How The European Monetary Union's Impact On Financial Markets
LINDA O'BRYON: In tonight's commentary, Richard Lambert, editor-in- chief of Financial Times,
looks at the upcoming European Monetary Union and its impact on financial markets.
RICHARD LAMBERT, EDITOR-IN-CHIEF, FINANCIAL TIMES LONDON: 10 weeks to lift off
and counting. At the beginning of May, we'll learn which countries are to be members of Europe's
new Monetary Union and how their exchange rates are to be fixed against each other. We'll see the
outlines of a new Euroland, an economic region comparable in size to the U.S. And we may also
want to
start thinking about what for stock market investors could turn out to be the biggest emerging market
of them all. That may sound like a wild notion. Everyone knows the old continent is saddled with
high unemployment, restricted labor laws, and uncompetitive cost structures. But things could be
changing.
For a start, underlying economic growth in the new region is quite robust and inflation is low.
Business and consumer confidence is rising, and important currencies like the deutsche mark look
undervalued against the dollar. Next, the European financial market, which is set to emerge over the
next few years will be much deeper and more liquid than those of the individual countries which will
make it up. The switch to a single currency should make it a less risky place to do business. Finally,
equity finance is likely to play a much more important role in the future than it has in the past. In
countries like France and Germany, the stock market represents a small part of the total economy,
especially in comparison with the U.S. Only 12 percent of institutional financial assets in Germany
are held in equities. Just 1/3 the figure for the U.S.
Privatization, industrial reconstruction, demographic trends, deregulation, all these suggest a big
advance in Europe's equity culture. And the food's not bad either. I'm Richard Lambert.
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