up and sovereign and corporate spreads spiralled. the announcement and prompt implementation of the pandemic emergency purchase programme ( pepp ) stabilised markets. it quickly instilled confidence when the market failed to coordinate. one reason why the pepp was so powerful was its flexibility, which allowed the ecb to provide liquidity when and where it was most needed. purchases were allocated flexibly across time, asset classes and jurisdictions. just like the omt, which was never used, the pepp ’ s backstop function worked primarily via the confidence channel. flexibility only had to be used briefly at the peak of the crisis. after that, the mere existence of flexibility and our clear commitment to use it when necessary were sufficient to coordinate markets on the “ good ” equilibrium. but while the pepp was able to stabilise markets, it could not sustainably reverse fragmentation by itself. the process of re integration was only set in motion when the proposal for a sizeable european recovery fund was announced ( slide 4 ). monetary and fiscal actions thus reinforced each other. while the pepp restored private cross - border risk - sharing, the next generation eu ( ngeu ) package created – for the first time in the history of the euro – a channel for public risk - sharing at european level. bond market integration in an era of rising interest rates determined monetary and fiscal support during the pandemic contributed to a compression of risk premia. sovereign bond spreads fell to their lowest level in many years, despite significantly higher public debt levels. while ngeu is going to provide continued fiscal support over the coming years, monetary policy has turned less accommodative in light of the persistent surge in inflation. as monetary support is being withdrawn around the world, we are seeing a decompression of risk premia across market segments, including in euro area bond markets. the extent and pace of the current repricing are driven by a number of forces. on the positive side, three fundamental factors can, ceteris paribus, be expected to support market sentiment and thereby mitigate upward pressure on bond yields. favourable average sovereign borrowing costs the first factor is that most governments have taken advantage of years of historically low interest rates by lengthening the average maturity of outstanding debt and locking in favourable financing costs ( slide 5 ). hence, the pass - through of a rise in interest rates to total sovereign financing costs will be gradual over the coming years, as the average nominal interest rate to

– to ensure that monetary stability is matched by economic and financial stability. this does not require a quantum leap in integration. rather, it requires that we finish what we started in 1999 and put the right framework in place to support emu. let me explain what i mean in more detail. financial stability the ecb needs stable banks to be able to implement its monetary policy successfully. european companies are mostly funded by banks, and banks are therefore our main counterparties and the primary channel through which our interest rate decisions are transmitted to firms and households. however, we saw during the crisis the drawbacks of a system of national banking supervision with integrated financial markets. our monetary policy had to operate in very difficult conditions – at one point it was even losing effectiveness in some countries. the lesson from this was that a single monetary policy could ultimately not work with multiple approaches to banking supervision. the ongoing process of building a banking union in the euro area is a response to this. it puts us in a stronger position to defend european financial stability, which in turn will support the proper transmission of our monetary policy and price stability. and let me be clear : this will not be achieved by mutualising risks. on the contrary, banking union reduces risks for taxpayers. having a european supervisor ensures that all banks in the euro area will be kept in check by the same rules and under reciprocal oversight. it therefore limits the likelihood of financial crises and contagion, which is ultimately what leads to countries needing financial assistance. moreover, having a european resolution mechanism will ensure that bank shareholders and bondholders will be first in line to absorb losses when a bank fails. the guiding rule should be “ bail - in ” of creditors, not “ bail - out ” by european taxpayers. and both stronger supervision and resolution will reduce potential risks for the ecb by confirming the soundness of our counterparties. as you know, the european governments and parliament have decided that the single supervisor should be the ecb. we take this task very seriously, but in line with the tinbergen principle i mentioned earlier, we are adamant that additional objectives should not be added to monetary policy. we will therefore ensure strict separation between this new function and our monetary policy. this will help ensure that the european supervisor focuses on its objective to keep our banking system sound and stable, and has the instruments it needs to succeed. economic stability beyond financial stability, the euro area also needs economic stability. the ecb ’ s monetary policy is a necessary condition for