The European Savings Banks and EMU : some practical problems

Adriana Alvarez*

The number of open questions surrounding EMU has considerably diminished. However, new questions and areas of concern have also arisen and much work remains to be done before the onset of the single currency. The European Savings Banks are ever more intensively involved in this preparatory work, a task which is both time consuming and costly.

The European Savings Banks Group’s (ESBG) role is to provide information on the issues at European level; it identifies the areas that call for a common or co-ordinated approach and inform the European institutions of ESBG’s position; it encourages the Members to further develop certain areas and to create common products; it stimulates the communications’ and information drive by publishing several issues of our Perspectives booklet on practical issues with regard to the single currency, such as on SME’s, legal matters and more general reflections on the EMU process.

The European Savings Banks are firmly rooted in both the regions and in the real economy and are therefore well placed to evaluate the practical implications of the single currency. The characteristic regional base of the Savings Banks renders them an important structural factor for ensuring financial stability in Europe. The Savings Banks offer a long term assurance that high quality financial services will be available in all regions, not only in urban centres but also in structurally weak and rural regions. This commitment to a regional presence is evident by the 60.000 branches throughout the European Union.

The average market share of the Savings Banks of customer deposits in the European Union is circa 25 %, moreover in some European countries up to 80 % of the population have business contacts with Savings Banks. Therefore, it is clear that the Savings Banks have and will have a major, and somewhat over-proportional, role to play in informing, preparing and accompanying their customers on the road to EMU and the single currency. These customers include small and medium-sized enterprises as well as central, regional and local authorities for which the Savings Banks are the traditional bankers, which, because of the large customer base, with relatively lower deposits, implies higher costs.

The majority of our small individual customers are relatively less well informed concerning monetary issues and are therefore often sceptical concerning the euro. The Savings Banks consider that it is their traditional task to inform such small individual customers on the merits of a single currency. This often requires significantly more effort than the mere provision of brochures and leaflets. Personal advice is far more appreciated particularly by older people, although it must be recognised that this type of service is very time consuming and therefore expensive. The success of the EMU project will stretch the capacity of all existing human and financial resources within the credit sector. The European Savings Banks Group has therefore requested the Commission to respect the principle of subsidiarity and to impose a moratorium in regard to new EU (banking and consumer) legislation during the preparation period for the single currency. The need to limit new regulation of the industry to an absolute minimum is essential in light of the enormous workload facing the banking community in preparation for EMU. The members of the Savings Banks group, even those in countries which will not initially participate in EMU, cannot comply with both ever renewed and increasing regulations and the single currency simultaneously.

The European Savings Banks have exhibited a positive attitude towards the single currency from the very outset. Following the Madrid Summit of 1995, ESBG issued guiding principles to the EU institutions that were in its view a sine qua non for the success of EMU: the transparency and openness of the consultation process, the aim of keeping costs to a minimum for all involved, and the commitment to ensure that the process had a neutral effect on competition within the financial and banking sector.

In this regard, the ESBG welcomes the commitments made at the European Council meeting in Dublin in December 1996 to make every effort to ensure that the convergence conditions are fulfilled in a convincing and credible manner and also to ensure that the foundations are secured for the project to remain on the course of stability.

The ESBG secretariat in Brussels has for the past two years been a driving force in arranging meetings with our members in an array of specialised fields including: Economic and Monetary policy, Payments Systems, Human Resources, Capital Markets, Statistics, Marketing and Communications, Public Relations, Business opportunities, and others.

At the beginning of 1996, we issued an information booklet aimed at Savings Banks staff, containing answers on concrete questions frequently raised at the counter. This booklet was adapted and translated into at least 6 languages by our members, ensuring that advice for customers will not differ from country to country. Our different committees also issued a series of opinion papers on a wide range of issues pertaining to the changeover, including the future monetary policy of the European Central Bank, statistical reporting requirements for EMU, the legal framework for the euro, issues concerning the Target Payments System, etc.

During the transitional period, consumers will be free to choose whether to convert accounts from national currency into euro, in accordance with the ‘no compulsion, no prohibition’ principle. Customers will be entitled to receive account information both in national currency as well as in euro. This could result in significant IT complications combined with the millennium, or ‘Year 2000’ issue, and engender a multitude of complex problems. Not least of the uncertainties arising from this situation concerns rounding issues.

In this context, while the European Savings Banks Group welcomed the agreement on the Council Regulation regarding the legal framework for the use of the euro, we would like to see a rapid resolution of the remaining legal issues, in order to have a reliable basis for the comprehensive preparatory work to be undertaken by our members.

