Irish Business and EMU
As long ago as 1990 the Irish Business and Employers Confederation joined the Association for the Monetary Union of Europe (AMUE) because it felt the need to be at the forefront of developments in any move towards economic and monetary union and the single currency. In March 1995 IBEC established a sub-committee on EMU which drafted a response to the European Commission Green Paper on the transition scenario. In November and December of that year IBEC carried out a number of regional EMU awareness seminars and reported to the European Commission the lack of awareness amongst companies of what the changeover to the single currency entailed.
In the early part of 1996 IBEC participated fully in a series of workshops held by AMUE on different aspects of how businesses should tackle the changeover to EMU; from these workshops, the highly acclaimed book "Managing the Changeover to the Single Currency" was published by AMUE and circulated widely around Europe. IBEC printed 10,000 copies and distributed them in Ireland to our member companies. The book also forms part of an information pack that IBEC distributes at its many seminars on EMU. In its endeavours to spread EMU awareness all over Ireland, IBEC has been supported by funding from the European Commission towards the costs of printing publications, carrying out surveys and holding workshops and seminars.
REPORT "EMU AND THE IRISH ECONOMY
In mid 1996, the Business Research Unit of IBEC commissioned economic consultants, Fitzpatrick and Associates, to undertake research on the impact of EMU and business. IBEC published their findings in a report "EMU and the Irish Economy". The Fitzpatrick report was undertaken at the same time as the Irish government commissioned the Economic and Social Research Institute (ESRI) to carry out a study "The Economic Implications for Ireland of EMU". Both reports on balance came to the conclusion that it would be in Ireland's best interest to join EMU rather than to stay out. According to the ESRI the net effect of Irish membership of EMU would be to raise GNP by between 1.4% and 1.8%, generating an extra 20,000 jobs if the UK (Ireland's major trading partner) were in EMU or to raise GNP by between 0.4% and 1.4% generating 10,000 extra jobs if the UK were out. The major impact it claimed would come from lower interest rates with only minimal growth arising from savings in transaction costs. In terms of winners and losers the ESRI anticipated the main winners would be the building and construction sector and related products, heavily indebted small firms because of lower interest rates and the tourism industry. Losers were expected to be the financial sector and the UK exposed manufacturing sectors especially the food processing and clothing and textile industries, in the event of a sterling devaluation.
The Fitzpatrick report identified a number of benefits. First, it believed that the savings on transaction costs could be substantial because of Ireland's high trade dependence. The report noted the European Commission estimates of cost savings of 0.5% of GDP for the Union as a whole and up to 1% of GDP for open economies such as Ireland. However, the report accepted that given all countries might not be in EMU the benefits would be significantly less and also acknowledges that a proportion of the transaction costs fall on the foreign trading partner.
Second, the report identified reduced exchange rate uncertainty leading to lower interest rates. Like the ESRI, Fitzpatrick believed that the interest rate argument is probably the strongest in favour of EMU participation. The benefits would reduce public debt interest charges and stimulate private sector investment as well as impacting on consumer confidence.
The third benefit identified was that of entry into a regime of price stability through the independence of the European Central Bank and the expectations that low inflation will persist. If EMU could help to consolidate the anti-inflationary gains enjoyed in recent years and if Ireland could lock into a long-term anti-inflation structure, this would be unambiguously beneficial to the economy.
Fourth, there would also be gains from transparent pricing, which largely accrue to consumers. These gains would not be so great on the island of Ireland economy if the UK opted out.
Finally, the report anticipated that the single currency would consolidate and add to the benefits gained due to the completion of the single market, by abolishing a major obstacle to internal trade within the Union. This would give rise to on-going efficiency and competitive gains as the integration of the European economy continued. As a member state with a high intra-EU trade dependence, Ireland could be expected to share in these EMU dynamic gains from both a producer and consumer perspective.
There were, of course, costs arising from EMU identified by the Fitzpatrick report. The main cost of monetary union for Ireland was the loss of the ability to adjust (normally devalue) the nominal exchange rate in response to changing economic conditions. Since 1979, Ireland had opted to devalue three times in March 1983 by 3%, in August 1986 by 8% and in January 1993 by 10% - each time brought about by a bout of sterling weakness. The report recognised that devaluation could be and was useful in defending Irish competitiveness as was evidenced in 1993. Clearly the major danger for Ireland in EMU was the possibility of a sustained bout of unwarranted appreciation against sterling.
