In general, the impact of the euro on organized markets for equities appears to be less strong and less immediate than on other segments of the financial market (Source: Since the introduction of the euro, Europe's equity markets have seen increases in the number issued. By most standards the euro equity market has recorded record growth in recent years even though it is considerably smaller than the US equity market but privatisations, mergers and acquisitions have made the euro equity much more desirable than before.

There has been a fall in the specific exchanges for stocks of small growth companies and not much progress has been made towards linking the spaces that already existed between equity trading infrastructures in the euro area in enhancing the development of a pan-European equity environment. Sine the euro the issuance of equities in the primary market has reached high levels and received a lot of attention from foreign investors, over the last ten years new issuance accounted for, on average, 2% of market capitalisation, this rose to nearly 4% in 1999 and more than 5% in 2000. In other markets, such as the United States, the United Kingdom and Japan, the ratio stayed below 2.5% during the same period. (Source: Occasional Paper Series of the ECB)

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Likewise, in the secondary market equity, investments in the euro have increased. The attractiveness of euro equity for individuals as well as institutional investors, in particular pension funds since the introduction of the euro have changed their investment strategies for equities shifting away from domestic to foreign equities. 2.1 Retail investors Before the euro there were various restrictions on investors which limited the ownership of foreign assets but the introduction of the euro has removed these restrictions between the member countries. So far there has been a mixed response by individual investors towards the euro, obviously inside the euro area there has been strong interest as private investors with portfolios look to diverse their holdings into other areas but investors outside the EU are still a bit apprehensive about investing within the EU.

There has been generally high expectations for it to do well by private investors, with the elimination of foreign currency risk it was aimed to rival the US dollar, but since its introduction it has dropped in value considerably and even though it has picked up in the last few months, investors are still unconfident about the euro. In a survey conducted by UBS/Gallup Poll of European Investor Attitudes Report it shows the confidence of investors on the different currencies from January 2002 to April 2002, as shown below: (Source:

As we can see confidence amongst investors was quite high during its full introduction and as the currency lost value so did confidence, recently the euro has picked up and investors are a little bit more optimistic but still unsure about the volatility of the euro. Investors within the Euro have been the main group to take advantage of the single currency by being able to hold foreign assets, institutional investors like pension funds and insurance companies now being able to diverse their holdings into a much broader area. The advent of the euro was supposed to attract a great deal of interest form non EU investors to rival the US markets and in some ways it has but maybe not to the extent that some might had expected.

For non EU investors it gives them alternative investment opportunities, at the moment because of the weak and volatile nature of the currency many non EU investors have not been convinced to invest in the Euro but this has not stopped some investors like Japanese asset managers who have been increasing their holdings in fixed income securities. Overall though apart from Euro investors investing in the euro assets there's not really been as much interest from non EU investors as was expected. Here in the UK, even though we have not adopted the single currency yet, it still remains one of Europe's top locations for foreign investment, despite the current global economic decline. The US continued to be the single biggest source of foreign investment in the UK generating 13,750 jobs, followed by Japan and Canada (Source:

2.3 Dealers/ brokers

The introduction of the European single currency has in many ways has revived financial markets in the EU, national financial dealers and brokers are being forced to become more efficient and more competitive, these changes may be structurally or in the form of alliances, mergers or acquisitions. In the UK mergers between banks and building societies has increased dramatically, multi million pound mergers i.e. Lloyds and TSB have become common.

Obviously, these kinds of changes are necessary if investment banks or any other types of intermediaries are to survive in the financial markets, since they are no longer competing just in domestic markets but internationally as well. With the changes brought about by the single currency, there are new business opportunities within the financial services industry, the removal of currency risk and the widening and deepening of markets has promoted new investment opportunities, firms in the pension and investment markets now have access to a larger market than before to diversify their portfolios.

The flipside to this is highlighted in a recent survey by the International Securities Market Association, ISMA where "many continental European banks have been laying off staff in London and have either been closing down certain activities in the UK capital in favour of centralisation in their home country or have been reducing the number of employees in the City". The survey continues on how staff are now being put under more pressure to perform better and how large organisations are taking over smaller ones rather than smaller firms merging together (Source: This is not surprising, firms are under increased pressure to cut costs and perform better than their counterparts and also it doesn't help when one of the largest financial centres in the world is not apart of the single currency.

2.4 Securities exchanges in the EU The harmonisation of markets practices and greater transparency in the European securities markets has led to a much more integrated and liquid market since the introduction of the euro. For the countries that have adopted the euro there have benefits from doing so, firstly, the euro has removed foreign exchange risk in long term contracts between individuals in countries, the result of this has been that other types of risk have had to increase; the credit risk of firms has now become an important factor in their securities price.

Competition amongst exchanges has also increased to attract new listings and new transaction orders, mergers and alliances between exchanges has risen in order for exchanges to get a foothold in other markets of other countries. In northern Europe, exchanges in Denmark and Sweden merged in January 1998 to form Norex and more recently in September 2000, the Paris, Amsterdam and Brussels exchanges merged to form Euronext.

There has been speculation about a merger talks between the London Stock Exchange and Frankfurt's Deutsche Boerse, but this was blocked by its own investors, more recently there has been rumours about a possible link up of the LSE and the US Nasdaq Market which still remains to be seen. But if it does go ahead then linking up with the Nasdaq, would give it greater access to America's two big pools of investment money; the Wall Street and the large number of private investors.

2.5 Companies which have used/ continue to use the IFM Since the UK has not joined the single currency, it is difficult to evaluate the true impact of the euro on companies yet but according to the he Trade and Industry Secretary, Stephen Byers, entry into a successful Euro would bring "currency stability" to the country (Source: For many large companies it has made price fixing much more difficult to get away with, the introduction of the single currency has made it easier for consumers to compare prices of goods and services between countries and shop around for the best deal, the prices of products are much more level now than before the euro because companies realize that if they don't then consumers will just go elsewhere to get the same product cheaper and not just in terms of physical good like cars but financial products as well, loans offered by banks or the rate of interest offered by institutions will also be affected.

On the hand companies will also save money by being able to sell their products to the whole euro area, since there is only one exchange rate they no longer have to move their products in and out of markets depending on if their products are affordable or not, they no longer have the cost of changing between currencies and other costs are much more stable than before. 2.6 Companies which might use the IFM in the future The companies that might use the international financial markets in the near future include the companies of the UK, Denmark and Sweden and in the longer term maybe the companies of countries in Hungary, Poland, Slovakia and Russia.

Businesses will be affected differently depending on their size and nature; larger companies will find the switch a lot easier than medium and small size companies. Some large UK firms such as Marks & Spencer's have already adopted the euro even though the UK has not joined yet, they realise that they have to make the necessary changes now so that people can use their euros. As I mentioned before the UK has not yet committed itself to the euro this has implications for companies in the UK as well as companies wanting to invest in the UK or currently are investing in the UK. Foreign investment in this country is only continuing at a high level because foreign investors believe that the UK will join the euro in the near future, if however they start to believe that the UK might not join, then I believe things could possibly change.

Inward investment may dramatically fall as American and Japanese investors are likely to choose to invest inside the euro-area, where costs are in the same currency as revenues. The longer the UK remains outside, the more business practises will move away from those in non euro-area and EU laws will be developed to suit current members of the euro-area and not the UK.