For banks, on the other hand, it was a bitter-sweet experience. Before the euro, they easily handled 15 different west European currencies and interest rates, and made good money out f trading cash, securities and derivatives for customers and for their own book. On January 1st 1999, when 11 currencies were irrevocably fixed against each other (the 12th, the Greek drachma, joined the euro two years later), ten out f 15 currencies vanished from traders' screens. Many European banks lost a chunk f their income.
The consolation was that, at a stroke, wholesale financial markets in Europe became much more integrated and more interesting for non-European investors. This caused much rebalancing f investment portfolios, because shares, bonds, loans and derivatives could be bought across the euro zone without additional currency or interest-rate risk.
On the wholesale side, the integration f European financial markets has been a resounding success. But on the retail side--bank accounts, payments, mortgages, insurance policies and personal investments--the process has hardly begun.
One strong sign that there is little convergence is the scarcity f cross-border banking mergers. So far there has been only one significant one, the purchase f Abbey National, Britain's sixth-biggest bank, by Banco Santander Central Hispano f Spain. One medium-sized French bank, Crdit Commercial de France, was bought by Britain's HSBC in 2000, and in the same year Germany's HypoVereinsbank bought Bank Austria. In Italy, another Spanish bank, BBVA, looks likely to succeed in its bid for Banca Nazionale del Lavoro, and ABN Amro f the Netherlands has been battling to take over Banca Antonveneta. Apart from some cross-border bank consolidation in the Benelux and Scandinavian countries, that is as far as integration in western Europe has got.
In central and eastern Europe, it is a different story. Since the early 1990s, large swathes f the banking sector there have been privatised and ended up in foreign hands. That has brought immediate benefits in terms f safety and soundness, fresh capital, innovation and integrity, although some economists are alarmed by the long-term implications.
Why the east-west split Ask the head f a big west European bank why he has not bought up a rival in, say, France, Germany or Italy, and he will give two reasons. First, political and legal barriers to entry act as a disincentive. About half f the French banking system is still in public hands, and a foreigner would find it politically tricky to buy one f the three biggest banks, Crdit Agricole Lyonnais, Socit Gnrale or BNP Paribas. In Germany, an even higher proportion f banks are in public or mutual hands, which means they are simply not for sale. There is a handful f private banks, but their share f the banking market is too small to give a foreign buyer critical mass. In Italy, several f the big banks are theoretically open to takeover, but real or perceived political barriers have discouraged foreign bids until recently.
The second reason for not buying is that, in contrast to domestic mergers, the expected cost savings and economies f scale are rather modest. Domestic mergers benefit from the closure f branches and cuts in the number f employees and other fixed costs. Cross-border mergers are likely to bring only a few savings from the eventual integration f IT systems, back offices and perhaps the