inflation rates that are significantly down on their peaks in october, we still have a long way to go to reach our inflation target. moreover, inflation uncertainty remains high. the ecb governing council therefore will continue in its 1 / 3 bis - central bankers'speeches efforts to combat high inflation. in fact : it has already acted decisively. since july 2022, we have increased the key interest rates by a total of 400 basis points in eight consecutive steps. we have stopped net purchases under our app und pepp purchase programmes. and last but not least, we have decided to end reinvestments under the app in july. however, our job has not yet been completed. in my view, three levers must be used. first, our policy rate has to be sufficiently high. as i see it, we still have more ground to cover. we may need to keep raising rates after the summer break. second, once we have reached the peak, we will stay there until we are sure of a safe and timely return of inflation to our 2 % target. and third, we have to support this interest rate policy by reducing our balance sheet. i very much welcome the decisions to increase the pace of this reduction. 4 relationship between monetary and fiscal policy fiscal policy can significantly " support " the fight against high inflation. expansionary fiscal policy would fuel inflationary pressures. i go along with the european commission's recommendation that eu member states should phase out the fiscal measures they took in response to the energy price shock. and what is also important in my view is that governments tackle remaining high structural deficits in a timely manner. public debt that has gone off the rails must be put back on a sustainable path. this way, fiscal policy supports monetary policy beyond the business cycle, in a structural manner. sound public finances are a prerequisite for monetary policy to be able to do its job efficiently. at the european level, a set of rules was meant to take care of this. that didn't work out perfectly well. when considering an update to the fiscal rules, we should do what we can to ensure that the rules become more effective than they used to be. the commission's legislative proposals from april do not fulfil these requirements. 5 three opportunities to strengthen growth potential with sound public finances i have already mentioned one important element for prosperity in the european union. i'd like to add three more structural opportunities for growth. for one, the digital sector is an

donald l kohn : financial markets and central banking speech by mr donald l kohn, vice chairman of the board of governors of the us federal reserve system, at the c peter mccolough series on international economics, council on foreign relations, new york, 28 november 2007. * * * i thought it might be useful to start this session with a few thoughts on some of the issues facing central banks as they deal with the consequences of the recent turbulence in financial markets. 1 this list is not comprehensive : i have concentrated on the issues associated with our roles as monetary policy makers and providers of liquidity – and even in that category i cannot address all the issues in the short time allotted. like every other period of financial turbulence, this one has been marked by considerable uncertainty. central banks, other authorities, and private - market participants must make decisions based on analyses made with incomplete information and understanding. the repricing of assets is centered on relatively new instruments with limited histories – especially under conditions of stress ; many of them are complex and have reacted to changing circumstances in unanticipated ways ; and those newer instruments have been held by a variety of investors and intermediaries and traded in increasingly integrated global markets, thereby complicating the difficulty of seeing where risk is coming to rest. operating under this degree of uncertainty has many consequences. one is that the rules and criteria for taking particular actions seem a lot clearer in textbooks or to many commentators than they are to decisionmakers. for example, the extent to which institutions are facing liquidity constraints as opposed to capital constraints, or the moral hazard consequences of policy actions, are inherently ambiguous in real time. another consequence of operating under a high degree of uncertainty is that, more than usually, the potential actions the federal reserve discusses have the character of " buying insurance " or managing risk – that is, weighing the possibility of especially adverse outcomes. the nature of financial market upsets is that they substantially increase the risk of such especially adverse outcomes while possibly having limited effects on the most likely path for the economy. moral hazard central banks seek to promote financial stability while avoiding the creation of moral hazard. people should bear the consequences of their decisions about lending, borrowing, and managing their portfolios, both when those decisions turn out to be wise and when they turn out to be ill advised. at the same time, however, in my view, when the decisions do go poorly, innocent bystanders should not have to bear the cost. in