 Good morning to all of you, and it will not surprise any of you if the title of my speech is Price Stability and Policy Transmission in the Euro Area. Inflation in the Euro Area is undesirably high, and it is projected to stay that way for some time to come. And this is a great challenge for our monetary policy. In response to the changing inflation outlook, we have consistently followed the path of policy normalisation since December last year, sequentially adjusting our policy stance. Net asset purchases under our various programmes will come to an end this week. In July, we intend to raise our policy rates for the first time in 11 years. And we have provided some guidance for our September policy meeting and the rate path that we envisage thereafter. We will continue along this normalisation path, and we will go as far as necessary to ensure that inflation stabilises at our 2% target over the medium term. As Viktor Hugo is said to have remarked, perseverance is the secret of all triumphs. So we shall persevere. At the same time, the Euro Area differs from some other major economies for two key reasons, and the path of normalisation has to be managed accordingly. First, inflation in the Euro Area today is being driven by a complex mix of factors that reflect in part our economic structures and strategic dependencies. And this creates uncertainty about how quickly inflation will return to our medium term target. In this setting we need to act in a determined and sustained manner, incorporating our principles of gradualism and optionality. This means moving gradually if there is uncertainty about the outlook, but with the option to act decisively to any deterioration in medium term inflation, especially if there are signs of a de-anchoring of inflation expectations. Second, the Euro Area has a unique institutional setup built around 19, actually soon to be 20. Not yet full integrated national financial markets, and 19, soon to be 20, national fiscal policies with limited coordination. I can see that some of our from abroad colleagues are frowning. The 20th is Croatia, which will be officially in the Euro Area Club as of the 1st of January, but which has been approved as a full-fledged member of the Euro Area, hence soon to be 20. This special institutional setting presents the risk of our monetary policy stance being unevenly transmitted across the Union. And this is why we have emphasized all along that flexibility is integral to the process of normalizing our monetary policy. It is essential to allow us to deliver the necessary policy stance and protect price stability in an environment where inflation is too high. So what would I like to do today if your attention span permits? Is answer three questions and outline how a combination of shocks is currently hitting the Euro Area economy? Second, how our monetary policy stance should react to the challenges that these shocks creates? And third, how can we preserve the transmission of this stance throughout the Euro Area? So how are the shocks hitting the Euro Area economy? Broadly speaking, inflation in the Euro Area is being driven by two different types of shocks. First, the original source of inflation is an extraordinary series of external shocks. Global supply chain disruptions coupled with surging global demand have pushed up prices sharply for industrial goods along the pricing chain. Mismatches between supply and demand in global energy markets have led to rising energy prices for the Euro Area. And the unacceptable Russia-Ukraine War has amplified both of these factors while also driving up global food prices. Given its energy dependence, the Euro Area is experiencing these shocks acutely. The current level of food and industrial goods inflation have not been seen since the mid-80s. And the increase in the relative price of energy in recent months is much higher than the individual spikes that occurred in the 70s. Together, energy and food and industrial goods account for 82% of the overall inflation rate seen since the start of this year. That was the first series of shocks that is the first key factor. The second factor driving up inflation and one which has intensified in recent months is the recovery in internal demand as the economy has reopened after the pandemic. Spending is rotating from goods back to services as restrictions are being lifted while pent up demand for tourism and leisure activities is proving unexpectedly strong. This rebound in spending has seen services inflation rise to 3.5% in May, the highest rate seen since the mid-90s. With the highest price increases, not surprisingly, in contact intensive services. These shocks, in particular the surge in energy prices, are driving up short-term inflation to very high levels. They are also leading to significant upward revisions to our medium-term inflation forecast. The June Euro system staff projections saw inflation above 2% for the whole projection horizon, converging back to slightly above our medium-term target in 2024. But the size and complexity of these shocks are also creating uncertainty about how persistent this inflation is likely to be. We are not facing a straightforward situation of generalized excess demand or overheating economy, in which case a trajectory of medium-term inflation would have been clearer. Despite the bounce back in services that I've just referred to, private consumption in the Euro area is still more than 2% below its pre-pandemic level. And investments remain subdued, although there have been signs of above-target revisions in recent months. Long-term inflation expectations currently stand at around 2% across a range of measures. This supports our baseline projection for inflation to converge back towards our medium-term inflation target. At the same time, inflation pressures are intensifying and broadening through the domestic economy. Almost four-fifth of items in the consumption basket had annual price increases above 2% in April. And this is not only a reflection of high import prices. A new ECB indicator of domestic