The European financial markets stand to be buoyed by the end of the war in Kosovo, which seems likely in the coming week.

Fresh from Belgrade on Friday, Finnish President and EU special envoy

Martti Ahtisaari

informed the European heads of state gathering for a regional summit in Cologne, Germany, that the Yugoslavian leadership had agreed in principle to the Group of Eight's conditions set for ending all hostilities.

Peace would limit the human tragedy of the war and likely give the euro and the European financial markets an immediate bounce. Looking beyond the coming week, the developments from the Cologne summit hold implications for Europe's security and finances.

When Germany took over the rotating presidency of the

European Union

at the start of the year,

Chancellor Gerhard Schroeder

had plans to push through critically needed financial and institutional reforms for the expansion eastward of the 15-nation group. His plans, however, were stymied by the mass resignation of the EU Commission in Brussels amidst allegations of corruption and by the war in Kosovo. It therefore looked as if nothing much would happen during Berlin's six-month watch, as Schroeder was spending all his energy containing crisis after crisis.

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During the last summit in Berlin, financial issues were fudged, and Germany failed to reduce its overall contribution to the EU coffers, as Schroeder had wanted. But as the Germans finished up their reign with the summit in Cologne, Schroeder had something to celebrate: Not only has Ahtisaari returned from Belgrade with a real prospect for peace, but also the European leaders agreed to appoint

NATO Secretary-General Javier Solana

as a new point-man for the Union's foreign and security policy.

The selection of a "Mr. Europe" as Solana's position generally is being billed, is an attempt to let the EU speak with one voice on foreign policy matters of high import, as well as to develop a more cohesive defense and military policy for the European Union. The idea is that Europe, while continuing to have strong ties to NATO, would be able to act independent of the U.S., were another Kosovo to develop and were America to choose to not get involved.

But while the peace initiative and Solana's appointment grabbed the headlines in Cologne, the EU also moved quietly down the road to greater economic and fiscal cooperation and job creation as well. At the press briefing at the end of the summit, Schroeder made a point of emphasizing that the thorny issue of common taxation would need to be discussed further.

While certainly not to be completed in the coming week, one eventual benefit of the economic and fiscal cooperation will be that of a unified capital market for Europe. And the drive for such a market is no longer confined to the private sector, which wants alternatives to traditional bank lending. With high unemployment still plaguing much of continental Europe, the drive toward greater financial integration has taken on new goals and attracted new proponents.

Alison Cottrell, senior international economist for

PaineWebber International

in London, says the EU summit in Cologne "reaffirmed: stock markets plus venture capital, plus information technology, plus low bond yields equals jobs; or at least on ministerial blackboards" it does.

So although a peace agreement next week would do away with a drag on Europe's financial markets, the less dramatic, small steps taken at the summit toward greater economic and fiscal coordination hold the key to the well being for the entire continent long after the war is over.