Exchange rate certainty within Europe - even though only within Europe, and even though it is nominal exchange rate certainty rather than real exchange rate certainty, which is what matters in terms of competitiveness - would potentially enhance the benefits to be derived from the European Single Market. The euro’s second very powerful advantage is the possibility it opens up for much broader and more liquid financial markets. It will mean a progressive narrowing of spreads between borrowers and lenders, which is good news for the users of those markets - and that will be good news too for financial intermediaries as a group, because it will lead to higher volumes of financial activity. Not every individual intermediary will benefit, of course, in the more competitive environment, but those who survive will thrive! The City of London is already making an important contribution to this process of euro financial market integration. It is in fact the greatest contribution that the UK can make to the success of the 1  BIS Review 71/2000  euro while we remain outside. (It runs alongside the conceptually distinct, but closely related, pressure for broader international integration of financial markets, currently reflected in a spate of initiatives to unify trading platforms, and both clearing mechanisms and settlement systems, in which London, of course, is also very much involved.) These then - nominal exchange rate certainty throughout the Eurozone and integrated euro financial markets - are potentially powerful economic arguments in favour of UK membership.
This policy of “prepare and decide” has subsequently been confirmed by the publication of a National Changeover Plan, which sets out the key steps that would be involved in the transition following a positive decision on UK entry. This remains the Government’s policy. In the meantime, we continue to pursue macro-economic - both fiscal and monetary - stability and supply-side flexibility alongside our European partners, in our own national economic interest, which will also help to bring about closer convergence between our economies. Over the past seven years or so we have in the UK achieved the longest period of sustained low inflation we’ve known for a generation. Retail price inflation - on the Government’s target measure has averaged 2.6% since the beginning of 1993 and is currently running at 2.2%, or only 1% on the European harmonised index of consumer prices. But alongside low inflation we’ve had the lowest nominal interest rates that most of us can remember. Short-term rates have averaged some 6¼% since the MPC’s first decision in June 1997 compared with some 9.25% over the preceding decade. And 10 year government bond yields have fallen, with inflationary expectations, to around 5¼%, which apart from a brief period last year is the lowest they’ve been for nearly 40 years. Much more fundamentally we’ve enjoyed the longest period of uninterrupted, quarter by quarter, economic growth since records began some 45 years ago - with annual growth since Q3 1992 averaging 2.8% - between ¼ and ½% above most estimates of our underlying trend rate.