British manufacturers and suppliers will face serious commercial disadvantage if the UK does not join the single European currency when it is launched at the beginning of 1999. Chancellor of the exchequer Gordon Brown said this week it was highly unlikely Britain would join in the first wave.
Graham Mackenzie, director-general of the Engineering Employers’ Federation said this week that if Britain joined the system after 1999, UK suppliers would bear the ‘entire currency risk’ of any transactions with German and French customers. ‘There is going to be a problem for a lot of companies if Britain decides not to join before 2001 or 2002,’ he said.
The biggest manufacturing companies in Europe are already preparing to switch to accounting in the euro from 1999, as the move will simplify accounting and save the costs associated with currency conversion.
While the currencies of the countries that sign up to the euro in 1999 will continue to be used in parallel for three years, they will have fixed exchange rates to the euro. The currencies of countries that do not join up immediately, by contrast, will float against the new European unit.
In Germany, Daimler-Benz announced last week that it would adopt the euro from 1 January 1999. Siemens had said earlier it would do the same from 1 October that year.
And some of the largest UK companies, including ICI and Unilever, are likely to switch at least partially to euro accounting even if the Government delays Britain’s entry.
‘Most multinationals are doing that to some extent,’ said a spokesman at the Confederation of British Industry.
The introduction of the euro is also likely to spell an end to the differential pricing that UK suppliers currently practice in European countries and so put further pressure on profit margins.