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German capital markets look to the future

The German capital markets are changing. Monetary union in Europe by 1999 is fading, money-market rates have fallen and internationalization is the buzzword. The bond market has been motoring - until the recent downturn. Does this signal a change in longer-term investor sentiment? Philip Moore reports.

A EUROMONEY SURVEY - MARCH 1996

Beyond the shadow of EMU

"If you look at German newspapers," says Tim von Halle, managing director of fixed-income sales and trading at West Merchant Bank (the investment banking arm of Westdeutsche Landesbank), "it is clear that at least 60% of Germans don't believe European economic and monetary union (EMU) will happen by 1999."

Analysts and investors increasingly appear to agree, galvanized by German finance minister Theo Waigel's recent admission that even Germany is behind schedule in meeting the Maastricht currency-convergence criteria. The admission prompted one German banker to remark - only half in jest - that aside from Luxembourg, the economies best equipped to meet the criteria by 1999 are Argentina and New Zealand.

Several banks are beginning to discount a delay in currency convergence. For example, Banque Paribas Capital Markets reported in January "we believe that some degree of flexibility is desirable in applying the Maastricht criteria but it currently looks as though a good deal more than mere flexibility is needed to get EMU off the ground by the target date of 1999. Our view is therefore that EMU is most likely to be delayed because 1999 is simply unrealistic as a starting date, unless the financial underpinnings of EMU are to be discarded or a political deal between France and Germany overrides the Maastricht criteria."

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