50 % in the past two years. for many, this contradiction serves to confirm the idea that finance exists within a world of its own and is disconnected from the “ real ” economy. 3 / – third paradox : we have made the banks “ secure ”, but financial risks are appearing in other areas. as i have already said, we now have robust banks and, in europe, the soon - to - be completed asset quality review, conducted under the aegis of the ecb, will help to guarantee this. however, this does not mean weaknesses have disappeared. they are still there, only in other parts of the system. at the moment, for example, credit activities are mainly concentrated in the hands of large asset managers who together manage portfolios of several tens of trillions of dollars. these managers are becoming increasingly sophisticated, and therefore more efficient, but at the same time they are getting bigger and bigger. they are judged on their short - term performances, often leading them to follow identical strategies, which in turn results in massive movements in the market. some – though not all – transform short - term savings into structured products, a practice which, as the crisis has shown, can prove very dangerous. 4 / – fourth paradox : our monetary policies are extremely accommodative, but inflation remains low and, in some cases, is even declining. throughout the developed world, central bis central bankers ’ speeches banks have slashed their policy rates close to the zero lower bound. their balance sheets have ballooned under the impact of asset purchases and liquidity injections. but in all these countries, inflation rates are at levels considered too low with respect to the price stability target – in some cases dangerously so. in the euro area, inflation has been falling steadily for six months. while it would be exaggerated to talk at the moment about deflation, the fact that monetary easing has had such a limited impact on prices is somewhat surprising. 5 / – the fifth and final paradox : long - term interest rates have never been so low. in real terms, they are close to or below zero. but in all countries, rates of investment as a proportion of gdp are still between 2 and 4 points below pre - crisis levels. it is only right that these paradoxes should have caught the attention of analysts and prompted concern among policy - makers. and it is understandable that questions have been raised over the efficiency of our financial system and the usefulness of certain financial activities. however, in complex

3 july, the risks of an increase in inflation appeared to have grown. albeit in a context of wage moderation, the first signs of an acceleration in costs were visible. other warning signals were coming from market expectations : inflation expectations measured on the basis of long - term index - linked government bonds were tending to rise ; the prices of inflation swaps signaled growing fears of inflation for long - term maturities as well. against this background, the governing council of the ecb decided to raise reference rates by 0. 25 percentage points. in the days following the rate hike, inflation expectations derived from the financial markets ceased their upward trend ; it appears that they are now beginning to fall back. by taking timely action we intend to help to avert the risk that the rise in the international prices of energy and food products might set off a spiral between expectations and the setting of wages and prices, and to bring inflation gradually back down to levels consistent with price stability in the medium term. households ’ disposable income is defended by combating the rise in inflation, which erodes purchasing power, lowers the real value of financial wealth and is a drag on consumption and growth. we estimate that in italy the acceleration in prices recorded since last summer has reduced the growth in disposable income by more than one percentage point, by three points if the losses of the real value of financial wealth are also taken into account ; it can reduce consumption by more than two points by the end of next year. average per capita earnings of employees, after tax and social security contributions, are not much higher today in real terms than they were fifteen years ago. meanwhile, unit labour costs have increased by more than 30 per cent, compared with about 20 per cent in france and practically nil in germany. this gap between the spending capacity of workers and the competitive capacity of firms reflects the meagre growth in productivity, the persistently high level of taxation and social security contributions, and the effect of inflation ; it is at the root of the stagnation of our economy. price stability is a prerequisite for the resumption of growth. a price - wage spiral would be an illusory remedy and one that monetary policy must oppose. if monetary policy is credible, even if it cannot insulate the economy from the fluctuations of commodity prices, it can cushion their effects on expectations and domestic prices. a prompt monetary adjustment reduces the risk of tardy but violent corrections. italian banks ’ income and capital