’ s little local difficulty with herr waigel. and it is too early to assess the consequences for the project of the results of the french election. but it is clear that new elements of uncertainty have entered the scene, making it harder than ever to forecast the outcome next year. looking at the markets ’ own assessment, our interpretation of movements in the forward fx markets since the autumn is that the markets have become more persuaded that the euro will begin, but that it will be a broader, and possibly weaker euro. until last summer the assumption appeared to be that only seven or eight countries would make up the hard core. in the last few months the expected future correlation of the deutsche mark / dollar and lira / dollar rates has strengthened, suggesting a stronger market expectation of those currencies being part of the first wave. very recently, a few doubts seem to have emerged about the project itself, though it would seem that, according to the market, the most likely outcome remains that a euro of some sort would start on time. i recognise that this is a difficult background against which businesses need to plan. our own advice, which we have maintained for some time now, is that it is prudent to plan on the basis that the euro will begin on 1 january 1999, as set out in the treaty. as far as the position of the uk is concerned, the option remains open, the policy remains what the french call ‘ le wait and see ’. but the new chancellor, like the old, has acknowledged that there are considerable difficulties to overcome if the uk is to be a first wave member. this is not a tidy position to be in, perhaps, but against the uncertain background, it nonetheless has a certain practical appeal. but taking my prudent assumption - that emu will go ahead - what can we say about the impact on the london market in general, and on the futures and options business in particular? i note with interest that your own assessment is that the best option for the futures and options business in london would be for emu to go ahead and for the uk to participate in the first wave. it is a moot point as to whether the impact on the profits and bonuses of derivatives traders will be the number one criterion in the minds of labour mps when they come to reach a view on emu, but i will certainly draw it to their attention if you would like me to do so. by contrast, you are slightly, though not exaggeratedly pe

you sit in your hotel rooms poring over it. ) frankfurt has recently started making inroads into liffe ’ s share of bund futures business - but the level of activity on liffe nonetheless continues to increase. our assessment is that, in these markets, there is a considerable and long - term advantage inherent in being the first mover. that helped liffe to achieve a very broad and international membership, with only 27 per cent of members being uk - based. it has meant that london has an established skill base and good support functions in law and accountancy. also a good telecommunications system - though fewer of those old telephone boxes, which may be a problem for me at super - sib. london also has a strong clearing function and we should not forget the advantage of the english language, which is increasingly the lingua franca of the european union, and i believe that even some americans can now speak a kind of pidgin version which allows them to be understood. but emu will create change. this raises three interesting questions. what will be traded in an emu environment? how much will be traded? and where will the new instruments be traded? let me take these points in turn. what will be traded when the euro makes its debut? looking first at on - exchange markets, it seems likely that, in emu, there will be room for only one three - month euro short - term interest rate futures contract, although the greater depth of the new euro market may allow other products at the short end of the yield curve, such as a one - month euro contract, to co - exist with the three - month benchmark product. in the bond markets, one - and perhaps the most likely outcome - is that a particular government ’ s bonds will become the benchmark for the new euro bond market. we may all speculate idly on which that country might be. these issues would then anchor the euro yield curve and futures contracts would follow naturally. the greater depth of the new euro bond market may well mean that it can support a greater range of futures contracts further along its yield curve, as is the case now in the us. five and two - year contracts, which do already exist in the bund market, may develop further. the exchanges themselves recognise this point and are seeking to fill in the yield curve in their various markets before the start of emu. other national bond markets will be keen to run alongside the main market and futures contracts