a dramatic development if we recall that only at the beginning of 1996 this yield spread amounted to as much as 500 basis points in the case of some countries that are taking part in the eurosystem today. in the absence of exchange rate risk, spreads nowadays only reflect perceived differences in credit risk and liquidity. increasingly, it is the latter prevailing over the former. i want to illustrate this point with an example : it would be very hard – if not absurd – to argue that it is a higher credit risk which is forcing the netherlands to regularly pay about 15 basis points more on its long - term government debt than germany. clearly, it is the lower liquidity of the market for dutch government bonds which is causing this spread. it has been suggested recently that national governments in the euro area should pool their debt issuing in one central agency, acting on behalf of borrowing governments. this suggestion was made with reference to the greater liquidity that such a procedure would create for the euro - denominated government bond market and the savings in borrowing costs it would allow. you will be hardly surprised that i do not agree with this proposal. admittedly, there may be a few basis points that could be saved in the debt management of some governments of small countries and / or countries with low debt levels over the short run. however, by pooling debt issuing one would also pool risks and liabilities of the debtors. this would be a violation of article 103 of the european union treaty ( ex - article 104b of the maastricht treaty ), the so - called “ no - bail - out clause ”, which prevents governments from assuming any liability for other governments ’ debt. such sharing of liabilities, in my view, could create moral hazard that would undermine the credibility of the new currency. the result would be higher rather than lower long - term interest rates, leading to higher borrowing costs for member states. the upshot of this is that for the time being we will not be able to create a euro - denominated government debt market of the same liquidity and homogeneity as the market for treasury bonds in the us, unless we were to get a fully fledged political union with a supranational european government issuing substantial amounts of debt. i cannot see that happening in any foreseeable time span, although it could be the long - term result of a sustained evolutionary process of political integration. ii. let me return from the future to the present. we

mr stark discusses how the euro will change the world of finance opening speech by dr jurgen stark, deputy governor of the deutsche bundesbank, to the ferma ’ s risk management forum, held in berlin on 25 october 1999. * * * i. ladies and gentlemen, it gives me great pleasure to address this forum of european risk managers here in berlin today. with the introduction of the euro at the beginning of this year european financial markets have entered into a new era of rapid and profound change. the single currency will affect every segment of the financial services industry in the euro area in one way or another, although this impact and the pace of change will be different in various market sectors. the most rapid change has already taken place in the euro money market, which, within a matter of weeks after the launch of the single currency, developed into a wholly integrated transnational market, providing the very basis for the money market operations of the european system of central banks, the eurosystem. this was made possible by target, a system which allows large - volume payments on a real - time basis throughout the euro area and which, after a few technical difficulties at the start, is in full and smooth operation now. transnational payments within target reached a daily average of 350 billion euro in july this year. target thus ensures that cross - border arbitrage will eliminate short - term interest rate differentials. as a result, the eonia rate and national overnight rates have entirely converged. money markets have also adopted euribor as the single short - term benchmark in euro, to which the short - term futures market and the long term swap market are linked. transnational integration is a much more gradual process in capital markets. nevertheless, this process has already, within the first months of the new currency, acquired considerable momentum. in fact, the development of broad, deep and liquid capital markets covering the whole of the euro area is one of the great potentials of european monetary union. it is the elimination of exchange rate risk that is driving this process of market integration, the major feature of which has been a far - reaching convergence of long - term interest rates. this process started well before the launch of the euro, when markets gradually began to anticipate that emu would become a reality. as a result, interest rate differentials between 10 - year government bonds of euro member states have narrowed to a range that, usually, does not exceed 40 basis points these days. this is