An independent study carried out for the European Commission concluded in November 2002 to a significant macroeconomic positive impact in the long run of a full integration of European financial markets, not only in terms of GDP, but also in terms of business investment and employment. Needless to say, as a central banker, I attach great importance to financial markets integration: the implementation of the single monetary policy would not have been possible without an efficient and fully integrated money market. A high degree of integration of the securities market is also required because central banks’ credit operations are fully collateralised and rely heavily on the smooth transfer of securities. Moreover, efficient and integrated markets favour a homogenous transmission of monetary policy actions across the euro area. So where do we stand today? I think it is fair to recognise that significant progress has been made already in the integration of European Capital Markets. At the same time, one has to acknowledge that integration is an on-going process, that faces renewed challenges in a constantly evolving environment. Let me elaborate on these two aspects successively. 1. European capital markets already exhibit a high degree of integration  If one stands back and compares the organisation, functioning and structure of European financial markets today with the situation that prevailed five years ago, the magnitude of the changes that already took place is striking, not only in the various market segments but also in their infrastructures: indeed, the euro area already benefits from highly-integrated capital markets.

The successful introduction of a broad range of pan European and sector-based indexes, and the subsequent launch of derivatives and new investment vehicles such as Exchange Traded Funds (or “trackers”) based on these new indices, highlights this change in investors’ approach. Empirical evidence suggests indeed that sector-related factors are playing an increasing role in price dynamics. As integration enlarges the range of potential investors, it also fosters the development of private equity and the financing of young and innovative firms, a trend that is obviously welcomed. 1.4 Behind the scene, supporting the evolutions that I just touched upon, market infrastructures have undergone radical changes. As an example, as regards trading infrastructures, the creation and expansion of EURONEXT is a striking illustration of the on-going consolidation process: the EURONEXT group now links the French, Belgian, Dutch and Portuguese stock markets, and has concluded co-operation agreements with several other European markets. The group also significantly increased its presence on interest rates derivatives markets. This ongoing movement of consolidation affects securities clearing, settlement and depository infrastructures, as providers aim to propose an integrated transaction service covering the entire securities processing cycle. In the field of post-market infrastructures, CLEARNET is pursuing its pan-European expansion by completing its operational integration throughout the EURONEXT area. The clearing house also reached an agreement with its Italian counterpart, enabling it to offer central counterparty services for transactions executed on the Italian government securities market.