Big Issues for Euro-Investors

MONETARY UNION
Decisions on who is in and who is out of the euro will be made in May. The markets expect a broad-based union including Italy and Spain, with Britain, Sweden, and Denmark staying out of the January, 1999, launch. Surprise inclusions would be good for stocks; unexpected exclusions could sink markets.

MERGERS
The European takeover boom will keep buoying stock prices. With the single currency in sight, industries will consolidate along regional lines. Financial-services companies will be especially hot targets, as big banks and insurers fight to dominate the new Euro Zone.

THE ECONOMY
German GDP growth should be in the 2.5% range in 1998. But stock prices could suffer if rising interest rates, the slowdown in Asia, and a possible drop in the U.S. dampen corporate earnings. The strong pound and recent interest-rate rises will likely slow Britain's hot growth spurt. Manufacturers are already suffering, and retailers could soon feel the pinch. The pound, which now fetches $1.63 and 2.91 Deutschemarks, could drop sharply as growth tails off.