Hi John. I've noticed your interest in the Euro and thought you might like to see this . . .
latimes.com
Europe's Economy Gaining Speed as It
Shifts Gears
By JAMES FLANIGAN
The New Germany Fund, which holds stocks of
small and fast-moving companies on Germany's version
of the Nasdaq, has risen 37% in the last year in trading
on the New York Stock Exchange.
The Central European Equity Fund, which holds
shares of Polish, Czech and Hungarian
telecommunications companies, among others, also
trades in New York and is up 17.6% in the last year.
These funds, managed by Deutsche Bank, are just
two of many run by various investment houses that are
devoted to investment in Europe, including "emerging
Europe," a term embracing countries ranging from
Poland to Turkey.
European companies, too, are reaching out to U.S.
investors. BASF, a large German chemical company,
listed its shares on the New York Stock Exchange last
week. Siemens, the Munich-based giant of European
electronics and telecommunications, will list next year.
The higher visibility of European companies and
institutions on the front lines of global investment reflect
profound economic and social changes going on in the
old continent.
And those changes have particular meaning for
American and foreign investors and businesspeople,
especially as the U.S. economy slows its growth in the
next year or two.
"Europe is at the beginning of a long cycle of strong
growth after a disastrous performance for most of the
'90s," says Eric Chaney, a Paris-based economic analyst
at Morgan Stanley.
Economic growth is speeding up to 3% and more a
year in France, Germany and most other European
countries, which are revving their economies in order to
unite under one currency, the euro. That may not look
fast compared with the recent U.S. pace, but it's a
whirlwind compared with Europe's stagnation of the last
decade.
The euro had a rocky first year or so, falling in value
against the U.S. dollar. But it has made a comeback in
the last two weeks on perceptions that trends are turning
positive.
A look at trends and companies reveals a new
continental economy in its formative stage.
Taxes are still high. Direct and indirect taxes can take
as much as 60% of the average European worker's pay.
"But there are serious moves to bring down personal
taxes to encourage consumers," reports economist
Edward Yardeni of Deutsche Banc Alex. Brown, a U.S.
investment arm of the German bank. Capital gains taxes
are already coming down to encourage mergers and
restructuring among companies and banks.
Unemployment remains high, above 9% for France,
Germany, Italy and Spain. But today's unemployment
reflects job changing more than economic stagnation.
Contract and temporary employment are growing in
Europe as it adopts U.S.-style flexible work
arrangements. "European companies are reforming the
old social compact, which promised cradle to grave
security," says economist William Rhodes of Williams
Capital Group, a New York investment firm.
Europe's exports are rising, particularly to the
countries of emerging Europe, the catch-all phrase that
refers to Poland, the Czech Republic, Hungary,
Romania, Bulgaria, Greece, Turkey and the war-torn
lands of the former Yugoslavia. More European Union
exports now go to those countries than to the United
States.
Such a range of countries can present a confusing
picture. So investment companies look for opportunity
by focusing on telecommunications, which is a growth
business in every society.
Major holdings of mutual funds run by Merrill Lynch
and other investment firms include Magyar Tavkozlesi,
or Matav, the Hungarian telecommunications company,
Cesky Telecom, of the Czech Republic, and
Telekomunikace Polska, of Poland.
Those East European countries have educated,
skilled workers in abundance, a great advantage for
modern industry. That's why Siemens, Volkswagen and
many other German companies have set up modern
factories there.
European high-technology companies are listing
shares on international markets. Fresenius Medical Care
of Germany, for example, is the world's largest maker of
kidney dialysis machines for home and institutional use.
Its shares trade on Frankfurt's Nasdaq-like Neuer
Markt.
STMicroelectronics, a French semiconductor giant,
supplies the world's telecommunications and automotive
industries, yet is not well-known to Americans. The
company was formed from the merger of Saint-Gobain
and Thomson Electronics, which bought RCA
Television operations in the 1980s.
Europe's ambitious insurance companies, Allianz of
Germany which bought Pimco of Newport Beach last
year, and Axa of France, are growing to be global
powerhouses.
Serious economic needs and historic ambitions
underlie Europe's efforts to change. First, the countries
of the European Union need economic growth to pay
for retirees in their aging societies.
And the European Union needs to grow again
"because the last decade left Western European
countries poorer and unable to afford" the economic aid
to Poland and other countries that is necessary for
expansion of the European Union, explains
Stephan-Gotz Richter, publisher of the Globalist online
newsletter on international affairs.
To achieve all the growth Europe needs, the old
continent may have to change politically as well.
Joschka Fischer, Germany's foreign minister, last month
called openly for closer political union--in effect, a
united states of Europe, although he didn't use those
words.
Europe's needs and ambitions will affect Americans
and other foreigners in several ways. It will become
more competitive. Already Airbus Industrie is moving to
manufacture the world's largest plane to try to wrest
world market leadership from Boeing.
The euro is likely to recover in value against the
dollar and perhaps to assert itself as a reserve currency
in rivalry to the dollar sometime in this decade.
But that is not a prospect to be feared. "The success
of Europe would be very good for the United Staes,"
notes economist Rhodes.
Simply put, economic ambitions are positively
healthy for a continent that tore itself apart in two world
wars in the last century. A Europe to invest in is a far
better prospect than a Europe to fight in.
* * *
James Flanigan can be reached at
jim.flanigan@latimes.com. |
