The evidence of the impact of the Eurozone on the UK's financial-services industry is still unclear. The City has embraced the euro enthusiastically and a large proportion of London business is devoted to euro products, such as bonds and insurance. London-based investment banks are closely involved in Eurozone financing deals. The expertise of the bank is much more important than the currency of the country in which it is headquartered.
The downturn in 2000 obscures the extent of change, because the mergers and acquisitions industry has been very quiet since the launch of the euro. Similarly, the falls on the stock markets have masked market trends. The mergers of stock markets in Europe point to a future where the currency used is irrelevant to market makers, but market liquidity and low transaction costs will be critical success factors. Trading in a single currency is an obvious way to cut costs. The London market, therefore, is likely to move closer to European markets whether the UK joins the Eurozone or not.
The logic of the long-term trend points in the opposite direction to the views of retail consumers. This report considers the arguments for and against joining the Eurozone. It gives little consideration to the alternative of a North American union, but points out the weaknesses of the European Central Bank (ECB) compared with some of the strengths of the Bank of England.
We analysed the five tests set by the Chancellor of the Exchequer and the obstacles set by the UK flexible rate mortgage and the centralism of the UK system of government. We agree with the Chancellor - and indeed with several experts within the Eurozone - that 2003 is the wrong time for joining the Eurozone, partly because of faulty bank design and partly because of the current economic conditions in Europe.
The reaction of Eurozone consumers to the introduction of the new currency in 2002 are documented, as are the results from our exclusive consumer survey, which found strong views about the acceptability of the euro, its inevitability and its probable impact. While most see joining the euro as inevitable, many do not want to see change.
The birth of the Eurozone has brought opportunities to some financial institutions, which have developed their services to accommodate and profit from the euro.
We project the future economic condition of the Eurozone and likely political, economic, social and technological trends. We do not consider a currency union to be the answer to many problems, but it will be to the advantage of EU members and pull countries together.
We believe that the impact of European Monetary Union (EMU) on the UK financial-services industry will be positive in the long run because it will raise European prosperity. The efficiency and drive of the UK industry will continue to be the main cause of its success. SHOW LESS READ MORE >
TABLE OF CONTENTS:<BR><BR>Executive Summary <BR><BR>1. Introduction <BR><BR>BACKGROUND <BR>DEFINITION <BR><BR>2. Strategic Overview <BR><BR>OFFICIAL ADVICE FOR UK BUSINESS <BR>Table 1: Eurozone Countries and Their Exchange Rates for Legacy Currencies <BR>Training <BR>MARKET DYNAMICS AND SEGMENTATION <BR>Market Sectors <BR>Current Status of the Market <BR>DISTRIBUTION <BR>COMPETITIVE STRUCTURE <BR>ADVERTISING <BR>ECONOMIC CONDITIONS <BR>Saving Ratio <BR>Table 2: The Saving Ratio in the UK and the Eurozone (%), 1998-2002 <BR>Household Investment <BR>Table 3: Household Investment in the UK and the Eurozone (£m, index 1998=100 and ebn), 1998-2002 <BR>Retail Sales <BR>Table 4: Retail Sales in the UK and the Eurozone at Constant Prices (index 1995=100), 1998-2002 <BR>Consumer Prices <BR>Table 5: Consumer Prices in the UK and the Eurozone (annual % change), 1998-2002 <BR>Gross Disposable Income <BR>Table 6: Gross Disposable Income in the UK and the Eurozone (£m, index 1998=100 and ebn), 1998-2002 <BR>Equity