ESBG considers that much remains to be clarified regarding the single currency and we will therefore continue to examine all relevant aspects of this process ranging from statistics to the fine-tuning of monetary policy, from the nominal values of securities to the annual accounts of banks, from foreign exchange policy to exchange fees, from fiscal thresholds to budget deficit measurements.

The biggest challenge is to keep abreast of the multitude of information facing us : for financial and monetary matters, which besides the EU institutions, the national administrations are producing extensive changeover scenarios, with delegated (sub-) committees to deal with technical matters. Then, there is the press, that informs, but also unwittingly confuses and unsettles by focusing on sensitive political issues, as well as by highlighting the problems of meeting the demands of the economic convergence criteria. To steer a clear course between this over-information is quite a feat in itself. We have created a "euro data-base" of the publications that reach our Brussels secretariat, which helps in determining what countries, what languages, what sectors and, most importantly, for which public, information on the euro has been produced.

In the meantime, the Commission’s role is to continue to uncover possible hick-ups, and one way is through consultation of all parties by organising a Round Table on practical issues on 15 may 1997. In a preparatory meeting, organised around a questionnaire that was sent out by DG II on practical aspects, some issues raised were :

a) in regard to the transitional period phase B from the 1st of January 1999 until the 31st of December of the year 2001 : questions remain as to the complete interchangeability (also known as fungibility) of national currencies and the euro; worries over the length of this transitional period; concerns relating to extra costs being charged for new accounts in euro; the issuing of new methods of payment, or chequebooks and forms of plastic money.

b) regarding Phase C which starts on the 1st of January 2002 and ends at the latest on 30st of June 2002: remarks centred around the length of this period and the negative impact that would result to especially to retail organisations. They suggested postponing the actual introduction of notes and coins about a month until the beginning of February 2002. In general, their wish was that this period be as short as possible.

c) in general the issues of charging were raised. Here the banking sector as a whole indicated non-euro-specific charges would remain among the normal charges that banks charge for their services. Charging for euro-related conversions would have to be carefully examined, and would most likely not be charged, at least not during Phase C, when customers no longer have a choice. The banks’ representatives referred to the mostly positive advantages of market competition. This remains an issue which will be raised again, as also representatives of the consumer associations insist on showing concrete and evident benefits of the single currency to the consumer. They would like not only a costs, but also a benefit analysis of the introduction of the euro.

d) national changeover scenarios are being put into place; they must account for two uncertainties. First, the changeover scenario timetable still to be formally adopted by the Council under Regulation 109 L; especially articles 10 and 11 thereof, relating to the changeover of notes and coins. Secondly, there is a need for a degree of co-ordination, not harmonisation between the national changeover plans. For this it is important that the markets and all actors concerned realise what technical and precise points are covered by these plans contain and that adequate information is made available.

e) in general the fact that extra legislation may be needed was raised, however, ESBG stressed that it was important not to impose new rules at European level.

The second part of the Commission’s questionnaire focuses on information and communication aspects, such as : how citizens can best be educated to think in terms of prices in euro. There are different types of problems such as how to cope with new prices using an awkward conversion rate, how to deal with the loss of sense of value (need to create new benchmark values) and, especially for retail sellers, how to price low value goods. Some solutions offered were to create simulations of new pricing methods, to create information campaigns with simple and understandable language and finally to conduct proper market research as there is not enough information on how to resolve the problems of the communication gap. The need to create a mood of confidence among consumers is essential if they are to assimilate the information targeted at them, for without confidence one risks putting aside information as "useless".

The issue of dual display of prices has led consumers organisations to demand binding legislation for dual display 6 months before and 6 months after the introduction of notes and coins (i.e. 1. January 2002); consumers doubt that national consumer legislation will prove to be sufficient. ESBG feels that binding legislation is not necessary as the incentive of market competition will lead automatically to best practices by retailers and bankers alike.

As to the groups that will need special assistance when making the changeover, it is clear that special assistance to the physically impaired will be necessary (e.g. for the blind), but also for the older and perhaps more rural population. The banking sector at large - with a few exceptions - is increasingly becoming aware that the decision to include some kind of national aspect on notes and coins may be to be confusing precisely for those groups: some users may be reluctant to accept what they still perceive as "foreign" euro coins and notes. As mentioned, intensive staff training will be required, also for the special groups that need extra attention. As time is increasingly of the essence, the motto is now: train the trainers, to provide them with basic questions and answers. Mass efforts are underway to provide booklets and CD-ROM’s for staff training.

