Investors’ European equity valuations are pricing in a successful Emu. Markets believe the euro will be strong and corporate profitability will stay high.
There are good short-term arguments for expecting the euro to start off strong. First is the critical mass argument. Until now, European countries have accounted for a bigger share of world savings and trade than the volume of transactions in their currencies reflects. But the advent of a single European currency will generate a “natural” demand for euro transactions that will make it strong.
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