NCPA - National Center for Policy Analysis

When U.S. Money Talks, European Governments Listen

August 4, 1999

Eager to attract U.S. investors, European leaders are from time to time willing to alter their policies when massive U.S. mutual funds and other cash-laden institutional investors object to a particular course of action.

Take for example France's attempt several years ago to placate political separatists in New Caledonia by offering to swap a nickel mine owned by a state-controlled company for a less valuable mine controlled by the separatists. Executives of Fidelity Investments and TIAA-CREF, the big U.S. university pension fund manager, set up a howl. Both were minority investors in the government's mining company. They let it be known that American investors might shun French privatizations if Paris persisted.

Since it was less than three months before a $7 billion initial public offering of France Telecom SA --- to which the government hoped to attract American investors -- the government backed down.

  • Since the start of this decade, American foreign equity investments have soared to $1.4 trillion from $197.3 billion.
  • Foreign stocks accounted for 9.7 percent of total U.S. equity investments at the end of last year -- up from 6 percent in 1990.
  • Two-thirds of all U.S. money flowing abroad is directed at Europe.
  • So influential are these investments that countries are beginning to play by U.S. rules, experts say -- cracking down on insider trading, making stock buybacks possible, and making it easier for companies to award stock options, thus encouraging managers to boost profits.

For the most part, European governments have been willing to reduce government spending and slim down massive bureaucracies in the run-up to the launch of the euro, observers report. In the process, they have been making their economies more friendly to investors.

Source: Greg Steinmetz and Michael R. Sesit, "Rising U.S. Investment in European Equities Galvanizes Old World," Wall Street Journal, August 4, 1999.

 

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