Preparation of the Spanish enterprises with regard to the euro
Enrique de La Lama-Noriega Cardús***
Before the end of this century, the European Union will have a single currency, the Euro, which is destined to play an important role in the economic and monetary relations of the next millennium.
In order to enable the Member States to embrace the single currency, it will be necessary to fulfil a series of requirements as indicated in the convergence criteria ratified at Maastricht. At the same time, the structural reforms that are being undertaken and which the countries of the Union should continue to pursue, will enable stability to be maintained after the Euro comes into force as the single currency.
It will be one of the most crucial events in the recent history of European Integration, for both the Spanish and the European societies as well as for their corporate sectors. The adoption of the Euro will take the shape of a strategic element in the behaviour of enterprises and economies. The enterprises whose adaptation to the Euro is more competent and swift will obtain the benefits of competitiveness in all world markets.
It will be convenient for the target conditions to be established in order to achieve monetary integration, the latter being the creation of an area of exchange rate stability in which the economic policies of the member states of the Union are managed in a co-ordinated way in order to achieve common macroeconomic targets, which will eventually permit the consolidation of an authentic single market. There are five basic advantages that are derived from this process:
Exchange rate policy disappears, and national budget policy becomes more constrained. Incomes policy is converted into the "whip of competitiveness", obliging management and union representatives to reform the basic conditions in which the prices and wages of the economy are established. Little relevance will be given to the policies of demand regulation, thus leaving the alternative of turning to supply policy measures as a basis for increasing competitiveness, economic growth and for creating stable and well paid jobs. This policy takes the form of structural reforms in order to open up the economic system by introducing a greater amount of competence in the goods, services and inputs markets.
From the commercial point of view, the Euro will make the existence of an authentic Single Market possible, as it will mean greater price transparency and the elimination of transaction costs and foreign exchange risk, currency fluctuations will be eradicated in the same way.
The fundamental aim of introducing the Euro is to facilitate trade between Member States. At the present time this represents 60% of its total volume. It will imply an element of stability and prosperity, given that it is based on a solid economic framework where deficits will be under control and price stability will be guaranteed, which will in turn promote investment and will help create employment.
From a financial point of view it entails the creation of an important financial market in Euros given that the unification of national markets will have a greater appeal for foreign investors. Moreover, the foreseeable drop in interest rates will cut financial costs.
In monetary terms, the Euro is destined to be an international currency. Thus, the Euro area will be extended to international trade and will be used for invoicing and payments, like the dollar and the yen at the present time. Moreover, the central banks will be able to use it as a reserve currency.
Special reference must be made to the fact that integration of the single currency, is an opportunity and not a solution, to the problems of growth and of development and that in order to take advantage of this opportunity, not only is it necessary to fulfil the requirements of nominal convergence, but also our economy has to be endowed with the sufficient amount of flexibility and capacity to adapt, in order to ensure an adequate level of competitiveness, overcoming the necessary structural reforms. The latter basically consists of a reconsideration of the role and scope of the public sector, reforming the labour market with a view to strengthening the capacity of the enterprise to adapt and to achieve a greater utility of the available work force and to guarantee a sufficient level of competency and transparency, chiefly in the services sector, in order to facilitate the evolution of prices for the benefit of the productive structure as a whole and that of consumers and final users.
The concern for the necessary measures to adapt the Spanish economy to the convergence conditions voiced in the Treaty of Maastricht and the necessary fulfilment of these in order to enter the third phase of Economic and Monetary Union should not make us lose sight of the wider horizon of posterior endurance when the conditions of freedom of economic policy are going to be more restricted.
Structural reforms should allow our economy to adjust to European integration and to the "day after" integration. These reforms refer to the supremacy of civil society over Government, with the necessary symmetry of position between the Government and its citizens, withdrawing the public sector from the fields of activity that do not belong to them and allowing the private sector to produce goods that, due to their special nature, have to be catered for by the government. Likewise, reform of the labour market and the taxation system is necessary and social contributions that permit both of these to face the new conditions of competition. Finally, it is necessary to continue with the reform processes of the goods and services markets; these have a clear role in the enterprise’s competitive position.
