##euro area currency risk has encouraged integration in that the “ home bias ” in the equity holdings of institutional investors has been significantly reduced as the importance of sector versus country - based investment strategies has increased. see the ecb ’ s website at http : / / www. ecb. int / stats / finint / html / index. en. html, last update april 2006. as a second measure of the euro ’ s success in fostering financial integration, i would like to mention the work of “ the institutions behind the euro ”, namely the ecb and the whole eurosystem, which provide numerous contributions to european financial integration. overall, we are of the view that financial integration is first and foremost a market - driven process. in addition to this, we see it as a basic task of public authorities to create a framework that is conducive to fostering financial integration. in this respect, the ecb has defined four kinds of activity with which the ecb and the eurosystem contribute to this process : ( 1 ) we try to enhance knowledge and raise awareness of the state of and need for european financial integration, and we measure the progress made – the most obvious example in this respect is the launch of our regular monitoring on the basis of quantitative indicators of financial integration in the euro area, which i mentioned earlier ; ( 2 ) we act as a catalyst for private sector activities by facilitating collective action and assisting with possible coordination problems ; we provide central banking services that also foster european financial integration ; and ( 4 ) we provide advice on the legislative and regulatory framework for the european financial system. let me now also give some concrete examples of the latter three kinds of activity. we can assume the crucial role of acting as a catalyst for market participants ’ activities due to the fact that the ecb, and the whole eurosystem, is in the unique institutional position of being both a public authority with a pan - european remit and, as a result of its basic tasks as a central bank, itself an active participant in the market. as a very recent example in this respect, i would like to highlight the shortterm european paper – or step – initiative, led by aci – the financial markets association and the european banking federation. this initiative aims to promote the further integration of the european short - term securities market via the convergence of standards and practices through market participants ’ compliance with the step market convention. in the coming days, euribor aci and eu

shown that the ecb is among the most predictable central banks in the world. in the interests of transparency, we regularly explain our policy framework and actions to the people of europe, their elected representatives – namely the european parliament – professionals in the financial markets and the media. indeed, the ecb was the first major central bank to introduce a public display of its diagnosis and overall assessment immediately after the meetings of the governing council via a regular monthly press conference immediately after the announcement of its monetary policy decisions. credibility is the third principle that i would like to emphasise as underlying the success of the single monetary policy. a high degree of credibility is essential to the ability of a central bank to guide expectations about future inflation and interest rates. in a market - based economy, the central bank can directly influence short - term interest rates through its monetary policy instruments. consumption and investment decisions, and thus medium - term price developments, are also to a large extent influenced by longer - term interest rates, which depend largely on private expectations regarding future central bank decisions and future inflation. it is important that developments in longer - term rates support the objective of maintaining price stability over the medium term. how do these three elements come together to contribute to the successful conduct of monetary policy for the euro area? let me illustrate by using an example from our recent experience. over the past few years, the euro area has witnessed a gradual recovery in economic activity that has now led to real gdp growth rates that are close to our present estimates of the potential growth rate of the euro area economy. however, over the same time period headline annual hicp inflation in the euro area has remained at rates just above 2 %, mainly as a result of the strong increases in energy prices. indeed, oil prices have surged from around usd 30 per barrel at the beginning of 2004 to an average of usd 71 per barrel in april 2006. in the past, prior to the single monetary policy, such large increases in energy prices led to substantial lasting rises in headline inflation stemming largely from second - round effects in wage and price - setting behaviour, which have their origin in a dis - anchoring of inflation expectations. in the most recent period, such second - round effects have not emerged. indeed, one of the successes of the single monetary policy in the recent past has been the effective anchoring of inflation expectations at levels consistent with price stability, despite the surge in oil prices and a number of other inflationary shocks. all available measures of long - term