Euro and EMU Ė Some practical advice for lawyers
in respect to contracts and other legal instruments


James Candon*
The terms Euro and EMU are often used interchangeably when in fact they refer to related but entirely different concepts. The Euro is simply the name of the currency which will be in circulation in most of the EU Member States after the 1st January 2002 whereas EMU is an abbreviation for the Economic and Monetary Union which will be in place between all EU Member States that intend to have the Euro as their currency. The introduction of the single currency has a potentially significant legal impact in respect of all types of contracts including for example loans, mortgages, pledges and shareholders agreements referring to European currencies regardless of whether the parties are European or not.

This article shall examine some of the most significant aspects of the Euro with regard to contracts and other legal instruments. However, the areas dealt with should not be considered as exhaustive.

All contracts and legal instruments both existing and under discussion should be dealt with on a case by case basis when contemplating the implications of the Euro on their legal effect.

The principle legislation to be considered is contained in the following:


Regulation 1103/97 and Regulation 974/98 both deal with one of the most fundamental legal issues raised by the transition to the single currency, that is, the continuity of contracts and other legal instruments. It should first be noted that Article 1 of Regulation 1103/97 defines legal instruments very widely as "legislative and statutory provisions, acts of administration, judicial decision, contracts, unilateral legal acts, payment instruments other than bank notes and coins and other instruments with legal effect."

Contracts entered into prior to and during the transition period which refer to the national currencies of the Member States participating in EMU or the ECU will be affected. A contract denominated in the currency of a third country, for example US$, will be unaffected.

If a contract becomes impossible to perform for either commercial or other reasons, it may under its governing law be considered frustrated. Any contracts denominated in the currency of a participating Member State or ECU may be vulnerable to being considered frustrated because the consideration clearly cannot be paid in that currency beyond the 1st January 2002. The objective of Regulation 1103/97 is to introduce certainty on this fundamental issue and Article 3 of that Regulation explicitly deals with this:

"The introduction of the Euro shall not have the effect of altering any term of a legal instrument or of discharging or excusing performance under any legal instrument, nor give a party the right unilaterally to alter or terminate such an instrument. This provision is subject to anything the parties may have agreed."

This provision is designed to ensure that the replacement by the Euro of national currencies and the ECU may not be used by party to a contract to evoke various legal principles existing in a Member State to terminate or alter the terms of a contract.


(a) Review of existing contracts.

On the basis of the above it should not normally be necessary to amend existing contracts denominated in national currencies or ECUís so as to include continuity clauses. It is recommended, however that contracts are reviewed to ensure thatthere is nothing that could affect the application of Article 3 or require renegotiation. This matter is dealt with in more detail under the heading Governing Law below. When reviewing existing contracts the following features should be examined carefully:

- Usually, effected transactions will have maturity dates on or after 1 January 1999.

- Monetary amounts denominated in, or calculated by reference to ECU or an existing national currency likely to be replaced by the Euro.

- Benchmark rates, indices or other valuation sources likely to disappear and or be replaced. If a consideration is linked to an index or benchmark which may disappear or be replaced it should be checked whether it identifies a successor index or benchmark or that it contains a fall back provision for calculating the consideration.

- Gains or losses which will be crystallised when the conversion rates of participating national currencies become irrevocably locked on 1st January 1999.

- Obligations which might be difficult or impossible to perform because of the introduction of the Euro. Existing contracts may contain force majeure or impossibility clauses that might be triggered by the introduction of the Euro.


(b) New Contracts.

The issues mentioned above with the regard to existing contracts should all be considered when drafting new contracts. Furthermore:

- In respect of contracts executed during the transition period it should be carefully considered whether it is appropriate either to rely on the continuity provided for in Article 3 of Regulation 1103/97 as outlined above or to include a specific clause providing clearly for the redenomination of all references to participating currencies into Euro after its introduction on the 1st of January 2002. Clearly it would be more efficient to include such a clause in any contract which terminates after the introduction of the Euro.

- It should be considered whether a clause dealing with the possibility of increased transaction costs as a result of EMU be included to specify how the parties should bear such costs.

- It should also be considered whether a review clause be included to allow a party to amend a contract to reflect changes to market practices resulting from EMU and if so it should be considered what sort of safeguards should be included to protect the other party.


2 Governing Law.

Some of the Member States of the European Union have indicated that they will not joining in the first wave of EMU. The question therefore arises as to whether those Member States will be bound to respect the continuity of contracts particularly if the contract is governed by the law of one of those countries. The situation in this regard is clear - Regulation 1103/97 applies to all Member States, participating or not and specifically binds them in relation to the recognition of the principle of the continuity of contracts.

