Frankfurt, Germany -- Despite Europe's plans for a single market, a single currency and a single central bank, its financial capitals are battling in a bid for dominance.
At the heart of the struggle is the belief that Europe's pending integration means only one city -- Frankfurt, London or Paris -- will survive as a major financial center. Although London is ahead in the race, Frankfurt is scrambling to win what Germans believe is their rightful place as the European Community's financial and economic heart.
To attain that elite position, Frankfurt is using a double-barreled approach. It is reforming its big but clumsy stock exchange. And it is lobbying for the seat of the planned European central bank, which, by the end of the decade, will replace national central banks and watch over the new European currency much as the U.S. Federal Reserve Board guards the dollar.
Such moves have triggered fears among other EC nations that Germany -- strengthened by its new eastern territory -- will come to dominate the EC.
Still, German leaders consider such prestige their due. Germany contributes 28 percent of the European Community's budget, has the biggest economy and most powerful currency. Yet it is home to no major EC organization or body. Most are in Belgium or France.
"The Federal Republic [of Germany], with 80 million of the EC's 345 million residents, is the biggest country but doesn't have any significant EC institutions," said Helmut Schlesinger, head of the German central bank, the Bundesbank.
Frankfurt, whose skyscrapers along the Main River have given it the nickname "Mainhattan," has started an aggressive lobbying campaign to right that imbalance. It has enlisted top-level backers such as Mr. Schlesinger and Chancellor Helmut Kohl to discreetly lobby for the European central bank, which would bring hundreds of well-paying, high-profile jobs.
Meanwhile, its slogan, "Frankfurt, the natural choice," builds on the city's reputation as the home to all major German banks -- which are among Europe's largest -- and the Bundesbank, whose strict inflation-fighting policy is the model for the new European central bank. All European currencies, including the pound and franc, are pegged to the Deutsche mark, which is the world's second-most important trading currency after the dollar.
Paris and London are the city's main competitors.
Paris' strength: the presence of the French in the EC's governing body. But France is home to the European Parliament, so it might not be able to land the central bank, too.
London, Europe's most important financial center, is a more formidable challenger.
The Bank of England is spending $2 million on a promotional campaign, which includes dispatching a representative to lobby in Europe's capitals. The message: A London-based European central bank would help integrate Britain in the community and allay fears that the EC is run by a bunch of continentals. British officials also say they are "owed" an important ministry, although they concede that the new European Bank for Reconstruction and Development will be based in London.
Coupled with Germany's lobbying for the central bank is a series of reforms designed to modernize stock trading laws and strengthen the "Finanzplatz Deutschland."
Frankfurt's stock market lags behind London's because of many out-of-date trading practices, such as a tax on stock turnover and non-electronic trading. Smaller, regional exchanges also drain business away from Frankfurt, leaving the market undercapitalized and prone to sudden course swings.
Such restrictive stock-trading practices often make it easier, safer and cheaper to buy German stocks in London, which handles up to 30 percent of German companies' stocks, said Hans-Georg Engel, a director of J. P. Morgan and head of the 172-member Union of Foreign Banks in Germany.
And Germany's stock market is weakened by a fundamental problem, the structure of its banking system. The country has a "universal" system, in which banks dominate trading in bonds and securities. When a company needs capital, banks prefer to issue loans rather than recommending the sale of bonds or securities.
As a result, German companies get only 20 percent of their capital through the stock market, leaving the Frankfurt exchange relatively small. British companies, by comparison, are 80 percent capitalized through the stock market. The most serious problem, however, is a lack of regulation and openness.
That led the U.S. Securities and Exchange Commission last year to reject options traded on Frankfurt's Dax index. The SEC said such options could not be traded on Wall Street because Germany's stock market regulations were too lax.
In response, the German Finance Ministry recently announced reforms to strengthen control, make trading more open, lengthen trading times and eliminate many trading fees. The eight regional exchanges will be united under Frankfurt's control through an umbrella organization called the Deutsche Boerse AG.
Except for London, which is somewhat complacently sitting on its lead, other European exchanges are also making reforms. Paris, for example, is overhauling its exchange and has quintupled its market capitalization since 1985.
Still, all of Frankfurt's efforts could be crushed by suspicions about Germany's swagger.
The EC was devised by a group of equals: Britain, France, West Germany and Italy. But united Germany is now decisively bigger than the other three. Its population is about 20 million larger than each of the others, and its industrial superiority -- once eastern Germany is rebuilt -- is expected to dwarf the others.
The sensitivity to Germany's new size and confidence was illustrated recently, when the nation pushed to make German the third main language used by EC officials. New EC rules are usually issued in French and English, with a German translation following weeks later. That hurts smaller German businesses that cannot afford translators.
Such arguments, however, provoked murmurings in European capitals that Germany was flexing its muscles and bent on imposing its will. In lobbying over the European central bank, German efforts will be quieter and more diplomatic.
"We don't want to raise doubts that we are being too pushy or being bad Europeans," said Gabriele von Eick, head of Frankfurt's Economic Promotion Office. "People are sensitive."