widely used daily reference indices for interest rates, notably eonia for overnight transactions and euribor for transactions at longer maturities. a full set of standard instruments is built upon these reference indices, in particular money market futures and options contracts as well as short - term interest rate swaps. this leads to a situation where market participants are able to manage their day - to - day funds in an efficient manner and at relatively low costs. important progress remains to be achieved, however, in particular for instance with regard to the repo market. the further integration of the repo market at area - wide level will benefit from the operation of common platforms for the clearing and delivery - settlement of securities used as collateral in repo transactions. if i now turn to the bond market of the euro area, observations made during 1999 also seem to indicate that the market is already relatively well integrated at the level of the euro area. as shown by the newly published ecb statistics in this field, there was a considerable increase in the participation of private sector issuers in the bond market in 1999. to some extent, this development appears to have been linked to higher mergers and acquisitions activity. furthermore, the volumes of transactions on both the secondary market for bonds and on the markets for interest rate derivative products also appear to have increased in 1999. in this context, the more sophisticated market participants seem to be able to easily take positions at any point on the term structure of interest rates, thus contributing to the formation of representative and reliable prices for the entire range of instruments available on the euro area bond market. these observations tend to indicate that the bond market of the euro area has attained a good degree of depth and liquidity. further progress towards the constitution of very efficient bond markets in the euro area can, however, certainly still be made. in the run - up to stage three of european monetary union, bond market participants in each country of the euro area appeared to increasingly hold bonds issued in other countries of the euro area. this development reflected notably the decline in spreads linked to the expected removal of intra - area exchange rate risks. following the creation of the euro, bond market investors are naturally not concerned with intra - area exchange rate risks any more. instead, they seem to focus on an assessment of the intrinsic credit quality of issuers. thus, the assessment of credit quality and the development of a “ credit risk culture ”, which constitute important features of an active and open bond market, are likely to develop further partly as

the cyclical upswing started to materialise, however, increases in consumer prices over recent months were relatively large and protracted. this reflected mainly the impact of increasing oil prices seen throughout 1999 as well as, following the continued depreciation of the effective exchange rate of the euro, increases in import prices. these increases in oil prices and in import prices led to a situation where there were increasing risks of second round effects on consumer prices. with respect to both the first pillar and the second pillar of the strategy, developments over the last few months led the governing council of the ecb to raise interest rates. the main refinancing rate was raised to 3 % on 4 november 1999 and then to 3. 25 % on 3 february 2000. by raising interest rates in view of the developments that i just described, it was aimed to contribute to ensuring that the cyclical upswing currently under way in the euro area will be both strong and sustainable, because it will occur in an environment of price stability over the medium term. over the next months it is particularly important that social partners keep wage increases in line with price stability as well as being supportive of further growth in employment. the rate of unemployment in the euro area has fallen throughout 1999 but still remains high. a lasting reduction in unemployment could be achieved only if further progress is made in structural reforms aimed at promoting flexibility on the labour market, providing jobs to low skilled workers and facilitating the return to the job market of the long - term unemployed. in addition, the growth prospects of the euro area over the medium term would clearly benefit from the completion and further deepening of structural reforms promoting competition on the markets for goods and services. 2. euro area financial markets also for the financial markets of the euro area, structural reforms aimed at promoting competition appear to be necessary. these reforms will over time contribute to improving the working of financial markets integrated at the area - wide level. furthermore, the eurosystem has an obvious interest in well functioning and efficient financial markets because financial markets are the conduit through which monetary policy decisions are channelled into the economy. let me consider first the money market. in 1999, within the euro area cross - border operations constituted a large share of all operations on the money market. the market has evidently benefited from the creation of a strong and secure backbone of payment systems, including the real - time gross - settlement system operated by the european system of central banks ( escb ). the money market of the euro has