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EMU and Economic Policy in Europe

The Challenge of the Early Years

Edited by Marco Buti and André Sapir

EMU is a completely new policy regime which has significant economic implications and which, it is hoped, will ultimately enhance the role of Europe on the world stage. EMU and Economic Policy in Europe takes stock of the initial experiences of EMU and assesses the challenges which will have to be addressed in the early years of its existence to ensure its long-term objectives are successfully achieved.
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Chapter 12: EMU and Financial Market Structure

Harry Huizinga


12. EMU and financial market structure Harry Huizinga* 1. INTRODUCTION The introduction of the euro on 1 January, 1999 was a watershed event for Europe’s economies and especially for its banking and financial markets. The elimination of exchange rate risk and the greater price transparency offered by the single currency affect financial markets more quickly and deeply than any other markets. Almost from the start, the interbank money market in the euro area became fully integrated, and there was a remarkable pick-up in issuance volume in the corporate bond market. Monetary unification also brought down yield differences in the government debt market. At least as important, the euro brought in full view the fragmentation and costliness of the exchange and settlement structure of European financial markets. In this area, the euro has proven an important catalyst for change towards increased consolidation. An example of this is the birth of Euronext, a merger of the Amsterdam, Brussels and Paris bourses. In the years to come, further alliances of this kind are likely to lead to a radically changed financial landscape. Bank consolidation, much anticipated before EMU, also has proceeded, be it at a subdued pace. No panEuropean mega-banks have been formed yet. The likely further consolidation of Europe’s capital and banking markets is also prompting a new look at current regulatory and supervisory arrangements in Europe, with an emphasis for now on the regulation of European securities markets. At the start of the new millennium, significant...

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