inflation, which removes items with a high import content, currently stands above 3%. So in this environment, it is important to understand how persistent domestic price pressures are likely to become. And there are several factors worth considering here. First, inflation is starting to take root in the services sector, which is the stickiest component of inflation and has a higher weight than goods. Second, unemployment in the Euro area is at a record low. Labor shortages are broad-based across sectors, and indicators of labor demand remain strong. Not as much as in other large economies, but still. This tightening of the labor market, together with the catch-up effect triggered by the high inflation environment, suggests that wages should pick up and grow. Our latest forecasts see wage growth above 4% in 2022 and in 23, and at 3.7% in 24, almost double the historical average before the pandemic. Third, these factors combined have led us to project core inflation at 2.3% in 24, and in the Euro area, core inflation tends to be a good indicator of headline inflation over the medium term. We are also seeing signs that the supply shocks hitting the economy could linger for longer. What it is reasonable to assume that global supply chain disruptions will gradually be resolved, the outlook for energy and commodity prices remains clouded. Unfortunately, there is not yet an end in sight in the Russia-Ukraine war, and we face the risk of cuts to supply that could keep energy prices high. That could contribute to inflation directly, if it leads to further rises in energy costs, or indirectly if a higher level of energy prices makes some production uneconomic and leads to a durable loss of economic capacity. The war is also likely to accelerate green transition in Europe as a way to enhance our energy security. In the long term, this should lead to lower energy costs in Europe. But in the meantime, it could lead to price increases for rare minerals and metals, higher costs for the investment needed in clean technologies, and an expansion of carbon pricing schemes. And we all know that a less than orderly transition will be more costly. Now that said, these shocks also have implications for growth, and as such, they can weigh on the medium-term inflation outlook. And we need to understand what we see in that regard. The external supply shock hitting the euro area are affecting spending. Rising import prices represent a terms of trade tax, which reduces the total income of our economies. Households are seeing their real income being squeezed. Real wage growth has been negative for two consecutive quarters. And consumer surveys suggest that households are expecting their real income and consumption to decline further over the next year. Firms, for the moment, are trying to protect their margin by raising prices. But this uncertain environment is also leading them to delay investment decisions. And sales growth appears to be decelerating. The latest PMI points to no further growth in new business, and business expectations in years time have reached their lowest since October 2020. At the same time, spending is being supported by the boost to demand from the full reopening of the service sector in particular. And consumption is being buffered by, one, the large stock of household savings built up during the pandemic, two, fiscal support measures, and three, the continued strength of the labour market, which is helping to sustain labour income overall. But if supply shocks drag on and inflation continues to exceed wage growth by wide margin, losses in the real income could intensify and the excess savings buffer could be eroded. The resulting hit to demand could test the resilience of the labour market and possibly temper the expected rise in labour income. So in this setting, we have revised markedly down our forecast for growth in the next two years. But we're still expecting positive growth rates due to the domestic buffers against the loss of growth momentum. This is our baseline. So what does that all mean for what we have coined our normalisation process? Based on the overall outlook, the process of normalisation, our monetary policy will continue in a determined and sustained manner. But given the uncertainty we still face, the pace of interest rate normalisation cannot be defined ex ante. As I laid out in a recent blog post, the appropriate monetary policy stance has to incorporate the principles of both gradualism and optionality. Gradualism allows policymakers to assess the impact of their moves on the inflation outlook as they go, which can be a prudent strategy in times of uncertainty. Optionality ensures that policy can react nimbly to the incoming data on the economy and inflation expectations and if uncertainty decreases, re-optimize the policy path as necessary. And indeed, there are obviously conditions in which gradualism would not be appropriate. If, for example, we were to see higher inflation threatening to de-ancor inflation expectations, or signs of a more permanent loss of economic potential that limits resources availability, we would need to withdraw accommodation more promptly to stamp out the risk of a self-fulfilling spiral. These two elements taken together, I know it's easier to say it's one or the other, our analysis is that we need to actually blend those two together and be just more subtle and deep in the diagnosis that we have to pass and the conclusions that we draw. So these two elements taken together of our monetary policy stance underlie the governing council's decision of our meeting of June the 9th. Let me try to explain. Consistent with moving gradually, we announced that we will end net asset purchases under our asset purchase program on July 1st and intend to raise our three key interest rates by 25 basis points at our next meeting on July the 21st. We also announced that we expect to raise the key interest rates again in September and I quote, if the medium-term inflation outlook persists or deteriorates, a larger increment will be appropriate at the September