EURO special - Part II
Eurospecial - More competitive markets
It is nearly impossible to gauge the consequences for the European and
German, as well as international capital markets. A lot depends on the
credibility of the EZB and on the expectations of the market players. On the
other hand some basic effects can already be predicted:
1. the markets will be deeper and wider - the liquidity increases
2. the transaction and information costs diminish
Both points lead to an intensified competition and thus to increased efficiency
of the market. It is true, that the monetary union means a push in this
direction, which however is present worldwide anyway. Additional funds are
flowing into the capital markets and especially the stock markets also because
of private old-age insurance funds, which are increasingly important not only
in Germany, but across the whole Europe. The pension fund managers will
soon be among the most influential people in Europe. Further the individual
opinion about the stock market (for instance with Dt Telekom's IPO of 18
BDM) has fundamentally changed. And last but not least low inflation and
low nominal interest rates have made stock investments even more attractive.
The increase in internal capital, which so far was locked into other
investment vehicles, and the inflow of foreign capital in search of
diversification will both ensure further increase in liquidity. What kind of
potential this may mean, especially compared to USA, is evident from the
following table:
Population GNP as perc Perc world exports
World (OECD) exports as %gnp
USA 263,0 32,5 19,6 8,2
Japan 125,0 20,5 10,5 9,0
EU-15 370,0 38.3 20.9 10.2
Increased liquidity of the markets means also less volatile prices. Their
function as the indicators of market conditions will much improve and their
role of information and control carriers will get enhanced. To say it in simpler
terms, they will reflect the wishes and expectations of the investors better.
The increased possibilities of comparing the investments in Euroland will
also lead to an intensified competition between the issuers and stock
exchanges. Following the wishes of investors for instance the market
conditions will become more transparent, the opening times will be extended.
The product mix will be expanded and the margins of banks and issuers will
get squeezed due to increased competition, which will also lead to decreased
transaction costs and improved transparency, i.e. to the decrease of the
information costs. All this will lead to a self-amplification of the "virtuous
cycle" processes, which lead to an improved money and capital market
efficiency.
...end of part II |
