national systems for payments, clearing, and settlement. a larger and more integrated financial system may carry greater systemic risks and raise new challenges for the system of financial oversight and supervision. further challenges will arise as new countries, including those currently at a relatively low level of financial development, join the european monetary system. their accession will greatly complicate the harmonization process, but given what we know about the role of finance in economic development, the benefits for both the new members and the current ones could be very large.

fixing the country shares of the underlying debt, or by stripping off country - specific default risks through such instruments as credit default swaps. such securities would provide a benchmark yield curve, among other advantages. the benefits of the euro for government bond markets have carried over to corporate bond markets as well. issuance of euro - denominated bonds by corporations took off soon after the introduction of the new currency. although much of the boom no doubt reflected general macroeconomic conditions and other factors, potential access to a much larger base of investors willing to hold bonds in the common currency and resulting improvements in pricing and liquidity also played a role. underwriting costs have also fallen, the result of both greater competition and the reduced costs of bringing issues to market ( santos and tsatsaronis, 2003 ). the rapid development of europe ’ s corporate bond market, including a nascent high - yield market, should prove highly beneficial to european economic development. the benefits of the common currency for other types of securities markets have been more mixed thus far, but the potential is there. the european interbank market was strengthened substantially in tandem with the creation of the eurosystem of central banks. in contrast, markets for securities lending ( repo markets ) remain somewhat fragmented, and commercial paper markets are underdeveloped. european stock markets, which in any case account for a smaller share of financing activity than in the united states, have not been successfully harmonized thus far, and cross - border equity investments may still involve high transaction costs ( mcandrews and stefanadis, 2002 ). however, it is widely observed that the perspectives and strategies of european equity analysts have changed, toward a de - emphasis on country - specific factors and greater attention to industry and company factors in the valuation of stocks ( adjaoute and danthine, 2002 ). this change indicates that financial market participants see increased financial and economic integration in europe as an irreversible trend. efforts to adhere to the lamfalussy process, which aims to streamline the harmonization process for financial market legislation and regulation, should hasten the integration of european securities markets. european finance has traditionally been bank - centered. what will happen to banks in the new regime? banks may lose some loan customers to the growing securities markets, but they will also benefit from increased access to finance, both in the interbank market and in the corporate bond market. indeed, the banks were large players in the early boom in