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One Europe: The Dream of Unity : Market Scene : Banks, Business Find Bigger Is Much Better : The grand scale of the unified Common Market has created investment opportunities and economic growth.

February 04, 1992|JOEL HAVEMANN | TIMES STAFF WRITER

FRANKFURT, Germany — Continental, the German tire manufacturer, needed help--expert and fast. Pirelli, its Italian competitor, had just launched a hostile takeover bid, and Continental had no idea how to defend itself.

For financial advice, Continental turned not to a domestic bank but, of all places, to the venerable London merchant bank Morgan Grenfell. "We were looking for someone who had experience in this kind of international transaction, and Morgan Grenfell is where we found it," says Jens Howaldt, Continental's vice president and general counsel.

Nor did it hurt that Morgan Grenfell had recently been bought by Deutsche Bank, Germany's biggest. Perhaps more than any other European company, Deutsche Bank has been spreading its wings into new countries and new lines of business as the European Community prepares to mold its 12 fragmented national markets into one.

A German-owned British bank protecting a German company from a hostile takeover launched in Italy: It is a microcosm of what is happening, to greater and lesser degrees, in business activity all over Western Europe as the end of 1992 approaches.

It is then that the European Community will bring down most barriers to the movement of goods, services, money and people among its 12 member nations.

Admittedly, the nitty-gritty of "EC '92" is not the stuff to make the blood race. Among its goals are uniform standards governing products sold in all 12 countries; consistent regulations for banks and other financial institutions that operate across national boundaries, and an end to woefully long customs inspections of trucks at border crossings.

Yet the mere anticipation of EC '92 has helped trigger a six-year burst of business activity in Europe and subtly altered the character of the Continent. For a change, European economic growth--averaging 2.9% a year since 1985--actually outpaced America's 2.3%. (Japan, at 4.7%, remained far ahead of both.)

What EC '92 is doing for banking and many other sectors is freeing European industry from its divided past. Until now, Europe has lacked what the United States and Japan enjoyed: huge national markets that permitted economies of scale.

"Enabling EC companies to build the necessary scale in their home market is in many industries essential to assure EC industry competitiveness in an increasingly global environment," the management consultant firm Booz Allen & Hamilton said in a 1989 report to the EC Commission.

EC '92 is also making it easier for U.S. and other foreign companies to do business in Europe--a fact that has a number of major European companies such as France's Peugeot (cars) and the Netherlands' Philips (electronics) looking for protection not only from imports but also from foreign-owned factories in Europe.

Banking, by contrast, is one of Europe's most dynamic sectors and, by all measures, Deutsche is one of Europe's most dynamic banks. Valued at $1.5 billion, Deutsche Bank's purchase of Morgan Grenfell was its most spectacular acquisition but hardly its only one; its buying binge has also taken it to Italy, Spain and the Netherlands.

Hilmar Kopper, Deutsche Banks' chairman, credits EC '92 with creating a favorable atmosphere for a more international posture.

"It was a psychological matter," he says. "We needed that encouragement from the environment. It really opened our eyes, and . . . suddenly we found ourselves mentally ready to do it."

Morgan Grenfell, whose chief executive had resigned in 1987 after a scandal involving another of its executives, profited enormously under its new parent.

"Our absolutely unique access to the German corporate world puts us in a totally different bracket from our American and British competitors," says John A. Craven, who became Morgan Grenfell's chief executive after the scandal.

When Booz Allen made that 1989 report, it noted that the five biggest European banks commanded only 21% of the EC market. By contrast, the five largest U.S. banks controlled 53% of the American market. Likewise, the accounting firm KPMG says the top 10 pharmaceutical companies in Europe (four American-owned) captured 33% of sales; the top 10 in the United States (two European-owned) had 42%.

More than that, different national standards discouraged sales across borders.

"A German who wants to register his car in France must first change headlights, wiring and windshield," says Gary Clyde Hufbauer, a professor of international finance at Georgetown University. "Philips produces seven types of TV sets equipped with different tuners, semiconductors and plugs to meet differing national standards."

Hence the single market, a plan hatched in 1985 by two members of the EC Commission: President Jacques Delors, a former French finance minister; and Arthur Cockfield, who had been Britain's secretary of state for trade.

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