france, inflation levelled at 6. 6 %, the lowest level in the euro area, thanks in particular to the tariff shield, but still stands at three times the inflation target of the eurosystem. the flash estimates for september didn't bring a fundamental change to this landscape as inflation reached 10 % in the euro area, and the mild levelling off in france was confirmed with a figure of 6. 2 %. in our view, the current surge in inflation has its roots not in excess liquidity, but in supply bottlenecks stemming from the faster - than - expected rebound in activity in the aftermath of the pandemic, and the sharp rise in energy and food prices, which was greatly exacerbated by the war in ukraine. the inflation we are currently seeing is largely imported, and much of it - about twothirds for the euro area - is driven by energy and food prices. the recent surge in international gas prices has led the ecb to predict a peak in inflation by the end of 2022. 2 / 4 bis - central bankers'speeches however, inflation in the euro area is also becoming more'domestic'and'broad - based ', with the other components of inflation all rising : core inflation ( excluding energy and food ) is now 4. 8 % in the euro area ( and 3. 7 % in france ) according to the september flash estimates, and the rise in prices is spreading to goods and services - which account for the other half of total inflation. it is this more " domestic " inflation for which the central banks are responsible, and which they must not let get out of hand and persist. this is the critical objective and commitment underlying the action taken by the governing council of ecb. accordingly, their will and capacity to bring inflation down to 2 % in the next two to three years in the euro area should not be subject to any doubt what so ever. 2. implications for monetary policy so, what are the implications of the current situation for monetary policy in the euro area? the fundamental change of the nature of risk to address, clearly implies a normalisation of monetary policy, which means dismantling measures adopted to fight a risk of deflation and a rapid adoption of at least a neutral stance. in terms of ecb key policy interest rates, this translated in a quick return to positive territory, moving towards the so called " neutral rate ". at what speed is this move to the neutral rate, which we

capital available to absorb shocks. conduits and sivs have no capital of their own, and they depend heavily on the liquidity support and credit enhancement from their sponsor banks, whose terms, and conditions, as i said, may market liquidity and short term credit : the financial crisis of august 2007 ; 3 september 2007. be variable and uncertain. and yet, they undertook maturity transformation on a significant scale. so those risks which materialized directly translated into liquidity shortage. conversely, the reason why most hedge funds weathered the shock – at least until now – may be that they managed to strengthen their capital base by imposing strict redemption rules to their investors. strong capital will not guarantee liquidity in all circumstances. there can be panics and sudden increases in the demand for liquidity. that's the job of central banks to help in those circumstances. but a strong capital base in the system – and in all its components – is likely to limit future liquidity shocks. in the period to come, central banks, regulators and market participants will debate on the ways and means to restore the securitized model on a robust and sound basis. the implementation of basel ii will bring significant improvements in the measure and management of risks. had it been into place some years ago, we may have avoided some of the problems we currently face. other evolutions in the regulatory environment and business practices may prove necessary. but, as i said, now is the time to analyze and think.