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43 J. Common Mkt. Stud. 1 (2005)

handle is hein.journals/jcmks43 and id is 1 raw text is: 
















JCMS  2005 Volume  43. Number 1. pp. 1-11


The Euro and Financial Market Integration*






HOSSEIN ASKARI
The George Washington University
JOYDEEP CHATTERJEE
University of Pennsylvania







Abstract

One of the projected benefits of the euro was to be a unified capital market. The cost
of capital would be lower and this, coupled with the larger market, would motivate
large EU entities to satisfy their financing needs within the euro area. Our results
support the expectation that the financial markets of the euro area countries would
become  more unified with a lowered cost of capital, especially for the less financial-
ly credible countries. It appears, however, that the benefit of a lower cost of capital
has also accrued to the three EU countries that did not adopt the euro.


Introduction

The  euro was  adopted  for economic   as well as political reasons. It was a
major  project undertaken by  the European  Union  (EU)  to raise longer-term
economic  growth  and living standards and to consolidate political stability in
the euro area. The  launch  of the euro on  1 January  1999 was  expected  to
remove  exchange   rate risks within the euro area, cut transactions costs and
further encourage  firms to trade across national borders, thereby providing
impetus  to trade, investment and employment.   The adoption  of the Stability
and Growth   Pact (SGP) was  designed  to ensure a similar fiscal stance across




* The authors thank Mufaddal Baxamusa and Kevin Barnes for their assistance in securing some of the
data and to an anonymous referee for a number of constructive and helpful comments.
C Blackwell Publishing Ltd 2005 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA

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