) initiative, led by aci – the financial markets association. the purpose of this initiative is to promote the convergence of standards and practices prevailing in the european short - term securities markets, which is expected to provide an impulse towards integration, thereby increasing the market ’ s depth and liquidity. the promoters of this initiative expect the first steplabelled programme to be issued early this year. the eurosystem acts as a catalyst and supports this market - led initiative. in particular, it will provide technical support for the labelling process for some time and will produce and publish step statistics on yields and volumes. i will now move on to the government bond market. government bond markets have achieved a very high degree of integration, mainly due to the disappearance of intra - euro area exchange rate risk and the convergence of inflation expectations across countries by the time the euro was introduced. since then, government bond yields in different euro area countries have been driven mainly by euro areawide factors and news. a simple way to quantify the degree of integration in this market segment is to look at developments in the standard deviation of yield spreads over time : the lower the dispersion, the higher the degree of integration. our respective indicator shows a significant drop in the run - up to the start of monetary union and, since then, the standard deviation has remained close to zero. another indicator is the “ beta - convergence ”, that is based on the economic intuition that the more integrated the market is, the more bond yields should react to common factors instead of local factors. the “ betas ” represent the estimated correlation of changes in a government bond yield of a given country with changes in a respective benchmark bond. it results that the betas varied substantially up to 1998 and converged afterwards towards the integration level. with a daily turnover of around €250 billion, the euro interest rate swap market is about one third larger than the equivalent us dollar segment ( around €160 billion ). the total of euro interest rate otc derivatives contracts reaches a daily turnover of around €380 billion, and is thereby larger than the us dollar segment ( a daily turnover of around €290 billion ). see bis triennial central bank survey – foreign exchange and derivatives market activity in 2004 ( march 2005 ). let me stress here an important point. in assessing the indicators of the financial integration of european government bond markets, it of course has to be borne in mind that movements related to changes in the credit risk perceptions by

has been the idea that the optimality of a currency area is not necessarily something that needs to be achieved fully before monetary union ; but something that may also be the result of monetary union. the introduction of the euro clearly fostered financial integration. with the euro, economic agents from a given region can, by being able to invest more easily in other regions of the euro area, diversify the risk of potential shocks. steps towards increased financial integration reduce the risk of local factors impacting on the income and consumption of a given region within the area, thereby helping to fulfil the conditions for an optimal currency area. second, financial integration is a key factor in the development of the financial system, which, in turn, increases the potential for greater and more sustainable non - inflationary economic growth. by making markets deeper and more liquid, financial integration creates economies of scale and increases the supply of funds for investment opportunities. the integration process fosters competition and the expansion of markets and intermediation, thereby leading to further financial development. financial development, in turn, leads to lower intermediation costs and a more efficient allocation of capital. allocating resources to the most productive investment opportunities will ultimately increase the potential economic growth. for example, a research study estimates the benefits from the integration of european bonds and equity markets to be around 1 % of gdp growth over a ten - year period, or approximately €100 billion. 1 while these figures can be subject to estimation error, economic reasoning suggests that the overall benefits of financial integration will remain significant. as you know, europe urgently needs to strengthen growth and increase employment, which are the two main goals of the recently renewed lisbon programme. the need to proceed with structural reforms in europe is not confined to the “ real ” side of the economy, like the necessity to enhance flexibility in the european labour markets, but applies also to financial integration. financial markets that are not yet fully integrated imply a cost in terms of foregone economic growth. furthermore, as a central banker, i am very conscious of the fact that a well - integrated financial system is essential for the implementation of our monetary policy, as it enhances the smooth and effective transmission of monetary policy impulses throughout the euro area. indeed, if the financial system were not fully integrated, the single monetary policy decisions may have an asymmetric impact on the different regions of the euro area. the degree of financial integration is therefore important in determining the effectiveness of this transmission : the higher the degree of