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EU: European Stock Market Merger Is Unprecedented

The stock markets of Paris, Brussels, and Amsterdam have announced a merger of their operations. The move is an important step towards integration of the European financial sector, but at the same time it can be seen as cutting across other moves towards unity. RFE/RL correspondent Breffni O'Rourke reports.

Prague, 21 March 2000 (RFE/RL) -- The merger announced this week (March 21) between the stock exchanges of Paris, Brussels, and Amsterdam is a significant move towards European integration of financial services.

At a stroke, it creates continental Europe's largest financial center, bigger in market capitalization and trading volume than the German bourse in Frankfurt. It still remains smaller in capitalization than the powerful London Stock Exchange, but London suffers the disadvantage of being outside the common currency "eurozone."

The Paris bourse's chief spokesman Bruno Rossignol calls the merger "unprecedented" and says it's the result of the dynamics of efficiency created by the euro currency, which was introduced 15 months ago.

Under the merger arrangements, which are scheduled to be completed by this autumn, all services will be offered from a single access point in all three centers. The new company, named Euronext, will have single membership, and one order book and rule book for all three exchanges.

Euronext will be open to joining by other stock exchanges, and the Luxembourg bourse has already signaled its interest in joining.

The merger makes sense in terms of economic integration. But beyond strict economics, it is also a brilliant stroke by France in the game of European rivalry.

In 1998, the two heavyweights, London and Frankfurt, announced an alliance intended to serve as the eventual nucleus of a single European Stock market. The alliance was based initially on limited steps like harmonization of trading hours and operating methodology.

The move, limited as it was, led analysts to say at the time that the Paris bourse had suffered a severe loss of prestige. It was not even consulted in the run-up to the alliance, and had to stand and watch as the two "big boys" teamed up. Rossignol at the time called the circumstances "unpleasant."

But now Paris has grasped the initiative, and taken a lead with typical Gallic panache. As Rossignol now puts it:

"We think that the time of alliances is over and now it's time for merger; a merger is much more powerful and much more committing for the exchanges or companies that sign it, than a mere alliance."

Rossignol says the Euronext partners remain fully committed to the broader goal of a pan-European exchange, which was the original idea behind the London-Frankfurt alliance. That initial alliance of the big two was later expanded to include a total of eight bourses, from Madrid to Zurich, and including the Euronext partners Paris, Brussels, and Amsterdam.

Rossignol explains that the Paris-led move is meant to add impetus to that same pan-European idea, not cause a split:

"We are going a step further by fully merging three existing exchanges into one new company and not only including trading on equities, but also derivatives, and clearing and settlement." Nevertheless the merger creates a "group within a group" and could be seen as creating a second focus to the move towards integration.

And it comes at a time when the original alliance appears to be losing steam amid the difficulties of harmonizing a myriad of different technical arrangements and business cultures.

As yet, the young stock exchanges in Central and Eastern Europe are beyond the integration drive. But according to Dirk Woelfer, a senior analyst at Standard and Poor's MMS International in Frankfurt, the consolidation in the west will also have benefits for investors and investment in the east:

"On the one hand, the liquidity is very small on their own [eastern] bourses, and a large part of their turnover is already done in London or Germany, so I think that should definitely have a positive impact in general, in terms of liquidity for the markets and also for investors. And on the other hand, it should also be seen in the light of European Union convergence."

Full unification of Europe's bourses still seems some years off, but the French-led initiative has, at any rate, brought a new twist to the integration movement.