with a segmented regime of bank supervision and resolution. after all, most of the money that people use daily is not a central bank liability, but rather deposits issued by commercial banks. in this setting, if financial markets fragment, it can lead to an asymmetric tightening of financing conditions and disrupt the transmission of monetary policy across the euro area. that is what we saw happening as the sovereign debt crisis progressed. but what allowed europe to react effectively was commitment and flexibility. the ecb ’ s response – announcing outright monetary transactions – underlined its commitment to its mandate by reacting flexibly to the circumstances. this aimed at ensuring the effective 1 / 4 bis central bankers'speeches transmission of the eurosystem ’ s monetary policy with a view to maintaining price stability. in parallel, the response from europe ’ s leaders underscored also their commitment to the euro – by launching the banking union plan including common supervision and resolution. this was the most significant transfer of powers to the european level since the creation of the euro. but the length and depth of the crisis left deep scars on the euro area economy – and set the stage for a long phase of too - low inflation to emerge in its wake. the double hit of the great financial crisis and the sovereign debt crisis left behind a persistent shortfall in demand and employment. from the onset of the great financial crisis, it took seven years for euro area gdp to return to its pre - crisis level and almost 12 years for unemployment to do the same. in slovenia, those figures were nine and 11 years, respectively. this environment dragged down inflation in three interlocking ways. first, it created a lingering negative demand shock which depressed inflation dynamics. second, interest rates began to approach their effective lower bound, reducing the space to counter that shock through further rate cuts. and third, inflation expectations began drifting downwards, leading to higher real interest rates at a time when the economy needed policy easing. in other words, there was a very real risk of becoming stuck in a low - inflation trap. and although the nature of the challenges had changed, it was again commitment and flexibility that mattered in tackling this risk. with signs that inflation expectations were starting to de - anchor, the ecb had to show that it was as committed to fighting deflationary forces as it was – and is – committed to fighting inflationary ones. added to which, as the lower bound neared and conventional policy became more restrained, it was key to show that monetary policy

near term, inflation and growth are moving in opposite directions. the ecb ’ s initial response was governed by our new monetary policy strategy, which calls for patience and persistence when exiting a long period of too - low inflation. but since december of last year, we have started moving down the path of gradual policy normalisation. why? to begin with, the medium - term inflation outlook is changing. measures of underlying inflation, including those that capture persistence, are nearly all above 2 %. inflation expectations are also at, or above, 2 %, according to a range of measures. and our inflation projections are increasingly pointing towards inflation being on target over the medium term. in parallel, the war is likely to accelerate two ongoing structural changes which, during the transition they entail, could lead to further negative supply shocks and cost pressures. first, as i argued recently, the war may prove to be a tipping point, causing geopolitics to become more important for the structure of global supply chains. 2 this will not necessarily imply deglobalisation – international firms will still face strong incentives to organise production where costs are lowest – but it might restrict the perimeter in which they can do so. second, the war is likely to speed up the green transition as a means of reducing dependence on hostile actors. indeed, the paths to achieving energy security and climate security now point firmly in the same direction. this is likely to keep up pressure not only on fossil fuel prices but also on demand for some of the metals and minerals that are already in short supply. in this context, it looks increasingly unlikely that the disinflationary dynamics of the past decade will return. as a result, it is appropriate for policy to return to more normal settings. 3 at the same time, we do not have excess aggregate demand in the euro area – consumption and investment are both still below their pre - crisis levels – and the war is creating a challenge for monetary policy by tempering growth rates and pushing up inflation further. in such an environment, commitment and flexibility will be key. with inflation likely to remain high for some time, actions that demonstrate our commitment to price stability will be critical to anchor inflation expectations and contain second - round effects. this will help ensure that inflation returns to 2 % once the various supply shocks have passed. in addition, the ecb has consistently emphasised the optionality in its monetary policy, which creates space for us to respond to inflation surprises in a timely and efficient way