By Anthony Gould
Former prime minister Harold Macmillan once famously admitted that what determined policy was events, a comment that is just as applicable to the present day Government’s policy towards European monetary union.
The euro train has gathered so much momentum that many observers believe it is unstoppable – despite a £10m plan for a cross-party campaign to save the pound – with 11 countries expected to agree to adopt the single European currency this spring. While the UK Government has bought itself more time to get ready, UK business will be denied such a luxury.
From 1 January next year, Britain’s business community will have to put all debate to one side and deal with harsh reality. They must be prepared to receive their first euro invoice or cheque through the post, and have systems in place to deal with them.
Failure to act could mean more than wasted time and resources. It could mean lost contracts.
Rover last week joined UK giant ICI on the growing list of companies – headed by German giant Siemens and France’s Rhone Poulenc – calling for suppliers to get their acts together and deal in euros next year.
Although Siemens vehemently denies any compulsion on its 12,000 UK suppliers to use the euro, failure to do so will clearly make them less competitive.
Peter Everett, a member of ICI’s Emu steering committee, says that with half its turnover generated from within the European Union the company is ‘effectively in the euro’. It has told its suppliers to price goods in euros or risk losing their slice of £2.3bn of potential business.
Rover, now owned by pro-euro giant BMW, is also calling on suppliers – most of which are based in the UK – to be capable of handling their business in euros from next January.
Jim Robinson, Rover Group purchasing director, told main suppliers last week that it was important they keep pace with Rover’s own programme of change, even if the UK is not involved in the first wave.
‘Regardless of the UK position, with mainland Europe currently accounting for a third of our total sales and around 15% of our material purchases it will have a significant impact on our business. Both ourselves and our suppliers should have the capability to operate in euros.’
Decisions to change the currency of transactions during the 1999-2001 transition period will be agreed with each supplier, says Robinson.
But time is running out.
The demands on any business preparing for the euro fall primarily on the IT department – probably already overstretched dealing with year 2000 compliance.
Businesses need to consider adapting invoicing and IT systems and ensuring their contract terms reflect the euro’s introduction.
Everett at ICI says it has been working on EMU for almost two years. It approached the problem by establishing a steering committee under Dr Richard Sykes (group vice-president of information systems) which included the heads of tax, corporate treasury, a senior lawyer, IT and all other ICI businesses to look at issues of pricing, supply chain, manufacturing location, packaging, distribution and staff training.
The point is, says Everett, ‘there are no difficult concepts to grasp, only reality to face up to’.
The move to a single currency does not just stop at invoicing and accounting however. Assuming the UK does join, companies will need to change their company accounts, payments, payrolls, sales and marketing, all of which may involve significant modifications to IT programmes.
The euro may also have implications for pay and pensions policies.
IBM calculates that adapting to the euro would swallow 10-15% of its IT budget while ICI expects conversion to cost £15m, a sum it hopes to recoup quickly through savings on currency transactions. BP said last week it would cost it $60m (£38m) to change.
But a single currency is not just a matter for the IT department.
‘The real cost is the lost opportunity if we do not take advantage of the market opportunities the euro will throw up,’ says Dr Ian Peters, British Chambers of Commerce deputy director general.
‘From 1 January next year UK exporters in particular will find a changed business environment in the EU, and it is vital that they grasp the strategic opportunities this offers and protect themselves against any risks,’ adds Adair Turner, Confederation of British Industry director general.
Business also needs to think through the implications of euro denominated prices. As more and more firms quote in euros, the transparency of prices will increase across Europe.
Everett says it is a fact of life that with a common currency it will be easier to directly compare prices across Europe and to exercise some arbitrage as a result.
British business is not alone however. European small businesses have 10 months to prepare. Kate Barker, CBI chief economic adviser says there is ‘evidence that smaller companies across Europe are also apprehensive’.
The euro presents challenges and opportunities to business, whether or not the UK is a member. The aim must be for firms to at least be capable and willing to issue and accept invoices and make and receive payments in the new currency.
But as Everett says: ‘The advent of the single currency is the spark or catalyst that just may trigger a new round of business restructuring which will bring with it a range of other issues to be addressed.’
* A checklist for companies is being prepared jointly by the CBI and BCC to help firms prepare for Emu and the introduction of the euro.