2. THE EURO AND ENTERPRISE
The introduction of the single currency will affect all sectors of the economy. However, its effects will be different from one sector to the next, as will be the measures that companies will have to take to counteract them.
The introduction of the Euro will affect companies in all their activities, setting a strategic, competitive and organizational challenge. It is important that Spanish companies start to prepare for the introduction of the Euro in their activities as soon as possible, and thereby they will benefit sooner, from its advantages. It is essential that businesses, if they have not already done so, establish working parties or appoint "Euro experts" to be responsible for the co-ordination of all the internal activities related to the necessary modifications and adjustments. At any rate, the early periods of preparation for adapting to the single currency, for establishing a working group and the time it takes for becoming aware of the impact of the Euro's introduction should not necessarily imply large financial investments, rather a commitment of personal dedication.
However, the decision regarding the appropriate moment for starting to adapt to the Euro should be taken by the companies themselves and that will vary according to their size, their international scope and the existence of shares or subsidiaries in participating countries, etc. The choice of the appropriate moment will help to avoid many costs.
It is foreseeable that the adaptation process will be quite heterogeneous. In this way, large companies will probably make a very rapid adjustment, as they will be motivated by the clear and immediate benefits that can be obtained from the single currency and expedited by their greater capacity to adapt. However, it is necessary to point out that small and medium size enterprises (SME) will find it more difficult to adjust to the new situation, as they do not have the same resources nor the same technical, accounting or legal capacities to make the change. In this context, SMEs are not able to wait, they should oblige themselves to make the necessary adjustments and changes now in order to stand up to the difficulties that might occur.
The Euro's impact on different functional areas will basically revolve around the following:
Consequently, companies should take into account that they will have difficulties in maintaining high price differentials despite the fact that market segmentation occurs for many reasons. For example, the fiscal regime, different technical specialities, etc. and that they will have to choose between reducing price differentials or looking for other ways of maintaining market segmentation, for example, with a wider product differentiation.
Customer information and assistance will become an important tool for obtaining market share, given that it will be necessary to explain to many customers the price changes, and many companies will base their marketing on explaining as to why they have not increased their prices.
Its main consequences are: elimination of the exchange rate risk that will lead to a reduction in the cost of loans: in the case of countries with weak currencies like Spain, companies will be able to finance themselves at the same cost as companies in more buoyant countries. This occurs because the disappearance of the exchange rate risk premium demanded by foreign investors means that the only difference between investors will be the actual solvency of the company. This will represent the disappearance of one of the biggest stumbling blocks that Spanish companies have had to endure up until now in their competitive capacity abroad.
3. THE CEOE’S INFORMATIVE SCHEME CONCERNING THE EURO
On the 15th and 16th of December 1995, the Heads of State and /or Government of the European Union, brought together for the European Council of Madrid, ratified the final setting of the path towards the single currency together with its name : the "EURO".
The introduction of the single currency probably constitutes the most outstanding challenge of recent European integration history not only because of the economic, financial and commercial consequences that it will have on Spanish enterprise, but also for the practical implications that it will imply for the whole European society.
Conscious of the importance that the introduction of the EURO will have for Spanish companies, on the 11th of July 1996, Mr. José Mª Cuevas, representing the Spanish Confederation of Employers Organizations (CEOE), in the presence of Mr. Rodrigo Rato, Vice-president of the Government and Minister of Economy and Treasury, signed a collaboration agreement with the European Commission, represented by the European Economics and Finance Commissioner, Mr. Yves-Thibault de Silguy, with a view to informing and preparing Spanish enterprise to adopt the change to the single currency in the best possible conditions.