It should be noted, however, that a risk does exist with regard to countries outside the EU which may regard the replacement of a national currency with the Euro as an act of frustration or force majeure. Since the EU has no extra-territorial powers in this regard, there is no explicit provision in Regulation 1103/97 on this point, except in the non-binding recitals where it is stated in the 8th recital that the explicit confirmation of the principal of continuity will "Also contribute to the recognition of contracts in the jurisdiction of third countries."

It is also interesting to note that the State of New York has legislated for the continuity of contract after the introduction of the Euro by law 5049A which amends Article 5 of the General obligations law by adding a new title which broadly follows Article 3 of Regulation 1103/97. Presumably other states in the USA will follow suit.

However, for the avoidance of all doubt with regard to contracts containing (i) a reference to a national currency which participates in EMU, (ii) which has effect after 1st January 1999 and (iii) which is governed by the law of a non-EU country, it would be wise to include a continuity clause in such contracts.


3 Payments during the Transition Period.

It should be considered in what cases your client will wish to be paid in Euros and when he will wish to pay in Euro. There may be certain circumstances when your client is obliged to pay and accept payment in Euros, for example, government bonds of participating Member States in EMU redeemable after 1st January 1999 will be paid in Euros. The client may wish to have included in future contracts an express option enabling him to choose the currency in which payment is to be made or received and the place of payment. These issues are dealt with in more detail under the heading "no compulsion, no prohibition" below.


4 Corporate Finance Issues.

The share capital of companies incorporated in participating Member States will be affected by the Euro. For shares with a par value, rounded sum local currency amounts are likely to become odd Euro amounts upon conversion and companies may wish to adjust the par value of the shares to round sum Euro amounts. This will require changes in the share capital. Increases in share capital should not present any major obstacles but reductions in share capital may require a shareholders resolution and in some Member States a notary deed will be necessary. To avoid rounding problems some Member States are implementing legislation to allow the re-denomination of existing shares into shares of no par value.


5 No Compulsion, No Prohibition.

Regulation 974/98, sets out details relating to the use of Euros and national currencies for the discharge of contractual obligations during the transition period on the principle of "no compulsion no prohibition". That is to say parties will only have to use the currency which they agreed during the transition period. However, there are exceptions:

(a) where a debt is in Euros the debtor can discharge that debt by paying national currency in cash so long as it is legal tender in the place of performance.

(b) for payments made by crediting a bank account, the debtor can choose whether to pay in Euros or in national currency. The bank receiving the payment in Euros is entitled to make the conversion for crediting an account in the national currency unit and vice versa without asking for the consent of the account holder. The banks of the Member States have agreed in principle to provide this service free of charge.

(c) the parties are free to agree on the use of a different denomination than the one they have specified in the contract but this must be clearly stated. However, Member States can impose an obligation to use the Euro from the start of the transition period in the case of public and state debt.

At the end of the transition period existing contracts will of course have to be settled in Euros.


6 Legal Tender.

Legal tender can be defined as money which a creditor cannot refuse for payment of a debt, this is currently limited in almost all Member States to national banknotes and coins.

Articles 6 to 9 of Regulation 974/98 set out the transitional provisions with regard to legal tender. During the transition period only national currency bank notes and coins will have legal tender and then only in the jurisdiction in which they were legal tender before the introduction of the Euro. After 1st January 2002, Euro bank notes and coins will be introduced and the national currencies and the Euro will exist in parallel for a maximum period of six months. This period may be shortened by individual participating Member States. In any event, on the 30th June 2002 the national currencies will cease to be legal tender and the Euro will replace them. Under Article 16 of the Draft Regulation the respective issuers of bank notes and coins shall continue to accept, against Euros at the conversion rate, the banknotes and coins previously issued by them. Member States are free to take any measures necessary to facilitate the withdrawal of national currency from circulation and it appears that any time limit will be at Member Statesí discretion. It is also interesting to note that under Article 11 of the Draft Regulation no party shall be obliged to accept more than 50 Euro coins in any single payment except for the issuing authority and those persons specifically designated by national legislation.


7 Information Technology Systems.

It would be worthwhile to take the time to identify what software and hardware will need to be changed as a result of EMU. One obvious requirement would be to have the Euro symbol in word processing applications so that the re-drafting of existing and future contracts can be carried out with reference to the Euro. It is possible to download the font from the internet. For more details see or /emu/emu007.htm.



It appears inevitable at this stage that EMU will go ahead on schedule. It has a potentially significant legal impact in respect of legal instruments referring to European currencies regardless of whether the parties are European or not. There remain some gaps in the legal framework. These gaps will fall to be resolved during the course of this year. In the interim it is of utmost importance that lawyers practising in every area of law inform themselves as to the wide implications of EMU and the introduction of the Euro on their practice.



* Denton Hall, Bruxelles.