factors into account, such as the flattening of the yield curve, the financial market turmoil and specific transactions associated with the restructuring of certain banking groups. therefore, monetary and credit developments continue to require very careful monitoring, not least with a view to better understand the response of the private sector to increased financial market volatility. thus far, there has been little evidence that the financial market turbulence since early august 2007 had strongly influenced the dynamics of broad money and credit aggregates. indeed, the expansion of loans to households and non - financial corporations has remained robust, which may suggest that the supply of credit has not been impaired. to develop a more complete view of the impact of financial market developments on bank balance sheets, financing conditions and money and credit growth, further analysis will be required. the ecb ’ s governing council stands ready to counter upside risks to price stability, in line with its mandate. against this background, on 6 december 2007 we decided to leave the key ecb interest rates unchanged. the governing council will monitor very closely all developments. in particular, as i said on behalf of the governing council after our last meeting, for the recent increase in inflation to remain temporary, it is essential that the price and wage - setting behaviour remains unaffected by current inflation rates, so as to avoid the emergence of second - round effects. by acting in a firm and timely manner on the basis of its assessment, the governing council will ensure that such second - round effects and risks to price stability over the medium term do not materialise. to firmly anchor inflation expectations in line with price stability is even more important at times of financial market volatility and increased uncertainty. in this respect, the governing council has decided to continue to pay great attention to financial market developments. liquidity operations ladies and gentlemen, once the governing council has defined the monetary policy stance necessary for maintaining price stability in the medium term, in line with its mandate as defined by the treaty, the ecb has the responsibility to also ensure the smooth functioning of the segment of the money market that we influence. i should like to underline – once again – that these two responsibilities are clearly distinct and should not be mixed. since early august last year, tensions have been observed in money markets and during the last months banks expressed particular concerns about their liquidity needs over the yearend. the year - end period is traditionally a period of scarce liquidity, as market activity is subdued and banks are preparing their year - end balance sheets.

be taken at the international level. the impact of globalisation on price developments ladies and gentlemen, let me turn to the impact of globalisation on price developments. as a preface, let me say that while globalisation could influence aggregate prices in several ways, such impacts are limited to the short term given that inflation is ultimately a monetary phenomenon. the direct, and perhaps most visible effect of globalisation for consumers, is its implication for relative prices. on the one hand, globalisation has dampened increases in euro area import prices of manufactured goods given a rising share of imports from lower - cost countries such as china and the new eu member states. on the other hand, rising demand associated with globalisation has contributed to the significant increases observed in world energy and other commodity prices. although such relative price shocks do not necessarily affect inflation, prolonged short term impacts of sizeable relative price shocks could result, for instance, from adjustment frictions in the economy. empirical studies for the euro area have tended to suggest a small dampening influence of trade openness on prices in the early part of this decade, though globalisation ’ s contribution to recent movements in commodity prices – particularly energy and food – has had a significant offsetting upward impact on prices. this warrants close monitoring, in particular given the risks of second round effects. in case of food related commodities, it also underlines the importance of efficient supply side adjustment in agricultural commodity markets. a separate but nonetheless potentially equally important channel through which globalisation can affect inflation involves the indirect price impact of increased competitive pressures, with two main aspects. first, in principle it could contribute to compressing firms ’ price - cost markups as competitive forces resulting from trade openness would depress profit mark - ups of domestic firms competing with international firms. in practice, however, such effects have been hard to identify and, indeed, aggregate profitability has remained high. second, in principle competition associated with globalisation could alter the responsiveness of prices to costs or measures of economic slack, or imply a greater role for foreign conditions in the inflation process. in practice, it would appear that such responsiveness has not increased over the last decade, while empirical evidence supporting a growing role of global measures of economic slack in the inflation process of the euro area and other advanced economies has been limited. on balance, not only is the net effect of globalisation on euro area prices difficult to accurately gauge, but it may also be changing through time. for this reason, the ec