have proven their value. and just as that is true at the level of individual regions, it is also true for europe as a whole. a dynamic and innovative europe today, europe is on the road to recovery, but the pandemic has led to shifts in the global environment and within our economies. globally, the economy is likely to become less predictable. new powers are emerging, while the trend toward protectionism is not abating. and disruptions from climate change are bound to become more common. at home, we still face the challenge of exiting the pandemic safely, while also preparing for the transformation of our economies to a greener and more digital growth model – a transformation that is not only desirable, but now inevitable and in which the innovative power of businesses will be a driving force. in rising to these challenges, we need to find ways of adapting to the post - pandemic world and supporting innovation potential. europe ’ s capacity to adapt is already being shaped by our collective response to the pandemic, in two ways. 2 / 4 bis central bankers'speeches first, thanks to the exceptional response of fiscal and monetary policy, we are seeing a very fast economic recovery rather than a slow and painful one. we are going through the steepest bounce - back in growth in the euro area since 1975. we expect gdp to be back at its prepandemic level before the end of this year. but we need to manage very carefully the reopening of the economy and the frictions it is creating. we are seeing rising energy prices and supply chain disruptions. as i mentioned recently4, we expect these frictions to be largely transitory. but it is hard to predict exactly how long disruptions will last. we should not overreact to supply shortages or rising energy prices, as our monetary policy cannot directly affect those phenomena. but we will pay close attention to wage developments and inflation expectations to ensure that inflation expectations are anchored at 2 %. the second way in which europe ’ s capacity to adapt has been strengthened is through the dedicated budgetary response at the eu level – the next generation eu ( ngeu ) fund. while temporary, the eu now has an ideal tool in place to support the transition towards the sectors and activities of the future. around 40 percent of these european funds will be spent on investing in the green transition and 20 percent on digitalisation. and these funds will only be disbursed in return for growth - enhancing reforms

and income inequality has soared, and countries have become more vulnerable to foreign spillovers, and to international crises more generally. many people feel that not all countries are abiding by the same rules and standards, and that the open market has weakened our democratic control. these concerns are real and need to be taken seriously. but too often the solutions offered to today ’ s global challenges are simplistic and short - sighted. for example, raising tariffs and withdrawing within national borders will deprive people of the economic benefits of trade and integration. according to ecb staff estimates, in an hypothetical scenario where the us raises tariffs on all imports of goods by 10 percentage points, and its trading partners impose the equivalent on us exports, us gdp could be up to 2½ % lower than in the baseline in the first year alone. 1 / 3 bis central bankers'speeches paradoxically, it will also offer people no refuge from the effects of global competition : isolating oneself from global value chains will raise input prices, make exports less competitive and make the country less attractive to investors, with adverse effects on employment and growth. there is therefore a need for sustainable and effective solutions to today ’ s challenges. but here lies a dilemma : although globalisation has increased the need for stronger and better domestic policies, it has also progressively reduced the range and effectiveness of policy tools available to individual countries to respond to the challenges it creates. for instance, globalisation makes it harder for policymakers to regulate and supervise financial markets and prevent recurrent crises. and by making the tax base footloose, it weakens governments ’ ability to support people ’ s incomes and retrain those displaced by global competition. more and not less international cooperation must therefore be part of the solution. this is also consistent with the lessons we have learnt from earlier episodes of globalisation – that it needs to be governed by strong institutions to prevent recourse to harmful protectionism or other excessive measures. already the ancient greeks were aware that alliances were key in protecting against arkhe. in europe, international cooperation starts with the european union ( eu ). despite its shortcomings, the eu is one of the strongest alliances of sovereign nations in human history. it provides its member states with the means to both defend their interests at a global level and to address the negative effects of globalisation. for example, in the eu we have the tools to address tax arbitrage by multinational corporations. and eu regulation, together with the european court of