The Euro is Here

By Larry Greenemeier

The arrival of 1999 brought with it the dawn of a new era in worldwide economics as the euro debuted in 11 European nations beginning January 1. Over the next three years, these countries – Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain – will undergo the gradual process of migrating to a single currency.

The euro is now a legal currency in these nations, which have become the founding members of the European economic and monetary union (EMU). Together, EMU members have a combined population of approximately 300 million and are expected to account for 19.4 percent of the world’s Gross Domestic Product (GDP) and 18.6 percent of worldwide trade, according to IBM research.

"Rather than looking at Europe as a collection of medium-sized countries with individual market characteristics, you start to look at Europe as a [300-million-consumer], single-currency market," says John Downe, IBM manager for euro global customer programs. "I think we’ll see the euro actually encouraging or enabling broader reach because there will be familiarity with prices in euros."

Along with the benefits of a unified currency, businesses within the EMU face a number of challenges with regard to euro readiness, according to IBM. These include: maintenance of dual currency systems during the three-year transition period; "decimalization," particularly for companies residing in, or doing business with, countries whose national currency did not previously have decimals; links to suppliers; application and packages changes; large data conversion after the transition period; dual pricing in public service sales activity, both governmental and postal; rounding rules, conversion and triangulation; and testing and post-implementation reviews.

North American companies affected by euro readiness are beginning to realize that about 40 percent of the work done on their information systems will take place domestically, according to Downe. In fact, IBM estimates about 80 percent of its own internal systems will need to be adapted one way or another in preparation for the euro.But the road to euro readiness does not begin within IS, Downe points out. "It’s important for companies to see euro readiness as a business issue rather than a technical – or IS – problem," he says. "It requires a lot more business input as to how a particular firm wants to handle it."

Businesses need to decide what impact the euro has on their sector of the market, according to Downe. "Do companies need to re-examine the way they set themselves up in Europe at the back-office end, and do they need to think about pricing differences? Do companies have any significant pricing differences that they’ve been able to sustain through local market conditions, regulations or other factors, which when a business buyer sees all those prices in euros, he’ll stop to say, ‘Why am I paying this much in Italy and that much in France? I’ll buy it all in Italy [for example], where it’s cheaper, thank you very much.’"

The impact of euro readiness at this point in history "very much depends on what part of Europe you’re in," says Patrick O’Beirne, managing director of Systems Modelling Ltd., a Gorey, Ireland IT consultancy. "The U.K. is in a unique position, in that it is as much in the euro as the rest of Europe, it just doesn’t have the benefit of the fixed exchange rate. In Ireland, it’s still being seen as a big company issue. Those in financial services are going for the first of January. The rest are waiting to see what happens."

As with any business conversion, there are some costs associated with euro readiness. Yet, with this cost comes increased business opportunity, according to Downe. "Clearly this is the sort of thing all organizations should be looking for in order to not just see this as a compliance/cost pain-in-the-neck-type issue," he says.

"There are actually opportunities out there to make money. In the leading sectors [most prominently, the banking industry], clearly there are competitive moves going on there both by the domestic European organizations and by some of the U.S. organizations who have seen that unless they’re heavily promoting themselves as euro-ready, they could miss out."

The cost of euro readiness is as much – or as little – as businesses are willing to pay, O’Beirne adds. "They can do nothing and wait for the wave to go over them and hope they’re still standing up when it’s all done," he says. "Or they can say, ‘this is what our competition is likely to do, therefore, if our competitors are doing this, we would need to either get in there first or wait for them to make a mistake and then jump on it.’ Obviously, what a person can do or spend depends upon what they already have to spend, how profitable they are, how good their borrowing is, and so on."

Conversion to the euro will take place over the next three years. On January 1, 2002, "the process of actually replacing national physical currencies with the euro will begin, with the 76 billion coins and 13 billion bills of the old currencies being withdrawn from circulation, and coins and bills of the new currency going into circulation," according to research conducted by the Information Technology Association of America (Arlington, Va.).

The effect euro readiness has on North American businesses depends upon the size of the company and the amount of exposure that company has to the international market, according to O’Beirne. "One factor that may draw North American businesses into the euro issue is if a company’s oversees clients switch to the new currency. This could have an immediate impact on them.

"The question is a matter of how long will it take for the pressure from the larger companies to trickle down to smaller businesses? Moving into the international market is a big thing to do, if companies haven’t done it before," O’Beirne says. "The euro is really only going to make one element of it easier."

One analyst cautions that those North American businesses not directly or immediately affected by euro readiness should still pay attention to the economic situation in Europe. Though there is a three-year transition period "stamped" on euro readiness, Phil Zaczek, president of Accession Technologies Ltd. (Chicago), is not convinced the process will be carried off without its share of problems. Within the three-year buffer, in particular, some North American companies may find themselves dealing simultaneously with some European companies that make the conversion and others that move more slowly.

For North American companies that already have a large presence in Europe, euro conversion should not be a "major adjustment," according to Zaczek, whose company develops ATL/MM, a Year 2000 impact analysis tool that also supports euro conversions. "They just have to get the ISO 9000 certification and deal with the euro currency, and they can go do business in Europe," he says. "It’s like NAFTA – when doing business with Canada or Mexico. If you want to do business there, you just go do business there. It’s much less complex, and that’s the whole purpose of the union. It will ultimately be easier, despite the efforts required up front."

IBM offers a database of all IBM products and their state of readiness for the euro – There are about 80,000 products and releases documented in this database.