of the past. it also provides the necessary flexibility to allow budgets to be adjusted in line with economic fluctuations. but the pact does not provide for governments to attempt to fine - tune the economy by means of fiscal policies. the experience of the first 10 years of the pact shows that some governments found it challenging to comply with the rules they had set for themselves. but the pact did help correcting very high deficits and reversing the increase in debt ratios. it is essential that the public ’ s confidence in the soundness of fiscal policies is preserved. this requires that fiscal sustainability is guaranteed. the stability and growth pact must be fully applied and its integrity preserved. the automatic fiscal stabilizers in the euro area amount to about 1 % of gdp. they provide a powerful source of fiscal support for a weakening economy. and this type of stimulus is automatically reversed when economic conditions improve. only a few countries have the scope to take additional action. where such room for manoeuvre exists, additional budgetary measures have to be targeted, timely and temporary ( “ three t ’ s ” ) in order to be effective. in the current circumstances, we cannot, and should not, risk adding a fiscal crisis to the financial turmoil and economic downturn. v. lessons to be learned from the current financial turmoil there is no need for a new global financial system ( bretton - woods ii ) or for creating new international institutions from scratch. rather, there is a need for strengthening the existing institutional framework by enhancing those general principles that ensure a smooth functioning of market economies : stability - oriented macroeconomic policies ; high competition on all markets ; the protection of property rights ; freedom of contract ; and unlimited liability. as regards macroeconomic policies, they have to be medium term oriented and geared towards price stability and sound public finances. the commitment to price stability and sound public finances is the best contribution monetary and fiscal policies in the euro area can make to financial stability. there is no trade - off between price stability and financial stability and there is also no trade - off between sound public finances and financial stability. as regards the institutional framework for the financial sector, we have to accept that even the tightest regulation cannot prevent a financial crisis. however, it is clear that the benefits of tighter regulation are larger than thought some quarters ago. hence, there is a need for a realistic assessment of the costs and benefits of tighter regulation. new regulation should set general principles rather than drawing up long lists of discretionary measures,

area. overall, the underlying strength of domestic activity in the euro area continues to support a sustained adjustment in inflation. according to the flash estimates, hicp inflation increased to 2. 1 % in september, from 2. 0 % in august. on the basis of the latest oil futures prices, headline inflation is expected to hover around the current level for the rest of the year. our most recent projections foresee annual headline inflation at 1. 7 % in 2018 and in each of the two subsequent years. the stable path of inflation conceals a decline in the contribution of the energy component, as the impact of the past oil price hike fades, offset by a gradual increase in underlying inflation. although measures of underlying inflation remain generally muted, they have been increasing from earlier lows. tighter labour markets and the emergence of wage pressures are expected to continue to bolster underlying inflation. given the underlying strength of the economy, we are confident that the sustained convergence of inflation to our aim will proceed even after a gradual winding - down of our 1 / 4 bis central bankers'speeches net asset purchases. at the same time, an ample degree of monetary accommodation will still be necessary to ensure a durable convergence of inflation over the medium term. against this background, we have reduced our net asset purchases to €15 billion as of this month, and we continue to anticipate that net purchases will terminate by the end of the year. but in order to ensure that sufficient monetary policy stimulus continues to support the further buildup of headline inflation that we see in our projections, the governing council decided : to enhance our forward guidance on the likely future path of our policy interest rates, expressing our expectation that they will remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued convergence of inflation towards our aim ; and to re - assert our intention to continue to re - invest the principal payments from maturing securities in our portfolio for an extended period of time after the end of our net asset purchases, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation. these measures will continue to provide the necessary degree of monetary policy accommodation to bring inflation back towards a level that is below, but close to, 2 %. let me now turn to the spanish economy. following the severe recession in 2008 - 09 and 2012 - 13, spain ’ s economic recovery has been strong, with five years of growth