PracticeConsultingEuro means trade and wealth

Euro means trade and wealth

The euro's arrival presents a significant opportunity for business. The rewards will be considerable for those who are ready.

The eurozone is a market of 300 million people. Companies with a substantial presence within that market are discovering economies of scale by consolidating accounting functions in one country. When notes and coins are introduced in a year’s time, further savings will come as firms find it easier to compare supplier prices across borders.

Exporters in the eurozone are finding their lives made easier because the problem of fluctuating exchange rates has been permanently eliminated when concluding deals across borders. The results will boost trade: research by Andrew Rose at Berkeley suggests that countries in the same currency zone trade around three times as much as countries that have to deal with fluctuating exchange rates. And of course, the more a country trades, the wealthier it becomes.

Meanwhile the euro is also hastening the integration of European capital markets, making it easier for firms to raise capital.

Just as every profit-making opportunity requires an up-front investment, so the introduction of the euro brings with it the cost of converting accounting packages, tills and slot machines to deal with the new currency.

The Bonn-based Institut fur Mittelstandsforschung estimates that for German SMEs the return on up-front investment will be realised in around two-and-a-half years because losses due to exchange rate fluctuations will have been eliminated.

The pay-back time could be even faster when the effect on competition, and therefore GDP, is taken into account.

In Britain we have much to learn by watching the eurozone. We can reduce costs of changeover by planning early, incorporating the changes into our routine IT investment programmes and using the software that has already been developed for the eurozone.

Most important is that we should ensure our debate is not sidetracked by the extreme positions of anti-European ideologies. There are of course costs and risks associated with the euro but ruling out entry without acknowledging that it presents opportunities for British business would not be in our national interest.

  • Mike Rake is a campaigner for Britain in Europe and KPMG UK senior partner.

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