Rise of the euro

MY COLLEAGUE, like me, was travelling to Kings Cross and the subject of the euro had just come up in our conversation.

"So are you ready for it?" I asked him. "Well, more or less," he replied. "We're changing all our IT stuff and we'll be happy to quote in euros, but I don't want us to go overboard. I can't see that it'll have much more impact on us than the dollar does at the moment."

He may turn out to have been right - but I don't think so. There are several reasons why the euro, with the effect from January 1 next year, will prove to be rather more than just another currency. And this will be the case whether or not Britain ultimately becomes a member of it.

First, and most obvious, the proportion of our trade currently done with the euro zone is much greater than that with the "dollar zone". Just over half, 51 per cent, of our total exports of goods goes to countries which will be adopting the euro. For exports of services the figure is 42 per cent.

Second, the expectations of people doing business with us will be much greater where the euro is concerned. To express this at its most basic level, an American buying a meal in York does not really expect to be able to pay in dollar bills. When the euro is in full swing, however, I think it is entirely realistic that an Italian diner will wave his euro notes in the air and be astonished to hear they are not acceptable. Even an American "doing Europe" might expect to use euros.

On a business level, in the words of one leading ceramic manufacturer, "Buyers at the Frankfurt Show are going to look favourably at goods from Italian competitors. For them there's no currency fluctuation. We've had to come to an arrangement with our German distributors that we'll supply goods at a fixed rate. In the longer run, we're going to have to improve our efficiency and innovation. We're going to have to offer more for the price."

This brings in the third point. The euro is going to make price comparisons extremely easy throughout the euro zone itself. That in itself will probably be a real driver of further efficiency. Either we match that in the UK or we will suffer from its consequences.

Take the Portuguese car industry, for example. For many years it has existed, just, on the fringes of the mainstream European economy. Its domestic market, though small, has been reasonably secure and its lack of productivity protected by periodic devaluations of the escudo. After January 1, that will no longer be the case. Direct comparisons will be made, its domestic market will be exposed and devaluation will not be available. It may be that the Portuguese car industry will simply cease to exist (in which case we can expect to see unemployed car workers rioting in the streets of Oporto). Or we may see a surprising,

sudden improvement. In either case, the productivity of the European car industry as a whole will have received a boost.

So, think then of the consequences for the UK car industry. It is remarkably dependent upon smaller companies. If they are unable to watch the progress of their counterparts on the European mainland, then are we likely to face the removal of recent inward investments which have kept our car industry alive?

The history of Britain in this century is

littered with Government-inspired false alarms. Everything from bi-metalism to "1992" has been hailed by civil servants as a potential death knell for those companies which chose to remain unaware of their ramifications. But the current foment over the euro could be different. No companies are neglecting it entirely but I wonder whether all are giving it the attention it deserves.

John Watson is chairman of the Yorkshire and the Humber Forum for Euro Preparation.

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