The introduction of the common European currency, or euro, will force consolidation among financial services companies in Europe, Goldman Sachs' international chief said.
"Consolidation and restructuring is going to be the leitmotiv of development over the next two or three years," said Peter Sutherland, chairman of Goldman Sachs International.
Set to be introduced in January 1999, the European common currency will break down economic borders and create a level playing field for the continent's banks, brokerages, and asset managers, Mr. Sutherland told attendees of the First Annual USA-Ireland Mutual Fund Conference here Wednesday.
To compete in that new environment, financial services companies will need size, he said. The advent of the euro will spur many national governments to reduce their roles in their countries' economies, which will set off a privatization and capital markets boom.
"The majority of larger and more attractive privatizations and IPOs will tend to be awarded to larger integrated international firms with global origination and placement capabilities," Mr. Sutherland said.
The European monetary union will also encourage cross-border consolidation among many of the continent's corporations. To serve pan- European companies, banks and other financial services firms will have to do cross-border deals themselves, Mr. Sutherland said.
Consolidation will also be driven by a growing need for investment products as European member nations privatize public pension schemes.
"An aging population and woefully inadequate pay-as-you-go government plans" will contribute to the rapid development of the private pension business in Europe, he said.
Some countries are already approaching a fund crisis, he said. In France, unfunded pension liabilities for the next 50 years exceed the country's gross domestic product, Mr. Sutherland said. Yet French money managers currently allocate less than 30% of their funds to equity investments.
Meanwhile, in both Germany and Italy, less than 10% of pension funds are invested in equities. "This will present a major growth opportunity for Europe's life and long-term savings companies," he said.