euro area - wide factors and news. the advantages of sectoral diversification seem to have surpassed those of geographical diversification. as a consequence of the introduction of the single currency, euro area investors have increasingly diversified their equity portfolio holdings within the euro area. according to a recent research 6, between 1997 and 2004, the share of intra - euro area allocation increased markedly, by almost 15 percentage points, for equity portfolios and by 39 percentage points for bonds. in 2004, respectively, 28 % and 51 % of euro area total equity and bond portfolios were invested cross - border among euro area countries. integration in retail banking, by contrast, has been slow so far, although it has picked up in the last two years. with some notable exceptions, much of the consolidation in the banking sector has been the in june 2005, the ecb held a workshop on “ what effects is emu having on the euro area and its member countries? ” the workshop was organised in five areas : 1 ) trade integration ; 2 ) business cycle synchronisation, economic specialisation and risk sharing ; 3 ) financial integration ; 4 ) structural reforms in product and labour markets ; and 5 ) inflation persistence. all proceedings are now available in the ecb working paper series : see nos 594 to 599. see baldwin ( 2006 ) and anderton et al. ( 2004 ). see baele et al. ( 2004 ). de santis and gerard, ecb working paper 626 result of domestic mergers ; only in the last couple of years have cross - border banking mergers started to take place. in this respect, a number of euro area banks have considerably expanded their interests outside the euro area. however, in general, cross - border activity within the euro area has remained relatively limited, even though it is gaining in importance. this trend is expected to continue, thereby increasing the level of competition and efficiency in the euro area financial system. but further work is needed in order to achieve the goal of a single market in financial services. to this end, the ecb and the eurosystem are actively involved in several initiatives that will help foster financial integration, five of which i would like to highlight. first, the launch of target2 – the new payment platform for the financial system – is planned for the end of 2007. second, we are participating in the short - term european paper ( step ) initiative to promote the convergence of better market standards and practices in the european short - term securities

has also increased as a percentage of gdp in recent years. intra - euro area exports and imports of services increased from about 5 % of gdp in 1998 to around 6. 5 % in 2005, which represents a substantial increase even vis - a - vis extra - euro area exports and imports of services, which rose from about 7. 5 % to around 9. 5 % of gdp in the same period. and this trend could increase still further with the emergence of a single market for services. intra - euro area foreign direct investment ( fdi ) has also grown considerably, and is catching up with extra - euro area fdi. between 1994 and 2004 ( unfortunately, in the field of fdi, statistics collected by institutions like unctad, the imf or eurostat are always released with a two - year delay ), intra - euro area fdi stocks grew robustly from almost 14 % of euro area gdp to around 24 %. extra - euro area outward fdi stocks have grown somewhat less rapidly since the introduction of the euro : i. e., from 22 % to 30 % of euro area gdp. the euro is having some remarkable effects as a catalyst for a single market in financial services, particularly in the market segments which are more directly affected by the single monetary policy, such as fixed income markets. let me give you just a few examples, based on a set of indicators published by the ecb. 5 since the introduction of the euro in 1999, the cross - country standard deviation of interest rates in the interbank money market have fallen sharply. back in january 1998, one year before the start of monetary union, this deviation stood at more than 130 basis points for overnight rates, at over 100 basis points for one - month maturities, and at around 50 basis points for 12 - month rates. yet since january 1999, these differences have rarely exceeded 1 basis point. there is significant evidence that euro area corporations are taking advantage of the possibility to raise funds from the full range of euro area investors. the euro corporate bond market has grown significantly since 1999, and could grow even further, to judge by a comparison with the us. the outstanding volume of bonds issued by non - financial corporations of around €2. 3 trillion in the us is still two and a half times larger than in the euro area ( while the respective gdps are comparable ). a rapid integration is also taking place in the euro area equity markets. stock prices in euro area countries are increasingly affected by