The appearance of the euro on the streets has passed without a glitch. Years of preparation paid off for the countries that decided to abandon their national money and adopt a common currency. It should accelerate the consolidation of a single market, it will create more transparency in prices, thus enabling investors to see more readily what the real prices of production are in each country.
Will it accelerate the centralisation and concentration of European capital so as to make European multinationals better able to compete in world markets with those of the USA?
Europe certainly underwent a merger boom in the second half of 1990. Deals in 1999 more than doubled to $1.65bn from $720mn the previous year. And 1998 was 40 per cent up on 1997. To grasp the full-scale of the acceleration and deepening in centralisation that took place, one only has to compare this with the 5.7% growth in merger deals in 1994Ð worth $163mn.
Why this acceleration? In essence the rapid consolidation and growth of the US MNCs in the 1990s forced the big European corporations to follow suit.
Also companies have been busy divesting themselves of secondary lines of business in order to concentrate on their core business, as for example with Allianz and Siemens in Germany.
The form that the mergers are taking is interesting. In the first place there are the domestic mergers to create national champions. This accounted for half all mergers in 2000 (e.g. Telecom Italia/Olivetti, BNP/SocietŽ Generale TotalFina/Elf Aquitaine).
In France and Italy this trend was especially pronounced. In Italy the Cold War picture of capitalism based on family-owned firms started to change dramatically in 1990s. Political patronage had generally guarded Italian firms from hostile takeovers. But in 1999 the biggest post-war hostile takeover in Europe occurred in Italy when Olivetti bid $30bn for the five-times-larger telecommunications rival Telecom Italia.
The pre-condition for this change was privatisation, the break-up of Christian Democrat crony capitalism, and the restructuring of the system to a more US-style shareholding system.
In France there was a massive acceleration of mergers within France in the second half of 1990s as national champion creation came to a head in most sectors (e.g. pharmaceuticals, oil, banks, chemicals.) This was largely was done with government backing.
In 1997 Axa swallowed UAP to create the worldÕs third largest insurer. In 1999 the launch of the euro boosted the frenzy again. That yearÕs attempt by BNP to takeover two local rivals in a $40bn would create the worldÕs biggest bank.
Secondly, some leading European MNCs are trying to be a global leader on their own without further consolidation in Europe.
This is why Unilever bought Best Foods of the USA for example, or Glaxo Wellcome fused with SmithKline Beecham.
Thirdly, there are pan-European mergers which enable companies better compete in global markets with US and Japanese rivals (e.g. HSBCÕs purchase of Credit Commerciale de France, or the creation of Aventis through the merger of Hoechst and RhonePoulenc).
But the creation of pan-European giants is still a minority phenomenon since the mergers and acquisitions wave that swept over Europe was still a phenomenon that took place within, rather than across, borders.
A barrier to pan-European mergers is the varying rules governing mergers in each EU nation and the absence to date of a unifying set of rules, which gives the USA an advantage.
But the Wallmart takeover of Asda was a warning to Europe and prompted a wave of retailing consolidation among EU retailers (e.g. Carrefour and Promodes deal which created the EUÕs biggest retailer). Most analysts feel there is probably room for only four big retailers in Europe including Wal-Mart.
In general the process of consolidation will continue as EU governments will lessen their veto over what they allow to be taken over within their countries. In addition the full operation of the single currency will increase activity since it will unify capital and debt markets and make weak companies more transparent and vulnerable.
The relatively few hostile takeovers in Europe is also changing as was seen in the Vodaphone bid for Mannesman. In the past a hostile takeover was difficult to engineer due to greater control over share ownership, cross-holdings, and the use of state vetoes. But the EU commission last year adopted a new directive after ten years deliberation which adopts a US-style rulebook and will make it difficult to frustrate hostile takeovers.
If and when profits and the capital markets recover from the present recession gripping the world we are sure to see an renewed round of centralisation and even fiercer competition on world markets.