of the rising labour costs, which reduces the inflationary effects. inflation is expected to continue this downward trend in the coming months. further ahead, it is expected to decline to our target as labour costs moderate and the effects of past energy shocks, supply bottlenecks and the reopening of the economy after the pandemic fade. measures of longer - term inflation expectations remain broadly stable, with most standing around 2 per cent. risk assessment the risks to economic growth remain tilted to the downside. growth could be lower if the effects of monetary policy turn out stronger than expected. a weaker world economy or a further slowdown in global trade would also weigh on euro area growth. russia's unjustified war against ukraine and the tragic conflict in the middle east are major sources of geopolitical risk. this may result in firms and households becoming less confident about the future and global trade being disrupted. growth could be higher 2 / 3 bis - central bankers'speeches if inflation comes down more quickly than expected and rising real incomes mean that spending increases by more than anticipated, or if the world economy grows more strongly than expected. upside risks to inflation include the heightened geopolitical tensions, especially in the middle east, which could push energy prices and freight costs higher in the near term and disrupt global trade. inflation could also turn out higher than anticipated if wages increase by more than expected or profit margins prove more resilient. by contrast, inflation may surprise on the downside if monetary policy dampens demand more than expected, or if the economic environment in the rest of the world worsens unexpectedly. financial and monetary conditions market interest rates have risen since our january meeting and our monetary policy has kept broader financing conditions restrictive. lending rates on business loans have broadly stabilised, while mortgage rates declined in december and january. nevertheless, lending rates remain elevated, at 5. 2 per cent for business loans and 3. 9 per cent for mortgages. bank lending to firms had turned positive in december, growing at an annual rate of 0. 5 per cent. but, in january, it edged lower, to 0. 2 per cent, owing to a negative flow in the month. the growth in loans to households continued to weaken, falling to 0. 3 per cent on an annual basis in january. broad money – as measured by m3 – grew at a subdued rate of 0. 1 per cent. conclusion the governing council today decided to keep the three key ecb interest rates unchanged. we

guarantee scheme is therefore not essential in the short term. nevertheless, a common system, built on common eu standards, will be important in the future to ensure enhanced depositor confidence in the robustness of all european banks. this element would also contribute to reduce the risks of financial fragmentation that results from contagion fears and is detrimental to the smoothing functioning of the single monetary policy. rationale for a banking union i see the banking union as essential to sustain and strengthen the emu framework. it is worthwhile to dwell upon the reasons why i consider it so. after all, the nature and features of banking union must be strictly connected with what justifies its existence. first, a single supervisory mechanism is necessary because of the increasing interconnectedness between financial institutions and markets across the euro area over the past decade, be it through internationally active banking groups, bilateral trading exposures, or presence in the same market segments. the recent financial crisis demonstrated how quickly and powerfully problems in the financial sector of one country can spread to another. this is especially the case in a monetary union. as a result, problems in the banking sector might originate at the national level, but are more and more likely to affect other countries of the euro area as well, and may quickly threaten the stability of the entire euro area banking system. such developments and the underlying financial structures can best be assessed by a central authority rather than through cooperation between national ones. 1 this has been captured by the so - called “ financial trilemma ”. the concept of the trilemma is adapted from the famous “ monetary trilemma ” on the impossibility of simultaneously achieving three objectives : a fixed exchange rate, capital mobility, and national monetary policy. 2 in a very similar way, but applied to international finance, as put forward by dirk schoenmaker ( 2011 ) following a model by xavier freixas ( 2003 ) 3 the “ financial trilemma ” illustrates the impossibility of achieving three objectives in an environment with globalized financial markets : financial stability, financial integration and national financial policies, especially supervision. for instance, the financial stability objective could possibly be pursued with national financial policies and supervision but only at the expense of further integration. the resulting fragmentation of the single market is however clearly at odds with the emu framework and the requirements of the single monetary policy. similarly, financial stability cannot be safeguarded as financial integration progresses ( with an ever greater degree of interconnectedness between financial institutions and