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On 31 December, 1998, the French franc, German Deutchmark and the currencies of the other 9 countries switching to the euro on 1 January 1999 ceased to exist. They exist only as predetermined cash units of the euro.
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One euro equals, and will always equal:
6.56 French franc
1.96 Deutschmarks
1936.27 Italian lira
40.34 Belgium/Luxembourg franc
166.39 Spanish pesetas
0.79 Irish punts
2.20 Dutch guilders
13.76 Austrian schillings
200.48 Portuguese escudos
5.946 Finnish markas
On the other hand, at the time of it's launch on January 1st, one euro equaled*:
1.17 US dollars
0.71 pound sterling
132.80 Japanese Yen
*Unlike the rates for the now defunct currencies, these rates will fluctuate in the usual way.
The 11 countries that are in the euro zone are: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. It will become increasingly important to provide estimates and invoices calculated in euros for trade with these countries. Many large companies in these countries, as well companies outside the euro zone will use the euro as the basic currency unit for their accounts. Companies that have already stated that they will be using the euro include: Erickson, Mercedes, Philips, Rover, Siemens and Volvo. Note that several of these companies are based outside the euro zone.
The main advantage of the euro for companies is the elimination of exchange rates and fees within the euro zone. It should also make it much easier to compare the costs of goods and services.
European multinational companies will probably prefer to use the euro for their internal accounting and are likely to encourage their local suppliers to invoice them in euros. The euro make it much easier to compare the costs of goods and services of companies across Europe and companies within the euro zone will not be susceptible to exchange risks. This will increase competition and is likely to affect the profitability of local companies.
EU grants will be determined in euros from January 1999. Unlike the ecu, in which they are currently determined, the pound is not represented in the euro. This means that EU grants may be a lot more vulnerable to exchange rate changes. This will make it a lot more difficult to forecast how much a grant will be worth when it is converted to pounds.
The UK government has already decided that companies, and individuals, can pay taxes in euros if they wish to do so. Multinational companies investing in your area may ask to pay local business taxes in euros, since they may be using euros for their internal accounts. Will your council be able to handle them?
After 2002, euro notes and coins will start to used. These are likely to appear in areas that attract tourists from Europe. They will also appear in airports and ports. Travelers are much more likely to spend money in your area, if they can use the euros they have been able to use throughout most of Europe.
If your company exports to countries in the euro zone, it may be at a disadvantage compared with other companies who will share the same currency as the importer.
Companies within the euro zone will be using the same currency, which will eliminate exchange rate fluctuations and costs for trade between countries within the zone. Countries from outside the euro zone will still be liable to exchange rate fluctuations and exchange costs. This is likely to make it more attractive to trade with a fellow euro zone country than with countries outside the zone, unless the product or service is clearly better.
If you trade with companies from countries within the euro zone, you will need to change your financial systems and accounts to include the euro.
For companies operating in countries close to the euro zone, some machines may need to be adapted or replaced so that they can accept euro cash from 2002 onwards. For example, cash tills, vending machines and EPOS systems.
If you are involved in software purchasing decisions ot planning, you will need to consider the following points:
As I hope the points above have made clear, the euro is going to affect companies and local authorities in countries outside the euro zone. If you do not do much trade with countries within the euro zone, you will probably not start to be seriously affected until after euro cash starts to circulate in 2002. If you purchase, or sell, goods and services from companies within the euro zone, you may well have to adapt your operating procedures soon after the euro is introduced on 1 January 1999. How well prepared are you for this challenge?
For more information about the euro, visit one of the English sites listed here.
For information on how other countries are preparing for the euro, visit the sites in the table below.
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Site maintained by Mark Smith, Tsurumi, Japan. E-mail: mspsmith@gol.com