was very low in the baltic countries prior to the changeover, but it is steadily increasing. in lithuania net support has increased by 23 percentage points in just one year. 1 moreover, the european public ’ s initial scepticism about centralised supervision of the banking system has faded away : according to the latest eurobarometer data 2, 65 % of respondents consider central supervision at eu level effective. this suggests that if politicians want europe to work for the well - being of its people, they might need to pluck up courage and seek to shape opinion rather than follow it. should that raise questions of legitimacy, these would need to be addressed by a supranational arbitrator. i think we can solve the issue of time - inconsistent preferences by simultaneously considering the spatial dimension of decision making : if decisions of common interest are taken at national level, rigid rules that leave no room for interpretation are needed to create a level playing field. if decisions are taken at supranational level, more flexible regulation is possible without creating distortions. supranational institutions can overcome the time inconsistency : they have credibility, as they are bound by a mandate ; and they can react to changing circumstances as they have flexibility in the decisions they take within this mandate. in the eu, we already partly take advantage of this approach : the commission has executive powers on competition policy and the ecb has executive powers on monetary policy and – since november last year – on the supervision of banks. i dare to add that in those areas where european institutions have been granted executive powers and a clear mandate, they use them reasonably well. when supranational institutions are assigned conflicting tasks, assessments of their performance become less clear - cut. recent decisions by the european commission on the stability and growth pact ( sgp ) and on the macroeconomic imbalance procedure ( mip ) are a case in point. in relation to the sgp, the commission decided, in late february : standard eurobarometer 81 and 82, http : / / ec. europa. eu / public _ opinion / archives / eb _ arch _ en. htm. http : / / ec. europa. eu / public _ opinion / archives / eb / eb82 / eb82 _ en. htm. bis central bankers ’ speeches • not to step up the excessive deficit procedure ( edp ) for france and to extend the edp deadline for that country

the year may be observed – associated with the impact of changes in indirect taxes in a large euro area country – the information available continues to be in line with our baseline scenario. looking ahead, the medium - term outlook for economic activity continues to be favourable and the conditions remain for the euro area economy to grow solidly, at rates around potential. as for the external environment, global economic growth has become more balanced across regions, with some deceleration in the us and resilient growth elsewhere. overall, global growth should remain robust and therefore continue to provide support for euro area exports. domestic demand in the euro area is expected to maintain its momentum. investment should remain dynamic, benefiting from an extended period of very favourable financing conditions, balance sheet restructuring, accumulated and ongoing strong earnings, and gains in business efficiency. consumption should also strengthen further over time, in line with developments in real disposable income, as employment conditions continue to improve. in the governing council ’ s view, the risks surrounding this broadly favourable outlook for economic growth over the coming years lie mainly on the downside. the main risks relate to fears of a rise in protectionist pressures, the possibility of a renewed increase in oil prices, and concerns about possible disorderly developments due to global imbalances. with regard to price developments, according to eurostat ’ s flash estimate, annual hicp inflation was 1. 9 % in december 2006, unchanged from the previous month. on account of their volatility over recent months, and owing to base effects, energy prices will continue to play an important role in determining the profile of annual rates of hicp inflation in early 2007, together with the impact of higher indirect taxes. looking further ahead, annual inflation rates are projected to hover around 2 % over this year and next. in the governing council ’ s view, the outlook for price developments remains subject to upside risks, stemming in particular from a stronger than anticipated pass - through of previous oil price increases, increases in administered prices and indirect taxes beyond those announced thus far, and the possibility of renewed oil price increases. more fundamentally, given the favourable momentum of real gdp growth over the past few quarters and positive labour market developments, wage dynamics could be stronger than currently expected. it is therefore crucial that social partners continue to meet their responsibilities. in this context, wage agreements should take into account productivity developments, while recognising the still high level of unemployment and price competitiveness positions. as stated on previous occasions