EURO SURVEY - The first hundred days: FDs give their views on the

A survey of Financial Director readers conducted just as the single European currency celebrated its 100th day reveals that the euro is slowly but surely making its presence felt in corporate Britain. Euro pricing, price transparency and customer confusion have all featured in the range of experiences within UK businesses. On balance, however, the euro has left FDs feeling distinctly underwhelmed: just under a third of respondents to our survey questionnaire, which was published in the April issue, believe that British entry into EMU would benefit their company (chart 1); while almost a quarter believe that their business would be disadvantaged if the UK were to introduce the euro. More than 40% believe that the euro would, on balance, have no real net 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 that they would personally vote in a referendum to oppose British membership of economic and monetary union (4). Amazingly, a quarter of FDs who believe that the euro would actually benefit their company would still vote against the euro (19). On the other hand, every single respondent who said that the euro would harm their company indicated that they would be opposed to monetary union (20). Even though FDs themselves are, on balance, opposed to EMU, they see little prospect of British membership in the foreseeable future. When asked how they thought the electorate would cast their ballots, 61% said that a referendum would yield a “no” vote. Only a third thought that Britons would support the euro (3). One FD cautioned that the rate at which Britain joins the euro would be just as important as 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 if we are in the euro.” This same FD also expressed 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.” Another expressed concern that the debate so far seems to be focussing on the economic factors, even though the potential political and social impact could be much farther 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, so far, 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, said one FD, “depends on The Sun.” Of 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 British 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 (11). But there seems little consumer interest in the euro as a method of payment, and businesses believe that customers are currently still in a state of confusion about euro prices (13, 12). So far, the long-promised price transparency is not proving helpful to consumers, FDs say (14). More than 40% of businesses have customers in the eurozone who want to see prices in euros, while a similar proportion want their suppliers to invoice their eurozone businesses in euros (7, 8). 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 (15). 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 that the euro is putting pressure on them to reduce their prices and costs (5). At the same time, the flip-side is that 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 (6). 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 Britain. 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 (9, 10). 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 (16). See also: more survey results: Extraordinary items, back page; Sir John Banham on the euro, page 67. The survey questionnaire was published in the April issue of Financial Director. Average turnover at the respondent companies was £115m. Just over two-thirds of them were parent companies, while the rest were subsidiaries of businesses with average turnover of £3.7bn. Ninety percent of the parent businesses were UK-based. The UK accounted for 70% of turnover on a weighted basis, with eurozone countries making up a relatively small 11% of the total. Other geographic areas accounted for 19% of business turnover. THEIR SURVEYS SAID … On 23 February the CBI issued a statement welcoming the national changeover plan, describing it as “as sensible step forward, with practical guidelines on what needs to be done”. It added that it was “right for the government to commit money to upgrade areas of the public sector”. But the one thing lacking from the plan, and the one thing that business still needs “is an unequivocal commitment to British entry. Individual companies are unlikely to commit large sums of money without this.” On the same day, the Institute of Directors condemned the National Changeover Plan. “Not content with having frittered away £7.5m of taxpayers’ money in advertising the euro, the government now wants the public sector and business to spend millions of pounds preparing for something that may not be right for the economy nor have the support of the British people.” The IoD cited a Lloyds TSB survey which revealed that converting from sterling to the euro would cost every SME in Britain £2,000 – or £6bn in total. A MORI poll conducted on behalf of investment bank Salomon Smith Barney in January suggested a net 18% of voters would oppose the introduction of the single European currency in a referendum. This figure was down from a net 24% in December, at the height of the tax harmonisation row. But by early March, shortly after the National Changeover Plan was launched, the survey was pointing to a slight hardening of opposition, with a net 20% of respondents opposing the single currency. In March, Salomon Smith Barney noted an EC finding that car prices are up to 16% higher in the UK than the European average, and calculated that average profits per car sold to retail customers are up to five times as high as in other markets. “Around 10% of the profits of the entire European (car) industry are built on the super-normal pricing level of the UK market,” the firm said. “We see significant signs in consumer awareness, government regulation and competitive conditions to eliminate this price discrepancy.” A recent survey by Exchequer Software found that two-thirds of companies expected to be affected by the euro and that 76% of accountants feel their job requires more knowledge of multi-currency issues than it did five years ago. But 94% said that they had not received any additional training or information. Nearly half the accountants, in fact, fear that they are not adequately trained to deal with multi-currency accounting. A survey by FEE, the Brussels-based European Federation of Accountants, reported that a third of UK businesses expect the UK to be part of the eurozone by 2002, while 91% expect Britain to be in the euro by 2005. Almost all – 96% – said that they would like the UK to join, while 40% said they would have preferred the UK to be in from the start.