On 1 June 1998, the European Central Bank was established to prepare for the introduction of the euro, the largest currency conversion ever. I was working as a lawyer then, and I still remember the excitement with which we reviewed contracts based on exchange rates that would soon disappear. Could the common currency really work? Today, as we celebrate the 25th anniversary of this institution, we know that it works and that the euro has made Europe more united. Tasked by the governments of the countries of the European Union to safeguard the euro, our staff in Frankfurt, together with colleagues from the 20 national central banks of the monetary union, work tirelessly to fulfill our mandate to maintain the stability of prices. The work they do is vital to the prosperity of European citizens.
The ECB is an anchor of stability
Over the past 25 years, we have welcomed 9 new countries into the euro area, which has thus grown from 11 to 20 members. We have taken on new functions, including the supervision of European banks. Today the euro is the second most important currency in the international monetary system, after the US dollar. Sure, there have been rough times along the way. But through the ups and downs of the economic cycle, under the guidance of my predecessors Wim Duisenberg, Jean-Claude Trichet and Mario Draghi, the ECB has always sought above all to consolidate the foundations of tomorrow's Europe, fulfilling our mandate. The pandemic and Russia's unjustified war against Ukraine have shown that stability is by no means a given. Growing geopolitical rivalries may make the world economy increasingly volatile in the future. In a world of uncertainty, the ECB has been, and will continue to be, a reliable anchor of stability.
We will bring inflation back to 2%
We have shown that we can act and adapt quickly even in the face of the most daunting challenges. Just a few months after I took office as ECB president, we responded quickly to the pandemic in its most acute phase with a series of measures to support the euro area economy, avoiding deflationary risks. Today we are acting with the same determination to reduce inflation. After being too low for years, inflation is now too high and will likely remain so for too long. Inflation erodes the value of money, reduces purchasing power and affects citizens and businesses across the euro area, especially the most vulnerable members of our society. But we will bring inflation back to our 2% target over the medium term. For this reason we have raised interest rates at an unprecedented rate and will set them at sufficiently restrictive levels – and keep them at these levels for as long as necessary – in order to quickly bring inflation back to our target.
Monetary union put to the test several times
As recent events in the banking sector remind us, a sound banking system makes the task of monetary policy easier. Financial stability is a prerequisite for price stability, and vice versa. Since 2014, when we took over the banking supervision function, we have worked to preserve the soundness of euro area banks. Banking supervisors led by Andrea Enria will continue our efforts to ensure that banks are well capitalized and resilient to changing conditions, so they can continue to lend to businesses and households. Over the past 25 years, our monetary union has been tested on many occasions. We have had to deal with crises that could have overwhelmed us, not least the great financial crisis, the sovereign debt crisis and the pandemic. On each occasion, however, we have recovered stronger than before. Now we have to consolidate this internal strength.
The completion of the monetary union
In a world that becomes more unpredictable, Europe can build resilience on two fronts. By integrating its capital markets, Europe can better foster investment in the green and digital sectors, so crucial to boosting its future growth. By completing the banking union, we can ensure that the banking sector helps to contain risks during future crises rather than amplify them. As Simone Veil, former president of the European Parliament, declared, "we need a Europe capable of solidarity, independence and cooperation". This sentence fully captures what the euro stands for. The euro is more than a currency. It is the strongest form of European integration and symbolizes a united Europe that knows how to work together, for the protection and benefit of all its citizens. The ECB will always be a pillar of this commitment.