The European Union as seen from a non-European perspective.

If you live in Europe you see EU from one perspective. If you live in North America you see it  from another. 

EURO

If you, as a North-American company, were getting the opportunity to enter a market with low  inflation, low interest, competitive wage levels, and a combination of steady  investments and a market of 370 million inhabitants - would you be interested?

The introduction of  EURO will soon transform EMU, the European Monetary Union, to the second largest trading zone in the world, with a GDP of US $6.5 trillion. 

What will happen if  you don't do business in Europe? Would you still be influenced by the EURO?

Yes. Even if the EURO will not influence you directly, it will most likely influence your suppliers, distributors and competitors.

Many believe it will not only influence the trade within EU but also its trading partners, like USA  and Canada. The dollar will still fluctuate against the European currencies but more against the EURO and less against each individual currency, as they are  more or less "locked in" with the EURO. Many believe the EURO will become a competitor to the US dollar, although the last few months hasn't really confirmed this.

For the consumer it  will suddenly be easy to compare prices. The foreign tourist will now have only one currency to convert against. One currency that covers major parts of Europe. For the Italian population, however, there will be a major change. Prices will no longer be in the millions, like before, but in much smaller values.

Some headaches because of the EURO.

Two aspects will become apparent for the Europeans, and the rest of the world, until the final  move to the one common currency. These aspects are Triangulation and Rounding. 

Triangulation is EMU's rule for converting prices between different currencies within EMU. During the transition period each currency will be converted first to the EURO and then to the "target" currency. 

If you want to convert German Mark to Spanish Pesetas, you will therefore not be able to make a direct conversion. You will first have to convert to EURO and then to Pesetas. 

Rounding takes place in both these stages. Decimals will not be used during these transactions so  there will be a "rounding", resulting in a more expensive or, possibly, a lower price depending on if the rounding favors you or not.

At this moment it is of minor interest to open accounts in EURO as it is not really before year 2002 the "real money" will be available.

Many are concerned that the new bills, some in high denominations, will create a lot of counterfeit  money and money laundering - at least in the start. Be careful.

There will be some interesting business opportunities because of the introduction of the new  currency in the year 2002. All machines using bills and coins will have to be  converted. An enormous investment/expense for those with these machines - and a  great opportunity for those in the business of converting or replacing them.

The EURO will  influence many countries within the EU.

The  interconnectedness is such that a large increase in salaries and wages in Germany can prevent an interest reduction and thereby influence the value of EURO. This in turn will affect the economy in, let say, Spain even though Spain had nothing to do with the actual events.

An interest  reduction can decrease the deficit in many countries because of a lower cost  when repaying their loans. As the EURO will be allowed to float, since there will be less demand on "cash reserves" for each individual country, this will most likely release funds in the range of 100 billion dollars. This in turn will  stimulate the economy and increase consumption. 

The EMU members now  have restrictions as to stability and growth. The deficit is not allowed to exceed 3% of GDP. This is one of the reasons that convinced Germany that the currency would stay strong and hence prompted their decision to join.

There are more countries in the process of joining EMU. At the moment, however, it seems  unlikely that Great Britain will be one of them.

USA is watching the  developments, seeing the European governments getting closer to each other. Perhaps a common army could be the result? Common foreign and fiscal policies? The future results could well be a union not unlike that of the USA  itself.

These are some thoughts on the European Union from a Canadian perspective. 
 

Leif Holmvall
Copyright Export Pro Inc.