The impact of the euro on Europe's financial markets

This paper presents an overview of the impact of the introduction of the euro on Europe's financial structure. It analyses changes in money markets, bond markets, equity markets and foreign exchange markets. The euro's role in originating or catalysing trends has been uneven across the spectrum of financial markets. On the lender side, banks and investors in fixed income markets have become more focused on the characteristics of individual borrowers rather than the nationality of the issuer and have built up expertise to evaluate credit risk. European equity markets have also been affected by the enhanced ability of investors to build strategies with a pan-European perspective as prices increasingly reflected risk factors specific to industrial sectors rather than individual countries. On the borrower side, EMU has increased the attractiveness of market-based financing methods by allowing debt issuers to tap institutional portfolios across the euro area. Lower barriers to cross-border financial transactions have also increased the contestability of the market for financial services, be it at the wholesale or the retail level.