Some people who basically recognise this concern are inclined to argue that if a europarticipating country were to find itself in this situation - and given that it would have no macroeconomic way out, for example, through exchange rate adjustment, or monetary relaxation, or fiscal stimulus beyond the limits of the Stability and Growth Pact - then it would have an overwhelming incentive to take the sort of supply-side measures which have proved so difficult to implement hitherto. As one of my colleagues once put it to me “when we have exhausted all other possible policy options, we will finally be forced to do what we know to be the right thing!” And the populations in those countries would it is true have a similar incentive to accept structural change. I am not sure how far one can rely upon that. But it does in any event serve to emphasise that supply-side flexibility will be more crucially important than ever in the context of monetary union. I should emphasise at this point, Mr. Chairman, that I am not predicting that there will necessarily be serious tensions within the single currency area. There will no doubt be policy challenges - there always are, with or without monetary union. But it is difficult for anyone to predict how serious the problems will in fact turn out to be.
The Bank of England has been working intensively with the City for the past few years to ensure that it is as thoroughly prepared for the start of the euro next year as the financial centres in any of the participating countries. We will be ready to provide financial services denominated in euro to all those that want them from day one. And we are already taking the initiative with our European partners in creating regional market structures, as you see, for example, in the talks between the London Stock Exchange and the Deutsche Börse, which are designed to lay the foundations for an inclusive, pan-European, equity market. You will be able to account, trade and settle in euro-denominated assets in London just as you can now in Deutsche Mark or French francs or dollars or yen. The financial markets of the City are our wedding present to the euro marriage partners. They are not just a national - but a European - asset. There are, of course, some here on the Continent who regard this role of the City as something of a mixed blessing - perhaps even a threat rather than a promise. There is a view that the euro should somehow ‘belong’ exclusively to the participating countries and that its introduction should be used as an opportunity to confer competitive advantage on national financial centres within the euro area.