on central bank independence. independence grants central banks significant leeway in their actions. but it also requires central banks to be held accountable – a point that stefan ingves highlighted in a speech last year. [ 8 ] we need to justify the course of action that we consider as most appropriate in achieving our mandate. this is what i intend to do in my remarks today. i will argue that failing to arrest high inflation in a timely manner would jeopardise the green transition more fundamentally, and that a restrictive monetary policy stance today will benefit society over the medium to long run by restoring price stability. i will also stress that fiscal policy needs to remain in the driving seat and accelerate the green transition, and that the decline in the ecb ’ s balance sheet as part of our monetary policy tightening requires us to make additional efforts to align our actions with the objectives of the paris agreement. green transition can only thrive with price stability over the past year, we have moved forcefully to contain inflation by first stopping net asset purchases and then by raising our key policy rates by a cumulative two and a half percentage points. we have also announced that the eurosystem will no longer reinvest all of the principal payments from maturing securities in the asset purchase programme ( app ). we judge that interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive to ensure a timely return of inflation to our 2 % medium - term target. as interest rates rise, financing investments in green technologies will become more expensive, generating the risk that higher costs of capital may slow down the pace of decarbonisation. there are, however, three interrelated reasons why tighter financing conditions are the appropriate response to the challenges we are facing today. first, current high inflation is a tax on investment. in many countries, it raises the user cost of capital by raising the effective tax rate on business investment. [ 9 ] high inflation also increases uncertainty and distorts relative price signals relevant for investment decisions. and it may slow down productivity growth, as occurred in the united states in the 1970s. therefore, the green transition would not thrive in a high inflation environment. price stability is a precondition for the sustainable transformation of our economy. second, inflation will not subside by itself. what started as a relative price shock has gradually morphed into a broad - based increase in the general price level. preliminary inflation data for december point to a persistent build - up of underlying price

prudent, stability - focussed policy approach we have followed in recent decades. this has helped to deliver domestic economic stability, has contributed significantly to attracting foreign investment and has greatly facilitated growth. to ensure a sustainable recovery, it is very important that we maintain this approach and focus on key policy areas under our control. these include the public finances, the efficiency and effectiveness of public spending, particularly in relation to increasing the productive capacity of the economy, and overall competitiveness. the updated assessment while the emergence of a slowdown in the economy was not unanticipated, the loss of momentum has been greater than expected this year. this has arisen from a sharper - thanexpected adjustment in the housing sector alongside a deterioration in the international environment. our current forecasts are that both gnp and gdp growth will remain positive this year, albeit significantly less than 1 per cent. it will be the end of july before we finalise our forecasts, but a ballpark estimate, at this point in time, would be around 0. 5 per cent growth this year and about 2 per cent in 2009. in common with other developed economies, ireland is facing significant inflationary pressures arising from very elevated levels of energy and other commodity prices. we are all conscious of the experiences of the 1970s, when the response to the oil price increases of the time resulted in persistently high inflation. this undermined growth and employment in the economy and was especially damaging to those on fixed incomes. while the current situation is not identical, there are some similarities. it is important to accept that economic conditions here have weakened and we cannot compensate ourselves on an economy - wide basis for commodity price increases over which we have no control. as we know from past experience, if we attempt to do so, recovery inevitably becomes delayed. ireland ’ s competitiveness position has weakened in recent years because wage and broader cost inflation has been higher than in our main trading partners. it is vital for our growth prospects to ensure that our competitiveness position improves rather than deteriorates further. based on the potential for future growth in productivity and the labour force, the medium - term outlook for the economy remains favourable and growth will return to stronger levels, if the appropriate corrective action is taken. growth should pick up next year on the basis of a bottoming out in domestic housing output and some improvement in the external environment. residential housing market the housing market weakened significantly during 2007 with sharp declines in both output and prices.