At the moment, we consider that the global impact will most likely remain limited and temporary, but we will of course continue to monitor very closely any available further evidence. Turning to price developments, recent increases in oil prices have pushed headline inflation rates to levels in excess of 2% over the last months. According to Eurostat’s flash estimate, annual HICP inflation was 2.1% in August, compared with 2.2% in July, and inflation rates are expected to fluctuate around current levels over the next few months, with some further increases towards year-end. At the same time, when analysing underlying domestic inflationary trends, there continues to be no significant evidence of upside pressures building up in the euro area. In particular, wage increases have remained contained over recent quarters and this trend should prevail for the time being, given the current labour market situation. This picture is broadly in line with the new ECB staff projections. ECB staff project average annual HICP inflation to lie between 2.1% and 2.3% in 2005 and between 1.4% and 2.4% in 2006. These projections constitute significant upward revisions to the Eurosystem staff inflation projections published in June, mainly reflecting the fact that oil prices have once again increased by more than was suggested earlier by forward rates. Upside risks to this new baseline inflation scenario remain, relating to potential further rises in oil prices, administered prices and indirect taxes.

An efficient securities clearing and settlement infrastructure is of fundamental importance to the integration and smooth functioning of financial markets. To this end, the Eurosystem supports the Commission’s intention to put forward a proposal for a directive on securities clearing and settlement. On the question of new regulatory initiatives, we share the view that asset management and retail financial services are areas where regulatory intervention could be considered. In the area of financial supervision, the Eurosystem fully supports the Commission’s view that the current institutional set-up should be exploited to the maximum extent before any potential structural change is considered. In particular, the Eurosystem agrees that the main policy objective in the area of financial supervision is two-fold: first, to enhance the competitiveness of EU financial markets and institutions and to facilitate the development of cross-border finance both in terms of institutions and in terms of products and services – the so-called financial integration angle; and second, to ensure the effectiveness of standards for oversight and supervision in a more integrated financial system – the so-called financial stability angle. In this respect, we attach particular importance to the consistent implementation of financial services legislation and the pursuit of supervisory convergence, as well as to the effective cooperation between home and host authorities. We are of the view that it is important that home-host coordination be developed on a robust and consistent basis for the financial groups involved in a way that both ensures effective supervision and reduces compliance costs.