Changeover to the Euro : Identifying the views and concerns of SME's

Nicholas Goulding*



"The Euro is not something that will appear in the future, it is already here".

- Lorimer MacKenzie, Director, DG XXIIIA Directorate General XXIII

 In order to identify the questions of UK small business owners, and discuss the practical issues which will face their businesses on the single currency, and the introduction of the "Euro" as the common currency of the European Member States, the Forum of Private Business, in association with NatWest Corporate Banking Services, organised a series of Seminars in 6 locations throughout the UK in March 1997.

 The Seminars were designed not only to provide an opportunity for business owners to question and learn about the likely effects of change, but also to provide an opportunity for Government, Central Bankers and the European Commission to understand the perspective and problems of private business owners in the UK.

 The speakers represented a balance of "positive" and "sceptical" European viewpoints from both of the major UK political traditions, as well as senior officials from:


HM Treasury

The Bank of England

The European Commission

The Forum of Private Business


There were well over 1,000 attendees at the series of Seminars, and considerable media attention, both national and local, was given to the objectives of the meetings. There is little doubt that the subject generated great interest, and in was noticeable from the range of questions posed in the debate, that many small business owners have devoted some thought to the introduction of the Single Currency. It has to be said, however, that research by FPB and others still reveals a very significant level of ignorance of the implications for SMEs, and a critical lack of information and practical guidance on the technicalities of EMU, that is specifically targeted at SMEs in the UK.

 Analysis of the feedback from participants by NatWest in their own questionnaire suggests that nearly 50% have so far done nothing about planning for the Single Currency. However, 71% expressed a desire to attend similar events in the future, so there is evidence of a growing awareness in small businesses of the need to act.

 It was not the purpose of the FPB Seminars to consider the criteria for entry into EMU, nor the final decision of the UK Government to be "in" or "pre-in" (or even "out"!), nor the level of exchange rates.

 It was the purpose of the seminars to examine the implications specifically for small businesses of the change to a Single Currency, and to assist this process. Each of the principle speakers in the Seminars introduced a "checklist" of the issues perceived to have an impact on SMEs by their respective organisations. Business owners attending were asked to complete a questionnaire following the presentations, which aimed to identify their view of where the costs would fall, and their preferences for the changeover scenario. The questionnaire set out four alternative scenarios.



Under the rules for introducing the single currency, "book money" (Financial accounts, bank accounts, tax returns, etc) must be denominated in "EURO" throughout all participating member states by the end of the transitional period (1st January 2002).

 The rules do not however yet specify precisely when "EURO" notes and coins will be introduced. In theory this could be on any date between 1 Jan 1999 and 1 Jan 2002. Once "EURO" notes and coins are introduced, the rules allow for up to 6 months of dual circulation. At the end of this period, notes and coins of existing national denomination would lose their status as legal tender, but would continue to be redeemable by the Central Bank. Although the date for the introduction of Euro notes and coins would be the same in all participating member states, individual member states could choose to shorten the period of dual circulation to less than six months.

 The date for introducing notes and coins, and the length of the period of dual circulation will be crucial in determining the level of costs faced by business. Four alternative scenarios were set out in the FPB questionnaire on which business owners were asked to judge the relative costs. These are set out below and illustrated in the chart:


OPTION A: This is the "Big Bang": Under this scenario, no Euro notes and coins would be circulated until the day on which the Euro became the mandatory denomination of account. Proponents of this scenario usually envisage a very short period of dual circulation, with rapid withdrawal of national notes and coins.

 OPTION B: Under this scenario Euro bank notes and coins would be introduced some time in the Summer or Autumn of 2001. This would give businesses some flexibility in choosing the date for converting their book denomination once the Euro notes and coins were in circulation. This conversion would have to be complete by the deadline of 31 Dec 2001, but remaining stocks of national denomination notes and coins could remain in circulation as legal tender until some time in the Spring of 2002, up to six months after the introduction of Euro notes and coins.

 OPTION C: This is essentially the same as option B except that all existing national denomination notes and coins would cease to be legal tender after 31 Dec 2001, the same date as the deadline for the conversion of book money denominations.

 OPTION D: Under this scenario national denomination notes and coins would be withdrawn as legal tender at some date before 31 Dec 2001 (deadline for conversion of book money, possibly October 2001, prior to the Christmas peak retail demand period. Euro notes and coins would have been introduced up to six months previously. This option gives businesses maximum flexibility in choosing the date for their conversion of book money, but reduces the period available for preparation.



The survey asked business owners to express the cost on a scale of 1 to 5 of a range of issues to their business under the different scenario. For the purposes of this article the results are expressed as Means.

 Secondly, business owners were asked to rank their preference for the alternative scenarios set out.

 For each of the Activities listed, the Mean is aggregated to give a ranking order of priority, and the same process has been applied to the 4 Options in relation to the 16 Activities specified. It should be noted that the purpose of the Survey was to give an indication of the most significant areas of cost impact on SMEs, created by the transition to the Single Currency, on their business. Responses followed consideration of the presentations made by the 4 organisations involved in the Seminars.


1. options:

 From the aggregate results respondents placed the Scenario Options on a cost impact basis as follows:



Least Costly






Most Costly


This would indicate that the idea of the "Big Bang" introduction of the Single Currency is least favoured from the viewpoint of cost impact, as it is perceived to involve the highest cost to SMEs.

