Economic and monetary union in Europe (EMU) will produce profound changes in exchange and financial markets, and these are likely to affect in a fundamental way the activities of a broad range of market participants and private and official institutions. As part of an ongoing effort at the International Monetary Fund to understand the broader, systemic implications of EMU, a conference was held in Washington, D.C., on March 17–18, 1997, which brought together a distinguished group of several hundred academics, officials, and policymakers. The conference, cosponsored by the Fondation Camille Gutt and the International Monetary Fund, was on the subject of EMU and the international monetary system, and it generated many insights into the effects of the introduction of the euro.
When the Managing Director called a few weeks ago to suggest that I might join you for dinner, I accepted much too easily. The simple fact is that, instead of speaking tonight, I should have been with you all day learning. The only claim I can make at this point is that I come with a fresh mind, unencumbered by absorbing the wisdom of the day. I will acknowledge, however, that I am encumbered by a few prejudices and preconceptions.
If the process of European monetary integration remains on schedule, January 1, 1999 will see the beginning of the union of currencies of economically and financially diverse European countries. Regardless of the precise number of countries that initially join, a European EMU of any size will pose challenges, opportunities, and risks for both private and official participants in European and international financial markets. Although the introduction of the euro is a significant step toward European financial integration, it is by itself only one step in a long process. Previous steps have included, in the area of monetary and exchange rate policy, the creation of the EMS with the ERM, and the Basle/Nyborg agreement; and in the area of financial integration, the adoption and ongoing implementation of the EU Second Banking, Capital Adequacy, Investment Services, and other financial directives.