Within our Economic and Monetary Union, more integrated capital markets can also help to cushion shocks to parts of the euro area, thereby enhancing the resilience of the euro area as a whole.2 From the companies’ point of view, cross-border ownership would mean that they have a wider pool of investors and potentially more stable sources of capital available for their investments. From the side of investors, diversified portfolios would help them hedge against country-specific risks. Cross-border capital markets and banks would thus provide the level of private risk-sharing we need to ensure the long-term resilience of the euro area. In my remarks today I will argue: First, that financial markets are playing an increasingly important role in funding the economy, but more needs to be done to foster sustainable cross-border financial integration and risk-sharing; Second, that a revamped CMU agenda should be geared towards addressing the challenges facing Europe, such as Brexit, and ensuring that capital markets growth does not endanger financial stability; And finally, I will highlight the important synergies that exist between the capital markets and banking union projects. How far away is a European capital markets union? First, the good news: we are seeing a change in the structure of financial markets. The non-bank sector continues to grow. It is playing an increasing role in providing a stable source of funding to the European economy.
This is largely connected to the substantial changes in the repo rate in our forecast. Our inflation target is formulated in terms of the change in the CPI, and I would therefore like to pause and develop this a little further. CPI inflation has fallen rapidly in recent months and we are assuming that this will continue during 2009. The annual change in the CPI is expected to be at its lowest in September this year, when it will be -1.6 per cent. This fall is largely due to the rapid interest rate cuts we have made during the autumn and now in February having an impact on the part of the CPI that reflects housing costs. It is also due to the fall in energy prices. However, if one disregards the cost of mortgage rates the picture is quite different. Inflation measured in terms of the CPIF, which disregards changes in mortgage rates, is around 1.6 per cent on average in 2009. And if one moreover disregards the change in energy costs from the CPIF the forecast is even higher. According to our assessment, the CPIF excluding energy will increase on average by just over 2.2 per cent a year. There are several reasons why underlying inflation trend is being held up. Unit labour costs have increased fairly rapidly over the past two years and resource utilisation has been high. In addition, the krona has been weaker, which contributes to higher import prices.