It is clear that the European Savings Banks must co-operate with the consumer concerns because there is a very fundamental lack of understanding and comprehension on the part of average consumers in the 15 Member States as to what exactly the European Monetary Union means, what the single currency means and how this will effect their daily lives. ESBG believes that the European Savings Banks have a special role to play and that it is a matter of open competition to provide the most adequate possible information to its staff and to its customers, to develop joint products with its other European members and finally to continue stressing our typical Savings Bank philosophy which make us the ideal partners for the successful introduction of the euro.

It is amazing to think that the Treaty of Maastricht, and those that planned the EMU in detail, initiated the process in the early 90s, and that from 1994 (when the EMI was "opened" in Frankfurt) until mid-2002 more then eight years will have passed. That is a long time, and yet now, early 1997 Phase Three looms up ahead very quickly. We are all, literally, counting the days (less then 400 real business days are left !). The national changeover plans try to take this all into account : after all, as of 1.1.1999 scriptural money - meaning : non-cash payments - will be accepted in euro. The real headaches consist in determining when national administrations intend to switch over their accounting, tax levies and payments, etc.

There is little co-ordination in this matter, and this will engender a certain degree of uncertainty for citizens living and working in different (participating) Member States. ESBG has stated before, in relation to the national changeover plans, that Member States must make their degree of technical preparation known to the Commission, so that some spill-over effect will help those Member States that are still lagging behind.

As for the changeover plans related to fiduciary (or : cash) money, this is a major bone of contention. Strictly speaking, the end of the transitional period ends on 31 December 2001, and notes and coins will be introduced on the 1st January 2002. Logistically speaking, this is, whatever the date, a nightmare. The different scenarios of how many trucks and lorries will be needed to transport per Member State the necessary notes and coins borders on the surrealistic. The issues related to the protection of these mass transports become very acute : where to stock, how to transport, what sectors get priority, are merely some of the questions pending. Retailers urge shortening the period of double handling, but worry about the ready availability of sufficient euro notes and coins.

It seems for the moment (as summarised above) that all major market players call for the shortest possible period of introduction. The date of actual introduction should be the same for all participating Member States - although for the national notes and coins, they may cease to be legal tender before the final deadline of 30 June 2002. European (and non-European visitors) must, however, be able to exchange their "old" coins and banknotes for euro’s for an undetermined period.

As mentioned before, the issue of charging will become increasingly sensitive. Banks are not non-profit institutions, and charges are levied as a matter of fact for opening and closing of accounts, for payments, exchange operations, checks, and for all manner of credit/debit/cash cards, etc. Those charges will continue to be levied regardless of the euro. In other words: non-euro specific charges will remain. The charging for exchange operations of foreign national currencies during the transitional period, when the exchange rates of participating currencies will be fixed, and thereafter between the participating and non-participating countries is still under consideration. After the introduction of euro banknotes and coins in early 2002 (Phase C), the costs related to exchanging national currencies against the euro is related to Article 52 of a Protocol annexed to the Treaty of Maastricht, which states that the European Central Bank (and, according to the new system, also the ESCB, the European System of Central Banks) must "take the necessary measures to ensure that banknotes denominated in currencies with irrevocably fixed exchange rates are exchanged by the national central banks at their respective par values". This means, that national central banks must provide facilities to the banks to exchange the "old" national banknotes (but not coins) for free, as it were, and arrange to have them sent home. This article does not, however, discount the fact that banks will still be face with handling and storage costs. Although normally the charge to customers from an exchange operation also discounts the risks incurred by the bank for a possible devaluation of the currency at the time of the exchange operation, and the costs incurred from the central banks for the repatriation of the notes, these will obviously, in Phase C, have to be discounted.

For all issues relating to payment systems, the technical committees are examining issues raised by a Commission paper. Some uncertainties, as for instance how to deal with cheques in Phase C if no currency indication is given, will be dealt with mostly at national level. The availability of all the electronic means of payment will depend mostly on the national changeover scenarios, as well as on the technical possibilities available.

One issue that is of extreme importance for the success of the single currency operation is the ample information available to the customers of all age groups and social or economic backgrounds. Here the ESBG sees a special role for the thousands of locally based savings banks. The first place citizens think of turning to for information on money matters is their (local) bank.

It is clear that an enormous effort must be made in terms of formation and training of bank staff, in order to adequately inform the customers; in terms of methods of communication - electronic and paper - for the direct benefit of the customers, and in terms of displaying double prices, in the national and euro currencies, so as to ensure acceptance and understanding in the public. For all manner of "financial" statements, e.g. bank slips, wage slips, formal bills and official payments, this does not - in principle - pose great technical problems to the degree that is feasible. An entirely different matter, is however the issue of dual display of prices for retailers. On this issue, it is ESBG’s firm conviction that the market pressures will exert their positive competitive effects, so that optimal information will be available to customers, without any need for European or national legislation on this matter.