(Euro Papers. 28. July 1998.
Brussels. Tab. Ann. Free.)
Summary and main conclusions
1. On 30 September 1998, the Monetary Committee of the European Union established an ad-hoc working party on the technical issues relating to the implications of Stage 3 of EMU for the European Bonds and Bills markets. The group is chaired by Mr Brouhns, General Secretary of the Finance Ministry of Belgium. It is composed with the debt managers of the fifteen EU Member States and representatives from the European Commission and from the EMI/ECB.
2. The group provided strong stimuli to Member States for their preparation of bills and bonds markets in Stage 3 of EMU. In June 1998, it completed its work on two first mandates regarding debt redenomination and market conventions in Stage 3 of EMU. Attached are the recapitulative tables which indicate national decisions or intentions for all the technical issues related to both topics.
3. On redenomination (tables 1 to 11), the main findings of the group are the following :
- first, all the Member States intend to redenominate their tradable outstanding Central Government debt denominated in their own currency from the date of their entry into EMU. Most of them intend to do the same for the debt denominated in currencies to be substituted to the euro;
- second, Member States intend to redenominate all issues simultaneously at the beginning of Stage 3, or, for those Member States which will participate at a later stage, at the moment of their entry into EMU (table 1). Those Member States which have debt denominated in an EU foreign currency will redenominate it as soon as possible by use of Article 8(4) of the EC Regulation on the introduction of the euro (tables 7 to 9);
- third, in most cases, the redenomination will be made at the level of individual holdings rather than at the level of individual Bonds. Except two cases, the nominal value of the redenominated bonds will be expressed in cents. However, in the two countries were the nominal value of redenominated bonds will be expressed in whole euro, a cashing out operation could take place (tables 2 and 3);
- fourth, the non-sovereign issuers will not be obliged to redenominate, but if an issuer decides to do so, he will in most cases be encouraged to use the method of his national government (tables 5 and 6);
- fifth, redenomination will be defined by national legislation, or national executive decision (see Table n°4).
4. As regards market conventions (tables 12 to 18), the harmonised conventions which were recommended by a number of market associations in a statement 2 issued on 17 July 1997 will, in principle, be used throughout the euro area for both the new debt and the existing one. The timing of reconventioning may differ, on the basis of different market advice.
5. The findings of the group were welcomed by the professionals and market associations to which they have been transmitted. Several of them expressed the view that such a converging process constitute a positive step in view of the future establishment of an unified, deep, and liquid euro bond market.
6. Following this work, the Monetary Committee decided to maintain the ad-hoc working party as a network which would allow Member States to exchange views and information on the functioning of their Bonds and Bills markets. Among the topics which might be dealt with before the end of 1998 are the state of play in the preparation of the initial week-end of 1999 and of the implementation of new market conventions, and the national intentions regarding the issuance timetables during the first months of 1999.