Christopher Huhne, managing director of credit rating agency Fitch IBCA, warned delegates in a keynote speech at the FD Forum that European industry was due for major consolidation following the introduction of the single European currency. The second annual FD Forum, organised by Richmond Events, took place on the P&O ship Arcadia on 24-27 June. Comparing Europe with the US, Huhne noted that there are seven car manufacturers in Europe but only three in the US; 16 rail engine manufacturers in Europe but only two in the US; and as many as 40 battery companies in Europe and just five in the US. He expected the effect on prices to be “substantial” now that the eurozone has virtually eliminated national boundaries. The price of a Ford Mondeo currently varies by 25-30% across Europe. Personal computers cost twice as much in the UK as they do in Germany – “which may be why (Dixons boss) Stanley Kalms is so keen to keep the pound for Britain,” Huhne suggested. Sir Stanley is a leading member of the Business for Sterling pressure group. Huhne also warned that European banks will start paying more attention to shareholder value and, as a direct result, stop cross-subsidising their business customers who, he said, “have been enjoying a cosy relationship with their banks for years”. But there will also be a greater appetite on the part of investors for high-yield bonds, Huhne said. This is because they will have a much larger geographic market to choose from, rather than restricting their bond investments to their home currency. Without currency or country restrictions, investors will be able to buy junk bonds anywhere across Europe.
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