emu. these developments support the assessment of a slower underlying pace of monetary expansion and low inflationary pressures over the medium term. the declining pace of monetary expansion since the last quarter of 2008 continues to be accompanied by volatility in the short - term developments of m3 and its components. this reflects to a large extent the impact that absolute and relative changes in interest rates have had on the allocation of funds between financial investments inside and outside m3 and between the different deposit categories within m3. in this respect, the shift in allocation from short - term time deposits to overnight deposits within m3 has led to a further substantial strengthening of annual m1 growth in june. the flow of bank loans to the non - financial private sector remained subdued in june, albeit with differences across borrowing sectors. the flow of loans to non - financial corporations turned substantially more negative owing to a sharp contraction in short - term lending. at the same time, the flow of loans to households was slightly more positive than last month. the ongoing uncertainty seems to have dampened borrowers ’ demand for financing. however, according to the latest euro area bank lending survey, lenders tightened their credit standards to a significantly lesser extent. given the challenges that lie ahead, banks should take appropriate measures to strengthen further their capital bases and, where necessary, take full advantage of government measures to support the financial sector, particularly as regards recapitalisation. to sum up, the information and analyses that have become available since our meeting on 2 july 2009 confirm the view of the governing council that the current key ecb interest rates remain appropriate. as anticipated, annual hicp inflation in july fell further into negative territory, reflecting mainly temporary effects. after a return to positive inflation rates during the second half of the year, we continue to expect price developments to remain subdued over the policy - relevant horizon. recent data releases and survey information still suggest that economic activity over the remainder of this year is likely to remain weak, although the pace of contraction is clearly slowing down. this assessment takes into account adverse lagged effects, such as a further deterioration in labour markets, which are likely to materialise over the coming months. looking ahead into next year, after a phase of stabilisation, a gradual recovery with positive quarterly growth rates is expected. available indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the governing council ’ s aim of keeping inflation rates below, but close to, 2 % over the medium term. a cross - check of

appropriate wage - setting and sufficient flexibility to get the unemployed back into work are crucial to prevent the crisis from having a lasting negative impact on labour markets. it is therefore essential to create appropriate incentives to work. at the same time, policies to speed up restructuring and investment, in line with the principle of an open market economy and free competition, will create the business opportunities and productivity gains needed to spark a sustained recovery. we are now at your disposal for questions.