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EU: ''Enronitis'' Spreads

Toronto Globe & Mail
May 23rd, 2002

WASHINGTON, DC -- An Enron Corp. backlash is rolling across Europe, feeding skepticism about the United States as a financial role model as top U.S. and European Union market regulators prepare to meet here next week.

Amid a steady stream of Wall Street scandal, European Union Internal Markets Commissioner Frits Bolkestein was scheduled to confer with Securities and Exchange Commission chairman Harvey Pitt on accounting standards and market integration.

The meeting comes as a chorus of "I told you so's" grows in Europe among defenders of a tradition of market paternalism, as opposed to the United States' more free-wheeling capitalist ways.

"It is literally a backlash, but a positive backlash," said Karsten Tripp, managing director of research at Germany's HSBC Trinkaus Capital Management in Duesseldorf. "I don't think it means we will take an entirely different direction now, but the course will deviate a bit from what we saw over the last three to five years."

Through much of the 1990s, U.S. banks, accounting systems, corporate governance and management theories were sweeping across Europe, fueling predictions that U.S.-style equity culture would take hold from Paris to Prague.

Major change did come to the staid, old bourses of the Continent, while London -- always more like the United States than other European markets -- drew even closer to New York.

But Uncle Sam's steamroller stalled when the technology and telecoms stock bubble burst in March, 2000, devastating Germany's overheated Neuer Markt and reining in the bulls.

More than two years later, with the bears still in charge, European enthusiasm for the U.S. model has given way to a search for balance, corporate governance experts say.

"On board structure and takeovers and so on, there's still some momentum behind reform. . . . That's part and parcel of a shareholder-led economy," said Colin Melvin, head of corporate governance at British investment management firm Baillie Gifford.

But Melvin said Houston-based Enron likely would help "companies and local policy setters that are reluctant to make changes. Companies could say, 'Look what happened in the U.S. Why should we adopt these practices?' "

The spread of "Enronitis" may also aid Mr. Bolkestein in his push to convince Mr. Pitt that European companies should be allowed to report their results in the United States using the EU's International Accounting Standards, instead of having to translate into Generally Accepted Accounting Principles, the U.S. standard.

"Enron doesn't do GAAP's case any favors," said David Somerlinck, senior researcher at British corporate governance consultancy Pension Investments Research Consultants.

Mr. Bolkestein has taken potshots at U.S. accounting standards since the collapse of the former energy trader, reflecting a broad European reassessment of U.S. management, accounting, equity analysis and regulation.

The European Commission, executive body for the 15-nation EU, last week proposed a code of conduct for corporate auditors to make them more independent and prevent debacles such as that involving Enron and its auditor Arthur Andersen LLP.

As U.S. Congress debates similar proposals responding to Enron and other eyeopeners, those defending the status quo often intone that U.S. markets are the envy of the world.





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