system, with uncertainty being a central concern. first, inflation might start rising again, for example due to continued strong wage growth. it is therefore important to base further monetary decisions on incoming data rather than pre - empting future developments. at the same time, various factors, such as rising geopolitical tensions, are generating greater uncertainty, which could lead to financial market corrections and higher risks for financial institutions. high share prices make financial markets vulnerable to corrections and a downturn in sentiment. for instance, political uncertainty in france last week caused a correction in french government bonds, which also spread to bank shares in france. these corrections are taking place against the backdrop of geopolitical 1 / 3 bis - central bankers'speeches tensions and geo - economic fragmentation. price falls prompted by geopolitical tensions have so far been short - lived, but i do wonder whether investors are fully pricing in the risks of geopolitical tensions. this is one of the reasons why i would like to focus particular attention on the risks of heightened tensions and geo - economic fragmentation. geo - economic fragmentation is not new but is part of a gradual global shift. the fragmentation of the global economy into blocs has increased in recent years, leading to more trade restrictions and sanctions. at the same time, geopolitical tensions have increased. at first sight, dutch financial institutions appear to have only limited sensitivity to geopolitical tensions given their small corporate loan and investment portfolios exposed to countries that are geopolitically remote from the netherlands. geo - economic fragmentation may nevertheless have an indirect impact on these portfolios, because dutch firms also use imported goods in their production processes and trade restrictions disrupt these value chains. geopolitical tensions also increase cyber risks worldwide and reduce the effectiveness of multilateral fora. for example, blocking and tensions hampers effective crisis response as during the covid - 19 pandemic, but also effectively tackling global challenges such as the energy transition. as well as the need for greater awareness and analysis of these risks by financial institutions and policymakers, i also see scope for action by national governments. at a time when there is high external pressure from other regions of the world, a wellfunctioning european single market reduces dutch dependence on other regions. as an open economy, the netherlands has benefited from this more than other countries. after all, the european internal market acts as a cushion for shocks originating from outside europe, thus providing economic security. in my view, this requires a

possible. this can occur through for example harmonized technical standards and systems, like the single euro payments area, or sepa. sepa became operational in 2014. as a result, the fragmented national markets for euro payments became a single, european market. the project involved developing common financial instruments, standards, procedures and infrastructure, through cooperation in the payments sector. two drivers of integration this conference ’ s theme refers to two drivers of payments integration : innovation and cooperation. however, in my view, another important driver for integration is legislation and regulation. perhaps it is even a precondition for integration, because reducing or removing national borders requires the legislator to take the necessary action. in the case of sepa, for example, it was the european commission which established the legal foundation through the sepa regulation, and other secondary regulations. cooperation is also vital for integration. the commercial and technical standards for payment instruments in sepa were developed through close cooperation between european banks. cooperation between central banks is of course also very useful. it involves developing effective policies and institutions, through for example staff training. this enables central banks to learn from each other. i am therefore delighted with the long - standing relationship between nbrm and dnb, and the resulting cooperation and knowledge transfer. integration and innovation now let me turn to the relationship between integration and innovation. is innovation a driver for integration? yes, to some extent. if an innovation is easily accepted in various countries, replacing other, older technologies or instruments, international differences disappear. internet and smartphone technology are great examples. they are relatively new and form the basis for common and new payment methods across europe. i will come back to this in a minute. yet, i think that there is also a reverse causality. in plain english, integration is also a driver for innovation, at least in the eyes of economists. when borders are removed and trade increases, new ideas and new technologies emerge, enabling creative entrepreneurs to turn these into new products. for payments in particular, having the same standards boosts innovation, which produces network effects. the entry of a new merchant or consumer increases the value of the network for all participants. when many people use the same internet payment method, for example, more e - merchants will want to offer this to attract more customers. and when these customers find the payment method convenient, they will tell others. this word - of - mouth advertising leads to more use of that payment instrument. this creates economies of scale, lowering the cost