Europe’s stock markets eclipse Wall Street. Hooray!

So Europe’s stock markets have passed those of the U.S. in value, at least if you count Russia and Turkey as part of Europe (which they both partly are). This apparently happened last week, but nobody seems to have noticed until Tuesday after an analyst in London named Ian Harnett pointed it out. There are some caveats, noted the Independent:

For the record, the figures come from Thomson Datastream, not the traditional calculators of indices, such as FTSE or MSCI. These others strip out government holdings and other shares that are not generally available to investors, which lowers the value of European markets, which include many partly privatised companies and the like.

Still, a landmark. Europe has more than twice as many inhabitants and a significantly larger economy than the U.S., so it shouldn’t be all that amazing that the companies traded on its markets are worth more. But it hasn’t been the case since the end of World War II, or maybe even World War I.

So what is one to think of this? I’m of the school that sees it as good news when countries around the world emerge from poverty and communism and other forms of misgovernment. And when that happens, the U.S. share of the global economy inevitably shrinks. We currently account for less than 5% of the world’s population and about 28% global GDP–meaning that the economic share has got a lot more room to decline.

This sort of relative decline can be a hard thing for a proud nation to put up with. And I’m all for doing whatever we can to make the U.S. as economically competitive as possible. But in the end, what ought to matter most is the living standard of U.S. residents, not the size of our economy or our stock markets.

Update: John Authers had this in his “Short View” column in the FT way back on Monday. Missed that. He also shared this interesting factoid:

For decades, through boom and bust, US companies were more focused on shareholder value, and delivered far higher returns on equity than their European counterparts. Restructuring has turned that round. According to Absolute Strategy Research, European companies managed a return on equity last month of 17.5 per cent, compared to 16.5 per cent for the US.

Spain’s Prime Minister Warns Country Is in Danger of Being Shut Out of Markets

MADRID — Spain‘s prime minister warned Wednesday that the country faced the danger of being locked out of international markets as investors continued to fret about the future of the euro and Greece’s place in the 17-country eurozone.

“Right now there is a serious risk that (investors) will not lend us money or they will do so at an astronomical rate,” Mariano Rajoy told Spanish lawmakers.

http://chospo.blogspot.com Riccardo Rossi

Mr Fox,

I really like your article. I agree with you when you write “But in the end, what ought to matter most is the living standard of U.S. residents, not the size of our economy or our stock markets.”
And here is my question. Could the movement of investment, businesses and money from USA (in particular NYC) to Europe (in particular London) to damage the living standard of U.S. residents?
In particular the growing E.U. economy could damage the U.S. residents and benefit the E.U. residents?

Cheers,
RR
http://time-blog.com/curious_capitalist/index.html Justin Fox

Riccardo,

I would think that, on the whole, a growing E.U. economy greatly benefits the U.S. That was the whole philosophy behind the Marshall Plan, and I think it still holds true. Obviously, if the euro were ever to replace the dollar as the world’s reserve currency (my not particularly well-informed bet: it won’t be the euro but, many years from now, the renminbi or maybe some kind of joint Asian currency) that would bring some serious adjustment problems for the U.S.

As for the London-NYC question, it’s not so much that businesses and investment are moving from NY to London as that London–thanks to its location and the UK tax code–is capturing an increasing share of a growing global financial business. That’s still a little worrisome for New York, I guess. But the financial business is booming here at the moment, too.
thomas

The U.S. is a Huge Debtor Nation with 50 Trillion dollars of debt throughout the economy and growing 3.5 trillion yearly.
For every dollar of GDP growth we are adding 6 dollars in new debts. Why?
Europe and Asia take the American Dollars they earn from their exports to the U.S. and buy Assets throughout the country.
The money earned from these investments go back home or much of the profits do anyway.
With a Trillion Dollar Current Account Deficit this should be obvious.
The European Union has over 39 million factory jobs while the U.S. has 14 million.
The E.U. also is the world’s largest exporters by far! Why?
Most of the U.S. Economy is low wage service oriented and the manufacturing sector is in steep decline. Why?
Since 2000 the U.S. has not produced enough jobs to keep up with population Growth. Why?
The E.U. has produced more jobs then the U.S. since 2000 producing 3.5 million new jobs in 2006 alone dwarfing U.S. job growth or lack of it! Why?
U.S. Healthcare is ranked 37th and the average U.S. citizen has the lowest life expectency in the modern world. Why?
We have the most expensive College Tuition in the world.
Why?
U.S. inflation rates have been higher then most of it’s competitors(Japan, Germany,etc) since 1982. Why?
Why is America’s Gini index approaching 50?
Why is America’s Infrustructure falling apart and received a D- in 2006.(The levies in New Orleans failed because they were old and not maintained)
America’s Environmental standards are falling behind other Western Countries. Why?
Did not sign Kyoto and the U.S. is behind in the new Renewable Energy Revolution. Why?
Why does the U.S.A. have 8 million citizens in it’s Correctional Institutions(Parole, Probation, Prison, etc.)?
These are some of the Important Questions that are not asked that often for some reason.