Going Euro

By JOHN-THOR DAHLBURG

May 3, 1998 12 AM PT

TIMES STAFF WRITER

DIJON, France — To put yourself in the shoes of Western Europe’s consumers, business leaders, managers and industrialists, imagine that the trusted and familiar U.S. dollar has just been declared obsolete and earmarked for replacement by a new kind of money you’ve never seen.

The quarters jangling in your pocket will soon no longer fit into vending machines, arcade video games or parking meters. ATMs, cash registers, checkbooks, computer accounting software--virtually anything having to do with the distribution, collection or tabulation of money--will have to be retooled or thrown out and replaced.

b And probably hardest of all, you and all other Americans will have to learn to think, count and pinch pennies--or whatever the new coins will be called--in a new currency.

Such are the harsh new facts of life decreed by the coming of the euro, the common European currency. This weekend, leaders of the European Union formally named the 11 countries that will adopt the new currency.

The phase-in of the euro won’t begin until January, but for months already--in many cases, for years--leading European companies have been brainstorming and taking action to prepare for momentous shifts in the way they do business.

In contrast, most small-scale industries and corner stores don’t seem to have done much--if anything--yet. And less than eight months before the 290 million people who, from Finland to Portugal, inhabit the nascent euro zone will be able to make purchases with credit cards and checks denominated in the new money, the majority of consumers appear clueless or only sketchily informed.

“This is going to be a hundred technical problems,” Thomas Derville, president and chief executive of Amora Maille, France’s leading manufacturer of mustard, catsup, pickles and mayonnaise, predicted during a recent interview at his company’s headquarters in Dijon. “But it is also going to be one enormous opportunity for growth.”

First, a few of the problems:

* In Germany alone, there are 2.5 million to 3 million cigarette machines, parking lot payment machines and other coin-fed vending machines. All will have to be revamped or replaced. Industry sources estimate that will cost $550 million.

* The euro could be a death warrant for companies that once were able to obscure their weaknesses behind the profusion of national currencies or rely on currency devaluations or manipulation, rather than on competitive strengths, to win markets.

Niall Fitzgerald, head of the Anglo-Dutch multinational Unilever, has said the euro “will deliver an electroshock to the European system. The reality that people are hushing up about EMU [economic and monetary union] is that in each country, in each sector, in each community, there will be winners and losers.”

* To get ready, virtually every business is going to have to spend money, even if it is only for a till with proper-sized slots for the seven types of euro bills and the eight different coins. French banks alone estimate their conversion costs at $3.3 billion. In many cases, spending can be combined with outlays for eradicating the “millennium bug” in computer programs, or in modernizing operations.

At the family-run vineyard that Marilisa Allegrini manages on the sun-kissed slopes of Valpolicella near Verona, which produces 600,000 bottles yearly of some of Italy’s best red wine, euro-compatible software is going to cost $17,000. That’s affordable; what worries her more is the muddle of the transition period, when the Italian lira and other national currencies will continue to be used as “expressions” of the euro. “We will have some costs in lira and sales in euros, so it will be difficult for the first two years, I think,” Allegrini says.

* Euro coins and bank notes are not supposed to come into general circulation until January 2002, but already the currency is shaping up as a boon for counterfeiters and con artists. In Germany, consumer protection groups have uncovered schemes trying to cash in on phobias about the new and untested money, including offshore scams promising to stash people’s money in older, supposedly sounder currencies such as the U.S. dollar or British pound.

To promote the benefits of being able to use one kind of cash in most of Western Europe, the Italian government last year enlisted Donald Duck and Uncle Scrooge for a comic book adventure that told the tale of ducks on a distant planet named Ba-Zar. The ducks were using 937 different currencies to make purchases at the market, until Uncle Scrooge hit on the idea of a single currency.

“Ah, celestial music,” Scrooge exclaims in the story, diving into a pool of euros.

Real-life European businesspeople, like executives at Benetton Group, the Italian maker of trendy ready-to-wear clothing that exports 70% of its production to 120 countries, hail the euro as a giant leap forward.

