utilisation in the economy can vary considerably without showing any impact on inflation. in this case, monetary policy can also influence, via the credibility of the price stability target, the exchange between growth and inflation. one way of maintaining credibility and support for the price stability target is, in our opinion, to show a high level of openness and clarity with regard to conducting monetary policy. openness involves, for instance, reporting which considerations we make with regard to prospects for the business climate, etc. when we make decisions regarding interest rates. however, it also means that we are transparent with regard to the sources of knowledge we use as a basis for our decisions. clarity is also often aimed at creating the right conditions for analysts in the banking sector to forecast how monetary policy will react to various types of new information. consistent and symmetrical actions with regard to monetary policy increases confidence in the price stability target, which in turn should have a stabilising effect on inflation expectations. my speech today should be seen as part of our endeavour to achieve openness. in many cases, i will raise questions to which we do not have answers. our ambition is to increase our knowledge both by studying existing research and by stimulating our own and others'research in this field. the banks are important for the riksbank's tasks i will now move on to speak about the significance of the banks for our capacity to maintain price stability. the banks play an important role in enabling monetary policy to maintain price stability, in a number of ways. firstly, the banks are central to the capacity to make payments in the economy generally. all activity in the economy leads to payments and it would not be possible to maintain price stability without a functioning payment system. it would be too lengthy to go into further detail here on the role played by the banks in the payment system and the connections between the riksbank's two tasks. but i would in any case like to point out here that financial stability is a necessary condition for price stability. secondly, it is through the banks that participate in the riksbank's system for large payments - the rix system - that we can in practice affect the interest rates companies and households meet when choosing between savings, investment and consumption. thirdly, the banks'own credit granting and their lending rates play an important role for activity in the economy. thus, the banks play an important role in the interest rate channel. here i will first describe how the riksbank's

are reaping the benefits of that credibility. long term interest rates stand at a historically low level, around 100 basis points below the level in the united states. so, even after the recent increases in short term rates, monetary and financial conditions remain extremely favourable for investment and growth. and indeed, we might be witnessing in europe the start of period of sustained and stable growth, at least if current projections and surveys are proven to be right in the coming months. a third benefit of the euro is the boost it gives to financial integration in europe. in many segments, european financial markets have reached the depth and liquidity which, up to now, were the preserve of dollar markets. this stimulates productive investment, helps in restructuring ( as witnessed by the current wave of m & as ) and, more generally, allows a better allocation of savings and sharing of risks. as a consequence, the euro is becoming extremely attractive, as a vehicle, a transaction, an investment and a reserve currency. as you may know, as central bankers, we remain neutral as far as the internationalisation of the euro is concerned. we are neither encouraging, nor discouraging the process. but, as a citizen, i cannot help and feel proud of having one the two main currencies in the world. long term prospects looking into the future, i would like to try and answer four questions : is monetary integration sustainable in the long run? what are the prospects for the enlargement of the euro area? can the euro serve as a model for other regions in the world? and finally, is monetary union going to lead to further political integration in europe? solidity of the euro area i am aware that there still is, on this side of the atlantic, a lot of skepticism about the future for the euro. four years ago, one of your leading academics, ( martin feldstein ) wrote a piece in foreign affairs arguing that monetary union would reignite conflicts and war in europe. this is, of course, the extreme form of a basic argument : that there are too many divergences between european states for them to withstand the pressures of monetary unification. put in simple economic terms, it boils down to the argument that the euro is not an optimum currency area. in my view, this is less and less true. while european labor markets are not – and will never be – as integrated as in the united states, goods, services, and capital markets are now fully unified,