Indeed, the need to guard against this risk is one of the reasons for the faster monetary normalisation that our latest decisions entail. Another risk relates to possible second-round effects, i.e. when high inflation passes through to wage increases and these, in turn, push up consumer prices to the extent that firms seek to maintain (or widen) their margins. Again, this would make inflation far more persistent and increase the likelihood of the feared de-anchoring of inflation expectations. As I said, while there is no evidence of such effects occurring at present, at least on a widespread basis, the current high inflation does make this more likely. Naturally, the extent of the economic downturn – over which, as I indicated earlier, there is significant uncertainty –, and its effects on wages and profit margins, will be a key determinant of the medium-term inflation outlook and, therefore, of our monetary policy decisions. Ultimately, our next decisions will be based on the incoming data and their implications for achieving our medium-term inflation target, in line with the “meeting-to-meeting” approach that we have adopted. 9  In any event, interest rates will have to reach a level that allows us to ensure a gradual convergence of inflation to our medium-term target, and how quickly we reach that level will be conditioned by the same target. Whether this means reaching interest rates at levels close to neutral or higher will therefore depend on that target. The normalisation of monetary policy is prompting a tightening of financial conditions.
The ECB currently participates in the meetings of international organisations, such as the International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD) and the Bank for International Settlements (BIS), and different fora, such as the G7. Such  BIS Review 50/2001  1  exchanges are important, among other things, to better understand economic developments and to fully analyse the spillover effects in the economy arising from different policies. The ECB is not in a position to fine tune economic activity in the euro area, as it does not have the instruments to do so. Any attempt to do so would prove counterproductive, leading to an inefficient medium-term outcome characterised by higher inflation and lower growth. Two main factors support this view. First, economic developments are surrounded by a great deal of uncertainty. This uncertainty affects the analysis of both the current state of the economy and its future course. And second, monetary policy operates with relatively long lags, having very little effect on the economy in the short run. Past experience has shown that attempts to fine-tune the economy might place in jeopardy the commitment to maintain price stability in the medium term, as is essential for a wellfunctioning economy. Once inflation exists and inflation expectations prevail in the economy, the economic costs of the subsequent necessary stabilisation far exceed whichever temporary benefits might have been previously obtained. Therefore, the ECB needs to remain focused on the maintenance of price stability in the medium term.