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Battle for the euro

By March 1998 Europe's biggest futures exchanges will launch the first contracts to be settled in euros. Only the fittest will survive. London, Paris and Frankfurt are locked in combat to win the greatest prizes of all ­ those dominant futures contracts in short-term and medium-term interest rates. David Shirreff reports

Agincourt, Orléans, Austerlitz, Waterloo. These are the names that spring to mind as one considers the great sweep of European history that is about to culminate in a final conflict: for mastery of a pan-European currency, the euro.

The battle has already begun. And some observers believe that only one of the major European financial centres ­ London, Paris and Frankfurt ­ will emerge victorious.

Others are less bloodthirsty. They foresee a Europe in which various financial centres cooperate to serve a stable trading area as large as the Americas and Asia, backed by a currency as powerful as the dollar, more powerful than the yen.

But that's a long way off, and tribalism and nationalism are hardly dead.

Last month the chevaliers of the Marché à Terme International de France (Matif) unveiled their plan to make Paris the "benchmark market" for the new currency when it is born on January 1 1999. There were no great surprises: a drive to perfect French franc interest rate futures contracts all along the yield curve, so that they will have a critical liquidity when the franc is exchanged for the euro. The Matif will introduce a one-month Pibor (Paris interbank offered rate) future, relaunch its five-year bond future probably in June (it was launched unsuccessfully in 1993), refine its highly successful 10-year Notionnel bond contract, narrowing the maturity band and lowering the coupon from 10% to 5.5%,

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