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This publication is a compilation of legal texts and political agreements which have been approved by the Council of the EU or the European Council, and which are essential for the implementation of monetary union.

This publication is part of a set of 18 documents which have been prepared by H.M. Treasury to inform the assessment of the Government's five economic tests for Economic and Monetary Union (EMU) entry into the euro area. With regards to the fourth test, this study considers the factors that drive the location of financial activity and examines emerging trends in the financial services sector. It focuses on the cluster of wholesale financial services activity in the City and the relative impact of currency on the competitiveness and location of services. It is essentially backward looking and concentrates on the performance of the City to date.

This paper explores the implications of the European single currency within a simple sticky price intertemporal model. The main issue we focus on is how the euro may alter the responsiveness of consumer prices to exchange rate changes. Our central conjectures is that the acceptance of the euro will lead European prices to become more insulated from exchange-rate volatility, much the way U.S. consumer prices already are. We show that this has profound consequences for both the volatility and levels of macroeconomic aggregates in both the U.S. and Europe. We find that European welfare is enhanced, and, more surprisingly U.S. shares in Europe's good fortune. Alternative assumptions about how pricing behavior will change lead to different conclusions, but in all cases we can derive specific implications for expected levels and volatility of macroeconomic varialbes.

Recoge: 1.The challenge of economic and monetary union - 2.The key to unlocking the euro - 3.Impact assessment guide - 4.Selecting a euro approach - 5.Useful contacs.

This paper presents an overview of the impact of the introduction of the euro on Europe's financial structure. It analyses changes in money markets, bond markets, equity markets and foreign exchange markets. The euro's role in originating or catalysing trends has been uneven across the spectrum of financial markets. On the lender side, banks and investors in fixed income markets have become more focused on the characteristics of individual borrowers rather than the nationality of the issuer and have built up expertise to evaluate credit risk. European equity markets have also been affected by the enhanced ability of investors to build strategies with a pan-European perspective as prices increasingly reflected risk factors specific to industrial sectors rather than individual countries. On the borrower side, EMU has increased the attractiveness of market-based financing methods by allowing debt issuers to tap institutional portfolios across the euro area. Lower barriers to cross-border financial transactions have also increased the contestability of the market for financial services, be it at the wholesale or the retail level. The introduction of the euro has also highlighted the shortcomings of existing institutional structures and areas where excessive focus on narrowly defined interests may stand in the way of realising the full potential benefits from the new environment. Diverging legal and institutional infrastructures and market practices can impede further financial market development and deepening. Hence, the euro has put a premium on cooperation between national authorities and institution as a means of achieving a more harmonised financial environment. The impact of EMU on depth in foreign exchange markets has been less clear-cut, as volatility, spreads, trading volumes and liquidity appear not to have changed in a substantial way.

The SDN will focus mostly on EA countries but also touch on other AEs for comparison purposes. The SDN will make several original contributions in each of the areas above based on new DSGE-model-based analysis, cross-country panel regressions, and individual-level (firm- or household-level) empirical work where appropriate.