If that view were to prevail the main effect would be to inhibit the development of the euro as an international trading and portfolio currency, reducing one of the single currency’s major benefits to both investors and borrowers within the euro area itself. In practice in today’s world of globally integrated markets and liberalised capital flows there is very little prospect of being able to impose artificial constraints on the international use of the euro. There will inevitably be active euro markets in all the major financial centres, including London. And it is in the interest of financial activity right across Europe that there should be. Like trade in goods, trade in financial services is a positive sum game, so that London’s success is not a threat to other European financial centres. As a major interface between Europe and the rest of the world I have little doubt that euro-activity in London will mean more rather than less euro activity in other European financial centres like Frankfurt, Paris, Milan, Amsterdam or Brussels. And conversely I have little doubt either that what is good for those centres will be good too for the City. I hope, Mr. Chairman, that I have said enough to persuade at least some of you that British hesitations about participating in the euro from the outset are not just plain obstinacy!
Out of the first wave we may be - indeed we are - but we remain very much an active and, I would hope, a constructive partner in the process of European monetary integration in a wider sense, and we clearly want the euro to succeed. That is why I prefer to think of Britain in Europe which I took as the title for my talk. BIS Review 88/1998  -6-  Let me conclude, Mr. Chairman, with just a few remarks on the prospects for the euro in the current climate of global financial turmoil. For much of the past two years or so financial markets have shown a degree of scepticism about the future character of the euro. The sense, from about the autumn of 1996, appeared to be that the process was being driven by the politics of Europe with less emphasis on the importance of economic convergence; expectations therefore increasingly focused upon the prospect of a broadly-based rather than a narrower euro; and the inference was drawn that this would mean a weaker rather than a strong euro. Together with comparatively subdued economic activity on the Continent, this perception - or misperception - meant that the core European currencies were for a time relatively weak against the dollar, and against sterling. That situation has more recently begun to change.