EDITORIAL: 11 COUNTRIES + 1 EURO = OPPORTUNITY

What is a euro? It’s a European currency that’s about to become a fact of life for more than 200 million Europeans, and millions of others around the world.

As of Jan. 1, 1999, 11 countries will begin using the euro as their currency of account. Business transactions will be conducted in euros instead of in French francs or German marks or Italian lire.

So what? So plenty for investors.

For a start, the elimination of 11 currency zones will inevitably eliminate friction in the commerce between those countries, which include France, Germany, Italy and Holland, four of the powerhouses of Europe (but not Britain or Switzerland).

For example, the elimination of different currencies will obviously eliminate the need to convert currencies and prices as people, goods and capital move from one country to another. The conversion from one currency to another inevitably leads to leakage, as everyone who has ever exchanged money knows.

The abolition of the 11 national currencies will also lead to the elimination of pricing discrepancies between countries. Over time, tax differentials will be reduced because people will be able to compare and complain. Corporate annual reports from companies in different countries will all be in euros, simplifying comparison by investors.

The result: greater efficiency, greater growth, greater competitiveness and, long-term, higher stock prices. European equities will seem even more attractive because investors will have to worry about only one currency, not 11 when investing in the euro zone.

In short, the euro spells enhanced investment opportunities for all investors.

U.S. mutual funds investing in the euro zone will find the financial statements and the stock prices in that zone more transparent, possibly leading to better long-term investment decisions.

In the short term, however, in the weeks immediately after the Jan. 1 conversion, there may be some pricing and administrative confusion as bugs are worked out of the reprogrammed computer systems.

In fact, institutions are being urged to restrict their trading during that period to minimize problems.

Financial advisers and planners should familiarize themselves with the long-term implications of the euro. There are opportunities there for their clients, whether they invest directly or through mutual funds.

And they need to be able to answer questions their clients may ask as excitement over the advent of the euro reaches a peak in Europe and is repeated here at the end of this year.