Euroreality: Some Pain, Then Gain

Benefiting from Europe's single currency will take work.

What if the euro fails? "There is a strong minority of very well-informed people, right across the academic and political spectrum, who would argue that there are too many inherent contradictions and problems with how this thing has been set up. And they expect it pretty much to crash," relates New York-based Tim Dwyer, national director of international human resource consulting services in KPMG Peat Marwick LLP's international executive services practice. However, only days before the Jan. 1 debut of the euro, Europe's highly promoted common currency, there's virtually no talk among U.S. and European executives of the European monetary union dissolving into disunion. The possibility isn't even in their contingency plans. The executives assume that the euro -- initially circulating among Austria, Belgium, Finland, France, Germany, Italy, Ireland, Luxembourg, the Netherlands, Portugal, and Spain -- will make it through three transition years and emerge in the year 2002 as the single replacement for such "traditional" currencies as the German mark, the French and Belgian francs, and the Italian lira. "To start planning for a euro meltdown is quite a bit premature," states Anthony Marsicovetere, a senior manager in KPMG's federal tax group, New York. Indeed, the first-year reality for the euro lies somewhere between a flawless performance and a disastrous debut. "The euro is going to go through a lot of pushing and shoving -- at least for the first year of its existence," confirms Alexandria, Va.-based Paul A. Laudicina, a vice president of A. T. Kearney Inc. and managing director of its Global Business Policy Council. The new European Central Bank, he says, will be pushing for a strong, stable currency even as the political heads of state shove fiscal and monetary policies in the direction of economic growth and social accommodation. But for firms doing business in Europe and willing to work within the new, unified monetary system, there's the promise of five major benefits, stresses Gregg Rusk, director of Grant Thornton LLP's Miami-based International Business Center.

  • With companies freed from figuring costs and prices in several different currencies, the euro should encourage trade.
  • Greater price transparency, a result of having one currency, should reduce the costs of doing business with Europeans.
  • The common currency will lower entry barriers to the European market.
  • The single currency will increase efficiency in marketing and distribution.
  • The euro will eliminate foreign-currency hedging's costs and complexities.
Still, these benefits will not descend on companies like so much New Year's Eve confetti. They'll need core euro-competency. In fact, months ago some companies decided they wanted to be euro-leaders and not euro-followers, indicates Daniel Orchant, a partner in KPMG's international executive services practice, New York. "Some companies have already taken the approach that they are going euro-exclusive from day one," he says. "Their corporate culture tells them they have to embrace change, be an initiator of change, and be aggressive." On the practical level, "The most important thing is that [companies] have a very strong cross-functional team in place to plan and manage the [euro-conversion] effort," states Bruce Clark, chairman and CEO, Stabiliteam, New York. Companies will need a project team, led by a senior executive, that understands "exactly what the euro means to their markets [and] their customers," stresses Paris-based Michael J. Mawtus, vice president for euro global initiatives for IBM Corp.'s Europe, Middle East & Africa operations. "The danger that a lot of people are falling into is to look at this [euro introduction] as just an IT [information-technology] challenge, make a basic low-level compliance response, and miss the fact that there are potentially dramatic effects on how their particular marketplace will operate." Indeed, "perhaps rather faster than they have done," companies need to be looking at Europe as a consolidating single market with fewer surviving companies in each business sector, emphasizes London-based Hugh Morris, a managing partner in the business process management practice of Andersen Consulting. "It's imperative companies say, 'Well, am I buying other people? Or are other people buying me? How do I rationalize my operations across Europe so that I am in the best shape possible?' "
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