mr. george discusses britain in europe and the economics of emu speech by the governor of the bank of england, mr. e. a. j. george, at the borsen in copenhagen on 6 / 3 / 98. i am delighted to be here this morning, and to have this opportunity to meet with the danish financial community. i would like to use this opportunity to explain to you something of the british attitude to europe - as i see it - and in particular our attitude to monetary union. i am well aware that we british have something of a reputation for stubbornness about europe. i should like to try to persuade you this morning that while we do have some - not wholly irrational - misgivings, we are nevertheless as anxious as anyone to see the project succeed. we have to be - it is clearly in our national interest that it should. let me make clear at the outset that, of course, i recognise that monetary union is fundamentally a political issue. it necessarily involves some deliberate pooling of national sovereignty over important issues of public policy - monetary policy and overall fiscal policy - just as the single market involved the pooling of sovereignty over aspects of trade and competition policy and so on. decisions about monetary union will quite rightly be taken by elected politicians, according to their perception of its long - term political impact on the future of europe, as well as its impact on the future prosperity of their countries, and they will have to carry their electorates with them. as a central banker i have nothing to say about the politics of monetary union. but it is also, of course, about economics, and the economics of monetary union could go either way ; if it goes well, that certainly could yield political benefits, but if the economics were to go wrong, then that could blow back on the politics of europe and give rise to tensions. i shall concentrate my remarks this morning on the economics of emu. the economic pros and cons have in fact been exhaustively debated in the united kingdom and the arguments are now reasonably well defined, even though different opinions inevitably attach different weights to them. on the positive side, the crucial and unique economic advantage of monetary union is exchange rate certainty within the euro area - not just the reasonable de facto stability that might result from each eu member state individually pursuing disciplined macro - economic policies in parallel - but actual exchange rate certainty. and that is a very real economic advantage as uk exporters presently suffering from the strengthening of sterling over

, are critically dependent on the willingness of dealers to warehouse risk in return for the informational advantage that seeing the flow provides. such frictions have started to take new forms in fast markets. in particular at the same time as highfrequency trading activity has increased, a number of banks have stepped back from acting as market makers and have assumed a more infrastructural role. but new market participants still rely on banks to provide market access and extend them credit when engaging in algorithmic trading, through banks ’ prime brokerage and clearing businesses. providing a competitive service to such technologically advanced clients – particularly those trading at very high frequency – requires substantial investment in technology and infrastructure, including that to facilitate the real - time monitoring of exposures and risk management. the costs associated with this are high, and serve as an effective barrier to entry. as few banks provide these services, this leads to a concentration of nodes of market access for short - term liquidity providers. the changing role of banks / dealers in fast markets prompts the question whether the nature of potentially disruptive risks is also changing. one obvious concern would be if a prime broker or clearing bank was paralysed, including for reasons unconnected to its activity in fast markets – say because of a cyber attack. i think it is fair to say that our understanding of how market functioning would respond in such a scenario – i. e. one in which a number of, in particular high - frequency, liquidity providers were denied market access – remains relatively limited. if there is a common theme across all three of my examples, it is the limits of our understanding. none of the points i have raised with regard to market resilience are wholly new. we at the bank are following developments in the structure of these markets and their implications for financial stability closely, including through discussions within the bank ’ s financial policy committee ( fpc ). and as regulator both of many participants in electronic markets and some of those markets themselves, the financial conduct see, for example, shafik, m ( 2015 ), ‘ dealing with change : liquidity in evolving market structures ’ and the analysis of the sterling flash crash in box 3 of the financial stability review, november 2016 ( pages 39 - 41 ). all speeches are available online at www. bankofengland. co. uk / speeches authority ( fca ) too has remained deeply engaged and responsive to those developments which fall under its purview. likewise