collateral prevent the further cross - border integration and consolidation of clearing and settlement infrastructures, thus hindering the integration of european money, bond and equity markets. a smooth electronic integration of trading, clearing and settlement operations would help reduce transaction costs substantially. the gradual dismantling of regulatory obstacles to remaining market integration in europe will contribute to enhancing their depth and efficiency, in turn contributing to an improved allocation of funds to the most profitable investment opportunities, and thus supporting economic growth. what is the role of monetary policy and central banks? price stability the interaction between financial markets, economic growth and monetary policy is by no means a new issue for central bankers. however, financial market developments have brought the question to the forefront of the policy debate. the continued integration and deepening of financial markets is a significant issue for policy - makers, and particularly for central bankers, since smoothly functioning and efficient financial markets are crucial in ensuring a smooth transmission of monetary impulses. the best contribution that monetary policy can make to the smooth functioning and integration of european financial markets and to economic growth is to maintain a steady medium - term price stability orientation. such a policy will be beneficial, as it will minimise the adverse effects of inflation and high inflation uncertainty. as we all know, price stability is beneficial in numerous ways. it not only creates a climate for higher economic activity over the medium term, but also reduces the economic and social inequalities caused by the asymmetric distribution of the costs of inflation among the various economic agents. in addition, in an environment of low inflationary expectations, inflation risk premia become relatively less important as a determinant of financial prices. as a result, other factors such as credit risk can play a larger role in the price formation mechanism. ultimately, this results in a more efficient allocation of financial resources. the approach of focusing on price stability is by now the conventional wisdom in industrialised countries. in the case of europe, this consensus on the contribution of price stability in the medium term to promoting long - term growth is explicitly enshrined in the statute of the escb, which states unambiguously that " the primary objective of the escb shall be to maintain price stability in the medium term. " the ecb is convinced that by rigorously fulfilling this mandate, monetary policy is making its most effective contribution to the realisation of strong output growth and satisfactory employment prospects. financial stability and the role of central banks in banking supervision also the design of prudential

jean - claude trichet : global economic governance and euro area economic governance speech by mr jean - claude trichet, president of the european central bank, at the world policy conference, marrakech, 16 october 2010. * * * ladies and gentlemen, it is a real pleasure to be here in marrakech – a city which, in its history, is a demonstration of the link between economic success and political events and choices. morocco is also an important partner for the eu in the context of the union for the mediterranean and the barcelona process. let me also mention that the ecb and the bank al maghrib have wellestablished bilateral relations, as well as close contacts in a multilateral framework. for example, the ecb and the other eurosystem central banks regularly meet with bank al maghrib and the other central banks of the mediterranean region in the framework of highlevel seminars, in which they discuss economic and financial issues of common interest. * * * let me start by saying a few words about the current economic outlook in the euro area. real gdp in the euro area grew by 1 %, quarter on quarter, in the second quarter of this year. growth has been supported mainly by domestic demand, but also reflects some temporary factors. recent statistical releases and survey evidence generally confirm our expectation of a moderation in the second half of this year in the euro area. therefore, we do not declare victory and we have to remain cautious and prudent. that being said, the positive but modest underlying momentum of the recovery remains in place. annual inflation in the euro area is currently 1. 8 %, and we expect inflation to remain moderate in 2011. very importantly, we note that inflation expectations over the medium to longer term continue to be firmly anchored in line with our definition of price stability. * * * in my remarks today, i will focus on global governance and in particular on the lessons that can be drawn from the extraordinary events of the past two years. i will first elaborate on why we need a set of rules, institutions and international relations that we call “ global governance ”. second, i will analyse how, in hindsight, the existing global governance has fared during the global financial crisis. third, i will deal with the evolution of the system as a response to the crisis, and in particular i will discuss the rise of new key entities in the world economy such as the g20 and the financial stability board, with a view to the