From Readers

Regional ReviewQuarter 3, 1999


Jane Little, in “E Pluribus EMU?” (Q4 1998) provides a lucid summary of how the euro project came into being and the challenges of making a single monetary policy work across diverse European economies. However, she does not discuss the business strategy implications of the most important single fact created by the arrival of the euro: Overnight, Europe has developed a capital market on a scale rivaling that of the United States.

This fact represents a powerful catalyst for change in finance and business, much like that which has transformed the United States. Moreover, this revolution will move much faster in euroland because financial techniques, information technology, and global competition are far stronger than in the 1980s.

This does not mean Europe will suddenly adopt the American economic model in all its aspects. However, we can expect the broad patterns of change in the United States to play themselves out over time.

The leap in capital market scale alone will accelerate the movement of European finance from a bank-centered model to a more dynamic, market-centered model. In Germany, for example, the universal banks not only hold the bulk of individuals’ net worth, but also dominate the corporate debt and equity markets.

Banking and finance thus will feel the swiftest and strongest impact of the euro’s arrival, as shareholder value flows away from traditional business designs, such as the composite commercial bank, to institutions that have adopted an effective specialist role, such as mono-line credit card issuers, mortgage originators, and so on. Some American category killers, including Capital One, have already arrived in Europe with ambitious plans to expand.

In the United States, customer priorities rather than producer interests drive the engine of innovation. Innovative, customer-focused business designs that attack incumbent offerings have relatively open access to capital.

We can expect to see a similar proliferation of new business designs across a range of industries in Europe, from retailing to telecommunications, as the euro knocks down barriers to entry and the market-centered financial system takes hold. The euro’s arrival represents a major opportunity for forward-looking companies in New England. Those who anticipate the changes caused by the euro will be well positioned to create sustained values for their shareholders, and early moves in the transition stand to be richly rewarded.

Kevin Mellyn
Vice President
Mercer Management Consulting
New York, NY

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