 When the Scenario Options were scored on a scale of 1 = BEST Option to 4 = WORST Option, the ranking order is:











Again, the "Big Bang" concept is considered to be the "WORST" option, but it is interesting to see that the "preferred" Option is not necessarily the least costly in aggregate. This probably reflects the fact that the different areas of cost will vary significantly from business to business. Aggregate mean cost will not therefore necessarily sum to the same order as mean preference which will be based on the individual position of each business.

 The choice of the "EURO" Introduction periods all showed a mean preference significantly in excess of 3 months. Results were:



3.47 Months


4.47 Months


4.11 Months


4.50 Months


The Mean of these results is 4.14 months Means however should always be treated cautiously. It is probably reasonable to assume that a period of 4 months would satisfy a majority of businesses. It remains clear however that a significant minority would prefer a period of up to six months or longer.

 The key to minimising costs for smaller businesses will be to maintain maximum flexibility for individual businesses. This can best be achieved if they are in a position to choose when their business converts book money and changes their denomination for cash purposes. This can only be achieved if the period of dual circulation precedes the final date for the conversion of book money, and is best served if the period is as long as possible.

 In practice, most businesses will want to change over much faster, but imposing a rigid timetable on all businesses, is a sure and certain way of sending some businesses into liquidation. The market may dictate a period of less than six months, the law should not.

 2. activities:


The ranking order of the cost of each activities as scored by respondents is given below:


Activity (in ranking order)


Hard and software conversion costs


Planning and implementing the appropriate changes


Maintaining Financial Accounts & complying with accounting regs


Completing tax returns and complying with tax regulations


Business planning during the transitional period including cashflow


Training your staff to handle the introduction of the Euro


Dealing with queries from customers on the Introduction of the Euro


Repricing your products from Sterling into Euro


Printing Stationary and Signage costs


Maintaining your Bank account and your relationship with your bank.


Maintaining adequate price comparison information (Dual Pricing)


Conversion Sterling/Euro when other denomination tendered


Maintaining adequate float in the appropriate denomination


Following competitor pricing


Handling Notes & Coins (Change and issuing)


Conversion of cash handling machinery (e.g. Vending Machines)




The most costly activities for SMEs in aggregate are therefore perceived to be Hardware/Software Conversion and Planning for the Change.

 This finding is substantially supported by other surveys which have found that the majority of SMEs are unaware of the necessary steps they should be taking to prepare for the Single currency.

 It should be noted that Means conceal the impact on individual businesses. The impact of a currency change on Vending Machines is clearly of great significance for those businesses specifically concerned with the supply and conversion of machines. The European Vending Association, for example, comments "the Vending Industry will be one of the sectors that will be most affected by the changeover to the Euro: 3.15 million machines will need to be adapted". The FPB Survey reflects the fact that the bulk of SMEs do not operate such machines

 Support with the practical aspects of financial and tax accounting, as well as training, is a high priority for SMEs in the transition period.

 Another example of a principally sectoral concern is dual pricing. Given its limited application outside the retail sector, its score of over 7 shows very significant concern. FPB is completely opposed to any requirement for separately dual pricing individual goods, or for such listing on till receipts (other than final totals). An individual business should be able to operate in one denomination, choosing its own changeover date within the transitional period. Of course such businesses will be able to accept Euro payments before they convert and National denomination afterwards, but this will be by conversion into their operating denomination. Consumer information is best served by the widespread provision of conversion charts and calculators.




"No passion so effectually robs the mind of all its powers of acting and reasoning as fear"

- Edmund Burke


In addition to our work in the UK, FPB has been actively involved in discussions both with the Commission, and with our colleagues in other European organisations.

 The overwhelming consensus of opinion from SMEs throughout Europe now being expressed through UEAPME (the pan-European Association of SMEs) can be categorised into 2 main areas:


1. Lack of knowledge of the reality and impact of EMU on SMEs

2. Fear of the perceived consequences of a total change in national currency


Following extensive internal discussion, the UEAPME Position Paper sets out a range of recommendations, the main ones of which are set out below.















It is clear that the changeover to the Euro will present significant challenges for Europe SMEs. FPB's survey represents a first effort to quantify these costs based on the views of a large informed base of business owners.

 One finding which clearly emerges is that individual SMEs vary very greatly in their concerns and priorities. A scenario which is appropriate for one business will be inappropriate for another. It is FPB's view that maximum flexibility for individual business owners to adopt a scenario best suited to their own needs will minimise the costs to the economy as a whole.

It is also clear that SMEs wish to minimise dual handling and dual pricing of the different denominations. It is not so clear that public imposition of a short period of dual circulation is the best way to achieve this.

 FPB looks forward to continued and constructive involvement in this dialogue.



 - Full copies of FPB's report are available from FPB, Ruskin Chambers, Drury Lane, Knutsford, CHESHIRE WA16 6HA, UK Tel: +44 1565 63 44 67 Fax +44 1565 65 00 59

- Full copies of the UEAPME position paper are available from UEAPME, Maison de l'Economie Européenne, Rue Jacques de Lalaing 4, B-1040 BRUXELLES, Belgium. Tel: +32 2 230 75 99 Fax +32 2 230 78 61