Eye on the Market I May 2, 2012 J.P.Morgan Topics: how lonely a road is Europe traveling; Graham-Dodd and Shiner US equity valuation measures; casual reading Europe and the road less traveled. As we wait for the next round of fiscal transfers from North to South, European Central Bank rescue operations, IMF firewall expansions, foreign capital flight, deferral of tighter bank capital standards, elections, Bundesbank resignations, protests, rising unemployment and generally miserable economic data in the European Periphery, it's worth remembering something broader about what Europe is up to. There is no small amount of economic hubris associated with the European monetary project, and the chart below shows why. Multinational monetary unions are rare (see Appendix). Some regions debate adopting them, like the Persian Gulf, but decide not to, preferring to retain independent monetary policy. Europe went ahead anyway, despite large differences between member countries. Just how different? Countries in the European Monetary Union are more different than just about any other monetary union you could imagine: 60% io a 50% • 2 • • 40% • 30% The European Economic and Monetary Union (EMU): A Road Less Traveled Measuring the dispersion of hypothetical and actual monetary unions Dispersion measures the standard deviation of country-speed lc factors in each union. Factors reflect over 100 economic, social and political characteristics. Number of countries in each union shown in brackets. See text for further details. Source: World Economic Forum Global Competitiveness Report. J.P. Morgan Asset Management. Market economies of Latin America 16) a United Kingdom and its English speaking ollshoots 16) 1 Central America (8) Gull slate GCC countries [6) L Reconstit. Northern Reconstit. of Union of Europe of Ottoman Soviet including Empire, Socialist Scandinavia circa 1800 Republics [11) 125) (12) English East Asian Al countr es