New capital market opportunities in Euroland

The launch of the euro proved to be extraordinarily smooth - auguring well for its future. If the EU can build on this initial success, then citizens - from anywhere in the world - should come to recognise the euro as a robust 'store of value' for their savings. That should complete the emergence of the euro as a tried and tested alternative to the US dollar and cement its role as a global reserve currency. By then, the political implications of the euro's economic power should be readily visible and global finance will have acquired a second leg. That will shape banking strategies just as much within EMU-land as outside it, because the cost of funds to the European economy will be set in a global market and not within any national segment. But a 'good start' is not sufficient to ensure this outcome and other supporting developments are essential. Chief amongst these is the creation of a world-scale capital market utilising the euro and founded upon European savings flows. Fundamental and enduring forces - political, economic, demographic and technical - are combining to drive a process of historic change in the channelling of Europe's savings. They may flow into marketable securities as the preferred mechanism to extend credit to the European economy (and beyond) - the securitisation process. For this analysis, securitisation is defined in the broadest sense. It means connecting the suppliers of funds directly with the users - via a market for securities, rather than through an intermediary bank. The term is often applied to the specific process of making small loans - perhaps on residential mortgages or even credit cards - into bonds that can be issued on the capital markets and purchased by large investment institutions. More generally, it can include the process of governments transforming their nonmarketable debts into highly liquid bonds that command a lower interest rate - and thus cost saving.