jean - claude trichet : financial services policy 2005 - 2010 - the ecb ’ s view speech by mr jean - claude trichet, president of the european central bank, at an exchange of views on financial services policy 2005 - 2010, european commission, brussels, 18 july 2005. * * * introduction i would like to thank the european commission for the invitation to participate in this important event. i am sure that all discussions today on the commission ’ s green paper on financial services policy in 2005 - 2010 will be highly beneficial for finalizing its thoughts on the matter, which will be reflected in the white paper to be issued by the end of this year. the definition of the main priorities for financial services policy in the years to come is an important milestone in the pursuit of further financial integration. although it should be recognized that financial integration in the eu has proceeded apace in recent years, in particular as a consequence of the introduction of the euro, further progress still needs to be made. while the objective of financial integration is inherent in the achievement of the single market, it is currently also extremely important in the context of the lisbon reforms. financial integration is a key factor in the development and modernisation of the financial system which, in turn, can lead to greater productivity and competitiveness, a more efficient allocation of capital and the potential for greater and more sustainable non - inflationary growth. for example, an empirical study by london economics1 estimated additional growth resulting from financial integration of the european bond and equity markets to be 1. 1 % over a decade or so. let me give you the views of the ecb on the proposals put forward by the commission, noting that the eurosystem is preparing a contribution on this subject, which will be issued shortly. i should underline that the interest of the eurosystem in the pursuit of financial integration is closely related to the tasks which have been given to it by the treaty, including the conduct of the single monetary policy, the promotion of smooth payment and settlement systems and the contribution to financial stability. i will start with some general considerations and then turn to some specific areas, notably financial regulation, financial supervision, and financial stability. general considerations speaking generally, let me express broad support for the key policy orientations set out in the green paper. over the next five years, financial services policy should aim primarily at consolidating and simplifying existing community legislation, while ensuring that the measures adopted thus far under the financial services action plan (

inflation rates exhibited considerable volatility over the year, mainly as a result of developments in energy prices. overall, labour costs increased moderately and contributed to containing domestic inflationary pressures in the euro area, although the situation varied greatly from country to country. despite significant inflationary shocks in 2006, and the fact that headline inflation was above 2 % throughout most of the year, longer - term inflation expectations remained anchored to price stability. nevertheless, risks to price stability remained clearly on the upside throughout 2006, on the basis of the ecb ’ s economic and monetary analyses. in addition to the possibility of further oil price increases, several other risks were identified. these included : the risk of stronger - than - anticipated pass - through of past rises in oil prices ; additional increases in administered prices and indirect taxes beyond those already announced ; and, more fundamentally, the prospect of stronger - than - expected wage developments and potential second - round effects in wage and price - setting behaviour. the monetary analysis confirmed, by cross - checking, the assessment of upside risks to price stability. money and credit growth remained very robust during 2006, mainly reflecting the stimulative effects of the low level of interest rates and the strength of economic activity. the persistent underlying rate of monetary expansion since mid - 2004 has resulted in the accumulation of a stock of liquidity which is ample by all plausible measures. a broad - based and comprehensive analysis of these developments pointed to upside risks to price stability over the medium to longer term. to address the upside risks to price stability, the ecb ’ s governing council adjusted the monetary policy stance in 2006 by raising the key ecb interest rates gradually by a total of 125 basis points, reaching the level of 3. 50 % by december 2006. on 8 march 2007 the governing council decided to raise rates by another 25 basis points because it assessed that upside risks to price stability continued to prevail. the information which has become available since the last meeting of the governing council has lent further support to the reasoning behind the decision to raise rates in march. it has also confirmed that risks to the medium - term outlook for price stability remain on the upside. in addition to potential further oil price increases, these risks relate primarily to stronger than currently expected wage developments in an environment of robust growth in employment and activity. in order to sustain robust economic growth and foster job creation, wage agreements should take into account productivity developments as well as the price competitiveness positions and the prevailing high level of unemployment in many economies