As 'Shareholder Value' Arrives in Europe, Stocks Soar

Pamplona isn't the only city in Europe where bulls are running this year. European stock markets from Spain to Scandinavia have been charging upward since the new year, continuing a trend more than a year old.

Spain's stock market is up 57 percent since the beginning of 1996. And although "hot" isn't a word normally associated with Scandinavia at this time of year, the equity markets for the Nordic region are sizzling. They have registered double-digit increases over the past month, and a 43 percent rise in a year.

What's going on? Partly, European companies are starting to behave more like American ones - for better or worse.

In this season of the Euro-bulls, many Continental companies are adopting the concept of "shareholder value," the idea that a publicly traded company's first responsibility is to turn a profit for stockholders.

Americans have grown accustomed to reminders that Wall Street's interests are not necessarily Main Street's. They know that when a company announces big layoffs, it is likely to see its stock price soar. And so it is in Europe: The equity surge is coming at a time of much general gloominess, on the job scene especially. Unemployment in Spain, for instance, is running about 22 percent.

"There's a striking difference between the performance in the equity markets and the attitudes of consumers and business, who are both pretty morose," except in Britain, says J. Paul Horne, an economist at Smith Barney in Paris. He predicts the boom will continue in the weeks ahead, but adds "one overriding caveat: A correction on Wall Street will be felt here."

For now, low inflation, "easy" money-supply policies, and expectations of increasing growth in both profits and the overall economy are pushing stock markets to record highs. This month has seen all-time peaks in Belgium, Britain, Denmark, Finland, France, Germany, Hungary, the Netherlands, Norway, Portugal, Sweden, and Switzerland.

A strong US dollar is helping, too. European stocks are a good deal for American investors, who are pouring money into France and Italy in particular. The high dollar makes European manufactured goods, such as BMW cars, cheaper for Americans as well.

Perhaps most important, however, are analysts' perceptions that the often wrenching restructurings of corporations and government in recent years are paying off. "Our belt buckles are just about against our backbones," Mr. Horne says, commenting on austerity programs in force as European Union countries try to get their budgets in shape to qualify for the common European currency. As a result, interest rates have fallen.

"A lot of European companies have been fat" with overstaffing, says Norbert Walter, chief economist at Deutsche Bank in Frankfurt. Now that many of them have slimmed down, the next step is to "hire the good talent and stick with a reasonable wage structure."

"Shareholder value," however, is a disputed concept on the Continent. Especially in Germany, long-term relationships with creditors, employees, customers, and even local governments are often considered the priority - and banks are often major shareholders anyway.

But luring international capital is seen as a key to enabling European firms to modernize and create jobs.

Germany wants its own citizens to get into the act, too. Its central bank recently called for equities to play a greater role in the German investment scene.

"I see things moving in that direction already," says Hermann Remsperger, chief economist at BHF Bank in Frankfurt. He says the generation whose grandparents lost everything in the hyper-inflation of the 1920s and whose parents lost everything during World War II is coming into its inheritance nowadays, and members of this generation are "more willing to take risks."

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