The integration of European futures markets on long-term government securities

Abstract

With the signing of the Maastricht Treaty in December 1991, the countries of the European Community achieved an important stride toward reaching monetary union, a prelude to the achievement of economic and political union. Nonetheless, the negative outcome of the Danish referendum has given rise to debate over the timing and methods for realising monetary union as proposed in the treaty and it has again brought to the surface the contrast between fixed and floating exchange rate systems. The objective of this paper is therefore twofold: on the one hand, it attempts to provide formal evidence on the confidence which the market placed in the process of monetary union prior to the crisis of the Exchange Rate Mechanism and, on the other hand, it puts forward a methodology suitable for identifying the degree of economic convergence between the countries participating in a system of almost fixed exchange rates.