“A major cultural revolution,” is the verdict of Benetton media relations manager Federico Sartor, who deems the common currency “the best guarantee for development of each country’s economy and the various sectors of business operating within it.”

Ambitions for the euro are varied and far-reaching. It is meant to bind the participating European economies even more tightly together into a single market nearly the size of that of the United States (bigger if all 15 European Union countries ultimately join).

There should be savings of scale for local industry and trade, and an end to currency exchange fees and the concomitant risks that can make, for instance, a Spanish peseta deposited in a German mark account in Berlin worth less today than yesterday.

(A French study found that a tourist with $1,000 who travels to 15 countries and exchanges his money for local currencies each time ends up with just $500--without having bought anything.)

Proponents say the euro will also help consumers by making comparison-shopping across borders easier. No longer will prices be camouflaged by differing currencies. At the moment, according to a French business magazine, a Big Mac costs the equivalent of 1.23 euros in Vienna and more than twice that in neighboring Germany. A 1.5-liter bottle of Coca-Cola retails for 50% more in Belgium than in France. Same-currency pricing should ratchet up pressure from customers for fewer disparities.

Next year, Xerox Corp.’s European subsidiary will be printing a single catalog of its photocopiers with prices in euros, but with local taxes not included. 3M, the U.S. multinational that makes Scotch tape and Post-its, has announced plans to do the same, as have other companies.

“We’re going to see a realignment of prices,” predicts Derville, 53, who once headed yogurt sales in Italy for Danone, Amora Maille’s former parent, but wears a mustard-yellow necktie these days as an emblem of his current responsibilities. “The leveling of the playing field will be a fantastic growth opportunity.”

For Amora Maille alone, whose 1,000 employees did $380 million in business last year, changeover to the euro will cost an estimated 0.5% to 1% of annual revenue, or up to $3.8 million. To get ready, an interdepartmental task force has compiled a checklist and is supervising its implementation at Amora Maille’s five plants throughout France.

Computer software is being altered or purchased to be able to issue invoices and receive remittances in euros for those customers who want that. As of Jan. 1, paychecks will show the euro equivalent of an employee’s pay to help workers get accustomed to the new money, and to cushion the shock of seeing nominal take-home pay slashed by a factor of 6.6 (the approximate value of the euro relative to the franc).

Amora Maille expects its bigger customers, including supermarket chains such as Leclerc, to insist on billing in euros as of Jan. 1 or soon thereafter, so salespeople must quickly be taught the worth of a currency they have never handled. Errors could be costly.

If a company representative now gives a customer a price cut of half a French franc per bottle of vinaigrette dressing, salsa hot sauce or another of the 1,200 items in the Amora Maille product line, it’s a loss in revenue of 8.3 U.S. cents. A discount of half a euro would be more than six times that.

“We have to teach our people to pay attention now to the numbers that come after the decimal point,” Derville says.

Amora Maille, like other European businesses that make consumer products, is rethinking its pricing policy. A small jar of the kind of spicy aromatic mustard that has been made in Dijon for centuries and that established the Burgundian capital’s gastronomic reputation now retails for 4.95 francs, the equivalent of 0.74 euro (or 74 euro cents). Will grocery shoppers be just as tempted at that new price, or, in a practice known as threshold pricing, should Amora Maille increase the jar size so it sells at a more psychologically attractive level like 95 or 99 euro cents?

For more than a year and a half, Gerard Paitre, Amora Maille’s director of administration and finance, has been cramming to learn how the euro will affect his company. “I’ve got a quarter of a library filled with documentation,” he says. The investors who bought his company in December, a group led by Paribas bank, are also far more euro-savvy than the average person. Still, Paitre worries about being ready.

“We may need an outside consultant to jab us in the behind a bit to make sure we’re going forward,” he says.

For some companies, the euro itself is a gold mine. SAP, a large German manufacturer of business software, had a euro package designed and ready to go last year. Already, a 12-member trouble-shooting team and a telephone hotline are up and running to help bewildered users deal with the problems posed by the new currency.

“Every [software] vendor has to deliver a euro package to its customers,” SAP spokesman Frank Schabel says, “but the smaller companies will have some difficulties doing this. So it’s an opportunity for SAP to get more market share.”

