EU's `soft' laws on euro ought to be followed

The debate about how the business and the financial services sector behave following the introduction of the euro is gathering pace. A number of issues are outstanding, and these are of particular concern to small business and consumers.

Research has shown that small and medium-sized companies (SMEs) are less well prepared for the changeover than some of the larger conglomerates. The same is true of consumers, many of whom can still remember the introduction of a decimal currency.

To deal with the concerns raised by various sectors, the European Commission issued a series of recommendations in May. Recommendations are "soft" laws. They imply that the authorities will frown upon those that disobey them and resolve not to be so soft in the future. These recommendations emerged from an exhaustive round of consultations. In some circumstances, recommendations are the only way to operate a system - such as in the area of dual pricing where an all-out policing of mandatory rules around the date of the changeover would prove difficult.

This type of voluntary regulation has also been used successfully in national contexts, in dealing with consumer and environmental protection.

One of the key issues to be addressed is dual pricing - the pricing of goods in euros and pounds in the run up to the introduction of euro notes and coins in January 2002.

To ensure an adequate operation of dual pricing, the EU recommended that business, consumer groups and government sit down and hammer out specific codes of practice for different sectors at national level. The reason for this is because of the different shopping cultures in member states and the idea that what takes place in a supermarket is not the same as in a restaurant or a travel agency. In the Republic, the development of codes of practice is ongoing, with the larger stores giving some indication of their plans, and business representatives sitting down with the Director of Consumer Affairs to draw up codes for the various sectors.

In practice, these appear to be heading towards a gradual introduction of dual pricing in a standard format, which may start up to a year before the date for introduction of notes and coins (January 2002).

In the area of financial services, the European experiment with recommendations and codes of practice has not always been so successful. In the early 1990s the European Banking Federations successfully staved off an attempt to introduce some element of mandatory explanation of the content of bank charges by promising to adhere to a code of conduct on the matter. Similar measures emerged from consultations about reducing both the charges levied for foreign exchange transactions (which for lower amounts were pitched at what seemed a high percentage), and the delays (and handling charges) involved in sending money across EU borders.

Some years on, European consumer groups are not convinced that these promises have all been kept. The reason why this is currently relevant is because the Commission has also issued a recommendation, based largely on undertakings given by the banking sector at EU level, to cover bank charges and the single currency. The question of charges for foreign currency exchange is sure to crop up, since the rates of participating currencies will become fixed in January 1999.

This means that the money banks make from the "spread" - the difference between the buying and selling prices at which they deal in euro zone currencies - will disappear. To date, no convincing argument has emerged in favour of allowing banks to increase their commission charges to compensate for this - other than the suggestion that since they have always made large profits out of foreign exchange transactions, that this should be allowed to continue regardless of the fact that the currencies will be operating at irrevocably fixed rates.

It is certain that the operation of recommendations and the relative adherence to them by the banking and retail sectors can only be effective if combined with sufficient levels of public information and education. All sectors have a role to play in the provision of such information, and the small retailer will be a crucial player. There is little doubt that the larger chain stores and supermarkets will provide for effective dual pricing of products, and in some cases this will be well in advance of 2002. Fierce competition between multiple operators should ensure that consumers are not misled, nor prices artificially inflated in and around that date.

However, small retailers are not equipped to plan for and deal with the changeover to the same extent. Many are in the dark about the implications for them as the public. Here, information and education must play a role.

Retailers need to know about relative values, dual pricing, the length of the period of dual circulation of pounds and euros, and how to deal with their bank. By ensuring that the small retailer is aware of these and other issues, they can then help to provide this information to consumers.

And what about the enforcement of consumer protection measures? Because dual pricing will be introduced on the basis of voluntary codes of practice, shops and businesses which do not participate might not appear to be open to sanction. But this is to overlook current Irish legislation which empowers the Director of Consumer Affairs to prosecute traders who provide misleading information to consumers, particularly in the area of pricing.

The position with regard to bank charges is even more clear-cut. The Republic is unique in the euro-zone in that credit (financial) institutions have to get the permission of the consumer law enforcer, whenever they want to increase their charges.

In addition, the EU has recommended that certain operations be carried out by the financial services sector as a minimum, including the conversion of bank accounts and small cash amounts for their customers free of charge.

What happens to people who are not customers of banks or who wish to convert amounts larger than the recommended cash amount (currently £500 - neatly described as a "household amount") is unclear. These are also problems which the business community (and not just consumers) will have to come to terms with, and as such may have to be looked at again both by the Government and in the light of the 1995 Consumer Credit Act.

In summary, most of the key policy decisions in respect of consumer law have already taken place. The EU has opted for the type of soft law approach consistently favoured by Britain, much to the chagrin of more highly regulated societies.

Because the Republic already has some element of consumer protection in the areas of pricing and bank charges, both the retail and financial services sectors would probably be wise to comply fully with the EU recommendations as a minimum.

Paul McGarry is a barrister and co-ordinator of the European Consumer InfoCentre. He also represents consumer interests on the Euro Change-over Board of Ireland.