monetary policy after a perfect storm : festina lente speech by fabio panetta governor of the bank of italy 3rd bank of finland international monetary policy conference on ‘ monetary policy in low and high inflation environments ’ 1 helsinki, 26 june 2024 good afternoon ladies and gentlemen. i would like to thank the bank of finland for organizing this conference, and governor rehn for inviting me. it is a great pleasure to be here. finland has been crowned the happiest country in the world for the seventh consecutive year in the recently published world happiness report : 2 i am really happy to be part of that happiness. we are at a turning point in the european monetary policy cycle. in june, the governing council decided to cut the key ecb interest rates by 25 basis points after holding them at high levels for nine months. turning points inevitably attract attention, and the policy debate is now focused on the next steps : ecb watchers are eagerly looking for clues about the pace of the normalization path. i will briefly review what has happened to inflation over the past three years. i will then discuss some of the remaining concerns about the disinflation process, namely price developments in the services sector and the role of profits, input costs and labour costs. after that, i will examine the outlook for inflation and growth from a forward - looking perspective. i will outline my thoughts on the evolution of monetary policy before concluding. my main message is that the disinflation process requires two ingredients. we must keep adjusting policy rates to complete the process and smoothly reach our 2 per cent inflation target in a scenario where our expectations turn out to be broadly correct. but i would like to thank piergiorgio alessandri, marco bernardini, francesco corsello, alessandro notarpietro, marianna riggi, alessandro secchi, fabrizio venditti and eliana viviano for their contributions and comments. festina lente – “ hasten slowly ” – is the latin motto that epitomised a decisive but calm policy action for augustus, the first emperor of rome. the motto was also used in xvi - century florence by cosimo i de ’ medici, whose fleet aptly adopted as a symbol a turtle endowed with sails. helliwell j. f., r. layard, j. d. sachs, j. - e. de neve, l. b. aknin and s. wang ( eds. ), 2024

and the objectives set in the planning document for 2010 - 13 the deficit on a current legislation basis is expected to improve in the years 2010 - 13 in 2010 net borrowing on a current legislation basis is estimated to reach 5 per cent of gdp, slightly lower than in 2009. in 2011 the deficit is forecast to fall to 4. 4 per cent and to decline in the following two years, reaching 3. 7 per cent in 2013. the outlook for net borrowing takes account of the marked improvement expected in the primary surplus, equal to an annual average of 0. 7 percentage points in the four years from 2010 - 13, only partially offset by the progressive increase in interest payments as a share of gdp ( from 5. 1 per cent in 2010 to 6 per cent in 2013 ). the expected improvement in the primary surplus is ascribable to the absence of several costs related to the recession, the effects of the three - year adjustment plan launched in the summer of 2008 and the adoption of the current legislation criterion. this criterion excludes a series of disbursements which, even if foreseeable or necessary, have not yet been the object of formal legislation, such as future public employment contracts, the renewal of service contracts and the execution of public works. compared with the estimates in the combined report, net borrowing on a current legislation basis is revised upwards by 0. 4 percentage points in 2010, and by 0. 1 per cent in 2011. for 2010, the deterioration in the budget balance with respect to the estimates made in april is mainly due to the decline in revenues, particularly from social security contributions ( - 0. 2 percentage points of gdp or €2. 5 billion ) and direct taxes ( - 0. 1 points or €1. 7 billion ), resulting from the reduction of 0. 4 percentage points in the expected level of nominal gdp in 2010. the adjustment of interest expense ( - 0. 1 percentage points, equal to about €1 billion ) will offset part of the increase in capital expenditure ( 0. 2 percentage points or €2. 4 billion ). the planning scenario as far as the planning scenario is concerned, the efpd sets the target for net borrowing in 2010 at the value on a current legislation basis. as explained above, in order to achieve this result it will be necessary to cover the additional expenditure not envisaged in current legislation. in the years that follow, the targets for the deficit are below the values on a current legislation basis, by 0