GLOBAL FINANCE

prospect of the economic pendulum swinging away from free trade
towards protectionism is becoming a real possibility.

THE EUROPEAN UNION: RESTRUCTURING
BUSINESS

The European Union (EU) is the largest trading bloc in the world,
representing 40% of world trade and 20% of world GDP. Closer inte-
gration, economic reforms, and the potential enlargement of the Union
to include parts of Eastern Europe present many opportunities and
challenges for business.

A tradition of consensus and continuity has always been strong in

much of northern continental Europe. The EU way of doing business
has tended to be ``caring'' and stakeholder-orientated, in contrast to
the ``Anglo-Saxon'' model of the US and, to a lesser extent, Britain.
On the continent, employee protection, heavy regulation, oligopolies,
and a large public sector have been an apparently permanent fact of
life.

During the 1990s, Japan's go-go economy went into reverse. US firms

restructured and surged ahead while large companies in continental
Europe did poorly, failing, on average, to make enough profits to cover
their cost of capital. By 1999, returns had improved to an average 14%
on invested capital, but this was still much lower than the US figure
of 27%. Today, everything is changing. Globalization, monetary union,
deregulation, and privatization have stimulated firms to try to become
more efficient.

VODAFONE AND MANNESMANN THE DEAL
THAT CHANGED EVERYTHING

Mannesmann, a giant German telephone company, had sought
investment in the US and Britain during the 1990s to help fund
its expansion in Europe, largely by friendly acquisition. To do
so, it had to adopt the standards of accounting and information
disclosure expected in the US and UK stock markets. By 1999,
60% of the company was in the hands of institutional investors in
the US and UK.