The 15-member European Union (EU) is negotiating with 13 additional countries to join the European trade bloc. Plus, more and more EU companies are asking U.S. firms to do business in euros, the single European currency. How will a larger EU impact your business, and are you prepared to do business in euros?

The Big Kid on the Block Has Company

Since World War II and throughout the Cold War period, the United States has been the world leader in terms of trade and economic policy. In fact, the Cold War provided much of the glue that held the American-Western European alliance together. However, since the end of the Cold War, and in light of the EU’s expansion plans, the U.S.’s position of dominance is being challenged.

Additionally, developing countries are becoming a more cohesive bloc, and in turn, are generating greater negotiating strength of their own. Thus, of the 144 members of the World Trade Organization (WTO), more than three-quarters are less developed countries, and another 20 are waiting in line to join. Consequently, negotiating U.S. economic interests abroad may become more difficult.

EU Accession Plans Underway

The 15-member EU, which has a population of 375 million consumers, comprises Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, and the United Kingdom.

Accession negotiations for the Czech Republic, Hungary, Poland, Slovenia, Estonia, and Cyprus began on March 31, 1998, and on February 15, 2000 for Latvia, Lithuania, Slovakia, Bulgaria, Malta, and Romania. Accession discussions are also underway with Turkey. These countries represent 170 million consumers.

Greater Challenges Ahead

If all accession candidates become EU members, the population of the trade bloc will rise to 545 million, a number twice as big as the U.S.’s population. What does this mean for your business?

As the EU becomes more influential, U.S. trade policy initiatives and interests are likely to be challenged to a greater extent. Additionally, when dealing in European markets, U.S. companies may find themselves at a competitive disadvantage due to trade barriers that don’t apply to European companies.

Who Is Using the Euro?

Twelve of the 15 EU members, representing a population of 305 million people, have accepted the euro as their official currency, thereby establishing the euro area, also known as Euroland and the Eurozone. The remaining EU members, the United Kingdom, Sweden, and Denmark (which rejected Euroland membership in a national vote on September 28, 2000), are likely to adopt the single currency at some future time.

The euro has been used for non-cash transactions since January 1, 1999. On January 1, 2002, euro coins and notes became available. By February 28, 2002, national currencies will be withdrawn from use.

Increasingly, European companies are asking U.S. firms to use the euro for business transactions. Fulfilling this request may give you an edge over the competition — as well as additional risk.

Consider Doing Business in Euros

If you are not already dealing in euros, you might consider it. This, of course, will involve different steps for different businesses and could get complicated. For example, you might consider printing your price lists in euros, which will require adjusting your ledgers, receivables, and other financial systems accordingly.

To effectively deal with two currency denominations, you may need to invest in new software, training, consulting, and dual documentation systems. Unfortunately, due to the costs involved, many U.S. companies have not taken the appropriate steps, are unprepared, and may miss out on new trans-Atlantic opportunities.

Euro Benefits and Disadvantages

Since its inception on January 1, 1999, the euro has reached a high of $1.19, has fallen to a low of $.82, and closed at approximately $.89 on January 2, 2002. This has various implications for different types of businesses. For example, as the value of the euro slides, the cost of U.S. exports to Europe rise, reducing European demand. On the other hand, European exports to the U.S. and elsewhere become less expensive, compared with U.S. goods and services.

On the investment side, U.S. companies interested in purchasing European assets get more for their money. But, U.S. firms already invested in Europe generate smaller profits when converting their euros into dollars.

Euro Volatility and Risk

Dealing with any foreign currency involves a level of risk and the euro is no exception. As such, it’s essential to factor in a level of instability. To protect yourself, it’s necessary to closely work with your banker to ensure that currency fluctuations do not eat into your profits, or worse, cause a loss.

Additionally, the euro could bring other problems. For example, U.S. prices that end in “9” to achieve a psychological advantage will be lost when converted.

Effect on Your Letters of Credit

The International Chamber of Commerce (ICC), the recognized Paris-based world business organization, issued a policy statement in 1998 entitled The Impact of the European Single Currency (Euro) on Monetary Obligations Related to Transactions Involving ICC Rules. It spells out currencies to use for letters of credit on contracts existing before, during, and after the transitional period (i.e., LCs issued after January 2002 cannot be made in former national currencies of Eurozone states). To view this, go to www.iccwbo.org.

Achieving a Competitive Edge

The cost of dealing with the euro may be significant. However, over the long-term, it may be well worth it. No longer will you need to incur the costs of converting the dollar into a dozen different currencies.

Furthermore, European prices should decrease since it is now easier to compare the prices of goods and services in any Euroland country. But very importantly, accepting euros will give you an edge over companies not accepting the currency. And, in today’s extremely competitive global environment, every advantage helps.

For more information, visit the EU website at www.europa.eu.int.

This article appeared in Impact Analysis, January 2002.
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John Manzella
About The Author John Manzella [Full Bio]
John Manzella is a world-recognized author and speaker on global business, emerging risks, competitive strategies and the latest economic trends. He also is founder of the ManzellaReport.com and Chief Strategy Officer of Ignition Life Solutions. His latest book is Global America: Understanding Global and Economic Trends and How To Ensure Competitiveness.




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