Judged by its value against the U.S. dollar, Europe's new single currency has not fared very well in its first year of existence. Since its inception last Jan. 1 at a value of $1.17, the euro has fallen to virtual parity against the greenback.

But the decline in the euro's value has obscured its true impact, financial experts say: The euro in its first year has completely reshaped Europe's capital markets and the way companies do business.

It has created an enormous new market for corporate bonds, the bread-and-butter of corporate finance. It has provided European companies with a source of financing for the unprecedented number and size of mergers, acquisitions and hostile takeovers launched this year. It has helped propel European stock markets, some of which are up 50 percent this year, to record highs. It is encouraging institutions and individual Europeans to broaden their personal investments.

The European single currency, in other words, is everything its founders wanted it to be--except strong.

"The euro, like the Internet, is an agent of radical change," Mark Howdle, head of European equity strategy for Salomon Smith Barney Inc. in London, wrote recently. "Once unleashed, it sets its own agenda."

The euro is one way the economies of the 15 European Union nations are meshing to create a single economy larger than that of the United States. EU rules allow citizens of member nations to work and live anywhere. Goods move across borders tariff-free; capital flows free of limits or controls. And now, the euro has created a unified capital market in which national boundaries are essentially meaningless.

No better example of the euro-led revolution can be found than in Europe's corporate bond markets. Until the past few years, European companies did most of their borrowing through banks. Now, companies have an enormous pool of European and international investors to tap into for capital.

Last Jan. 1, the euro replaced the currencies of 11 countries--Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain--in every way but cash (cash arrives beginning Jan. 1, 2002). While the 11 national currencies still exist, their exchange rates relative to each other are fixed, so for financial purposes they are equivalent to one currency.

Thus when a Dutch company wants to take over a German company, it now can issue a bond in euros to pay for the deal. That bond can be bought by French or Italian investors--or American or British investors, for that matter. (Britain is one of four European Union countries not yet participating in the euro; the others are Denmark, Sweden and Greece.)

For the Dutch company, there is no risk that fluctuating exchange rates will affect the amount of interest it has to pay on the bonds; for the French and Italian investors the same is true for the interest they receive. "We have created one large capital market out of 11 small ones, and it has created a real shift," said Thomas Mayer of Goldman Sachs Group Inc. in Frankfurt. "Companies can finance themselves in more efficient ways. They don't need banks as much any more." Those conveniences have led to an explosion in new bond issues: In 1999, there were 423 corporate bond issues denominated in euros, worth $169.4 billion. That's a 260 percent increase over 1998, when bond issues in euro currencies totaled 174 and were worth $47.4 billion, according to Capital Data Bondware in London.

American companies are part of that market. U.S.-headquartered firms offered 94 bond issues worth $25.6 billion, a 144 percent increase over the previous year, according to Capital Data. In July, for instance, Sealed Air Corp., the packaging company, sold a 200 million-euro bond issue through its Netherlands subsidiary. Other American firms tapping the euro borrowing market are McDonald's Corp., Sara Lee Corp. and Philip Morris Cos.

For European companies struggling to become as global and competitive as American firms, the euro has helped finance an unprecedented wave of takeovers and acquisitions. While the currency alone does not explain the outbreak of consolidation, it makes such transactions easier.

There have been more than 12,000 mergers and acquisitions in Europe this year, totaling $1.2 trillion, according to Thomson Financial Securities Data. That's up from 9,555 deals worth $590 million the year before.

"The euro was not the only catalyst for this, but it was one of a necessary set of conditions to get mergers and acquisitions up to these frenzied levels," said Howdle of Salomon Smith Barney.

CAPTION: Happy Birthday? (This chart was not available)