Launching of the euro at the beginning of 1999 will accelerate reconfiguration of the financial intermediation process in Europe -- a process that is already well underway -- with dramatic consequences for commercial banking, investment banking, insurance and asset management functions. Banks, insurance companies and other financial intermediaries face strategic choices, to be weighed with great care. This paper begins with a series of suppositions - essentially maximum-likelihood state-variables relating to financial system conditions in the euro-zone, assuming a five-year time horizon. These suppositions set the framework for a discussion of strategic positioning and implementation on the part of financial services firms expecting to compete successfully in the euro-zone. We focus on the institutional microstructure of the financial intermediation process and the determinants of competitive performance. This is followed by an assessment of strategic options facing financial firms in the euro-zone, and alternative institutional outcomes from the perspective of efficiency and stability of the euro-zone financial system. Where appropriate, comparisons are drawn with the U.S. financial system, which has operated under a single currency and since 1865. The final section of the paper provides some strategy and policy indications for the future.
