reform should be based on a widely accepted measure for countries ’ relative economic weight, but should also take into account members ’ contributions to ida. other ongoing institutional reforms related to decentralization, workforce diversity and country ownership, should receive proper attention in the debate. to conclude, a successful reform of the bretton woods institutions is important to keep the institutions in the vanguard of the effort for a more prosperous and equitable world. decisions on the reform of the institutions must be taken by their members. no other international institution is better placed to execute their mandate.

gap and weaker import prices have been the most important factors in lowering headline inflation in the euro area. while import prices are now pulling up inflation – reflecting the impact of the recent recovery in oil prices – slack still remains a bit of a drag. nominal factors – related to how firms and households set prices and wages – seem to have played a more limited role. as of 2013, trend inflation seems to have fallen a bit below 2 %, but only slightly so. in addition, inflation persistence – which is captured by the ρ in the phillips curve equation – appears to have increased somewhat. this implies that shocks have a longer - lasting impact on inflation as a result of which inflation converges more slowly to its trend. in this regard, the long period of low inflation could have led firms and unions to become more backwardlooking when setting prices and wages, making inflation more persistent. or it could also reflect that the lower bound has somewhat affected monetary policy ’ s effectiveness in dealing with the shocks hitting the euro area economy. as the euro area expansion proceeds, most of these disinflationary forces should disappear. as a result, inflation should recover to our target of close to but below 2 %, albeit perhaps a little more slowly given the higher inflation persistence. another uncertainty that warrants a cautious monetary policy approach concerns the level of the natural rate of interest. of course, our estimates about its level are always a bit of a guess as the natural rate is unobservable. what several studies suggest, however, is that it has fallen in several advanced economies since the crisis. that puts an even higher premium on bringing inflation back towards our inflation aim – even if the absorption of slack that accompanies it is of course already a very good reason to do so. in a low real rate world, the frequency of lower bound periods is likely higher. in such an environment, avoiding inflation to settle at too low levels is of utmost importance as it helps preserve the macroeconomic stabilization capacity of the central bank ’ s nominal policy rate instrument. were we to allow trend inflation to settle below pre - crisis levels and hence below our price stability definition, it would imply even lower nominal interest rates in steady state. this means that, faced with negative shocks, the central bank would have a smaller margin to reduce rates, so recessions might last longer and inflation would recover more slowly. true, faced with the lower bound, the central bank could use non - standard measures more often. yet,