The report also identified the transition costs which companies will have to bear in converting systems etc. to the single currency. This is one reason why IBEC has been strongly advocating that companies take a strategic approach to the changeover to the single currency because in making the changeover, some payback can be achieved by using the opportunity to review management systems and rationalise where appropriate. The costs to one sector of business, of course, will partly transfer to others such as the software sector and legal profession.
IBEC published the findings of a major survey on EMU in November 1996. Weighted by employment some 97% of companies favoured Ireland joining EMU, with 73% believing Ireland should be in from the start. Only 14% of companies thought Ireland should join later when EMU was established. The majority of companies (71%) believed the single currency would have a positive effect on their business while 12% believed the effect would be negative.
However, it was clear from the survey that companies regarded the probable UK opt out as a negative factor, with the indigenous food sector firms expressing doubts about the wisdom of Ireland entering monetary union without the UK.
The Fitzpatrick report tried to identify what it called low exposure, medium exposure and high exposure sectors to the UK. Our survey suggested that it is difficult to be definitive about which sectors would be vulnerable to a sterling devaluation from a statistical analysis and it seems probable that the impact is as much company specific as sector specific, making it difficult to generalise about the impact of EMU if the UK opts out.
Using these findings IBEC has entered into discussions with companies and various government departments and agencies with a view to trying to formulate a policy approach to possible adverse shocks within EMU. The most focused attention has fallen on the possibility of a sharp devaluation of sterling which would cause significant competitive loss to some companies, especially the indigenous companies. These discussions are on-going and revolve around how to increase flexibility both at firm level and in terms of government agency supports and taxation. The trade unions have also expressed a wish to enter dialogue in relation to possible developments within EMU.
IBEC has undertaken a major information campaign in the last six months, sometimes with other institutions such as banks or software providers. We have held over 30 seminars and workshops in which the implications of the changeover to the single currency have been explored. The seminars have covered the timetable, the technical implications but more importantly the strategic approach that should be adopted by companies. In addition to our own seminars IBEC has also been asked to speak at universities, Rotary clubs, professional institutions, euro information centres and Chambers of Commerce and by the Irish Congress of Trade Unions. Interest in monetary union has significantly increased as the likelihood of it going ahead on time has increased.
The need for action is becoming more and more evident. Companies frequently send teams of three or four people to our workshops covering different functions within their companies. IBEC is providing specific EMU briefings to top management, using our general knowledge to prompt managements to tease out the strategic implications for their company. These briefings last from one to two and a half hours. Requests for such briefings are on the increase.
Sector specific groupings are also beginning to emerge. Following an IBEC briefing to EAN Ireland, which promotes the use of article numbering, bar coding and electronic commerce, a retail group was established in IBEC to look at the practical implications for the introduction of the euro at retail level. This group has had several meetings with a retail sub-committee of the Irish Bankers' Federation with a view to co-operating on the logistics of introducing the euro and withdrawing Irish pounds. The retail sector is discussing the implications of dual display and is attempting to identify areas where retailers can co-operate rather than compete in informing the consumer. They are discussing software and EDI implications and have advocated that retail outlets should co-operate in formulating the same message concerning the introduction of the euro and using the same language in order to minimise confusion for the consumers.
The retailers are strongly of the view that the introduction of the euro should not be January 2002, but should be brought forward to March 2001. The retailers are against the introduction of the euro in the October-January period as they do not want to have dual currencies in circulation during the Christmas period. The month of January is totally inappropriate because they would not be able to undertake the necessary training of staff in December and there would be a lot of confusion in January because of price discounting in the January sales. In addition to working directly with Irish retailers, IBEC also ran a two-day workshop on retailing with AMUE and presented some of the findings of that workshop to the European Commission May 15th Round Table on Practical Aspects of the Changeover to the Euro.
