When European Monetary Union single currency conversion rates are fixed on January 1st, 1999, different businesses will be able to change over to the euro at different times over a three-year period, depending on their individual needs and capabilities. Memberstates have already agreed that this transition period will be governed by the laissez-faire rule of "no compulsion and no prohibition".
Nobody will be compelled to use the euro until 2002, nor will they be prevented from using the euro before that date. The transition period, however, is a mixed blessing. It gives businesses more time to prepare for conversion to the euro but it could be bothersome.
For companies trading with customers and suppliers in other participating countries, all of these with a variety of individual conversion rates, it may involve them in having to conduct their affairs and express the value of their transactions during this period in both the new euro and the domestic currency. The latter will be a fixed expression of the euro at that stage.
A number of multinationals, for example Siemens and Fiat, have already announced their intention to convert all of their operations to the new currency at an early date to avoid the need for dual currency accounting during the transition period and thus capture the cost and convenience advantages of the single currency. These companies will, for example, pay their staff in euros, issue invoices and statements in euros, pay suppliers in euros and expect to be invoiced in euros.
During the planning stage, a company may select the most appropriate timing for itself for the changeover to the euro. But if discussions with key customers and suppliers, which should be an integral part of the planning process, disclose that they have a different time-table, companies should consider whether there are any advantages in switching earlier than 2002 and whether it is feasible.
There are a number of comforts which can be taken on board by harassed euro-project managers in grappling with this timing issue. The Siemens so called "compulsory" effect has recently been clarified by the finance director of Siemens UK.
While Siemens will change over to using the euro as its internal unit of account from October 1st, 1999, the start of its 1999/2000 financial year, it "will not force" any of its suppliers to do the same. It does, however, intend to encourage and educate its key customers and suppliers to recognise the cost and, therefore, the competitive advantages of avoiding a prolonged transition.
A recent issue of Euro Impact contained further insights on the intentions of other continental companies. Volkswagen, for example, left the euro timing decision to subsidiaries. The parent company will not start using the euro widely until 2001 or 2002 while its Belgian subsidiary will switch as soon as possible and will encourage its suppliers to do the same.
Another Belgian manufacturer, Bekaert, will also move early to inter-company billing in euros but has said it will respect customers choices on their own changeover dates. It seems it will exert a little more pressure on suppliers by expressing a preference for making its general purchase orders in euros from January 1st, 1999.
By way of contrast the Belgian retailing chain, GIB, will retain its in-house accounts in its domestic currency until 2002 as this is the base currency for all its books and databases so it sees no productivity gain from switching before it has the year 2000 safely behind it. However, its systems will be equipped to deal with the euro as another currency and its purchasing staff will be buying in euros outside Belgium.
Speaking at a conference in Britain last year, Bass PLC, the brewery, indicated that it would stagger its conversion process through the transition period starting with purchasing in January 1999, group reporting in October 1999 and complete changeover in October 2001.
Other major continental companies are also staggering the changeover of their systems. Air France has indicated a three-level approach: external euro compatibility for January 1999, internal changeover from April 2001 and final migration to euro in January 2002.
KLM has indicated a somewhat similar approach distinguishing between "being ready to trade in euros", if customers wish from January 1st, 1999, to "thinking in euros", with its functional currency and reporting systems and bank accounts changing on April 1st, 2001 and operating in euros (sales, prices, cash tills etc.) from January 1st, 2002.
FinnAir sees a single change-over date on April 1st, 2000 as the competitive and cost effective solution for its operations. In almost all cases it will be preferable for a company to time its change-over to coincide with the start of the company's financial year.
Various factors will influence the choice of single or staggered changeover dates for each company. Cost issues and competitive considerations will be important, feasibility and resourcing of the change-over project in the context of other demands on information technology such as Year 2000 adaptations will also need to be taken into account. Ease of communication with customers or with shareholders may also be factors.
Change-over earlier than is otherwise appropriate to your own particular circumstances will not be necessary merely to make or receive payments in euros. Banks and building societies will fulfill the important role of "converters" during this transitional period and will process lodgements and payments expressed in either Irish pounds or euros regardless of which of these the customer account is denominated in.
But whatever date or dates you ultimately decide are appropriate conversion dates for your company, the planning time is now.
Caitriona Murphy is head of the EMU Planning Unit at AIB Capital Markets