meeting. Now this reflects the optionality principle. If the inflation outlook does not improve, we will have sufficient information to move faster. This commitment is obviously data dependent. This optional approach to the pace of interest rate adjustment should not be confused with delaying normalization. As our policy stance rests on a clear reaction function, interest rate expectations and risk free rates can adjust in advance. Actually our policy adjustment is already working its way through the euro area economy. The euro STR forward rate 10 years out is around 240 basis points above its pre-pandemic level without policy rates having yet moved. One year forward real rate one year ahead and the five year forward real rate five years ahead are around 100 and 140 basis points higher respectively. Beyond September, the governing council has agreed that a gradual but sustained path of further rate increases will be appropriate. The starting point at each meeting every six weeks will be an assessment of the evolution of the shocks, the implications for the outlook and the degree of confidence we have in inflation converging to our medium-term target. So let me talk a little bit about what is consubstantial to our monetary policy stance which is the transmission. For these changes in our monetary policy stance to be effective, we need to preserve the orderly transmission of our stance throughout the euro area. Euro area is not one country with one fiscal authority, with one capital market union unfortunately and one banking union in development. So the ECB is conducting monetary policy in this incomplete monetary union in which its policy has to be transmitted through 19 soon to be 20 different financial and sovereign bond markets. The yields on those sovereign bonds provide the benchmark for pricing all other private sector assets in the 19 soon to be 20 member states and ultimately also for ensuring that our monetary policy impulse reaches individual firms and households throughout the whole of the euro area. If spreads for instance in some countries respond rapidly and disorderly to an underlying change in risk-free rates over and above what would be justified by economic fundamentals, our capacity to deliver a single monetary policy is impaired. In this situation, a change in the policy stance can be followed by an asymmetric response of financing conditions regardless of the credit risk of individual borrowers. In such conditions, when we have what we describe as unwarranted fragmentation, preserving policy transmission is a precondition for returning inflation to our target. This is part and parcel of our mandate. But in order to preserve the orderly transmission of our policy stance throughout the euro area, we need to ensure that this repricing is not exacerbated and distorted by destabilizing market dynamics leading to a fragmentation of our original policy impulse. That risk of fragmentation is also affected by the pandemic which has left lasting vulnerabilities in the euro area economy. These vulnerabilities are now contributing to the uneven transmission of the normalization of our policy across jurisdictions. So the governing council is acting in two ways. First, we will use flexibility in reinvesting redemption coming due under the pandemic emergency purchase program to preserve the functioning of the monetary policy transmission mechanism. In other words, those redemptions can as appropriate be invested within the euro system in bond markets of jurisdictions where orderly transmission is at risk. We have decided to apply this flexibility in reinvesting redemptions coming due in the PEP portfolio as of the 1st of July. Second, we have mandated the relevant euro system committees together with the ECB services to accelerate the completion of the design of a new instrument for consideration by the governing council. This new instrument will have to be effective while being proportionate and containing sufficient safeguards to preserve the impetus of member states towards a sound fiscal policy. This decision lies squarely within the ECB's tradition. In the past, the ECB has made use of separate instruments to target inflation and to preserve the functioning of the monetary policy transmission mechanism. Measures to preserve transmission could be used at any level of interest rate. So long as they were designed not to interfere with the monetary policy stance. At times when inflation fell too low, it made sense to shift from separation to combination so that all tools reinforce the required policy easing. That is why, for example, we linked asset purchases tightly to forward guidance on rates. But with high inflation now being the main challenge, there are merits in separating policy tools again. Preserving policy transmission throughout the euro area will allow rates to rise as far as necessary. And in this sense, there is no trade-off between launching this new tool and using it and adopting the necessary policy stance to stabilize inflation at our target. In fact, one enables the other. So let me conclude. The euro area is facing a complex mix of shocks which are reducing growth and pushing up inflation. In this environment, it is imperative for policymakers within their respective mandates to address the risks to the economic outlook. Financial policymakers have to play their part in reducing these risks by providing targeted and temporary support while over the medium term following a rules-based framework that underpins both debt sustainability and macroeconomic stabilization. We are unwavering in our commitment to ensure that inflation returns to 2% over the medium term. We have designed a strategy to normalize our policy that allows us to respond nimbly to the high inflation environment. And we will ensure that the orderly transmission of our policy stance throughout the euro area is preserved. As Leonardo da Vinci said, every obstacle yields to stern resolve. We will address every obstacle that may pose a threat to our price stability mandate. We will. Thank you very much.