Financial markets are betting that European economic and monetary union (Emu) is still on track after France’s new socialist prime minister, Lionel Jospin, accepted German chancellor Helmut Kohl’s terms on the Stability Pact at the recent intergovernmental conference in Amsterdam. That convinced markets of the irresistible force of their combined political will to achieve Emu, despite the Paris-Bonn spat over “job creation” versus “sustained fiscal stability”.
If Emu is indeed destined to go ahead on time, short-term interest rates will converge completely for first-wave members at the single discount rate set by the European Central Bank (ECB).
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