The Chancellor recognised that - barring some fundamental and unforeseen change in economic circumstances - it was unrealistic to think that a decision could be made during the lifetime of the present Parliament and that could extend to May 2002. But he stressed that in the meantime the United Kingdom should prepare - both for the euro’s introduction on the Continent on 1 January 1999 and for our own eventual participation. This statement was the first by a British Government to accept the principle of monetary union. It implied that the United Kingdom is to be regarded effectively as a “Pre-In”. It recognised that the single currency will affect us whether we are in or out of it, and that it is clearly in our national interest to do all that we can to help ensure that the euro is successful. This, in my view, provides a solid foundation for a continuing, positive and constructive relationship between the United Kingdom and other EU member states, including those participating in the first wave of the euro. And that must be in the interest of both sides: just as we benefit from a stable and prosperous Europe, so too the Continental European interest lies in a stable and prosperous Britain - and that mutual interest above all is the thing we must all hold on to. To allow the euro to become a divisive factor in the broader relationship between European Union member states would be to cut off our collective nose to spite our collective face!
A well-functioning Capital Markets Union will have major ramifications as it will attract institutional investors, improving the allocation of resources and strengthening the international role of the euro. Crucially, it will help reshape capital markets in Europe after Brexit. I believe that this project is essential for the Single Market, for the Economic and Monetary Union and a resilient euro, and, ultimately, for the EU’s global competitiveness. I am certain that these and other matters will be raised and discussed during the following panel of this conference. The case for a fiscal stabilisation capacity But, even if developments in European financial markets were complete, private risksharing would still be inefficiently low. This is because private investors do not yet internalise the positive macroeconomic stabilisation externalities of their portfolio choices. In this context, the other area that urgently needs addressing is enhancing the stabilisation capacity of the euro area through fiscal instruments. Moreover, the efficiency case for fiscal risk-sharing ultimately hinges on the relevance of idiosyncratic shocks and the capacity of national fiscal policy to face these shocks. The efficiency argument meets the responsibility argument in the case of fiscal liabilities stemming from inadequate Euro-wide policies, as is now the case of financial supervision and resolution. True, some evidence suggests that national business cycles have now become more synchronised. But it is clear from economic developments over the last decade that the mere sum of national fiscal buffers may not be enough to accommodate severe common shocks.