bolstering effect of lower commodity prices. imported inflation might also be depressed as foreign producers cut prices in reaction to weakening global growth. the second circumstance is if there is a succession of supply shocks that keep inflation low for a long period and cause firms and households to revise down their inflation expectations. in that situation, low oil and commodity prices can have “ second round effects ” as lower expectations feed into wage bargaining and price setting, thereby affecting core inflation. then, the effect of supply shocks becomes more similar to demand shocks. in both cases, central banks end up facing a situation not of a benign supply shock, but rather of an adverse demand shock that, if left unaddressed, could derail price stability over the medium - term. that would call for a more forceful monetary policy response. importantly, there were signs in the past that such circumstances were present in the euro area. estimating the relative contributions of supply and demand in oil and commodity price dynamics is always complex, but combining evidence from several different sources, both effects appear to have been at play. while supply shocks explain an important part of oil prices over the last year, adverse demand shocks have also increased driven by the slowdown at the global level ( figure 2 ). in that context we have also seen that, while the euro depreciation is contributing to higher import prices in euro, export price inflation in our main trading partners has remained depressed, contributing to weak producer price pressures. this in turn has weighed on the recovery of industrial goods inflation, which is sensitive to global inflation and makes up around a quarter of the consumption basket in the euro area. at the same time, a succession of oil price shocks over recent years has led to a prolonged period of low inflation in the euro area which, at times, has been reflected in declines in measures of inflation expectations. against that backdrop, we have seen a higher risk that a continued period of low inflation – even if supply - driven – could start to have second - round effects and feed into core inflation. in sum, while in general the forces driving global disinflation are ones that should not, over the medium - term, affect central banks ’ ability to deliver price stability, in the euro area the risks were higher that they might not “ wash out ” over time, and might instead feed into core inflation. for that reason, they became relevant for our monetary policy. bis central bankers ’ speeches the role of domestic inflation these global factors, however, have

this is a key responsibility of member states. on the other hand, europe can make a difference by supporting and facilitating such reform efforts. our togetherness represents a unique competitive advantage, and we should capitalise on this. first, we can build on the synergies between emu and the single market. the single market is indeed one of the most powerful tools we have to unlock the mechanisms that will raise productivity. in particular, a genuine capital markets union ( cmu ) would not only ease and diversify access to funds for households and firms, thus fostering investment and innovation. it would also enable risk diversification and thus compensate for temporary drops in activity locally – the so called private risk - sharing –, thereby reinforcing the overall resilience of emu. second, it is essential to complete the projects that we initiated during the crisis, namely the banking union. together with cmu, a complete banking union would deliver meaningful private risk sharing that is currently lacking in the euro area in comparison to the us. but private risk sharing, to be effective, needs to be supported by other policies. we should thus rekindle trust in our economic and fiscal framework, by making it more effective in ensuring sound policy making at national level. these actions can also be further supported at the european level by the recent decisions to launch an instrument for convergence and competitiveness for the euro area. to tackle future cyclical crises, the two layers of protection against shocks – the diversification of risk through the private financial system on the one hand, and public countercyclical support through fiscal instruments at the national and european levels on the other – need to interact in a complete and efficient manner. achieving these reforms is not idealistic, nor utopian if we work together. and at the euro summit in december, leaders renewed their political commitment to strengthen emu. if we want to realise in full the benefits of the euro, we need to capitalise on this commitment and translate it into concrete policy actions. conclusion mr chairman, honourable members of the economic and monetary affairs committee, 3 / 4 bis central bankers'speeches i have used the word “ together ” several times today. as this is the last time that we will be together in this legislative term, let me add a few words to you personally. i would like to thank you all for the role that this committee has played over the past years. in my first hearing here, i remember saying that was my first exercise in democratic