Euro costs to snowball, says KPMG

KPMG research into EMU preparedness has predicted a growing “euro snowball” in costs as companies make changes to their timetables for switching to the euro. This predicted rising tide in costs is coupled with evidence that many companies are still unprepared for monetary union.

It is thought four out of 10 companies still haven’t estimated adaptation costs while 70 percent do not have a post-EMU pricing policy. KPMG estimates that the average cost of EMU transition will be #31m, with the total cost for Europe’s biggest companies being almost #52bn. This is 70 percent higher than was estimated in a similar survey last year.

Vicky Pryce, chief economist at KPMG Consulting, said: “Companies could face serious mismatches in timetables for adopting the euro. Nearly a quarter of our respondents intend to use the euro as their main purchasing and pricing currency by the end of 1999. However the majority only plan to reach this stage by 2001. This may result in a ‘snowball effect’ as organisations that had planned an orderly adoption at a later date are forced by influential customers – or suppliers – to rethink their plans in order to switch to the euro earlier.”

It is thought that bringing forward conversion plans could cause serious disruption to businesses with strain being placed on areas such as financial accounting, treasury and IT.

Another potential problem for ill-prepared companies concerns price transparency.

It is thought that prices will begin to fall in the higher price regions and the pricing gaps between regions will narrow. Firms not prepared for this potential fall in income could face problems.

Michael Littlechild, partner responsible for EMU services at KPMG, warned of the potential for rising costs. “Most organisations find it difficult to predict with accuracy the costs involved in major change projects; these normally rise as the project progresses. This is ominous.”

The KPMG survey, carried out by Harris Research in September, looked at over 300 European companies, employing at least 5,000 people.

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