The bottom line is that the long-term sustainability of public debt should be ensured by credible but flexible fiscal rules. In parallel, we could maintain the possibility of responding to large shocks through a permanent common fiscal capacity; in this respect, the Next Generation EU package is a positive breakthrough, and could be made permanent, although with more limited amounts. A few days ago, Mario Draghi, speaking at the Italian Senate in his current capacity as Prime minister, rightly backed “an increasingly integrated European Union that will arrive at a common public budget capable of supporting countries in times of recession.” In addition, a fully-fledged capital markets union is more necessary than ever, in order to supplement public risk sharing with private risk sharing across the euro area. In conclusion, let me say a few words on chamber music. Many of you have already heard the famous Piano Trio Number 2 by Franz Schubert. The harmony of the three instruments has charmed generations of music lovers, including Stanley Kubrick in “Barry Lindon”. In this piece, none of the instruments should be the only game in its own town. And none of them should be dominated by any of the other two, otherwise the harmony is broken. Quite the contrary, we can hear each instrument and the beauty of the piece comes from the response of each instrument to the others. The same applies to the three macroeconomic policies: monetary, macroprudential and fiscal.
First, in the euro area, the latest consumer price data have surprised on the upside, and there are some signs of an upturn in inflation expectations. This is actually good news, as Philip Lane noted last week.1 That said, this rise shouldn’t be overstated; it primarily reflects temporary factors rather than a persistent and significant change in the inflation path. The euro area economy is in a different situation compared with that of the US (in terms of real activity, output gap and fiscal stimulus). There is no risk of overheating in Europe. Second, this less disinflationary environment shouldn’t raise questions about our future monetary policy, and our reaction function. Let me reiterate a strong conviction about our inflation objective: it is flexible, symmetric and medium-term. To put it clearly, these last two imperatives mean that 1/4  BIS central bankers' speeches  we cannot completely ignore the past inflation shortfalls, and that in the future we should be ready to accept inflation above target for some time. As necessary, our forward guidance could be strengthened to make this tolerance explicit. And third, there are other elements in this tightening of financing conditions, including excessive spillovers and tensions on the term premia. In so much as this tightening is unwarranted, we can and must react against it, starting with an active flexibility of our PEPP purchases, which we have made possible since its inception in March 2020, and enhanced last December. II.