The price of failure is not something that traders like to contemplate, no matter how used to it they have become during the summer financial market crisis. But in the first weeks of 1999, they may be forced to confront failure on an unprecedented scale; the introduction of the euro could make it inevitable.
It will be failure through no fault of their own: not losses from unwise position-taking in emerging market bonds or equities, nor even through glitches in the new, euro-compatible computer systems they will be using. Trades will fail, leaving counterparties with unmatched positions, because of the misinformation that clients will mistakenly feed into the system. One senior banker calls it a "garbage in, garbage out" situation. "You can have the best systems in the world," he says. "But without the right instructions from the customer, deals won't settle." He adds: "What we'll control quite well is our own operations. But the game isn't played by a hundred institutions, but by thousands of people, many outside the euro zone."
Major trading banks, and some custodians, are quietly worried that customer orders, especially from clients in the US and Japan, will be littered with conversion errors during the first weeks of 1999, leading intermediaries into a desperate scramble to borrow cash and securities to cover unmatched positions, while they sort out the mess.