And an ambitious reform of overall economic governance has been launched, strengthening the mechanisms to align national economic policies with the aims of the Union as a whole and designing a plan to move towards a deeper and sounder union in four stages: banking union, economic union, fiscal union and, finally, political union. Highly significant progress has already been made in the first of these four areas. In November next year the new Single Supervisory Mechanism will begin to operate within the ECB, and it should be complemented by a single bank resolution system and, later, a Single Resolution Authority and a Common Resolution Fund although, as is known, these latter steps pose complex legal and political problems that might delay their effective start-up. National governments, too, have reacted within their remit. On one hand, to contain the worsening of public finances, one of the main imbalances underlying the European strand of the crisis. And on the other, to make markets more flexible and to promote investment, growth and employment. Since late last year the quantitative and, above all, the qualitative indicators have improved markedly. In the second quarter this year, there was a year-on-year increase of 0.3% in euro area GDP. This positive figure has put an end to six consecutive quarters of contraction. The rise in output has been across the board, spanning both domestic and external demand.
In principle, by relating new information to our most recent forecast, market players are in a good position to form a picture of policy’s direction and we can see that when we compare their forecasts of the repo rate with our own. However, one should be aware that there is a risk that an unduly simple rule or decision-making model will oblige the central bank itself to disregard other relevant information. Monetary policy is not mechanics. For this reason we have elaborated our view in various respects. We have underscored that there are also grounds for considering the periods before as well as beyond the 1–2 year horizon on which we focus. Strictly speaking, it is a matter of optimising over all future time, including both inflation and output. For a long time now we have also declared that there are transitory factors we should disregard; more recently we noted that there can be grounds for weighing a prompt return to inflation’s targeted rate against the risk of avoidable fluctuations in output. Finally, we have said that departures from our simple rule may be warranted by problems with financial stability. What is important, however, is our ambition to provide a clear explanation and motivation for such departures. Given our ambitions in this field we would risk severe criticism if we were to do so without good arguments. I should also say that if our application of the rule would continuously be modified and altered, much of its communicative and educational value would be lost.