and security policy. so far, there have been no severe functional disruptions in the financial system. but the situation on financial markets has certainly changed : financial conditions are tightening, risk aversion is increasing, and uncertainty is high. the sources of risks have shifted as well. risks in commodity markets, for example, and vulnerabilities with regard to interest rate risk require monitoring. hence, we cannot rule out the possibility that markets are underestimating the impact of geopolitical risks. severe tail events may not be fully reflected in market valuations. fundamental uncertainty is high, and this uncertainty cannot be priced in objectively. sufficient buffers against unexpected losses must be available within the financial system. the relatively good state of the financial system to date is partly the result of expansionary public policies during the pandemic. but the adjustment to geopolitical risks will be different from adjustment to the coronavirus shock. fiscal space and the potential for monetary accommodation will both be more limited going forward. [ 13 ] appropriate micro - and macroprudential buffers thus need to be available within the financial system to account for higher risks and fundamental uncertainty. iii. the financial system needs preparation for a period of accelerated structural change. structural change in the real economy is likely to accelerate in response to the current geopolitical situation. there have been three de - globalisation shocks in a row over the past five years : intensified trade disputes between the us ( united states ) and china ; the coronavirus pandemic, which has exposed vulnerabilities in global value chains ; and, more recently, the russian war against ukraine as well as lockdown measures in china. these shocks are changing the nature of globalisation and of international cooperation, with potentially severe implications for the real economy. one important driver of structural change is climate change. internalizing climate - related externalities requires an adjustment of relative prices. eventually, implicit subsidies to the real economy arising from the underpricing of climate externalities and of energy security need to be withdrawn. moreover, according to the international panel for climate change ( ipcc ), an increase of today ’ s annual investment by a factor of three to six would be needed to limit global warming to 2°c or 1. 5°c. all this places demands on the financial sector. raising funds and allocating them across investment projects is more challenging in a period of structural change and high uncertainty than during tranquil times. and, if the transition

orientation of monetary policy, i have reached the conclusion that the current monetary policy stance is appropriate at the present juncture. v ladies and gentlemen, let me now try to summarise the main features of the interdependence between monetary policy and financial markets : · central banks need well - functioning financial markets. they work as the crucial link between monetary policy - setting and its ultimate goal, price stability. disintermediation further heightens the importance of financial markets in the transmission mechanism of monetary policy. therefore, monetary policymakers need to analyse structural changes in financial markets thoroughly. · central banks acquire information about the expectations of financial market participants by monitoring financial market prices. they cross - check their own forecasts against these data. · finally, in order to avoid misperceptions of the policy stance in the markets, there has to be a consistent communication policy. with capital markets integrating and habits in the fields of finance and investment changing, as central bankers in the euro area we have now entered a period of heightened uncertainty. the ecb has opted for a monetary policy strategy that anchors the markets ’ expectations of future price stability. the twopillar approach to assessing the outlook for prices is appropriate in times of structural change, as it is not only credible, but also highly flexible. financial markets therefore have a reliable partner in the eurosystem – one that is well equipped to meet current and future challenges.