Based on the aforementioned agreement, the CEOE has prepared an Informative Scheme which is set out as follows. This scheme, which has a national scope and which will be developed over several years, is composed of a series of specific steps that will provide useful and practical information regarding the EURO. These will progressively contribute to the consolidation of the level of acceptation and preparation for this necessary and irreversible change towards the European single currency of Spanish enterprise as a whole and more particularly of SMEs. On the 25th of April 1997 the Presentation Ceremony of the Spanish Business Programme concerning the Euro took place in Madrid.
The aims of the scheme
The envisaged steps of the scheme
The envisaged steps of the CEOE’S Informative Scheme to promote the EURO in Spanish enterprise, respond to an essential focus that surpasses the strict field of enterprise and extends itself to the Spanish society as a whole.
Step 1: education
Aim: To contribute to the improvement of awareness about the EMU and the EURO: its origin, its evolution and its outlook, with particular attention to the consequences that its introduction will have on Spanish enterprise.
Methods: Written documents (document with a triptych, discussion document), audiovisual, slides, logotypes, labels, diskettes and other communication material that will be used in the steps of promulgation of the current Informative Scheme.
Step 2: information
Aim: To obtain the maximum multiplier effect on national and regional levels with regard to the introduction process of the EURO, contributing to the improvement of the level of knowledge, acceptation and preparation of Spanish enterprise.
Methods: Launching informative ceremonies, meetings of experts, publications, practical guides about the EURO and formative bulletins. An important business Congress regarding the EURO took place in Madrid on the 25th of April, 1997.
Step 3: follow up and analysis
Aim: To carry out permanent research, analysis and opinion surveys in order to evaluate the EURO’S level of appraisal, as well as its main effects on business activity. From this, valuable information will be obtained for the Scheme’s correct application and for the improvement in the preparation of Spanish enterprise.
Method: Opinion surveys, the creation of a data base called "Euro España" and specific research and analysis are all envisaged in the main sectors and regions of the Spanish economy.
Step 4: guidance
Aim: To provide, as a permanent measure, all types of information and guidance for companies regarding the transition process towards the EURO, reducing the possible uncertainties and facilitating the preparation process.
Methods: The setting up an Open Line on the EURO, that would be equivalent to a permanent training and consultation scheme for companies.
Step 5: development and co-ordination
Aim: To achieve a greater efficiency and transparency in the development of the Informative Scheme, verifying its compatibility with the activities carried out by the Spanish Government, in the same way as the principles laid down by the Commission and the European Parliament in its Plan dealing with the Evolution of the EURO.
Methods: Training of a EURO team, periodical co-ordination meetings and reports about the situation.
Step 6: training
Aim: To contribute to the improvement of the level of training of employers as regards the use of the EURO in their activities.
Methods: Imparting monographic courses about the EURO for employers.
Step 7 : media
Aim: To contribute to the maximum dissemination of information about the EURO to the public in general, and to companies in particular, using specific measures before the media.
Methods: A continuous stream of information filtered to the media regarding the introduction process of the EURO and of the evolution of the CEOE’S Scheme by way of the Business News Service, from contacts with selective groups and press meetings. Likewise, training courses will be imparted for journalists and meetings will take place with the persons in charge of communication with the member Organizations of the CEOE. Step 8: youth and society
Aim: To encourage a greater sensibility and stimulation for the single currency among the youth, thus increasing their acceptance and familiarity of its use.
Methods: Co-operation agreements with Universities, monographic courses, seminars and round tables.
Step 9 : SME
Aim: To widen the promulgation of the EURO within the small and medium size Spanish enterprise, thus contributing to an increase in their level of preparation.
Methods: Organization of seminars and informative conferences for SMEs.
Step 10: exchange of experiences
Aim: To exchange experiences, on a European level, about the practical aspects of the introduction of the EURO, identifying the problems and solutions taking place in other Member States of the European Union.