The grocery suppliers have now formed an EMU group within IBEC and are in liaison with the retail group. Their aim is to identify issues of common interest with the retailers and in particular to explore whether the retailers would find it possible to move to euro invoicing on an agreed date. This would simplify the changeover process for the suppliers who could move their operations into euros in total on a given date.
IBEC is currently thinking through its role in providing training, in particular in relation to the retail sector. We have identified three distinct categories - top management, middle management and general staff. Almost all our work to date has been done with top management and consists largely of the awareness and strategic issues mentioned above. Secondly top management are learning through being in the sector working groups as described, looking at specific sectoral issues, attempting to elaborate a sectoral approach and identifying non-competitive areas where there can be co-operation in introducing the euro. In-company management briefings take the first two approaches to a more focused company approach.
Turning to the training of middle management, IBEC is gearing up to introduce training courses, the aim of which would be to equip managers for down-the-line training of general staff and to cope with post E-day problems. The course would include a general awareness of why EMU is happening, when it will happen, the impact it is likely to have on the economy. It will also cover the general impact on daily issues including, for relevance, the likely impact on the course participants personally. The course would then address the problems for the general public and finally what is likely to happen at the retail level. A short focused video covering the main issues identified could begin the session, the purpose of which would be to provide a context for what followed and would contain the views of prominent business people in the country.
Training sessions would concentrate on general information which would answer the main questions likely to be encountered such as the timetable, the value of the euro, the impact on interest rates, how it will affect wages, salaries, pensions, taxes and from an Irish point of view, the implications of the UK not joining monetary union.
The next session would focus on the environment for introducing the euro notes and coins, involving an elaboration of likely pre-euro information campaigns, how it is intended to introduce and distribute the euro, how the national currency would be withdrawn and over what period of time. Some idea would be given of the practical logistics of distributing the euro on a widespread basis.
The next session would concentrate on how the customer is to learn about the euro, including methods of information and communications and a discussion of the problems and practicalities of issuing dual displays. This would be followed by a session on practical questions relating to how the dual currency is dealt with at retail level, including the use of separate tills or tills that accept two currencies, whether to give change just in euros, whether to accept two currencies for the same transaction, whether to use an in-house bureau de change, how to avoid long queues, how to deal with difficult customers. It is our intention to produce a number of case studies in which the course attendant would provide solutions to a wide variety of situations that could be envisaged.
We believe that it may be better for the general staff to be trained by personnel in their own company as they are likely to have more relevance and credibility. However, we could issue training manuals or indeed could undertake to do some of the training. Clearly there is a need to have intensive training sessions in the weeks immediately prior to the introduction of notes and coins, which needs to be planned for in terms of staff allocations. Staff at checkouts will want to be familiar and comfortable with the conversion rates and store staff should be able to explain the new euro prices. If there are union or worker representatives, they should be informed in good time of what the company plans to do and management should seek co-operation in the whole corporate effort to change over to the euro. There is quite likely to be a need to take on additional staff in order to minimise delays at the checkout. We have not yet worked out how long the training of general staff will take. There have been estimates of 30 hours per employee. This is going to be costly and requires planning. Given the time commitment and the immediacy of the training prior to the introduction of notes and coins, the inevitable conclusion is that it has to be undertaken in a period of relatively quiet trading. Trade unions too are beginning to take an interest in the implications of the changeover to the euro.
In May the Government issued Ireland's National Changeover Plan which has added credibility to Ireland's intention to be in the first wave of euro states. The Plan outlines the approach of Government agencies and in particular sets out the intentions of the Revenue authorities. In Ireland the Revenue have stated that, in order to facilitate companies that may wish to change over to operating in euros in 1999, they will accept payments, returns and declarations in euros for all major tax headings. This allows companies to plan with a little more certainty.
The Government has established a Euro Changeover Group which includes the main strands of business and trade unions. IBEC is an active member of this Group, which has been established to help the smooth introduction of the euro. The Government is also running a Euro Business Awareness Campaign with which IBEC co-operates.
In order to ensure members have access to information on the euro, IBEC has published a number of documents and also produces a quarterly Euro Currency Countdown Newsletter. Our information and documents are also available on a specially designated Internet site and IBEC operates a hotline which companies can use for euro queries.