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Making a single European currency: Short-term pains, long-term gains

October 23, 1997

EINDHOVEN, Netherlands (AP) _ When the European Union starts junking most national currencies in a little over a year and replacing them with something called the euro, only one thing is certain _ it will cost a fortune.

It will cost governments. It will cost manufacturers. It will cost retailers. It will cost banks. In one way or another, just about everybody will pay a price. How much, however, is anybody’s guess, and some companies seem to be putting off thinking about the change for as long as possible.

Others, though, are trying to stay ahead of the curve, figuring out now what they are going to do when as many as a dozen of the EU’s 15 countries join in a European monetary union, using the same new notes and coins.

Philips, the Dutch-based multinational giant with $35 billion in sales and 260,000 employees, is in the forefront of preparing for the transformation to the single currency. It started the process in late 1994 and now has 35 working groups involving about 250 people under a steering committee of 35 senior managers.

Philips will have its own internal Big Bang Jan. 1, 1999: All administration will be in euros, intercompany transactions will be in euros, the annual report will be in euros, quarterly figures will be released in euros, stock prices will be listed in euros and dividends will be paid in euros.

``We may have a more gradual approach in selling products in euros,″ said Tom Ruhe, director of the Euro Project at Philips. ``That will depend on business strategies still to be defined.″

How much will it all cost Philips?

``We simply anticipate that it will be a huge cost,″ said Ruhe.

Under the current timetable, the euro will come into being Jan. 1, 1999. That will launch a three-year conversion period which will include the introduction of euro notes and coins by Jan. 1, 2002 and a final withdrawal of national currencies from circulation by July 1, 2002.

Some companies have been reluctant to get started because of a perception the single currency may never get off the ground, or uncertainty about who will be in. One EU survey shows only 12 percent of small companies have started thinking about the conversion, and many multinationals are still unprepared.

Nonetheless, there now seems to be little doubt the single currency is unstoppable.

``The shop around the corner might want to postpone the issue until further notice, but for large companies, you don’t have the time,″ Ruhe said in an interview at Philips headquarters here.

Philips and others believe moving to the euro means short-term pain, but long-term gains.

Short-term pain: During the three-year grace period from 1999 to 2002 you can do business in euros but don’t have to. That means companies must devise dual accounting and computer systems to deal with both currencies, a large investment for only three years. Some suppliers will bill in euros, others in national currencies. Customers will pay in whatever suits them.

This will be especially difficult in retailing: dual pricing, two-cash drawers, training of staff and rounding off price differences.

The Dutch grocery chain Royal Ahold estimates the cost of its changeover at between 1.1 percent and 1.8 percent of its annual sales.

Popping up in the middle of this adaptation will be the millennium problem _ a massive computer programming glitch caused by two-digit references to years when the world goes from 99 to 00 in the year 2000. Many computers will read 00 as 1900, causing problems in computer applications.

Long-term gain: The elimination of foreign exchange, simplification of administration and improvements in cash management. This should cut overall costs in the long run.

Additionally, the increased stability of a single currency will make Europe more attractive for investors, which in turn should create jobs.

``The euro is not a financial issue. It is not an information technology issue. It’s a marketing issue,″ said Ruhe. ``And the more we look into the euro the more we are convinced it is a psychological thing to be addressed.″

E. Leclerc, the French retailer with more than 500 stores, conducted a countrywide survey last year that concurs.

``The main handicap is psychological,″ the study said. ``The consumer sees that the new money is going to disrupt his daily life. He is ready to make an effort to adapt, but he must see the concrete advantages.″

Unsurprisingly, older people were less receptive to the idea and young people the most enthusiastic.

One of the biggest problems, Leclerc said, would be the difficulties cashiers will have dealing with questions and fears expressed by customers.

Nonetheless, changeover to the euro provides a golden opportunity for rethinking fundamentals, Ruhe says.

Instead of selling in a dozen different countries under different conditions, companies can think in terms of pan-European marketing.

``That means as a large company, you have to start thinking about the implications for your pricing, or your packaging, even the quality of your products, the pack size, private brands or labels versus European brands.

``It may result in a completely different kind of marketing.″

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