For example, providing government guarantees for all bank liabilities in one jurisdiction prompted outflows of deposits from other jurisdictions, requiring similar guarantees to be offered elsewhere. This may have resulted in an overall level of intervention that was unnecessarily intrusive and undesirable in terms of the incentives created in the financial sector. In short, the existence of considerable externalities and scope for significant spillovers within a financially integrated region like the euro area may have led to individually reasonable actions resulting in a collectively inferior outcome. Recognising these concerns, the EU institutions have stepped in to ensure that an area-wide perspective, internalising these externalities, is adopted. As we have seen, coordinating both public and private behaviour to achieve a favourable outcome in a multiple equilibrium setting requires both clear and credible programmes at national level, and support and coordination at EU level. After a somewhat hesitant start, the European Union is now moving towards a stronger institutional framework to support this approach. Looking beyond the horizon of existing programmes, the crucial longer-term macroeconomic and financial discipline requires further institutional change and integration, notably an enhanced Stability and Growth Pact, and the introduction of a new and more effective system of macroeconomic surveillance across EU Member States. The creation of the European Systemic Risk Board to conduct macro-prudential surveillance and the three new European Supervisory Agencies for the financial sector also aims to improve the quality and coordination of financial regulation and supervision.

The second factor is the strong decrease of the price of oil after 2014 that lowered the inflation rate both directly, through the energy component of consumption prices, and indirectly. It is estimated that these two factors have led to a 1 pp decrease in the annual inflation rate. Unconventional monetary policy was successful in mitigating these disinflationary effects. Absent this  Page 6 sur 9 policy, in-house and ECB computations show that annual inflation would have been around 0.3pp lower between 2014 and 2019 (on average per year). After the onset of the pandemic, our monetary policy measures have also stabilized and then reversed the fall in inflation expectations. According to estimates from the ECB, all the measures taken since the beginning of the pandemic should contribute cumulatively around 1pp to the annual inflation rate over 2020-2022iv. Inflation expectations have picked up and long-term market based inflation expectations are currently above their pre-Covid levels (marketbased inflation expectations 5y/5y are close to 1.6% today). B. Beyond Covid, the ECB has a powerful “quartet of tools” to keep its monetary policy as accommodative for as long as necessary. Euro area HICP inflation increased to 1.6% in April 2021, from -0.3% in December 2020, while core inflation remained subdued at 0.7% in April and 0.2% at the end of last year. However, this rebound is primarily due to transitory factors and base effects, which are expected to fade out of annual inflation rates early next year.