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

bank of england since i started working there. everyone who knew peter has their own fund of these stories and you can and should read many of them in the online condolence book set up by the university of birmingham. to give one personal memory of peter ’ s wonderfully warm and encouraging approach : in our final year at brasenose we each had to do a long essay and present it to the rest of the class. i wrote mine on the european monetary system, then in its first phase ; it was my first exposure to analysing an active policy tool. i recall that it turned out to be rather heavy on institutional detail about the ems and rather light on the economics and efficacy of exchange rate regimes. at the end of my presentation peter, first, went out of his way, as he always did in response to any presentation, to compliment me on all the efforts i had put in. only after that, did he then, in his characteristically gentle but incisive way, set out several avenues i might follow in developing my analysis of nominal versus real adjustment. in doing so peter drew on a whole host of references and models that he could call on from memory, some of which i ’ m sure found their way into modern international economics, the textbook peter wrote with shelagh heffernan, his first wife, who died in 2010. the ieo ’ s report is available on the bank of england website, as is the bank ’ s response. all speeches are available online at www. bankofengland. co. uk / news / speeches and @ boe _ pressoffice peter seemed to be focused on the most important and relevant policy issues of the time – he always wanted to learn more about the world and to suggest ways that economics and economists could improve it. and he conveyed that enthusiasm and ambition to each student intake and to his colleagues. peter ’ s review of “ what ’ s the use of economics ”, the book of proceedings from a conference organised and edited by diana coyle, another former student who gave the second of these lectures, held at the bank of england nearly a decade ago, is peter at his kaleidoscopic best and as relevant now as when he wrote it. 2 for me as an undergraduate student in the early 1980s it was incredibly stimulating to be learning from peter about keynes ’, hicks ’ and leijonhufvud ’ s contributions to disequilibrium economics, all framed by peter ’ s