Prices <BR>MARKET FORECASTS <BR><BR>3. In or Out? The Controversy Outlined and Explained <BR><BR>THE FIVE TESTS <BR>Economic Convergence <BR>Flexible Economy <BR>Investment Opportunities <BR>Benefits to the City <BR>Employment and Growth <BR>A CRITIQUE OF THE TESTS <BR>THE CASE FOR JOINING THE EURO <BR>One Market Needs One Unit of Account <BR>Price Transparency <BR>Currency Fluctuations <BR>Capital Markets <BR>Floating Exchange Rates <BR>Influence <BR>Transaction Costs <BR>ARGUMENTS AGAINST THE EURO <BR>Interest Rates <BR>Economic Cycle <BR>Labour Market Migration <BR>Financial Frameworks <BR>Unfunded Pension Liabilities <BR>The Failure of the Euro <BR>Performance of the Eurozone and UK Economies <BR>Tax Harmonisation <BR>THE TREASURY SELECT COMMITTEE VIEW <BR>Convergence Test <BR>The Monetary Transmission Mechanism <BR>The Exchange Rate <BR>Flexibility Test <BR>Investment Test <BR>Public Investment <BR>City and Financial-Services Test <BR>Growth Stability and Jobs Test <BR><BR>4. The City of London <BR><BR>INTRODUCTION <BR>UK INFLUENCE <BR>TRADE EFFECTS <BR>CONSOLIDATION <BR>BACKGROUND <BR>What is a Financial Centre? <BR>Competition <BR>MARKET SIZE <BR>Table 7: Market Capitalisation in European Equity Markets (_m), June 2003 <BR>DISTRIBUTION <BR>Table 8: Number of Companies Listed on European Exchanges, June 2003 <BR>INVESTMENT <BR>PROSPECTUS DIRECTIVE <BR>INTERNATIONAL FINANCIAL MARKETS <BR>Table 9: The UK's Market Share in International Financial Markets (%), 1992, 1998, 2001 and 2002 <BR>FOREIGN EXCHANGE <BR>Table 10: Market Share of Foreign Exchange Dealing (%), 1989, 1992, 1995, 1998 and 2001 <BR>BOND MARKETS <BR>VENTURE CAPITAL <BR><BR>5. Banking <BR><BR>MORTGAGES <BR>PAYMENTS SYSTEMS <BR>Table 11: Annual Volume and Value of Euro Clearings in the UK (000 and £m), 1998-2002 <BR>DISTRIBUTION <BR><BR>6. The UK Monetary Framework: The Monetary Policy <BR><BR>Committee <BR>CONSTITUTION <BR>CONSEQUENCES OF THE MPC <BR>THE ECB BOARD <BR><BR>7. The European Central Bank <BR><BR>INTRODUCTION <BR>POLICY <BR>CONSTITUTION <BR>CAPITAL ADEQUACY <BR>IS THE ECB A GOOD THING? <BR><BR>8. The Changeover <BR><BR>TECHNICAL CONSIDERATIONS <BR>EXCHANGE TIMETABLE <BR>PHYSICAL CONSIDERATIONS <BR>INFLATION <BR>Table 12: Inflation in the Eurozone and Non-Eurozone (% change), January 2002 <BR>THE UK EXPERIENCE <BR><BR>9. Insurance <BR><BR>BACKGROUND <BR>THE THIRD DIRECTIVE ON LIFE AND NON-LIFE INSURANCE <BR>MARKET SIZE <BR>Table 13: Largest Insurance Markets ($bn, % and $), 2001 <BR>INTRODUCTION OF THE EURO <BR>WHAT UK INSURERS WILL HAVE TO DO TO PREPARE <BR>WHAT UK INSURERS HAVE DONE TO PREPARE <BR>THE LONDON MARKET <BR><BR>10. Investment <BR><BR>INVESTMENT BY INSURERS <BR>CROSS-BORDER FUND INVESTMENT <BR>PENSION FUND PROVIDERS <BR>INVESTMENT FUNDS <BR>TAX HARMONISATION <BR><BR>11. Changeover 2002: The Consumers' Verdict <BR><BR>EURO CHANGEOVER EFFECT: PRICE ANALYSIS <BR>Table 14: Decomposition of Eurozone Month-to-Month Inflation in January 2002 <BR>CONSUMER REACTIONS <BR>Level of Information <BR>Table 15: Level of Information About the European Single Currency (%), March 2000-2002 <BR>Price Changes <BR>Table 16: Opinions of Price Changes Following Conversion to the Euro (%), January and March 2002 <BR>Handling the Euro <BR>Table 17: Problems with the Introduction of the Euro (%), January and March 2002 <BR>The Convenience of the Euro <BR>Table 18: Convenience of the Euro (%), September 2000 and 2001 and March 2002 <BR>The Contribution of the Euro <BR>Table 19: Will the Euro be an International Currency (%), September 2000 and 2001 and March 2002 <BR>Personal Gains from the Euro <BR>Table 20: Personal Advantages and Disadvantages of the Euro (%), September 2000 and March 2001 and 2002 <BR><BR>17. Further Sources <BR><BR>Association <BR>Publications <BR>General Sources <BR>Bonnier Information Sources <BR>Government Sources <BR>Other Sources