. we will have to take this into account if and when, symmetrically, a tendency to make forecast errors of the opposite sign emerges due to the attenuation of these tensions, hopefully in a short time but unfortunately still very uncertain today. given the information available, the claims that the governing council of the ecb has wrongly delayed the re - balancing of its monetary policy appear unjustified. the normalisation of the monetary stance has been under way since last december when, against the background of an improvement in the economic outlook and the rise of medium - term inflation expectations towards the price stability target, the governing council announced the start of the reduction of net purchases under its quantitative easing programmes. in the early part of this year, the process gained speed, avoiding, however, potentially dangerous cliff - effects of too sharp a drop, and was completed on the 1st of july. a few weeks later, we started raising the key official rates by a significant size ( 50 basis points in july and 75 in september ), aimed at frontloading the exit from their highly accommodative levels. this radical change in monetary stance mirrors a corresponding sharp change in the economic and inflationary outlook. first, the pandemic fears that drove the economy into recession – not only in europe – and reduced inflation temporarily to below zero have been overcome. thanks to the non - conventional monetary policies adopted by the governing council, especially its quantitative easing programmes, the risks of deflation have thus dissipated. moreover, the euro area has been hit by an energy shock of extraordinary magnitude, far greater than the oil price shocks that hit the world economy in the 1970s. the ensuing marked rise in actual inflation cannot be ignored by the central bank : the risk that it could cause an increase in inflation expectations and in turn lead to a futile and damaging spiral between prices and wages should be countered decisively. it is therefore crucial, at this stage, to carefully monitor inflation expectations and the dynamics of wages and profits. indicators of future inflation measured on the basis of inflation - linked swaps continue to suggest that price dynamics will remain elevated in the near future, at around 5 per cent in mid - 2023, and then decline rapidly and persistently to levels just above the 2 per cent target ( figure 4 ). 6 as inflation risk premia are currently estimated to be slightly above zero, the actual medium - term inflation expectations implicit in swap rates could, substantially, be in line to our target. survey - based expectations provide

in the event of a bank ’ s distress, with public support a more remote possibility. the shift of the burden of bank crises from public to private capital was a conscious political decision at the european level ; that this would reflect on the market valuation of banks ’ capital and debt was to be expected. however, there are elements that have increased market uncertainty and sensitivity and that need to be taken into account when, as already foreseen, the brrd is revised in the light of experience, as governor visco recently said. it is especially important that the european concept of ‘ bailin - able ’ instruments is brought as fully as possible into line with international standards ( reference here is to the tlac concept ), ensuring legal certainty, awareness of investors and a clear procedure in the event of resolution. furthermore, there seem to be lingering market concerns in europe about legacy assets. opaque financial assets are one issue that needs to be tackled. in this speech i intend to concentrate on non - performing loans ( npl ). the global financial crisis and the ensuing recession caused a deterioration in bank credit portfolios. according to a recent analysis by the imf5 ), npls in the european union countries more than doubled between 2009 and 2014. the increase in npls is therefore by no means unique to italy : however, as their level as a proportion of loans is especially high in this country, let me confront the issue head on. there are two reasons for the high npl / loans ratio in italy. the first is structural : procedures for recovering a credit in the case of default or distress of a borrower are typically lengthy in this country, which means that, all else being equal, npls stay on a bank ’ s balance sheet for longer and therefore their ratio to outstanding loans at any given moment is higher6. the second reason is that in italy the length and severity of the recession was unique among major european countries, with a fall in gdp of almost 10 per cent, and in industrial production of almost a quarter, from peak to trough ( 2008 to 2014 ). this took a toll on banks. banks in italy mostly have a traditional business model and tend to stick to the core business of commercial banking. the italian banking system therefore shouldered the first phase of the financial crisis fairly well, owing to its negligible exposure to toxic assets. but this also meant that it was affected by the deterioration in the economic situation : provisions for credit losses absorbed on average more than 95