Bank to show City is hard at work on EMU

While politicians continue to squabble over whether or not to join a single European currency, experts are preparing the way
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The Bank of England will tomorrow attempt to calm fears that the City is unprepared for the introduction of a single currency by publishing a document that sets out in detail the practical progress already made ahead of monetary union.

Although the document will be highly technical, focusing on legal issues and market mechanisms, it will be heralded by the Bank as clear evidence that the City is doing all that is required to ready itself for monetary union, whether or not Britain is signed up for a single currency from the outset.

The Bank will not make itself the focal point of the City's preparations but will instead point to the networks that have already been established and reinforce its willingness to act as a clearing house for companies or financial institutions concerned about the implications of monetary union.

Concerns have been mounting in the last few weeks that a lack of focus on the City's broader strategic objectives ahead of monetary union are threatening to undermine its standing as a financial centre. It has also been suggested that uncertainty over whether Britain will participate in a single currency has provided an opportunity for Paris and Frankfurt to encourage London-based financial institutions to push more business in their direction.

Bank of England officials accept that France and Germany are using that uncertainty as a lever to win financial business from the City or to try to increase pressure on Britain's politicians to sign up for a single currency. However, this is accepted as a natural part of the competitive and political process.

It is said, for instance, that President Chirac has appointed an adviser who has a specific brief to woo business from London to Paris in the run-up to monetary union. It is thought he will target foreign investment banks. Several investment banks said they were aware there was a Franco- German campaign to lure business from London but all doubted that it would be very effective.

Howard Davies, deputy Governor of the Bank of England, last week said he doubted that financial institutions were repositioning themselves and removing functions from London ahead of monetary union.

"On the whole they have reacted by building up their operations in London, rather than scaling them down," he said. "They have done so I think because they calculate that the competitive advantage of London will not be negated by the arrival of EMU, whether or not the UK is immediately a member.

"Some of those who comment on the impact on the City seem unaware of the amount of work which has been done and is being done to assess the consequences, market by market."

Mr Davies' view was echoed by one investment banker who has been assisting extensively indrawing up the legal and technical structure of markets ahead of a single currency. He argued that Britain had established a reputation as the most aggressive activist of all European Union countries in fields relating to the wholesale money markets. However, while wholesale bankers are well placed to adapt to change, the retail sector has still failed to grasp the monetary union nettle.

EU sources are also concerned that the retail banks have not yet taken on board the implications of a single currency and still have a lot of catching up to do. They face lengthy and costly investments to cope with the change to a single currency and have been reluctant to speculate on Britain's likely participation in monetary union.