- linear forward guidance, mentioning explicitly our tolerance for inflation overshooting, with reference to past inflation shortfalls. it is the combination of these three levers that should be used as the foundations of the “ equilibrium triangle ” of our monetary policy in this next phase of the covid crisis. ii. wider expectations are emerging let us return to the question of broadening public expectations of central banks. central banks are facing the risk of being considered not only the only game in town, but also the all - purpose game. that said, the reality of climate change, rising inequality – which i will touch briefly – and risks to financial stability – which you invited me to focus on – are all elements to be taken into account, and as such are parts of the ecb ’ s strategic review, more than the fed ’ s one. ii. a. climate change considering climate change is neither a mission creep, nor a mere militant conviction or a fad. it is an imperative : climate change does affect our ability to achieve price stability, our primary objective. on one side, extreme physical risk or more gradual transition risks will, and do already, affect supply. on the other side, the implementation of policies to mitigate climate change such as carbon taxes, emission targets or border adjustment tariffs will also affect input and consumer prices. for example the recent jump in headline inflation in the euro area illustrates these two points. part of the recent increase in energy prices was linked to higher electricity prices in spain due to unusually cold weather and the introduction of a carbon surcharge on prices of liquid fuels and gas in germany. in my view, there are three measures we central bankers can take. vi the first is to incorporate climate change into our macroeconomic models. second, we must gradually decarbonise our balance sheets in a pragmatic and targeted way by adapting the valuation of our assets. third, by disclosing the criteria by which we value assets, we can set a standard that others will follow. and market neutrality – which should take into account the mispricing of climate risks – should not put a brake on carbon neutrality. ii. b. inequalities page 7 sur 9 monetary policy inevitably has redistributive effects. it transfers revenue between lenders and borrowers, and affects asset prices and hence wealth. the evidence is preliminary but it suggests that the effects of more accommodative monetary policy has reduced income inequality by boosting revenues thanks to

issuance ( figure as at end 2001 ). source : banque de france - central balance sheet data. 1. 2 these changes, and on top of them the introduction of the euro, have influenced the integration pattern on the money market, on the bond markets, on the derivatives markets and on the equity markets. integration is certainly - and naturally - most developed on the money market. interest rate differentials across regional deposit markets have vanished and the “ law of one price ” applies to all transactions within a deep and highly liquid pan - european market. cross - border transactions - for unsecured interbank deposits and repos - now account for over 50 % of all money - market cash transactions. eonia and euribor have within a very short time become the undisputed benchmarks for short - term interest rates. this is reflected for instance in the impressive development of the euro interest - rate swap market, where all but a few transactions are indexed on these benchmarks. this deep integration of the money market has prompted new organisational patterns in the banking sector, with a concentration of euro cash management activities making it possible to take advantage of higher liquidity levels on the secondary market. for instance, according to a survey by the international securities market association in june 2002, the top ten banks in a panel of 77 accounted for 55 % of the total reported business on the european repo market. as a result the price discovery mechanism on the money market is smoothened because trade decisions are based on information systems that capture the relevant parameters at euro - area level. the integration of euro - area financial markets has also deepened on the bond market : – rapid internationalisation has taken place. between 1998 and 2001, the relative share of corporate bonds issued by corporate borrowers in the euro area as a percentage of gdp has more than doubled, while it increased by one third in the united states. 2 – competition between all issuers, corporate or sovereign, has intensified. for sovereign issuers, the disappearance of currency risk and the convergence process driven by the maastricht treaty have transformed government bonds into directly competing risk free assets. as a consequence, sovereign issuers have implemented strategies aimed both at differentiating their issuance profiles - in order to diversify the opportunities offered to investors - and at establishing benchmarks on a selection of maturities. this is reflected by the building up of an outstanding amount of at least 5 bios euros on the internationally important 10 years segment, in each euro