make a direct contribution in its fields of competence, e. g. through the provision of the pertinent infrastructure. to be more concrete we are, as i am sure you are aware, replacing the euro area ’ s current decentralised payment system with a single technical platform, target2, which is due to go live in 2007. target2 will further improve financial integration. it will increase cost - effectiveness and allow for the provision of a harmonised level of services across europe, supported by the implementation of a single price structure for domestic and cross - border payments. target2 will also offer new functionalities in terms of banks ’ euro liquidity management and consolidated information – which should make it one of the most sophisticated payment systems in the world. beyond such a direct contribution, the ecb sees itself predominantly as a catalyst for change, seeking to enrich the debate in the relevant eu - wide fora and through dialogue with market participants. in this endeavour we wish to support and complement the activities of the private sector and public authorities, notably the european commission. one such field of activity relates to retail payment systems, particularly the initiative to create a single european payments area ( sepa ) as from 1 january 2008. the sepa is important, not least because it represents a very tangible benefit in the everyday lives of europeans. european citizens and enterprises will be able to make payments throughout the euro area from a single bank account using a single set of payment instruments, as easily and safely as they do today in the national systems. in addition, national infrastructures should migrate to a pan - european payments infrastructure by the end of 2010, which means that investments in the next generation of national systems should be made from a pan - european perspective in order to ensure compliance with the sepa. of course, all of this concerns the investment decisions in individual banking establishments, but i am confident that banks which can offer payment services of the quality envisaged by the sepa will have competitive advantages. as outlined already, for the ecb, as a supranational institution, the cross - border dimension of the banking sector in the eu, and the related regulatory and supervisory issues, are of particular interest. at the ecb, we see the ongoing consolidation of the european banking sector as a predominantly market - driven process. what public policy at the eu level can and should do is to remove potential prudential and supervisory obstacles to cross - border m & as. for example, in 2004

##shrined in the treaty as the ecb ’ s primary objective. with an average euro area inflation rate of close to 2 % since 1999, the ecb ’ s record so far has been in line with our quantitative definition of price stability. it is true that inflation has been somewhat higher than 2 % for some fairly long periods of time as a result of several adverse shocks – such as repeated rises in oil prices or indirect tax increases, to name but two. nevertheless, the ecb has succeeded in delivering a high degree of price stability over the medium term. in fact, by focusing on maintaining price stability over the medium term rather than seeking to counteract unfavourable price shocks with an overly aggressive monetary policy designed to restore price stability within a short period of time, the ecb has avoided excessive volatility in economic activity and employment. the ecb ’ s commitment to its primary objective of price stability and its ability to achieve this goal over the medium term are widely recognised by financial markets. a central bank ’ s credibility in pursuing policy objectives is vital to the preservation of monetary stability. the credibility of the ecb ’ s monetary policy has been established, and it is reflected in long - term inflation expectations, which have remained low and stable. and this, in turn, has been a major factor in attaining the historically low level of euro area bond yields that is giving considerable support to economic activity. what is the outlook for price stability and what are the challenges ahead? overall, there is no significant evidence of underlying domestic inflationary pressures building up in the euro area. hicp inflation, excluding its more volatile components of energy and unprocessed food, was 1. 6 % in march, unchanged from february. economic analysis suggests that domestically generated inflationary pressures are likely to remain limited. in an environment of moderate economic growth and continuing slack in labour markets, wages should continue to increase at a modest pace and the pricing power of firms should be constrained. nevertheless, there are several upside risks to price stability, despite the presence of downside risks to economic growth. at the present juncture, the persistently high oil prices and their potential second - round effects on wage and price - setting pose a threat to price stability. at the end of april, oil prices were around 30 % higher than at the beginning of 2005 and around 50 % higher than a year ago. they have exerted upward pressure on inflation and are the main reason why, over the coming months,