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jens thomsen : european bond markets before and after the euro speech by mr jens thomsen, member of the board of governors of the national bank of denmark and chairman of the efc - subcommittee on eu government bonds and bills markets, at the european government bond summit, brussels, 25 october 2006. * * * my remarks will focus on reflections related to the integration process that the european bond markets has experienced in the post - emu era. in particular, i will highlight the successful evolution of european government bond markets following the introduction of the common currency. the establishment of the european monetary union on january 1, 1999, paved the way for a more integrated european bond market. in the pre - emu era, different euro area countries'government bond yields differed substantially. as an example, yield spreads against germany in the 10 - year government bond segment ranged up to 700 bp in the 1990's ( see slide 1 ). yield spreads were however expected to decline along with the introduction of the euro primarily due to the elimination of exchange rate risk. prior to 1999, attempts were made to anticipate the magnitude of the post - 1999 yield spreads between emu member states. sparsely evidence from other currency areas provided some insight in relation to such anticipations. the provincial bond market in canada was one such candidate area to use for comparison as the canadian provinces had some similar characteristics to the forthcoming emu countries, including no explicit rules for mutual or federal bail out. the spreads between bonds issued by different canadian provinces and canadian government bonds were much lower than euro area spreads prior to the euro ranging " only " up to 60 bp. notwithstanding declining spreads, the canadian evidence indicated that the euro area spreads would not completely disappear ( see slide 2 ). 1 considering the post - 1999 era in retrospect, the euro area spreads have indeed declined significantly since the introduction of the euro ( see slide 3 ). in fact, euro area spreads are small today and actually lower than the ones observed between canadian provinces. this may be due to a higher level of liquidity in the emu countries'issues as well as somewhat better credit ratings among emu countries. regarding the credit ratings, they may be influenced by the generally larger tax bases of central governments in addition to lower labour mobility in europe which causes tax bases to be more secure. the convergences of yields among euro area countries have not yet been observed as markedly for the 10 new eu member states even though erm2 members clearly have experienced lower spreads