When 11 European countries created a single currency last January, predictions were that a single European banking system could not be far behind.

Great pan-European banks would emerge. Paris apartment-buyers could obtain a mortgage from a German bank; Italian workers would deposit their paychecks in a Dutch financial institution.

In the last eight months, banking consolidations have occurred all right, but they have occurred almost entirely within national borders. The single currency, the euro, is bringing Europeans together, but so far not their banks.

The French financial regulator is to announce Friday whether Banque National de Paris will be allowed to hold on to the 37 percent of the shares of Societe Generale that it acquired in a hostile tender offer two weeks ago. BNP also obtained 65 percent of the shares of its other takeover target, investment bank Paribas. No matter what the regulator decides, the outcome of France's biggest takeover battle ever will be a French entity.

In Germany this week, it was reported that financial giants Deutsche Bank AG and Dresdner Bank AG were discussing a possible combination of their retail operations. The banks quickly played down the reports, saying the two firms were talking with many institutions and that nothing had been decided. But it was hailed as a first step in consolidating a badly fragmented German industry.

Other national combinations are underway or have occurred in Spain, Italy and Belgium. Two large Dutch banks, ING Groep NV and ABN-Amro NV, are prowling outside their borders. But in their cases, the country is simply too small to support more domestic consolidation. And only in Italy are banks fully open to share purchases by foreign institutions.

Analysts and bankers say it is to be expected that integration at home would occur before European banks look beyond their borders. Many Europeans countries remain "overbanked," with more retail operations than the population can efficiently support.

In the same way that three major Japanese banks said last week they would combine to reduce costs and increase market share at home, European banks are getting their domestic houses in order first.

"There is still considerable scope for in-market consolidation, and the economics of that are more attractive," said Matthew Czepliewicz, European banking analyst for Salomon Smith Barney Inc. "It is not that by doing one you preclude the other."

There is more overlap to reduce between domestic banks, with potentially redundant retail operations, than between banks in different countries. That's also a reason for potential foreign buyers to tread carefully, especially in countries such as Germany and France where little consolidation has occurred but where the population is sensitive to potential job losses.

"Why should you as a foreigner add to all the uncertainty and discussion by taking a step that would make people even more nervous?" asked Cees Maas, chief financial officer for ING. ING has significant stakes in French and German banks but is proceeding slowly in enlarging them.

Other experts worry, however, that the trend toward national consolidation will work against the ultimate creation of pan-European banks. If France has a big bank and Germany has a big bank and Spain has a big bank, will any of them wish to combine equally or as a junior partner?

"The short-run economic rationale of bankers and nationalist leanings of governments mean you will end up with a fragmented industry," said Francesco Giavazzi, professor of economics at Bocconi University in Milan. "But this is not what you want in the long run for a well-functioning single currency."

Already, national governments and regulators are loath to approve takeovers of their own institutions by foreign ones. ABN-Amro was rejected by the French government last year, for instance, when the Dutch bank tried to gain control of CCF, a French institution being privatized.

In Spain, the two largest banks, Banco Santander and Banco Central Hispano-Americano, successfully merged last spring--but then were blocked at the border. The merged entity, called BSCH, agreed on a share exchange with Portuguese financial group Champalimaud that would give BSCH a 40 percent stake in the Portuguese company. But the Portuguese government objected, intervened and vetoed the friendly transaction. The matter is now before the European Union, which wants to block the veto.

The euro has been adopted by Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain. It will not arrive in the form of cash until 2002, but it already is very real for financial markets.

Monetary policy for the euro zone is run by the Frankfurt-based European Central Bank. Banking regulation remains the domain of the 11 national banking regulators--another factor working against cross-border banking mergers. Giavazzi favors the creation of a pan-European bank regulator that will, among other things, pressure financial institutions to combine across borders.

Analysts expect a big cross-border merger proposal in the near future as big banks run out of domestic options.

"The gloves are off. A lot of people are playing tough ball right now," said Andrew Gazitua, senior vice president of Donaldson, Lufkin & Jenrette Inc. in London. "One day all this will come to pass. It's a question of when."