Many big businesses plan to shift to the euro as soon as the currency begins its official existence. At Daimler-Benz, the huge German company whose products include Mercedes-Benz autos, letters have gone out to 40,000 suppliers formally requesting that after Jan. 1, bills be submitted in euros only. Daimler-Benz estimates “going euro” will cost it $110 million--but it expects to recover the money in only two years, thanks to savings on currency exchange fees and the other kinds of swaps it now must perform to juggle myriad fluctuating currencies.

Even in European Union countries that will remain outside the euro zone, companies are scrambling to get ready. At Denmark’s Lego Group, which sells its plastic toy blocks in more than 130 countries, sales reps are supposed to interview every customer “so they can tell us whether they want an invoice in euros or their local currency,” said Kurt Carstensen of the corporate finance division.

In Britain, another non-euro country, Midland Bank, which has been planning for the advent of the euro for two years, has proudly announced that it is the first British bank offering accounts denominated in the new money.

“It will seem dynamic to be among the first to go euro and old-fashioned to be among the last,” predicts William Nahum, who leads a task force on the euro for a national association of French accountants.

However, many of Europe’s smaller companies seem to have adopted a wait-and-see attitude, and will continue operating in their local currencies as long as they can. A survey of 25,000 German businesses by that country’s Chamber of Commerce and Industry found that only 43% had taken steps to prepare for the euro.

At Avoca, a textile mill just south of the Irish capital of Dublin that weaves a distinctive line of tweed wear for men and women, “we are certainly well aware that next year the single currency is coming,” accounts manager Barbara O’Neill says, “but we don’t feel it’s going to affect us immediately.”

Avoca has 400 employees, making it a medium-size company, but its conclusion is the same as that of many of Europe’s industrial and business heavyweights. Introducing the euro may carry costs, but, as O’Neill puts it, the bottom line is that “it will be easier to sell.”

Economists in Ireland, which boasts of Western Europe’s hottest economy and 6% to 8% annual growth rates, agree.

“With a single currency, transaction costs are reduced, there will be greater pricing transparency, and it will be easier for Irish companies to move into the European market, as of course it will be for the other Europeans,” says Eoin Gahan, senior economist at Forfas, the Irish government’s industrial policy board.

Times staff writer Mary Williams Walsh in Berlin and special correspondents Maria de Cristofaro in Rome, Reane Oppl in Bonn, Janet Stobart in London and Maria Petrakis in Athens contributed to this report.

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The Countdown

May 2-3 1998

* Leaders of the European Union formally name the 11 countries allowed to proceed to the third and final stage of European Economic and Monetary Union (EMU) and adopt a common currency: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.

* President of new European Central Bank is designated.

Jan. 1, 1999

* The euro becomes the official currency of countries in the euro zone.

* Euro conversion rates against participating national currencies are locked in, and national currencies become temporary “subdivisions” of the euro.

* ECU (a monetary unit representing a basket of European currencies) obligations convert to euro.

The Frankfurt-based European Central Bank takes command of fiscal policy in the euro zone, and national central banks become branches of the ECB.

Stock exchange quotes and national debt, foreign-exchange and money-market transactions are now valued in euros.

Most government debt redenominated into euros.

* Under a “no compulsion, no prohibition” policy, businesses are allowed to make transition to euro system over the next three years. During this time, businesses and consumers can buy and sell using euro-denominated checking accounts and credit cards.

Jan. 1, 2002:

* Euro coins and notes are introduced into general circulation. All legal obligations automatically redenominated to euro. Mass changeover of retail sales to euro begins. For the ensuing six months, both national currencies and euros are legal tender.

July 1, 2002:

* Legal tender status for national currencies is withdrawn.

* Transition to euro complete.

Source: European Commission

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A Euro by Any Other Name

The value of a euro, as determined by the value of a “basket” of European currencies, will be fixed on Jan. 1. Today it would be worth:

1.08 U.S. dollars

13.9 Austrian schillings

40.9 Belgian francs

2.24 Dutch guilders

6.02 Finnish marks