Outlook: Euro markets

THE FRENCH "non" has been replaced with a reluctant "alright then". Or to use an English expression, if you cannot beat them, join them. When Frankfurt went against the Franco-German alliance to sign up with the London Stock Exchange instead in developing joint trading systems, the Paris bourse, in a display of hurt Gallic pride and anger, announced it would go it alone with an alternative pan-European stock exchange.

Unfortunately for the Paris bourse, Madrid and Milan proved rather keener to sign up with the Anglo-Saxons than with the French. Even Lisbon preferred the Northern alliance. So now Paris wants in and it looks as if we'll get a fully fledged pan-European market in response to the introduction of the single currency after all.

Or will we? It hardly needs saying that it is a good deal easier to tango with two than the nine. There was a genuine meeting of minds between Frankfurt and London on what needs to be done and how to achieve it. In SETS and Xetra, the two markets also have very similar trading systems.

Bringing in other markets is going to be much more difficult, both because of differing technologies and trading rules. Language and cultural differences pile on the potential problems.

Instead of a cosy merger of two, we now have an unruly gaggle of nine. It might have been even worse. Copenhagen, Dublin, Helsinki and Lisbon are being turned away in an effort to keep the numbers down. "We don't want the United Nations," one Stock Exchange source remarks wryly. Everyone wants to see greater concentration of Europe's fragmented stock markets, but even by European standards an alliance of 13 would have seemed a trifle ambitious.

As it is, London and Frankfurt are planning to push ahead with plans already announced, under which both will cease trading in each other's shares early in the new year, so as to create a single point of liquidity. Meanwhile, members of each exchange will have equal access to the other. It can readily be seen that even this quite limited degree of co-operation is going to be hard to duplicate among nine, if only because of the larger number of regulatory regimes involved.

There is another sneaking worry about all this. Everyone seems to accept without question that it is "a good thing" to integrate Europe's capital markets, and no doubt the process should help reduce the cost of capital as well as dealing costs if the concept works as it does in the United States.

On the other hand, there isn't all that much difference between the pursuit of integration and a good old fashioned cartel. It is not altogether clear that a cartel is in anybody's interests, even if big institutional investors generally agree that they would like a single European stock market and settlement system.

Consolidation ought to concentrate liquidity and greatly enhance the efficiency of stock markets. But it is vitally important that some form of competition is maintained. Europe needs its Nasdaqs and over-the-counter markets as much as its big board.