Euro cash could be catalyst for change

NOW that there is a tangible euro, more attention needs to be given to unfinished business - the creation of a truly single market. At a summit in Lisbon two years ago, heads of governments committed themselves to a programme of further liberalisation, with the declared aim of making Europe the world's most competitive economy by 2010. As things stand, this looks unrealistic.

The European Commission has proposed a raft of directives and other measures, but governments have not delivered on their promises. There are still too many overt and tacit barriers to competition.

Last year, German intransigence scuttled a proposal for a common law on mergers and acquisitions that had been 12 years in the making - and then set new rules to protect domestic companies.

When banks in one country try to make acquisitions in another, governments quietly veto them, in flagrant breach of European Union rules. Some retain 'golden shares' in privatised utilities to prevent foreigners from taking them over. Brussels has also been far too eager to block deals.

Big companies can now effectively treat the euro-zone as a single market in raising capital and managing funds, but consumers find it much harder to buy financial services abroad. There is no pan-European payments system and Europe still has significant variations in accounting standards, laws, tax regimes and securities market regulation. National politics continue to get in the way.

My American friends find all this puzzling. They have long assumed Europe will eventually become like the United States. Many investment decisions have been based on an optimistic assessment of the potential in a market with more than 370m customers, but companies have learned to their cost that Europe is different.

In part, of course, this is because of the variety of language and other barriers. Europe does not have the same geographical flexibility of its workforce as the US. There is no doubt, however, that national obstructionism has also been a major handicap.

The circulation of euro notes and coins could be the catalyst for change. The pace of liberalisation certainly needs to be stepped up if Europe is to reap the full benefits of a single currency. It is also essential if the euro is to make headway against the dollar. Predictions that it would come to challenge the global dominance of the greenback have proved premature.

Many investors continue to believe the US will outgrow the rest of the world in the long run and see no compelling reason to relocate resources to Europe. A recovery in the US economy may tempt European companies to look for more acquisitions on the other side of the Atlantic. They find in America what they have been promised at home - a cohesive, united market with lower taxes and less regulation.

We all have our own views on the thorny issue of 'sovereignty'. Britain may or may not join the monetary union at some point in the future. I am among those who would like to see this happen as soon as possible. Meanwhile, it is plainly in our interest to press the case for a single market, especially in financial services.

Another EU summit to further the Lisbon agenda is due in March. We cannot expect to make all the rules but Britain can make a difference. We should not be afraid of competition.