We also see limited overall risks to euro area financial stability. Without sufficient mitigating action, however, a cliff-edge Brexit could have an adverse impact in certain areas of centrally cleared derivatives markets. Sources of risk from outside the EU have grown since May. A stronger US dollar and heightened trade tensions triggered renewed stress in a number of emerging market economies. Financial integration and the deepening of EMU Thanks to our collective efforts at the European and national level, we have come a long way since the start of the financial crisis. However, to strengthen our economies and preserve financial stability, we need to go further. Let me highlight in particular some of the concrete steps in the area of financial integration that we need to take at the European level. First, we need to complete the architecture of the banking union. The benefits of having a euro area supervisor are clear when we look at banks’ strengthened balance sheets. Still, more needs to be done to reduce the risks for citizens as both taxpayers and depositors and to break the remaining link between banks and national governments. In addition to the adoption of banking package which is currently under negotiation among EU legislators, a genuine banking union needs further regulatory harmonisation, for instance through greater reliance on Regulations 2/3  BIS central bankers' speeches  instead of Directives. In particular, unwarranted national options and discretions still stand in the way of a level playing field for banks.
Our institutions have successfully tackled the COVID-19 crisis thanks to a combination of suitable risk management and the set of extraordinary measures approved by the public sector (governments, prudential regulators and supervisors). I am confident that they are well prepared to deal with these new tensions and turbulence. In conclusion, the economic situation remains highly uncertain, in particular due to the ongoing war in Ukraine, the implied tensions in food and energy markets, the sanctions enacted against Russia, and the risks surrounding the continuation of energy trade with the latter. The economic effects of this situation can now clearly be seen for the economy as a whole and, in particular, for the more vulnerable citizens. With all of the uncertainty that surrounds any projection in these changing circumstances, while we foresee a significant deceleration of the economy and high inflation in the very short-run, we also expect the economic situation to normalise thereafter, with inflation easing over 2023, once all of the factors I referred to earlier have returned to normal. Fiscal policy has a key role to play, provided it targets the households and economic sectors hardest hit by the crisis, as also recently stressed by the European Commission, given the limited room for manoeuvre in public budgets. An appropriate combination of policies would support economic normalization and help tackle the inflationary episode, as would the continuation of prudent approaches by wage- and price-setters. Monetary policy can certainly meet the challenge.