The proposed merger between the London and Frankfurt stock exchanges to create iX is going to be one...
The proposed merger between the London and Frankfurt stock exchanges to create iX is going to be one of the early steps in the euro-conversion of Britain. That's my bet.
After all, just how many currencies can denominate share trading on a merged exchange? For now, the London exchange is insisting the company issuing shares will have the right to determine the currency it is traded in. Righto! Stand back and look at the dynamics. In the first place I don't think you are going to see any German companies opting to have their shares traded in sterling. But some British companies, maybe only a few to begin with, are going to test the waters of Euroland's capital market.
The path to euro-denominated share trading is a one-way street that ends at the doorstep of the single currency experiment. The whole notion that there would be a merger between the London Stock Exchange and Frankfurt Deutsche Boerse is an enormous victory for the so-called Europhiles in the UK. One thing that has always struck me when I visited London is how proud, maybe even too proud, the British are of its stock exchange. They don't even call it the London Stock Exchange. Rather, it is just 'the stock exchange' as though none other in the world matters. The only thing the City of London takes more pride in is its currency.
Surrendering to a merger with the continentals may be the smart thing to do for the London Stock Exchange. Lord knows that the e-trading revolution makes for a simple dictum for exchanges: better to be merged than purged.
Back to the currency question. A few years ago everyone was asking if Germany was in its right mind to accept a monetary union with Italy and Spain. Today the question is burning in the UK over whether Britain should pursue a monetary union with the continent. Everyone knows where Prime Minister Tony Blair is on the issue - when this chap isn't changing baby nappies he might as well be sipping cappuccino and swilling Campari. The guy is a europhile but can't afford to confront the voters in his country directly. Hence this stock exchange deal is a gift to him - he must be grinning ear-to-ear.
The euro will change radically if the current European monetary leaders get their way and include a large number of central and eastern European countries. The big flap now concerns the accession of Greece. Greece is top heavy with public debt. By some estimates, it has debt equal to 100% of GDP. Under the Maastricht Treaty criteria, a country is only allowed 60%.
Does Greece have to go on a debt diet - or find some way to pump up its GDP in a big hurry? Nah. It doesn't have to do any such thing. How much do you want to bet officials will look the other way and let Greece into the clubhouse?
You bet they will, because if they don't, Greek stock and bonds and the drachma are going to de-converge from their euro counterparts. That could be very ugly.
It would be a bloodbath both inside and outside of Greece. Too many true believers have pro-euro Greek trades in their portfolios. You can tear up your copy of the Maastricht criteria because that was just a distraction. It has served its purpose in getting the euro project past the launch stage without having a popular revolt in Germany.
Better know what and whom you are dealing with, Mr or Ms UK shareholder.
David DeRosa in the Bloomberg New York office