The domestic drivers of inflation, namely wages, are not yet responding to the recovery and the narrowing output gap. Maintaining the current very substantial degree of monetary accommodation is still needed for underlying inflation pressures to build up and support headline inflation in the medium term. However, beyond the contribution of monetary policy, we also need measures to address the legacy of the crisis, lift potential growth and upgrade our economic ecosystem to increase 3/5  BIS central bankers' speeches  resilience to future shocks. This requires action at the Member State level. Ambitious, country-specific, structural reforms are needed to raise productivity, make economies more resilient, and address persistent fragilities, including those inherited from the crisis. And Member States need to pursue prudent fiscal policies to build up buffers for difficult times. National parliaments can play a central role in supporting such efforts. Our accommodative monetary policy provides a window of opportunity for pursuing such policies, for example by alleviating some of the short-run costs of structural reforms and allowing their benefits to materialise faster2. Action at the European level is also required. The crisis has revealed significant fragilities not only at Member State level, but also in the economic governance of Economic and Monetary Union. Some of the fragilities could be addressed already by applying the common rules we have all agreed on. Others, however, need to be addressed by upgrading our governance. How? Banking union needs to be completed by making parallel progress on risk reduction and risk sharing.
Thank you very much. BIS Review 38/2005  5