Advocates' promise of a euro paradise for shoppers may fail to materialise

Get ready for shoppers' paradise. As the single currency makes markets more transparent and competitive, prices will inexorably be driven down to the same level everywhere in the European Union.

Once retailers display prices in euros, it is claimed, differences between them will be immediately apparent. That, and the elimination of foreign exchange costs, will encourage consumers to shop more aggressively across borders and release huge pressures for common EU-wide prices.

That, at any rate, is the prospect held out by many true believers in economic and monetary union, who see the promise of big consumer windfalls on the high street as one of the plan's strongest popular selling points. But things may not work out quite that way.

The approach of the euro is spurring companies across the EU to review their marketing strategies. Most think it will reinforce the economic integration already triggered by the single market programme and fiercer global competition. But few expect the euro to bring dramatic price changes. Nor is it certain that all adjustments will be downwards.

Many businessmen are sceptical of predictions that increased price transparency will suddenly transform consumer behaviour. Despite differing national currencies, many car buyers already know that prices vary widely across the EU. Cross-border bargain hunting has long been a way of life for residents of frontier regions.

Retailers query whether the euro will lead shoppers to compare EU prices more assiduously, or switch their custom abroad. Britain's Marks & Spencer which has stores in 10 other EU countries, sees no need to standardise prices across Europe and says it will continue to be guided by local market conditions.

Wide differences between European countries' consumer protection laws, which can make it hard to obtain redress for faulty products bought abroad, also deter cross-border shopping. Although EU experts are discussing proposals to harmonise rules, they are making slow progress.

Another reason why the euro's direct impact on consumers may be limited is that they are already enjoying some of the benefits that it is supposed to produce. In much of the EU, governments' efforts to stabilise exchange rates have sharply reduced the fluctuations which contribute to price differentials.

These pressures have already caused wholesale prices of products, such as consumer electronics and domestic appliances, to converge. However, many companies say prices will never be uniform, because business costs and tax rates vary so widely across the EU.

For most shoppers, the most immediate and visible impact of EMU will occur as retailers begin to display prices in euros as well as in national currencies. From 2002, prices in member-states will be shown in euros only.

Retailers are still wrestling with how to manage the switch. The trickiest problem is to convert from national currencies into euros the psychologically important "price points", which shoppers use to compare the value of competing products.

Some retailers say they already plan to round prices down to the nearest convenient figure in euros, although that would mean cutting profit margins. But consumer organisations are sceptical.

For many consumers, car prices are likely to be the most telling benchmark of claims that the euro will be good for them. Car makers have been accused for years of maintaining big price differentials by preventing re-exports of vehicles between EU countries.

The European Commission is cracking down harder on such abuses. It recently fined Volkswagen Ecu102 million (£66.5 million) for prohibiting Italian dealers from selling to customers in Austria and Germany, where its cars cost 30 per cent more.

The euro will test claims, long advanced by car manufacturers, that price differentials reflect currency fluctuations. However, critics say competition will remain restricted while industry distribution arrangements are exempted from EU competition rules. They claim that, by allowing manufacturers to choose the dealers they sell through, the exemption makes it easy for them to rig the market.

Overall, the most important consequence of the increased transparency promised by the euro may be to throw more light on the underlying factors which shape competition and determine price levels in the EU.

Where prices vary because explicit trade barriers are impeding the workings of the single market, Brussels and EU member governments may face stronger pressure to attack them. But when obstacles are rooted in consumer psychology, and the diversity of European culture and custom, the euro may make little difference.