policies. we have learned over the years – and sometimes the hard way – that to maximise our citizens'welfare we need free trade policies and a sustainable fiscal stance. 6. decoupling between the ecb and fed monetary policy decisions the euro area monetary policy stance needs to be differentiated from that in the u. s. the two economies are at divergent positions, with inflation falling faster in the euro area. two reasons why inflation has fallen faster in the euro area than in the u. s. are : ( 1 ) the u. s. inflation cycle was mainly demand driven, whereas the euro area has been hit more severely by supply side shocks ( the energy prices surge and russia's invasion of ukraine ) and ( 2 ) the u. s. fiscal stance since 2020 has been highly expansionary. in particular, the u. s. fiscal deficit stood at 8. 8 % of gdp in 2023, up from 4 % in the previous year, after having reached about 14 % in 2020 and 11 % in 2021. by contrast, in the euro area the fiscal deficit stabilised at around 3. 5 % of gdp in the previous two years, from 7 % in 2020. on the other hand, economic growth in the euro area is more sluggish and fragile than in the u. s. due to the differing macroeconomic situation, the monetary policy actions of the fed and the ecb might turn out to be different. the way forward for the eurosystem should only have to be based on what serves our price stability mandate and our domestic economy. we need to focus firmly on domestic conditions, taking into account any impact from the expected path of u. s. interest rates. domestic conditions provide the guideposts on our decisions. furthermore, as philip lane, chief economist of the ecb, said in a recent interview with the financial times, 5 delays in the expected timing of fed 5 / 7 bis - central bankers'speeches rate cuts have pushed up u. s. bond yields and this has also lifted long - term yields of european bonds, creating some extra tightening from the u. s. conditions ". philip indicated that the ecb might have to offset this with extra cuts to its policy rates. of course, a divergence of interest rate paths of the euro area and the largest economy in the world could impact on the exchange rate and on trade. these effects are difficult to predict. our gradual and data - driven approach will allow us to

other major global currencies, while in the fixed income, again the us will continue to offer one of the highest interest rates in the developed world. for example, us 2 - year treasury yields are the most attractive among the g10 economies, a situation highly unusual and unprecedented since the turn of this century. the main driver behind this is us economic policy, which – if you allow me to use a catch phrase – may be described as follows : “ fed up, with tariffs ”, plus of course the drop in tax rates. in the eurozone financial markets, the normalisation of ecb ’ s monetary policy remains the main driver of the still fragmented euro area government bond market. the core euro area countries form a rather homogeneous group ; the europeriphery, by contrast, is less homogeneous. the diversity is due to recent developments in italy, headed by a fragile, populist coalition government. indeed, as a result of the latest political turmoil over immigration and the budget debate, the italian 10 - year yield has reached 3 % and remains in this area since august. other peripheral countries such as spain and portugal remain resilient and contagion remains limited. italy is not greece. it is too big to ignore, as the eurozone ’ s third largest economy and the world ’ s third largest, after the us and japan, sovereign debt market with total public debt of more than €2. 3 trillion, of which more than 36 % is held by foreigners, and the political uncertainty could generate severe spillover effects to the global sovereign markets. there is a nightmare scenario which i do not share, of which markets are of course aware and already factor it in. this political tit - for - tat between the populist government of italy and brussels may escalate into a genuine 3 / 5 bis central bankers'speeches diplomatic war ( for some people, what is at stake here is the next italian prime minister ) and this would lead to a downgrade of italy ’ s credit rating ( currently at bbb ), and a potential loss of its investment grade, which would force the ecb not to accept italian bonds as collateral for the provision of liquidity and to stop buying italian government bonds under its pspp. taking into account that qe ends next december, borrowing costs in some euro area countries could surge to more than 5 %, near 2013 levels. the worry then would be that this could perhaps trigger the next eurozone crisis : a