are either based on surveys, thus providing a direct measure of agents ’ expectations, or are based on the analysis of information contained in asset prices, which provide an indirect gauge of the inflation path expected by market participants. to be sure, both measures only represent an imperfect gauge of inflation expectations thus requiring careful analysis and full awareness of the limitations inherent in the information they convey. the survey measures that are typically analysed by the ecb, like the ecb survey of professional forecasters, the consensus economics forecast or the european commission ’ s monthly business and consumer survey, suffer, like all survey measures from the inherent limitation that they are constructed on a restricted and heterogeneous sample of respondents and from the uncertainties linked to the design and the implementation of the survey. furthermore, also those indirect measures of inflation expectations extracted from asset prices, like the “ break - even ” inflation rates that are calculated from the yields offered by nominal and inflationprotected bonds with the same maturity present some limitations. in particular, several premia, like an “ inflation risk premium ” but also a “ liquidity premium, ” are potentially embodied in their calculation. changes in break - even inflation rates over time could therefore reflect changes in the level of expected inflation, but also changes in the perceived degree of uncertainty about future inflation, changes in the perception of the liquidity risk, or a combination of the three. the information that we gather from these diverse sources at present is consistent with a picture of stability. for what concerns the survey evidence, it has been extremely stable at the level consistent with the ecb ’ s definition of price stability since 1999. in the most recent survey, conducted in the 1st quarter of 2005 the mean point estimate for hicp inflation indicated by the respondents to the ecb survey remained close to and below 2 %, in line with the ecb ’ s quantitative definition of price stability and with the survey results for the previous quarter. this holds true for the expectations relating to the years 2005 and 2006, but also for the five - year period up to 2009. the comparison with the results of the survey for the last quarter of 2004 confirms that the uncertainty surrounding these forecasts remains contained, and for the longer horizon has even slightly decreased recently. inflation expectations as embodied in asset prices have also been quite stable. the “ ten - year ” breakeven inflation rate calculated from the index - linked both with maturity 2012 and issued by the french treasury in 2001 has averaged approximately 1. 9

jean - claude trichet : european financial integration and the management of inflation expectations by the european central bank remarks by mr jean - claude trichet, president of the european central bank, at the conference “ the euro : one currency, one financial market ” organised by the european commission, new york, 19 april 2005. * 1. * * introduction ladies and gentlemen, it is a great pleasure to speak at this conference. i would like to share with you today some thoughts on two important topics. first, i would like to address the process of european financial integration, this important european endeavour to which the ecb contributes in many different ways. and then, i would like to address an issue of mutual relevance for the ecb and for market participants, i. e the monitoring and the management of inflation expectations by the ecb. 2. the process of european financial integration turning to the process of european financial integration, my remarks will focus on two main issues. the first relates to the reasons why financial integration should be pursued, i. e. what are the economic benefits of financial integration. the second issue to which i would like to draw your attention concerns the state of play, i. e. where does the european financial system stand in the process of integration. 2. 1 why financial integration should be pursued as we all know, financial systems - composed of financial institutions, markets and the infrastructure serve some basic purposes : among other things, to trade, hedge, diversify and pool risk, to allocate resources and to mobilise savings. these functions determine the economic benefits that can be derived from financial integration. two widely accepted economic benefits of financial integration are : the better sharing and diversification of risk and the potential for higher economic growth. let me explain this in more detail. financial integration increases the opportunities to share risk and smooth consumption over time. the increase in the available set of financial instruments resulting from financial integration, as well as the increased cross - ownership of assets, offers additional possibilities to the agents to diversify portfolios and share idiosyncratic risk across regions. 1 as we know from theory, when risk is fully shared in an area, a co - movement in consumption results between agents belonging to different regions of that same area, while consumption does not co - move with region - specific shocks. the evidence suggests that consumption growth rates in the euro area are less correlated than are gdp growth rates, which means that the opportunities to share risk could still be further exploited in