Extensive planning and programming will be necessary to permit foreign exchange trading and other cross border transactions to be conducted in the euro, with the added complexity of the continued circulation of various national currencies for several years. Of course, banks outside the European Monetary Union that are trading counterparties will also have to program their computers to accommodate the euro.
So, the banks not only have no capital backing for these government bonds but are also tying their own fate to that of their country. This will need to change to give credence to the no bail-out regime. But even a credible no-bailout regime can only have the intended disciplining effect once doubts begin to emerge over a country’s fiscal soundness.