BUSINESSWEEK ONLINE : OCTOBER 2, 2000 ISSUE
INTERNATIONAL -- EUROPEAN COVER STORY Europe's Cash Is Flooding into the U.S. (int'l edition) In 1992 and 1993, currency speculators pummeled Europe's markets, trying to derail the European Monetary System and the common currency project for their own fun and profit. They ultimately failed. Today, the sudden depression of the euro and a whoosh of money out of Europe would suggest that the speculators are back. In fact, however, the financial tidal wave that has washed across the Atlantic is merely investment--especially direct investment--in the booming U.S. economy. European companies have been buying up U.S. outfits large and small--from Unilever Group's purchase of Ben & Jerry's Homemade Inc. ice cream to megadeals like Deutsche Telekom's proposed $50.7 billion takeover of wireless communication company VoiceStream Wireless Corp. As European companies have converted euros into dollars to close their purchases, the euro has hit low after low. Federal Reserve Chairman Alan Greenspan has noted that the dollar would not be so strong without the constant investment from abroad. The sheer volume of investment is beyond the resources of any of the old hedge funds that once played havoc with Europe's currencies. From the beginning of 1998 through the second quarter of 2000, the U.S. attracted more than $583 billion in foreign direct investment (FDI), according to Morgan Stanley Dean Witter. That adds up to more than half the cumulative U.S. FDI for the last half century, says Joseph P. Quinlan, Morgan Stanley's senior global economist. In 1999, 84% of FDI to the U.S. came from the European Union, Quinlan notes. To be sure, 43% of the total was from Britain--a noneuro country. And the flow is not all one way. In the second quarter, U.S. companies sank $20.3 billion into direct investment in western Europe, U.S. Commerce Dept. data shows. Still, the outflow from the euro zone far outstrips the dollars that are coming in. European companies are paying dearly--buying U.S. assets at the peak of a historically long expansion with ever-cheaper euros. Europe ought to be seen as ''a buying opportunity,'' says Ben Ghalmi, European bond strategist for Alliance Capital Management in New York. But markets are too pessimistic about Europe's ability to modernize business conditions, he says. So there's little evidence the flows will reverse soon. In fact, there is a full pipeline of announced deals that haven't shown up in official statistics. Morgan Stanley estimates $162 billion of foreign cash or stock purchases of U.S. companies were pending as of Sept. 8. Europeans aren't buying trophy properties as the Japanese once did. They're buying strategic assets--telecom companies and banks, among other things--and plumping up their accounts with strong dollar-denominated revenues. What's more, they're buying international presence and, especially, the U.S.'s greater labor flexibility. That's something they're not likely to get overnight at home. By Julia Lichtblau in New York _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS Euro Crisis (int'l edition) COVER IMAGE: Euro Crisis -- Here's a Way Out TABLE: Unfinished Business TABLE: Europe's Reserves CHART: Shadows over Europe Europe's Cash Is Flooding into the U.S. (int'l edition) CHART: Europe's Money: America-Bound Denmark: The Vote That Could Roar (int'l edition) INTERACT E-Mail to Business Week Online

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