this kind of economic debate that the chancellor of the exchequer announced a year ago that the united kingdom would exercise its opt - out and not participate in the first wave of euro membership. that was a disappointment to some of our european partners. but it was a considerable relief to others, because uk participation from the outset would undoubtedly have complicated the project - not least because of the substantial cyclical divergence between ourselves and the major countries on the continent. but the chancellor also made it clear that the present british government is not opposed to euro membership as a matter of principle ; it will make its decision on pragmatic grounds - the test being whether membership would be in our economic interests ; and it would submit that decision to parliament and to the british people in a referendum. the chancellor recognised that - barring some fundamental and unforeseen change in economic circumstances - it was unrealistic to think that a decision could be made during the lifetime of the present parliament and that could extend to may 2002. but he stressed that in the meantime the united kingdom should prepare - both for the euro ’ s introduction on the continent on 1 january 1999 and for our own eventual participation. this statement was the first by a british government to accept the principle of monetary union. it implied that the united kingdom is to be regarded effectively as a “ pre - in ”. it recognised that the single currency will affect us whether we are in or out of it, and that it is clearly in our national interest to do all that we can to help ensure that the euro is successful. this, in my view, provides a solid foundation for a continuing, positive and constructive relationship between the united kingdom and other eu member states, including those participating in the first wave of the euro. and that must be in the interest of both sides : just as we benefit from a stable and prosperous europe, so too the continental european interest lies in a stable and prosperous britain - and that mutual interest above all is the thing we must all hold on to. to allow the euro to become a divisive factor in the broader relationship between european union member states would be to cut off our collective nose to spite our collective face! what then can the united kingdom bring, initially as an ‘ out ’, or ‘ pre - in ’, to the european party, in terms of contributing to the euro ’ s success? there are, i think, two things in particular. first, we can continue to pursue macro - economic - both monetary and

, 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. 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. market scepticism has diminished with the growing realization that the european central bank will in fact be rigorous in pursuit of its mandate of maintaining effective price stability throughout the euro area as a whole - that the euro will in fact be soundly managed. and at the same time domestic demand growth and economic activity have started to pick up in the core european countries, causing the euro - currencies collectively to strengthen in the foreign exchange market and helpfully easing some of the cyclical tensions that might otherwise have complicated the move to a single monetary policy. all this is now overlaid by the successive financial shocks to the global economy from asia, from russia, and most recently from the need to rescue long - term capital management fund ( ltcm ). in practice the euro currencies have been remarkably stable in relation to each other in the face of these shocks - demonstrating the market ’ s total conviction, in the words of one market participant