To many executives in the U.S., the changeover to the euro is a parochial matter — something going on over in Europe that others do not need to concern themselves with.

Wrong!

The next misunderstanding is that it is something to do with the accounting systems, and that the information systems department can sort it out.

Wrong!

A lot more is involved than just adding another currency to a multi-currency accounting suite. The first thing to accept is that EMU (Economic and Monetary Union) and the arrival of the euro represent a huge challenge to business — this is not an IT issue: There is no bug in the system that needs to be fixed.

What needs to be done to prepare for the euro depends entirely on the structure of your business — and whether you intend to take full advantage of the opportunities that are being opened up, or remain as you are, making as few adjustments as possible.

If you take the latter route, you might be surprised at the effect on your business. Senior management must be aware of the wider issues involved: Chris Pickles' article in the last edition of Evolving Enterprise went through some of them. This month, let's look at a few more.


Y2K & euro? We can't cope!

You might be forgiven for wondering why on earth the Europeans could be so thoughtless as to create another set of problems, just as we are all struggling with intensive work on the millennium problem. Politicians and bureaucrats don't necessarily have backgrounds in business, let alone IT; so they will claim they were unaware of the millennium problem back in 1991 when the Maastricht Treaty confirmed the process towards EMU that had been building up for years.

It is not easy to get politicians to apologize — as you know — let alone reverse their decisions! So we had best accept the fact that the euro will come into being at midnight on Dec. 31, 1998 — and there's no stopping it.


What's the purpose?

This is all about a single market. Business can take advantage of the fact that, by 2002 at the latest — and as soon as 1999 — costs, revenues, asset values, and liabilities can all be in the same currency in at least 11 countries. And this could apply in the UK and Sweden as well, even if, as you will have heard, these countries have decided not to join EMU for the time being.

All that adds up to an economic grouping to rival North America. It also adds up to real economies of scale for those who take advantage of the opportunities. It works both ways — for European and non-European corporations. American multinationals operating in Europe can — or should — perceive huge advantages.

The euro could well rival the mighty U.S. dollar as the international currency for trade and global accounting. However, on the global economic scale there is speculation that the euro will fail, that countries will withdraw, and the whole enterprise collapse. This is not a sensible basis for a business strategy — although it might be a thought for a contingency plan.

Americans used to setting their export prices in dollars must think again: There will be such an amalgamation of buying power, as well as intensification of competition amongst suppliers, that prices will be demanded in euro.

Why would senior international and central bankers from outside the EMU countries be in urgent conference to decide how to react? As an example, the U.S. Federal Reserve has been very much concerned about the euro from the start. In September and October 1998 I counted 100 conferences, worldwide, on how to react to the introduction of the euro. There have already been several in the United States. And this excludes the meetings of think tanks — private clubs, if you like — of senior decision-makers, keen to share information in private and to plan their strategies.


It doesn't affect me

If you are not in a supply chain that deals with Europe — fine. But are you sure? Might you not be supplying goods to someone else, who in turn deals with a European customer, who demands pricing in euro? Might you not then be expected also to offer pricing in euro? For once, you really need to understand where your products end up.

The truth is that you are forced to react to the euro — you cannot ignore it. The question is what should you do?

The IT or MIS department tends to support the business rather than drive it. Nevertheless, IT should insist on being heard by senior management, since new business demands will be made. Unless and until they are known, IT can only prepare the background.

IT should certainly look at the current volume of the company's trade with Europe as a whole — not just the 11 countries — and think about the effect of it all being processed in just one currency. It should then think of the effects at the user level and then of the impact on data files, and management reporting. Locally prepared desktop applications may no longer suffice as a means of capturing and processing data for delivery to the core accounting system.

For those with mainframe systems, there are impact analysis tools available that can be used to good effect to tell you just how much re-programming work might be needed. They have to be specific to the euro. Beware, however, that some will simply give you a long list of fields holding currency amounts. You need to be able to access the logic, and trace the movement of data within and between applications before you have any idea how much work may be required. It will require a thorough understanding of the business processes.

And there's another issue: The introduction of the euro has already led to a significant amount of merger and acquisition activity. This inevitably has its own consequences for IT as differing systems come under single management.


Nomenclature

Some confusion surrounds what the new currency really is and what it should be called. It is the euro, spelt like that, with no capital E, divided into cents. There is likely to be some local variance, because the Germans put a capital letter at the front of all nouns, for example, and the French are used to referring to francs — i.e., in the plural.

It is certainly not an "emu." Nor is it an ecu or European Currency Unit. The latter is a basket currency used extensively in large scale financial transactions. However, the ecu will cease to exist at the very moment that the euro takes over at midnight on Dec. 31, 1998.

Nor is it a euro-dollar, as some people have asked me. The latter is something quite different, and will continue to exist, in the wholesale financial markets. (For those who want to know, it is the very considerable pool of dollar denominated deposits existing outside the United States: They are put to good use by being used to fund international loans.)

The euro presents the greatest challenge to business ever conceived. Even the chairman of Germany's largest bank was moved to say that he could not grasp all the changes it will bring.

In the next issue, I should be able to provide some real evidence of what will happen during the first couple of months of 1999, and just how many companies are already trading in euro, and how many plan to by the end of that year.

Roderick Jones is editor of a monthly newsletter dealing exclusively with the euro — EMU Tracker — available on a trial basis at www.itelligence.com/emutracker/. He can be contacted at [email protected]