There are two facts which illustrate this trend: the number of monetary financial institutions (which has already been decreasing steadily for several years) fell by 5% in one year in 1999 (up to the end of November); and the total value of mergers and acquisitions involving banks in the euro area clearly exceeded (by around 35%, according to certain private databases) the already high level recorded in 1998. In 1999 it was also above the level of similar transactions reported in the United States. Conclusion Price stability and the creation of a large integrated financial market are therefore beneficial to the development of savings in the euro area and to their optimal allocation. It would certainly be wise to ensure that certain financial imbalances are not allowed to jeopardise this favourable environment. Thus, insufficient fiscal consolidation leads to a continuous eviction by the states of a significant part of the available private savings. In the same way, excessive taxation and wage increases out of line with growth in productivity sap the dynamism from investment and consequently also from savings. 3  BIS Review 6/2000  Its development also requires a certain convergence in tax systems. Ultimately, the health of the financial sector is essential to the protection of savings. Although the Eurosystem has no direct authority in the field of prudential supervision, it monitors risk developments in the banking sector, as it does more generally with regard to developments in assets prices, where these could potentially affect overall monetary and financial stability.
Second, inflation not only affects the system of measurement of prices for goods and services, it also affects the quality of indicators of profitability and of interest rates. By way of an example, the profits of a firm can be artificially affected by differences between the posting dates of payments and receipts or by the incorporation of inflation premia into flows of interest. Of course, these profits could possibly include a real gain linked to the reduction in real interest charges, but this does not correspond to the intrinsic profitability of the firm. In the same way, the comparability and thus the best selection of different investments is affected by the inclusion of higher inflation premia in reported rates of return. In addition, inflation discourages a long-term approach to efforts to save, as shown a contrario by the developments in long-term investments following the shift of monetary policies in Europe towards price stability in the last few years. The substantial share of life insurance investments of non-financial agents in the euro area serves to illustrate the point. This has risen from 18% of investment flows of non-financial agents in the euro area at the beginning of the last decade to 26% on average in 1997 and 1998. In the same way, bond issuance in Europe intensified notably in 1999, although this is also explained by the disappearance of exchange risk within the euro area and the greater depth of the market.