economy. 2. mutations of the traditional monetary trilemma : policy responses in open economies or “ ray in european clothing ” according to the newly emerging set of principles, this dual central banks ’ mandate is supposed to function via two independent sets of policies. as real and financial cycles diverge, central banks need a set of two independent policies. 11 monetary policy should target the real cycle in order to stabilize inflation, while macroprudential policy should be used to tame the financial cycle. the task of maintaining price stability and financial stability should be even easier if central banks adopt a flexible approach to inflation targeting, the one that allows for temporary deviations and the gradual convergence towards the inflation target, as pointed out by stanley fischer ( 2010 ) 12. such a simple story of two independent policies – monetary and macroprudential – aiming at two separate goals, has some weaknesses. such a framework is underlined by the traditional monetary trilemma theorem launched by the mundell - fleming model. the traditional monetary trilemma limits policy choice to only two among the three dimensions : independent monetary policy, free capital mobility and exchange rate stability. however, the usefulness of exchange rate flexibility as the shock absorber has been increasingly questioned over time. a more sceptical view on the usefulness of flexible exchange rates has changed the trilemma into an “ irreconcilable duo : independent monetary policies are possible gros, daniel. ( 2011 ) what is holding italy back?, ceps commentary, 8 november 2011. hassan f., g. i. p. ottaviano ( 2013 ), productivity in italy : the great unlearning, voxeu. org, 30 november. constancio, 2015. ibid. stanley fischer ( 2010 ) : myths of monetary policy, israel economic review, 2010. bis central bankers ’ speeches if and only if the capital account is managed ” ( ray, 2013 ) 13. those who believe that exchange rate flexibility should not be abandoned, even in the cases of small open economies, have largely deflated their expectations of flexible exchange rates to act as shock absorbers 14. therefore, the notion that “ the global financial cycle constrains national monetary policies regardless of the exchange rate regime ” has now become part of common knowledge. with supranational “ one - size - fits - all ” monetary policy, the role of national fiscal policy in stabilizing real activity and inflation has, accordingly,

huge external shock. however, the extent of policy action is limited by the available fiscal space, so this crisis has again highlighted the importance of building fiscal buffers – prevention. on our first two panels today, we'll have a chance to talk about building resilience in areas most hit by the recent shocks – the energy sector and supply chains – while at the same time being mindful of the importance of fiscal prudence. more broadly, in addition to prevention and mitigation policies, for building resilience it is also essential to rebuild trust in governance structures, institutions and data. this is because effective crisis responses depend on public acceptance and adherence to necessary measures and policies. the higher is the trust in the institutions, the easier it is done. and institutions themselves build credibility in the times of crisis. the second lesson is adaptability. although resilience and adaptability are linked, they are different in important ways. resilience entails enduring a challenge, while adaptability refers to the ability to thrive beyond it. in the eu, progress on this front is evident. we have been moving from reactive policies to strategic decision - making. the recent crises brought about some tectonic institutional enhancements : the early months of the pandemic led to the establishment of the eu recovery fund, which constituted a breakthrough for the financial solidarity of member states. the next generation eu package provided an anchor for investment in the 2 / 4 bis - central bankers'speeches green and digital transitions in a way that will support resilience and adaptability in the long term. finally, the repowereu plan aims to end dependence on russian fossil fuels, but also entails measures for energy savings, new energy storage rules, and a strategy to buy energy together. that being said, adaptability is difficult to nurture, as we often tend to stick to existing patterns of behaviour and decision - making, especially when there is no imminent crisis that would push changes and force us to think outside the box. the last lesson that i'd like to mention ( though you can derive more ) is cooperation. while some initiatives during the pandemic demonstrated willingness for increased global cooperation and solidarity in crisis times ( for instance the imf's emergency financing, debt relief initiatives, and sdr allocation ), the more recent trade and investment fragmentation trends may put in jeopardy global policy coordination efforts. and while business strategies such as near - shoring and friend - shoring may be justified by