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European Monetary Union: Watch out for that iceberg

Euromoney's cover story in April ­ "Sinking the unsinkable" ­ raised the issue of apparent unwillingness among European governments, official bodies and even private-sector financial institutions to address the possibility of a break-up of European monetary union in the first years following the introduction of the euro in 1999. Consultants at Mitchell Madison, a firm set up in 1992 by five ex-McKinsey professionals and now employing more than 600 people worldwide, have been investigating the same question. In July, the firm released the findings of a survey of UK-based financial institutions including asset managers responsible for £1.1 trillion ($1.8 trillion), or 40% of the UK's assets under management.

The survey had intended to research investors' expectations for currency volatility between Emu constituents and Emu-out European currencies in the run-up to 1999 and thereafter between the euro and other world currencies. What it found in the process was that 85% of fund managers think there is a real chance that Emu might collapse within the first five years, with the majority (62% of respondents, representing 57% of assets under management) putting a 5% to 25% likelihood on break-up. While 15% of respondents, representing 28% of assets, say such a risk is negligible, 19% of respondents, representing 14% of assets, put it at 25%-75% likelihood.

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