Bonds without Borders: A History of the Eurobond Market

CHAPTER 8 Of .Com's and Cons 1999–2004

Nothing dominated bond market practitioners' minds more in the 1990s than preparations for the Economic and Monetary Union (EMU). The convergence plays put on by investors years earlier largely delivered their returns. By the beginning of 1999 interest rates on Italy's ten-year bonds had fallen to 4.11% compared to Germany's 3.9%, reducing the Italian German yield differential to 21 basis points.

By the late 1990s, the feeling was growing that insufficient work had been done to make the most of the benefits of imminent monetary union. The European authorities felt that an overall framework for the integration of financial services was a prerequisite for the attainment of the EU's economic potential on the introduction of the euro. EU Member States kept adding their own requirements to the centralised requirements and interpreting them in different ways. Brussels termed this behaviour ‘super-equivalence’ or ‘gold-plating’, Italy being most culpable. In addition, the integration of financial markets in the EU had progressed much further in wholesale than in retail financial services, with the latter still segmented largely along national lines. To redress these deficiencies, in October 1998 the Commission published a Communication setting out a Framework for Action on Financial Services, followed by the Financial Services Action Plan (FSAP) itself in May 1999.

At the European Council in Lisbon in April 2000, it was agreed that the FSAP should ...