ernst welteke : trends in international banking address by mr ernst welteke, president of the deutsche bundesbank, at the international arab banking summit held in frankfurt, 19 june 2001. * * * ladies and gentlemen, i would like to welcome you to the international arab banking summit 2001 in frankfurt, the city of the euro. frankfurt is home not only to the bundesbank and the european central bank but also to as many as 340 banks, including more than 130 foreign banks. it is the leading financial centre in germany and the euro area. the heart of the eurosystem is the right place to discuss trends in international banking, such as electronic banking, as well as questions regarding a deepening of the euro - arab partnership. i the success of the common currency in the european monetary union has rung in a new phase of debate about monetary unions. this holds for all continents, for north and south america, for asia as well as the arab countries. the decision to adopt further steps leading towards a common monetary union by the gulf cooperation council at the end of last year attracted a lot of attention. clearly, the process of integrating different economies is an arduous one, involving not only the surrendering of a national monetary policy but also a process of integrating the real economy. in europe this process took almost half a century, from the first pro - european declaration to the full integration of monetary policy in the european monetary union. harmonising tariffs and creating a single european market with free movement of goods, services, capital and labour created the basis for a common monetary policy. in addition the convergence process caused macroeconomic policy and data to converge to such an extent that the abolition of national monetary policy would no longer cause major distortions. the arab countries face similar problems in terms of tariffs and trade barriers. clearly, the basis for a common monetary policy is a single market for the real economy, the financial system and labour markets. even within the gulf cooperation council ( gcc ) there is still a long way to go. there are, however, some encouraging characteristics in the gcc for integration. the similarity of the economies is a striking feature. all depend to a large extent on energy exports. the price of crude oil is by far the single most important factor determining the business cycle. in addition to the similar sectoral structure of the economies the common language represents an integrating element. the same holds true for the common culture, religion and the similar geography. to reach the

##isation and deregulation as well as new developments in technology are also playing a major role. the markets have become more liquid, larger, deeper and more complex. it is true that on the way towards a single european capital market more work has to be done. institutional, technical and legal barriers are hampering the process of integration. the fact that there is no single sovereign issuer, but rather 12 different government issuers, undoubtedly contributes to the certain degree of fragmentation that still exists. in this context, the benchmark position of the german bund is something of which we can be particularly proud. the great diversity of issuers will, for the time being, remain a characteristic feature of the european capital market. the same is true for the large number of stock exchanges and exchange - like trading systems as well as the different clearing and securities settlement systems. this does not, however, rule out the possibility that the individual capital markets will become progressively closer to each other in terms of their economic organisation. this is something the institutional investors themselves are already taking care of. there are many signs that a more market - oriented financing structure is evolving in the euro area. enterprises are increasingly meeting their financing needs directly through the capital markets, that is : by means of negotiable paper. the dynamism of this disintermediation process may be gauged by the development of the equity market : the degree of market capitalisation has increased significantly. this is a reflection not only of higher equity prices but also of the steadily rising total number of enterprises listed on the stock exchange. a major contribution to this development has been made by the neuer markt ( new market ) of the frankfurt stock exchange. this is where young, innovative enterprises obtain access to risk capital. in terms of the neuer markt, germany has the top position among european growth markets – even if some investors may have overlooked the fact that this is a market for risk capital. in addition, the market for corporate bonds is on the advance. alongside the introduction of the euro itself, a major driving force has been the continuing restructuring of the corporate landscape. however, changes are not restricted to the financial markets themselves. the entire financial sector, including the whole range of financial intermediaries and financial institutions, is affected by them. as a result of the loss of the “ home - field advantage ” represented by the deutsche mark, at the start of monetary union the german credit institutions entered into competition with all the