And the volatility we have seen recently in medium- to longer-term inflation expectations is a cause for extra vigilance. In short, the latest data on the euro area economy point to a continued but increasingly fragile recovery and the uncertainties and downside risks surrounding the recovery have intensified.
This manifested in some countries as a “sudden stop” of capital flows, and the resulting financial fragmentation led to the transmission of the single monetary policy being impaired in those areas. The creation of the Single Supervisory Mechanism, which started operations just over one year ago, was in part a response to that problem. A single supervisor, applying homogenous methodologies, internalises mutual trust.