This period would entail rather unpleasant outcomes such as outflow of capital, depreciation of EME currencies, contraction of domestic and foreign credit, rise in interest rates (some of which were engineered by the central banks to dampen inflation and outflows). As a result, the growth in EMEs is slowing down and there is now a clear shift of market sentiment on the prospects of the EMEs in favour of the US and, to a lesser extent, Europe and Japan. 4. The question I hope this Conference would discuss in the next two days is in what way and to what extent EMEs would be affected by the exit of QE and normalisation of US interest rates in the next 12 to 24 months. This is a difficult question because it is far from easy to ascertain the magnitude of the dollar carry trade that found its way to EMEs in the first place and what impact such carry trade would have on EMEs when it unwinds. Another related question is what kind of responses or measures that the EMEs need to take to mitigate the risk of shocks or turbulence during this period. These are very important questions not only for the EMEs but also for the US and other advanced economies. This is not because the advanced economies need to be kind to the EMEs but because there is a feedback loop that could possibly transmit negative shocks from the EMEs to the advanced economies.
In November 2021 the NGFS published an important report on climate-related litigation[15] which seeks to raise awareness about the growing source of litigation risk for public and private actors not convincingly supporting the climate change transition. Understanding the risks arising from climate-related litigation is clearly crucial for central banks and supervisory authorities, and the NGFS is continuing to monitor this field carefully. It plans to publish a further report next year with an update on the many developments since 2021. I hope I am leaving you with the right impression. The ECB is not an environmental activist, but rather a prudent realist. It is our job to point out risks, whether they are macroeconomic, macroprudential, microprudential or related to litigation, and to ensure that the financial sector takes them duly into account. Before I finish, let’s turn back to the brave fight of Vanuatu. You cannot blame Vanuatu’s president for seeking to defend the rights of countries most exposed to the ongoing climate and environmental crisis. Nor can we blame him for wanting to impose obligations on those most responsible for driving the crisis. Vanuatu’s mission is a stark example what the fight against the climate crisis is about. It underpins the task we have on our side. Europe has realistically no other choice than to deliver on the objectives of the Paris Agreement. If we waiver, the costs will only increase both in a moral and financial sense. Speaking as a  European citizen, I would like us to be ready for the challenge ahead.