in wages during the past year, the passthrough to prices has been limited, because producers were willing to tolerate lower profit margins. the ecb, having earned its credibility credentials, has succeeded in maintaining the wage - earners'confidence and keeping the medium - term inflation expectations anchored. question 3 : the governments of europe are now deploying an array of instruments in an attempt to relieve the pressure on their citizens. could you please specify what kind of fiscal policy would be compatible with the anchoring of inflation expectations and not have the opposite effect to that of monetary policy? in the present environment of high inflation rates, fiscal and monetary authorities are faced with significant challenges. taming inflation at the current juncture requires monetary and fiscal policies that are compatible and provide a clear path for both the desired inflation rate and debt sustainability. energy policy should also be partly aligned to the inflation objective at least for the period that energy markets are malfunctioning and natural gas prices are being weaponised. as bianchi and melosi3 show in their very interesting paper referring to the pandemic crisis period and presented at the jackson hole economic symposium this summer, monetary and fiscal policy should work hand in hand, since price stability ultimately requires fiscal backing and debt - stabilisation policies. my point is that fiscal policies should try to limit the risk of adding to inflationary pressures, while enhancing the efficiency of public spending. 6 / 7 bis - central bankers'speeches as an example, fiscal support measures adopted to mitigate the impact of higher energy prices, should be temporary and targeted at the most vulnerable consumers and producers to avoid fuelling inflation. the recent experience in the uk is a very good case study for the necessity of fiscal prudence. turning to the euro area, let me remind you of a fiscal instrument, namely the ngeu, which could provide significant support for national economies in alleviating the energy price shock. in particular the rrf funds, which have been the centrepiece of the ngeu, played a major role in stabilising our economies during the past few years. our experience with the ngeu points to the crucial importance of fiscal policy as a shock absorber in our monetary union, which remains an incomplete economic union until we go forward with the fiscal integration and a complete banking union. 1 see ecb president lagarde's hearing of the committee on economic and monetary affairs of 26th september 26, ( debats du parlement europeen ( europa

challenges with which our monetary policy was confronted. the pace of normalisation had to be set so that our credibility was not jeopardised, thus walking a fine line – it could be neither too fast, nor too slow. the normalisation had to be undertaken with an eye on inflation expectations. throughout the past year, inflation expectations remained anchored, which, in my view, provided evidence that our policy was an appropriate response to the combination of shocks we faced. longer - term inflation expectations, as measured, for instance, by the 5 - year forward inflation - linked swap rate 5 years ahead, have stood at an average of 2. 1 per cent this year and of 2. 2 per cent over the past month. the path of normalisation had to make sure that second - round effects were contained. so far, wage increases had been moderate providing evidence that the price effects of the shocks had not become embedded in expectations. financial stability was safeguarded. financial markets have adjusted smoothly to the gradual pace of normalisation. to ensure that our monetary policy is smoothly transmitted across all euro area countries, this past summer the governing council established the transmission protection instrument. it was developed to counter any unwarranted market dynamics that could pose a threat to price stability. risks of fragmentation have not materialised. the gradual policy normalisation aimed to avoid a potentially sharp contraction in output and an unwarranted rise in unemployment. economic growth and employment have remained resilient despite the unprecedented shocks. in view of these remarks, i firmly believe that the path towards normalisation that we embarked on last december has been properly paced and based on incoming data, following a gradual and meeting - by - meeting approach. 4 / 7 bis - central bankers'speeches question 2. how concerned is the ecb about other external or internal factors, such as the euro exchange rate or wage - price developments? let me start with the euro exchange rate, which is something that we obviously monitor carefully, because its developments can have implications for domestic inflation. what is encouraging is that euro area inflation is to some extent shielded from the recent depreciation of the euro, reflecting the sizeable share of trade that takes place among our countries, and is thus invoiced in euro. in fact, 60 per cent of the volume of euro area trade1 is denominated in our single currency. the appreciation of the dollar, however, clearly has an impact on the prices of energy, particularly oil and gas. at