inflation rates are projected to remain elevated in 2006 and 2007, with risks to this outlook remaining clearly on the upside. given the ongoing marked dynamism of monetary growth in an environment of ample liquidity, a cross - check of the outcome of the economic analysis with that of the monetary analysis supports the assessment that upside risks to price stability prevail over the medium to longer term. it is essential that inflation expectations remain firmly anchored at levels consistent with price stability. if our assumptions and baseline scenario continue to be confirmed, it will remain warranted to further withdraw monetary accommodation. indeed, acting in a firm and timely manner remains essential to ensuring price stability over the medium term. the governing council will therefore exercise strong vigilance. as regards fiscal policy, euro area countries have recently notified their deficit and debt figures for 2005 to the european commission, and most have reported on developments in 2006 and budget plans for 2007. while, on average, this information points to further, albeit slow improvements in budget balances, this should not give rise to complacency. it is important that commitments under the revised stability and growth pact are met in all euro area countries. it is essential that budgetary consolidation is strengthened in the current economic upswing and that pro - cyclical policies are avoided. this would boost confidence among market participants and the public. to that effect any revenue windfalls from faster than expected growth should be pre - committed and used in full to speed up deficit reduction or to increase surpluses in good times. the prospects for attaining sound budgetary positions improve when consolidation plans are based on credible commitments to reduce expenditure ratios and better expenditure control mechanisms. finally, let me reiterate previous calls for high quality statistical data and sound statistical reporting, which are key for the prevention and correction of budgetary imbalances. as regards structural reforms, the governing council stressed the importance of creating a fully operational single market and flexible product and labour markets in order to enhance the adjustment capacity of the euro area economy and its resilience to external shocks. liberalising product markets to allow more competition would raise incentives for firms to invest and innovate, thereby raising productivity growth. removing labour market rigidities and distortions in wage and price formation are key conditions for promoting more homogeneous cost and price competitiveness trends among euro area countries and for generating sustained output growth and job creation. in particular, wage increases should be guided, in general, by the trend in labour productivity growth, while taking full account of

yves mersch : monetary policy and financial stability under one roof keynote speech by mr yves mersch, member of the executive board of the european central bank, at the 6th policy roundtable of the european central bank : “ the future of global policy coordination ”, frankfurt am main, 6 september 2013. * * * ladies and gentlemen, it is my pleasure to join you at the 6th policy roundtable of the ecb, which this year focuses on “ the future of global policy coordination ”. i will be speaking about the interaction of a particular set of policies, namely monetary, micro - prudential and macro - prudential policy. but rather than discussing the global dimension or replicating the discussion at jackson hole, i will restrict myself to the changes taking place under the roof of the ecb : the ecb taking over responsibility for elements of micro and macro - prudential supervision in the euro area. having the financial stability function under the roof of the central bank is of course nothing new. it is almost exactly hundred years since that the federal reserve act was signed into law. according to the regulation, federal reserve banks were created “ to furnish an elastic currency, to afford means of rediscounting commercial paper ” – and notably – “ to establish a more effective supervision of banking ”. this combining of monetary and supervisory functions reflects the fact that, for monetary policy authorities, financial stability is obviously key. a stable financial system with sound and solvent banks supports the smooth transmission of monetary policy and ultimately contributes to macroeconomic stability. this is particularly relevant for the euro area, where banks play and crucial role in providing financing to the real economy, most notably to smes. conversely, financial imbalances can be a genuine threat to price stability, in addition to being extremely costly from a macroeconomic perspective. but in my remarks today i would like to focus on a specific aspect of these interactions – that is, between monetary and macro - prudential policy. the key point i would like to make is that this interaction should be stronger than in the micro - prudential area, where the impending regulation imposes a separation between monetary policy and supervision. the reason for this is simple. while micro - prudential policy focuses on the stability of individual institutions, both monetary and macro - prudential policy take a more systemic perspective and aim ultimately at system - wide stability. let me explain the interaction between these two policies in more detail. in many ways – objectives