In part, this no doubt reflects the fact that the euro is, for the moment, the new kid on the block which everyone wants to meet. But more fundamentally it is a clear vote of confidence in the new currency that such international interest should already be apparent in borrowing and investing in the euro, and in adapting and rebalancing portfolios to take account of this major change in the structure of the capital markets. A hugely important contribution to this process has, of course, been the vast exercise to prepare conventions, processes and systems for the euro, both within firms and in the shared market infrastructure. The scale of work undertaken in all centres – but notably in London, because of London’s pre-eminent position as the international centre for the bond markets – has been immense and I want to pay tribute to the high professionalism with which the preparations and the conversion itself were conducted. People commented on how empty the bars and restaurants were in the City of London over conversion weekend – which is remarkable in itself; but inside and indoors, 30,000 or more people achieved a remarkable feat of engineering, all within the space of a three-day holiday weekend. It may not have been everyone’s preferred way of spending New Year’s Eve, but it was certainly a very productive one. The good news is that everyone can come back and do it again this year for Y2K!
So there is a lot you can feel positive about in the past year’s achievements and in the start you have made to 1999. But, looking ahead, the world prospect remains uncertain. Notably, the emerging markets crisis has had an immense impact on international financial flows, and the economic adjustments that those shifts will bring in their wake are likely to have important impacts on the bond markets and on your business activity. As a measure of the impact of the emerging markets turbulence, the Institute of International Finance recently published data which show that total net private capital flows to the emerging markets (broadly defined) fell from some $ billion in 1996 to around $ billion last year. Within this, nonbank lending and portfolio equity inflows also fell back by around $ billion (to around $ billion). Although direct investment in the emerging market countries held up pretty well (at around $ billion), and despite a big increase of nearly $ billion in official lending, there was a sudden huge decline in the overall availability of finance to the emerging market economies. And that left many of them with sharply weakening exchange rates, and little choice but to contract their domestic economies. The immediate international priority last year was to contain the financial contagion – and there was some progress in this direction following the initial shocks in Asia.