There are those who sometimes give the impression that they think the Euro could - by regulation or restrictions - be confined to within the territory of the Euro area, and that this would be “a good thing”. That I have to say is not our experience. In practice unnecessary or ineffective domestic regulations or restrictions have often been the cause of financial activity growing up elsewhere. In any event we live in a global financial world and the Euro is bound to become a widely-used and actively-traded currency internationally. Its liquidity is likely to be a key attraction to domestic and foreign users alike. The City of London both contributes to, and thrives upon, liquid markets, and the Euro-market, or the euro-Euro-market if we are an “out”, will be no exception. That can only be good for the development of financial activity - the provision of competitive financial services - across Europe as a whole, because we are not talking here about a zero-sum game. Euro-activity in London is likely to stimulate financial activity in other centres and vice versa; and much of that activity will be undertaken by branches or affiliates of the same major financial firms. The first ecu-Euro bond raised last week by a European borrower and managed from London by a Swiss/British and a French bank and by another French bank in Paris, is a good example not just of London’s international role as it is today, but of how it is likely to continue.
The simple fact is that there are real risks as well as real potential benefits in monetary union; and it would be foolhardy just to assume that the enterprise, if it is embarked upon, will inevitably bring about the political harmony and economic prosperity across Europe that anyone in their right mind wants to see. It is hugely important to all of us that Europe’s political leaders stand back and weigh the risks as well as the potential benefits, dispassionately, before any irrevocable step is taken. If the debate in this country encourages open debate elsewhere then we will be doing a service to Europe as a whole. It is something of a fashion these days to describe economic conditions in terms of fairy stories. I have heard the steady expansion in the United States, and more recently in this country, described as the “Goldilocks” condition - with the economic temperature not too hot, not too cold, but just right. In the same vein I might describe European monetary union as Beauty and the Beast. The Beauty of it lies in intra-European exchange rate certainty. And if you don’t find that instantly seductive I suggest you speak, as I have, to some of Britain’s exporters. They have seen, over the past six months or so, an erratically sharp appreciation of sterling, against the core European currencies in particular, which can’t be adequately explained in terms of economic fundamentals.