Jürgen Stark: Economic and financial situation – where do we stand? (Speaking notes) Speech by Mr Jürgen Stark, Member of the Executive Board of the European Central Bank, at the 2. Zeit Konferenz “Neue Architektur der Finanzwirtschaft“, Frankfurt am Main, 3 September 2009. *  *  *  •  We have witnessed two years of severe financial distress, with adverse effects on the euro area and elsewhere. We have experienced the trough of global and euro area negative growth around the turn of 2008/2009. Recent data are increasingly encouraging. We have just been observing more and more signs of economic stabilisation. Looking ahead, economic activity is likely to recover gradually in the course of next year. •  But uncertainty remains high and incoming data on economic activity are likely to remain volatile. Concerns regarding the outlook for a recovery in 2010 mainly relate to renewed increases in international commodity prices, intensification of protectionist pressures and a disorderly correction of global imbalances. •  Regarding price developments, annual HICP inflation in the euro area has temporarily dropped into negative territory, but is expected to turn positive again in the remainder of this year and evolve in line with price stability. Deflation risk, if there were any, have disappeared. Inflation expectations remain in line with price stability. Monetary and credit developments confirm the assessment of low inflationary pressure over the medium term.
The decision on whether monetary policy measures in the form of foreign currency purchases are necessary is based on an evaluation of the threat of deflation and the monetary policy expansion needed in order to counter this. Monetary policy inaction during the dramatic phases of 2009 and 2010 was not an option. The primacy of monetary policy applies, and the top priority of monetary policy is to ensure price stability. The SNB’s legal mandate is explicit in this regard. This is the contribution which the SNB can and must make to economic prosperity in this country. BIS central bankers’ speeches  1