Thus far, foreign branches in Norway have primarily focused on the largest enterprises and financial market segments that demand more advanced services. As the euro gradually gains a foothold in the Norwegian business sector, the Norwegian market may prove to be of greater interest to foreign banks. Nor can we disregard the possibility that mergers and acquisitions in the Norwegian business sector – which may partly be perceived as a response to consolidation in the business sector in the euro area – will lead to a situation whereby a larger number of Norwegian enterprises move into the “division” where foreign competition is strongest. Norwegian enterprises with close ties to the euro area will also demand a wide range of euro services from their banks. For this reason, foreign banks will probably compete more intensely with Norwegian banks in the future. Technological advances, including the development of new channels of distribution, will reinforce this tendency. Substantial overcapacity in the financial sector in European countries, particularly in traditional banking, has spurred the need for enhancing efficiency and consolidation. Over the last couple of years we have seen a considerable increase in the number of mergers and acquisitions in Europe, with mergers taking place both within and across national borders. The introduction of a single European currency has probably been an important catalyst in this process. Mergers and acquisitions create entities with ambitions, financial strength and, not least, a range of services well designed to compete on international markets. This points to increasing competition across national borders.
Increased mobility of capital, both in and out of countries, including Norway, could follow. As I indicated earlier, we, like others, have experienced increasing difficulty in maintaining a stable exchange rate in a world of large, unrestricted capital flows. The relative calm within the euro area during the recent turmoil linked to the financial crises in Asia and Russia and later Brazil could be indicative of future differences between Europe’s “ins” and “outs”. Finland, despite its dependence on raw materials and relatively large exports to Russia, was less adversely affected than the other Nordic countries. For Norway, success in maintaining a stable exchange rate could become more challenging in the new environment. BIS Review 16/1999  –3–  Use of the euro in Norway. Euro and the Norwegian banking industry Use of the euro in Norway I would now like to comment on how, and to what extent, Norwegian economic agents might be expected to use the euro in the future. There are many indications that the euro will be used more extensively in trade between Norway and euro countries than the currencies of the 11 member states combined today. Over time the euro will most likely be used on an even wider scale. Obviously, the euro would increase in importance in the Norwegian market should Sweden, Denmark and the UK join EMU. The euro may also play a role – though probably limited – as a settlement currency between residents.