the proper functioning of the multilateral surveillance and control procedures of the current rules. such rules should be accepted by all the member states as the sole means of maintaining the effectiveness and credibility of the regulatory framework. in any event, the upturn in activity that the european economy appears to have embarked upon should prove conducive to pushing through national governments ’ reform plans and to strengthening the fiscal commitments currently in place. that said, there are some uncertainties in the current situation, namely geopolitical instability, the rise in oil prices and the global macroeconomic imbalances which, naturally, affect the outlook for the euro area economy. despite such uncertainties, the european economy should post notably higher growth this year than last, on the basis of expanding export markets and a gradual recovery in internal demand. at the same time, the momentous step taken in european construction with eu enlargement should be an additional incentive for seeing through the economic and institutional reforms needed to revitalise european growth. the spanish economy addressing the behaviour of the spanish economy in 2003 and in 2004 to data, i should begin by pointing out that our economy has, once again, managed to improve on the trajectory followed by the euro area. internal demand in particular has continued to respond to the expansionary impulses provided by monetary conditions that have remained very generous for spain ’ s domestic situation. the more disciplined application of other economic policies and a more flexible reaction on the supply side of the economy, in line with the structural reforms undertaken, have helped maintain a setting favourable to the progressive strengthening of activity. this confrms that the slowdown which touched bottom in may 2002 has been put behind. the growth differential with the euro area widened to almost two percentage points and held at around this level in 2004 q1. as a result, real convergence continued apace last year and spanish per capita gdp vis - a - vis the former eu - 15 stood at 87. 4 %, one point up on 2002. relative to the enlarged 25 - member eu, this percentage rises to 94. 4 %, due to the lower level of development of the new members. the buoyancy of the economy in 2003 and in early 2004 continued to be underpinned by the same foundations as in previous years, following a similar pattern. firstly, as earlier mentioned, highly favourable financing conditions have remained in place. these have been characterised by low interest rates ( which were cut further to historical lows ), high rates of credit expansion

purdah " period and will therefore duly remain with what i said at my last press conference. since my appearance before the european parliament on 21 january the economic situation and outlook have weakened further. inflationary pressures have diminished further, as confirmed by monetary and credit trends. in february the inflation rate remained low, at 1. 2 %. as you know, the decline in inflation since last summer primarily reflects the sharp falls in global commodity prices over this period. looking ahead, we expect inflation rates well below 2 % for this year and 2010. the risks to this outlook are broadly balanced, but surrounded by a high degree of uncertainty. following the substantial weakening of the world economy in the wake of the financial turmoil, real gdp growth in the euro area contracted markedly, by 1. 5 % on a quarterly basis, in the fourth quarter of 2008. the latest information suggests that economic activity has deteriorated further in the first quarter of 2009. looking ahead, we expect demand to remain very weak throughout 2009, both at the global level and in the euro area, before gradually recovering in the course of 2010. as is the case for inflation, this outlook remains surrounded by uncertainty. risks to this outlook seem to be more balanced. on the one hand, the positive impact of governments ’ recent rescue packages for the banking sector and the macroeconomic stimulus that is now under way may be stronger than anticipated. on the other hand, the impact that the ongoing financial turmoil has on the real economy could be stronger than expected. in addition, protectionist tendencies are giving rise to considerable concern. it was against this background that the governing council reduced the key ecb interest rates by another 50 basis points in early march. this took the overall reduction in our key rates to 275 basis points since october of last year. overall, we expect price stability to be maintained over the medium term. we will continue to deliver on our mandate and ensure the firm anchoring of inflation expectations over longer - term horizons. such anchoring supports sustainable growth and employment and also contributes to financial stability. let me also recall that the ecb has adjusted its liquidity management framework in order to counter the dysfunctional nature of the euro area money market. the most important measures decided upon in october 2008 were the use of fixed rate tender procedures with full allotment for both main and longer - term refinancing operations and the extension until end - 2009 of the list of assets eligible for use as collateral in eurosystem credit operations. we have