In those areas where decisions have already been taken by the international community, implementation is now key. The G20 yesterday committed to full implementation of Basel III along the agreed timelines. The EU has already started this process early with the European Commission putting its proposals on the table for the so-called Capital Requirements Directive IV, which will translate Basel III into the legal framework of the EU Member States. In terms of macro-prudential framework, the European Systemic Risk Board has started its operation this year. All jurisdictions must ensure timely implementation so that we can ensure that we have done everything to make a difference as regards the resilience of the global, regional and national financial systems. Let me briefly highlight three key areas on which we need to stay committed and where swift progress is of the essence. The first challenge may come from the shadow banking sector. The introduction of more stringent capital requirements may provide incentives for banks to shift part of their activities outside the regulatory realm. It is therefore decisive that we continue our work to improve our capacity to identify and assess the potential risks stemming from the shadow banking system. This includes regulatory reform of money market funds, securitisation and the interaction with the banking sector. The second challenge is how to keep pace with financial innovation.
I trust that by sharing with you my views on our monetary policy normalisation path I have reassured you about our commitment to stopping high inflation from becoming entrenched. The more confident our fellow euro area citizens are that inflation will return to 2% in a timely manner, the smoother the adjustment process will be. Thank you. 16  Fo r instance, Banco de España staff have co nducted a mo del-based exercise to assess the impact o n euro area inflatio n of a non-targeted, permanent public expenditure sho ck of 1% of GDP. The results sho w that fo r each 1% of GDP expenditure, inflatio n increases by 0.2 pp three years later. This relatio nship might be stro nger depending o n the co mpo sition o f expenditure and against a backdro p o f supply-side co nstraints. 9