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As Europe says 'hello' to the euro, is the UK sound as a pound?
How is the UK dealing with the euro's introduction?
As at May 2002, twelve out of the fifteen European Union (EU) member states have adopted the single currency. Within the EU, only Sweden, Denmark and the UK remain outside the eurozone.
But even so, businesses in these areas have still had to plan for the introduction of the euro. So despite the UK's reluctance to adopt the currency, British firms have had less choice in the matter. Many have made sure that their banking systems operate in euro. Some have switched their long-term borrowing from sterling to euro, thus saving between 2 and 3 % on the interest rate.
The effect on UK exporters to the eurozone has been felt especially strongly in terms of pricing. This can be seen when looking at the experiences of individual firms. The chemical manufacturer exporting to every eurozone country finds that whereas before the euro, only 20 of their 800 customers paid the same price; after the launch of the euro, all their customers should in theory be charged the same price (before transport costs are considered).
The impact on price is not limited to just the question of transparency. Those firms that use psychological price points as part of their marketing mix have had to re-think their pricing policy. For example, food producers selling to large supermarket retailers in France and Belgium may be put under pressure to cut their prices, in order to find one that remains psychologically attractive.
The list of UK retailers who are willing to accept euro as payment for goods or services has grown to include more than half of Britain's leading high street names, including Marks & Spencer, WH Smith and Safeway. And with 13m tourists from the eurozone expected to spend £4bn in Britain next year, retailers are anxious to permit payment in euro. Sainsbury's, Asda and others have even introduced trolleys with euro coin slots.
From the consumer viewpoint, a British teenager was feeling very positive about the new currency, when he changed his pocket money into euro and went to shop at a Debenhams store in London. Debenhams accepts euro as well as pounds, but the computer system in the store thought the single currency was worth two and a half times more than its actual value. As you might imagine, he went back several times to get full value from his shopping trip.
Of course, UK businesses that are likely to be fully exposed to the euro cannot afford not to prepare themselves to accept the currency. This gives the impression that they know that the new currency will be a success. But the technical achievement of launching the euro does not guarantee the eventual economic success of eurozone member states.