irrevocable. a single currency among partner countries, some of which already started integrating in the 1950s, is seen as “ a much more serious and durable commitment ” than other monetary arrangements between countries. 1 it precludes future competitive devaluation, facilitates foreign direct investment and the building of long - term relationships. producers may be more willing to undertake large fixed costs associated with exporting to other partner countries of the currency area. one single currency is more efficient than multiple currencies in performing the roles of a medium of exchange and unit of account. as a result, a single currency promotes convergence in social conventions with potentially far - reaching legal, contractual and accounting implications. 2 the euro is also rendering more obvious the need to intensify structural reforms, such as those fostered and monitored in particular by the european commission, the oecd and that we strongly support ourselves. reforms span product and labour markets, and as regards financial integration the measures listed in the financial services action plan ( fsap ), the launch of target2, the establishment of the single euro payment area ( sepa ), the initiatives to further integration in the mortgage credit market in the eu, and others. this is in fact vital to enhance the success of emu. hence, the euro is contributing to the removal of “ borders ”. these are broadly intended to include the former legacy currencies, but also national procedures, rules and conventions, plus many other obstacles and hindrances to economic and financial integration. to what extent are we starting to see these effects? let me now illustrate, and it is my second point, how the economic and financial environment of the euro area has changed, and will continue to change. more and more research studies and analyses on the effects of the euro are being conducted. the effects observed are generally beneficial and euro area economies are becoming more interdependent. 3 we have clear evidence of a significant increase in both intra and extra - euro area trade in goods since the launch of the euro. 4 exports and imports of goods within the euro area increased from about 26. 5 % of gdp in 1998 to around 31 % in 2005. this may be partly related to the introduction of the single currency and the increased price and cost transparency, which have promoted cross - border trade. over the same period, exports and imports of goods with trading partners outside the euro area rose from about 24 % of gdp to almost 30 %. this is mainly due to more

financial corporations of around €2. 5 trillion in the united states is still three times larger than in the euro area ( while the respective gdps are comparable ). a rapid integration is also taking place in euro area equity markets. stock prices across the euro area increasingly react to euro area - wide factors and news. furthermore, the elimination of intra - euro area currency risk and, most importantly, the reduction of direct and indirect costs for cross - border portfolio transactions has reduced the “ home bias ” in the equity holdings of institutional investors. a simple inspection of the data reveals that european countries increased their holdings of euro area international assets ( as a share of their total international portfolio ). over the 1997 - 2003 period, the share of intra - euro area allocation increased markedly by 10 percentage points for equity portfolios and by almost 25 percentage points for fixed income portfolios. there is nevertheless potential for greater integration particularly in the equity market. cross - border interbank loans and holdings of securities are another area in which we have seen significant progress. at the end of 1997, securities issued by non - monetary financial institutions of another euro area country accounted for only 16 % of the securities held by euro area monetary financial institutions ( mfis ). this share has now reached almost 40 %. but integration in retail banking has been slow so far. consolidation in the banking sector has taken place mostly as a result of domestic mergers whereas cross - border banking mergers have started to happen only over the recent years. in this respect, whereas a number of euro area banks have considerably expanded their interests outside the euro area, cross - border activity within the euro area a more sophisticated analysis based on an international portfolio choice model reaches the same conclusion ( see de santis and gerard, 2006, “ financial integration, international portfolio choice and the european monetary union ”, ecb working paper series, n. 626. ). emu has enhanced regional financial integration in the euro area in both the equity and bond markets. there is evidence of active trading among euro area member states, with euro area investors assigning a higher weight to portfolio investment in euro area countries. over the period 1997 - 2001, the average increase in weights – on top of the world average portfolio weight increase in euro area assets – amounts to 12. 7 percentage points for equity holdings and 22. 4 percentage points for bond and note holdings. has remained relatively limited, though it is gaining importance. the continuation of this trend is expected to result in an increase in