Anybody doing business with other European countries will be affected by the introduction of the Euro. This is a brief guide to what will happen:
The Euro will become a transactional currency effective from 1 January 1999. There will be 11 members, or participating countries, which will have their currencies fixed to the Euro from that date - Germany, the Netherlands, France, Belgium, Finland, Spain, Portugal, Italy, Austria, Ireland, and Luxembourg. The uk, Denmark and Sweden have essentially opted out of the Euro. They have an option to join, at a later date. Greece failed to qualify.
Key dates are:
1 January 1999: participating countries declare the Euro as their national currency. From this date all participating countries will have their exchange rates locked to the Euro and to each other. There will be no coins or notes in issue. 'Trade' will only be in the form of cheques or electronic settlement, and wire transfers.
1 January 2002: Euro cash is issued 30 June 2002: 'old' national currency (i.e. dm, Ffr, nlg) and notes will be withdrawn and the Euro will become the transactional currency for all participating countries. Until this date it will be optional whether participating countries will trade in Euro or their existing currency.
How countries convert from their old currency to the Euro is optional. There are two alternatives: big bang, ie all on one day, or gradual phased conversion. Whichever method is chosen, by 30 June 2002 all participating countries will have to cease using their old currencies.
The exchange rate of non-participating countries such as the uk will be published in terms of how they relate to the Euro, not to Deutschmarks or Francs.
Some of the key principles are:
no compulsion and no prohibition - for the period to June 2002 participating countries can choose whether to trade in Euros or not. This applies even if their trading partner is using Euro.
full equivalence - all participating countries rates are locked together. uk companies will still have an exchange risk, but in relation to how Sterling moves against only the Euro
all existing contracts at 1 Jan are not invalidated but become denominated in the Euro conversion rules - there are strict rules laid down on how the translation of transactions between different currencies works. This is has become known as triangulation. For example, to translate from gbp to dm the route is not a simple £ to dm but £ to Euro to dm, with set criteria on rounding at each stage.