Just as the single European currency celebrated its 100th day, survey of finance directors carried out by Accountancy Age’s sister publication Financial Director revealed that the euro is slowly but surely making its presence felt in corporate Britain.
Euro pricing, price transparency and customer confusion have all been experienced by UK businesses, according to the survey, which was published in the May issue of Financial Director.
On balance, however, the euro has left FDs feeling distinctly underwhelmed: just under a third of respondents to the survey believe British entry into EMU would benefit their company; almost a quarter believe their business would be disadvantaged if the UK were to introduce the euro. More than 40% believe that, on balance, the euro would have no real effect on their business.
But the real surprise is that, even though FDs regard the euro’s effects as positive or benign, 55% of them say they would personally vote in a referendum to oppose British membership of the Economic and Monetary Union.
Amazingly, a quarter of FDs who believe that the euro would benefit their company say they would vote against the euro. All the respondents, however, who believed the euro would harm their company said they would vote in line with that view and would oppose monetary union.
As well as being, on balance, opposed to EMU, FDs see little prospect of others in the UK voting for British membership in the foreseeable future. When asked how they thought the electorate would cast their ballots, 61% said a referendum would yield a ‘no’ vote. Only a third thought voters would support the euro.
There was a close correlation between FDs’ view of the impact of the euro on their own companies and their view of its effect on the economy as a whole – an extension of the ‘What’s good for General Motors is good for the USA’ principle. Only 3% said euro membership would help their own companies but harm the economy as a whole.
One FD cautioned that the rate at which Britain joins the euro would be just as important as the success of the euro itself. Another warned: ‘The hyperinflation in property values in Eire will follow here. Our economies do not follow France and Germany and rates will not suit the UK in the future if we are in the euro.’
The same FD also expressed his fears about the circumstances under which the UK might join EMU. ‘There will be a brief moment when our (interest) rates will fall to meet rising euroland rates. We will be told this is convergence. It won’t be,’ he said.
Another FD expressed concern that the debate so far seems to be focusing on the economic factors, even though the potential political and social impact could be more far-reaching. ‘Loss of control of monetary policy could be just as damaging as not being in the euro,’ he warned.
More apocalyptically, one FD said: ‘I have yet to see an example of euroland survive the test of time. Just look at NATO and Kosovo.’
At a more practical level, one FD observed that the introduction of the euro had been something of a non-event. ‘Everyone has stayed in their own currencies,’ he reported. ‘Also, the Web has made the world the important market. Europe is almost a side issue.’
Another feared the huge system conversion costs and consequences of EMU membership, adding: ‘Without tax harmonisation – which is undesirable if the UK has to match European levels and not vice versa – joining the eurozone will cause immense disruption and expense.’
Others seemed almost resigned to eventual British membership. ‘The government will not allow a referendum until it is certain of a “yes” vote,’ said one. ‘We don’t really have a choice,’ said another. ‘We have to enter or become very isolated.’ Whether Britain joins EMU will depend, added another FD, ‘on the Sun’.
Of the FDs’ own experiences with the euro so far, our charts tell a story of a European-wide phenomenon that is only just starting to have a real impact on UK businesses and their European subsidiaries.
About one company in six has a retail business that is currently pricing in euros or (more likely) both euros and national currencies. But there seems little consumer interest in the euro as a method of payment, and businesses believe that customers are still in a state of confusion about euro prices.
So far, the long-promised price transparency is not proving helpful to consumers, FDs say.
More than 40% of businesses have customers in the eurozone who want to see prices in euros, while a similar proportion have eurozone suppliers who wish to invoice in euros. But about a quarter of businesses report that they have had to adjust their retail prices because of the convergence effect of greater price transparency. Moreover, pricing pressure is to be found not just at the consumer end of the supply chain, but all the way through it: 34% of respondents say the euro is putting pressure on them to reduce their prices and costs.
At the same time, two-thirds of businesses report that the single currency generates at least some opportunities for more competitive purchasing, as they reap the benefits of price convergence and transparency throughout Europe.
While the debate rages about whether the UK should go into the single currency, it is clear that the single currency has already come to the UK. Almost a quarter of businesses have UK-based customers who want them to price in euros, while 21% have suppliers in Britain who want to issue invoices in euros.
Perhaps these findings make a mockery of the posturing by business organisations on both sides of the euro debate: after just 100 days, British businesses are already having to learn to deal with the euro, whatever the politicians ultimately decide. The good news for British industry is that seven out of every eight businesses claim to be at least reasonably satisfied with the effectiveness of their euro preparations and strategy.
Andrew Sawers is editor of ‘Accountancy Age’s sister title ‘Financial Director’. This article is an edited version of a feature which originally appeared in the May issue of ‘Financial Director’.
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