jean - claude trichet : european financial integration speech by mr jean - claude trichet, president of the european central bank, at danmarks nationalbank, copenhagen, 3 october 2005. * 1. * * introduction dear bodil, ladies and gentlemen, when danmarks nationalbank invited me to speak today, i had no hesitation in accepting its invitation, although my feelings towards the occasion being marked are somewhat ambivalent. when our host, ms bodil nyboe andersen, leaves her post as governor of danmarks nationalbank at the end of this month the european system of central banks ( escb ) and the ecb will lose a highly esteemed member of its general council. as much as we regret saying farewell to you, dear bodil, we are also looking forward to an equally fruitful cooperation with your successor, mr nils bernstein. dear bodil, during our many years of collaboration, i, like so many others, have come to admire your manifold achievements. let me name but one : the skill with which you have managed the danish exchange rate regime. during your tenure, the credibility of this policy has gone from being very high to being exceptionally high. this is illustrated by the fact that during the past year the exchange rate of the danish kroner to the euro has fluctuated by less than 0. 5 %. this is a remarkable success on the part of danmarks nationalbank, but it is also your personal success. the exchange rate policy is undisputed in your country, not least because the central bank and its governor enjoy such a high degree of credibility. this also means that, in an economic sense, denmark is closely linked to the euro area economy and is thus also in a position to participate to a large extent in financial integration. this brings me to the topic of my speech today. today, i would like to speak about european financial integration. in so doing, i will address two main questions : 1. why is the eurosystem so deeply interested in european financial integration? and 2. what can the eurosystem do to contribute to fostering european financial integration? let me mention here also that i use the term “ european ” financial integration in a broad sense. of course, as the president of the ecb, my primary area of responsibility lies with the euro area. however, there are numerous links between the euro area and the remainder of the european union. 2. the eurosystem ’ s interest

of the future probability distributions to infinity of economic returns and variables. in such a world no defaults are admitted or dangerous bubbles possible. only the public sector can create instability. the stability pact was then supposed to be enough to ensure stability. – second, that finance does not matter for real economy fluctuations. after the real business cycles school, the rational expectations hypothesis and the intertemporal optimization paradigm, money and finance were considered not relevant anymore. money crept back in the new consensual macro model through the introduction of wage and price rigidities, allowing for short - term real economy effects of monetary policy. on the contrary, finance continued to be invisible with the efficient market hypothesis ensuring a reliable plumbing of the real economy. banks and capital markets were not considered endogenous sources of instabilities with real economy effects. they were absent from macroeconomic models. all these features are being corrected, both in economic theory and models and in institutions. the important consequence for the monetary union framework is the launching of the banking union project and within its supervision component the attribution to the ssm of macroprudential policy instruments. previously, the esrb had been created only with the competence to issue warnings and recommendations. economic theory and the overwhelming evidence of the importance of systemic risk in the crisis explain why the ecb insisted from the beginning that concrete macroprudential instruments were given to the ssm. the participant countries in the mechanism, which also can use those instruments, can feel more reassured that systemic risk at the european level will be better addressed in the future. bis central bankers ’ speeches part ii – the single supervisory mechanism main features of the ssm regulation the single supervisory mechanism is to become operational in 2014. let me briefly highlight its main features some of which are related with the previous analysis. ssm as one system the ssm will operate as a system, catering for all expertise of national supervisors and at the same time possessing a strong decision - making centre. as i mentioned before, this is an important feature necessary for the effectiveness of the new entity. appropriate decentralisation procedures will need to be defined while preserving the unity of the supervisory system and avoiding duplication. to ensure a strong centre, the ecb ’ s final responsibility for supervision within the ssm is matched by control powers over the system as a whole, as well as by very close cooperation arrangements with national authorities. the first aspect in the draft regulation approved by the council that ensures that the intention