George reassures banks on EMU

Attempts to discriminate against London banks if Britain stayed out of monetary union would contravene single market legislation and European union competition law, Eddie George, Governor of the Bank of England, warned yesterday.

Mr George was launching an attack on proposals by France and Germany that would restrict access by countries outside the single currency area to a new interbank clearing system called Target, which will handle euros.

However, he rejected City suggestions that discrimination would cause serious damage to the competitive position of British banks, saying that there were many alternative routes they could use to clear funds in euros, bypassing Target. The issue was not a "showstopper" for the City of London.

Mr George also made clear that he believed the City would benefit from a single currency whether or not Britain joined monetary union.

He took this view, not because London would steal business from Frankfurt and Paris, but because an enlarged currency block based on the German mark would stimulate extra activity in the financial system, benefiting everybody.

Mr George said: "Provided we are properly prepared, as we will be, the opportunities for the City far outweigh the risks, and that is true whether we are in or out."

He also reiterated his longstanding view that Britain was an unlikely candidate for participation in the start of monetary union.

Introducing the bank's second progress report on preparations for monetary union, Mr George insisted that the argument over Target was an issue of principle.

He said that the Bank of England was keen to encourage use of Target because it was a real time settlement system for euros, in which large money transfers would be made instantaneously between banks, rather than at the end of each working day.

Real time settlement removes the risk that the failure of one bank will bring down many others in a domino series of collapses. British banks have already adopted a real time settlement system for sterling and most countries are moving in the same direction.

Mr George said that the Bank was only demanding access to Target on equal terms during the trading day, not asking to be allowed to participate in overnight lending using Target.

Comment, page 19

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