If any capital in Europe is entitled to be called the home of the euro, that city is Brussels. The buildings of the European Commission, Parliament and the Council of Ministers dominate the skyline.
Diners at the city’s smartest restaurants amuse themselves by spotting the leaders of European monetary institutions at nearby tables. Even the tickets issued to train passengers from the airport to the city centre show the price in euros as well as Belgian francs, three months before they need to.
For accountants, the euro represents much more than just a few technical accounting changes, important as these are. Its introduction will not just affect their role as key business advisers or managers. It has the potential to reshape the whole profession in the UK as well as Europe.
As the box (right) shows, 1 January 1999 will mark the start of Economic and Monetary Union. Although euro coins and notes will not circulate until 1 January 2002, the euro will be a currency in its own right from New Year’s Day. Most UK businesses have been insulated from the preparations that have gripped the 11 countries which will be in the first wave. Only those with parent companies or customers in the 11 have caught a flavour of what has been going on.
Major firms have already announced the euro will become their reporting currency from next year. Computer systems and tills have been modified.
One Dutch finance director told Accountancy Age: ‘We have far fewer problems than the Brits because we have been involved all along. To us, it is really just another currency.’
Of course, it is not that simple. Some companies have studied the UK experience of decimalisation to look at the effects of price points. The three years between the currency going live and the issuing of coins and notes is deceptive. Like the Belgian railway tickets, dual pricing will begin almost at once.
Correct positioning of your existing price is essential to avoid the need to cut margins if your euro price has the wrong ‘feel’. UK consumers are all too familiar with the 99p phenomenon: to sell something for #15, price it at #14.99.
Similar sensitive price points will be swept away by the euro. Although final conversion rates have yet to be set, at the ecu central rate, a product in Belgium that sells for BFr999 would cost 24.49 euro. Wholesale payments in euros begin from 1 January and many UK companies will be asked to invoice in the single currency, so for many British businesses it will be non-retail pricing issues that will arise first.
Looking to the future
All of this is vitally important for business, but at the European Commission they are already looking at the longer view. A senior official says: ‘We have already moved beyond the implementation issues. We are now looking at the convergence of economies.’
This is after all ‘economic’ and monetary union. But the business implications will be felt whatever happens to the economies of the 11 countries the commission calls the ‘ins’ (Britain and the other countries not joining the first wave are known in commission-speak as ‘the pre-ins’).
One of the euro’s first impacts is likely to be on equity trading. Institutional investors on mainland Europe tend to buy shares only in domestic companies – over 90% of equities held by big investors in Belgium are in Belgian companies. But the euro will change all that, creating a true single market for equities. The barriers to a single equity market are not only territorial; to a large extent, investors are reluctant to invest in countries which do not share their accounting standards and traditions.
‘Frankly, few Belgians invest in German companies because they do not trust German accounting,’ says one Brussels-based accountant. For the single equity market to become a reality, practices and standards will have to converge.
You might ask why they should move suddenly when they have not done so up to now? The answer is that as business opportunities expand in the new euro zone, companies in that zone will need to turn to the equity markets for capital. The progress, according to some observers, could be very fast indeed. The drive to draft common standards through the International Accounting Standards Committee is in the home straight. The framework should be there by the end of the year and some predict a fully fledged European Accounting Standards Board within five years.
But common standards are not the end of the story. European accounting students study a wide variety of syllabuses. Once qualified they enjoy variable status. Say ‘comptable’ to a French citizen and they think of a lowly book-keeper. In London, ‘accountant’ conjours up the image of a well-paid, high-status professional. As well as adding new standards to every country’s education and training syllabus, the profession will move towards a higher status role.
The new European accountant will be a company’s passport to growth because, without bringing their accounting systems into line with the new standards, companies will be unable to access the equity markets for the capital they need.
The bookkeepers will metamorphose into high-status guarantors of a company’s ability to raise capital; they will come out of the accounts office and into the boardroom. Their audit counterparts will gain not just more status but potentially greater exposure to litigation as their word is taken on the worth of companies.
The new model European profession that emerges is uncannily similar to that in the UK. Privately, some very senior commission figures will admit that the UK profession, in business and practice, is their model for what they would like to see across Europe. Up to now, only the Big Five firms have been able to provide this pan-European professional reach. This, of course, has been the secret of their success. A future European accountancy profession will mean some of the major European firms, such as leading French firm Mazars and Guerard, which recently merged with Neville Russell, will be able to challenge such players in all the countries of the euro zone.
A common profession following common standards implies less power for individual national institutes. Brussels mandarins like to stress that, just as with national governments, institutes will not give up sovereignty but pool it. The resulting structure could see them grouped into a representative European body. Some in the commission also hope to see a single audit regulation body for the euro zone.
This would then leave the institutes with, as one senior figure put it, diplomatically, ‘the important issues of members services’.
It is unthinkable that, even if Britain does not join the euro zone, British business would stand aside from the changes happening in Europe.
Whatever the Conservative party may say, the euro is a fact and one which no business can ignore. For accountants, it is likely to create a new professional reality which no-one in the UK will be able to escape. Fortunately for UK accountants, their professional bodies are already playing a large role, through the European accountancy federation FEE, in shaping the future.
INTRODUCTION 0F A SINGLE CURRENCY Start of the phase List of participating member states (early 1998) Setting up of the ESCB and the ECB Throughout the Stepping up of preparations and implementation of phase (less than 1 year) measures that will, if possible, have been adopted beforehand: Production of notes and coins Adoption of complete legal framework National steering structure Banking and financial community changeover plan Start of the phase Fixing of conversion rates (1.1.1999) Euro becomes a currency in its own right ECB conducts single monetary and exchange-rate policy in euros Interbank, monetary, capital and exchange markets in euros Wholesale payment systems in euros Throughout the Banks and financial institutions continue phase (3 years) the changeover Public and private operators other than banks proceed with the changeover as and when they wish Start of the phase Euro notes and coins introduced (1.1.2002) (6 months maximum) Banks have completed the changeover (retail business payment systems) Only the euro is used Notes and coins denominated in national currency are withdrawn Public and private operators complete the changeover
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