at least compared with other risks, such as inflation and exchange rate risks. the reason is twofold. first, inflation risk may take time to materialise and to be factored in, even when the central bank monetises the debt. second, financial markets may find it easier to manage and hedge against inflation and currency risk than against sovereign risk. the separation between monetary and fiscal policies may create non - linearities and even multiple equilibria in the pricing of credit risk, which in turn may fuel self - fulfilling expectations and precipitate crises. given the role that government bonds play in advanced economies ’ financial markets, such instability may impair the transmission of monetary policy. this may justify targeted action by a central bank to push markets towards a more stable equilibrium. in general, the lack of fiscal dominance and the exposure to sovereign risk should promote overall better fiscal policies. this is certainly the case for most of the euro area countries. fiscal consolidation started already in 2010, when the euro area general government deficitto - gdp ratio and the debt - to - gdp ratio reached around 6 % and 85 % respectively. this compares with a deficit of 11. 2 % and a debt of 92 % in the us, a deficit of 9. 5 % and a debt of 220. 3 % in japan, a deficit of 10. 4 % in the uk and a debt of 80 %. further improvements in the fiscal situation of all the euro area members is expected for the current year, with the bis central bankers ’ speeches euro area average coming down to slightly above 4 %. the euro area debt - to - gdp ratio is expected to stabilise in 2013 and come down thereafter. in the euro area three countries are facing severe problems regarding market access. overall these three countries account for about 6 % of the euro area gdp. i will not elaborate on these three cases, and the fact that they have emerged in the midst of the worst economic and financial crisis since world war ii. the solution to these three cases entails a specific role to be played by the fiscal authority of the respective countries, the fiscal authorities of the other countries supporting the adjustment programme in those countries and the ecb. some commentators have said that in a crisis stronger coordination between monetary and fiscal policy is desirable, even if it comes at the expense of reducing the independence of monetary policy. the opposite is actually true. especially in a crisis the responsibilities for monetary policy and for fiscal policy have to remain quite separate.

stricter quarantine restrictions in ukraine and globally remains the main risk to macrofinancial stability 1 / 2 bis central bankers'speeches indeed, vaccination campaigns are already proving to be effective in some countries. however, they are being rolled out rather slowly, as a result of which the risk of tighter quarantine measures this year remains significant. in particular, some regions of ukraine have seen a significant rise in morbidity in recent months. therefore, the pandemic still poses the threat of a decline in business activity and a cooling of consumer and investment demand. this, in turn, could rein in inflation. conversely, the rapid recovery of business activity, rebounding commodity markets, the lagged effect of large - scale expansionary measures, and potential pent - up demand are generating risks of higher inflation globally. under such conditions, among other things, inflationary pressures from ukraine ’ s main trading partners could increase further. there are other significant risks. they include : volatile global capital markets a more dramatic deterioration in the terms of trade an escalation of the military conflict in eastern ukraine or on the country ’ s borders. given the above balance of risks and the significant rise in underlying inflationary pressures seen in recent months, the nbu board decided to raise the key policy rate, to 6, 5 %. what will the nbu ’ s monetary policy stance be in future? looking ahead, the nbu stands ready to raise its key policy rate more resolutely in order to curb underlying inflationary pressures, stabilize expectations, and bring inflation back to its target. the nbu remains committed to its duty to meet the inflation target. therefore, nbu monetary policy will continue to be aimed at preventing a spike in inflation. thank you for your attention! 2 / 2 bis central bankers'speeches