EMU: legal implications and potential problems


David Church*
PPPPPP - the British Army reminder that "proper preparation and planning prevents poor performance" is appropriate for businesses in the run up to EMU. The implications are immensely wide politically, economically and legally. Planning, foresight and methodical analysis are now the order of the day. It is suicidal for a company of any size, anywhere in the EU, or indeed, even just trading with the EU, to ignore the issues. For lawyers assisting in businesses’ preparation for EMU another P is important - perspective.

The legal implications arise, not only from the legislation, but also from the political and economic developments which will be brought about by EMU and the introduction of the single currency. It is inappropriate and artificial to draw a line between economic, social, accounting, taxation and legal issues.

Business reviews and subsequent reorientation must take into account existing and anticipated legal relationships with:

The EU level legislation is appealingly brief and substantially contained in two regulations. The articles most affecting contractual relationships are:

Article 2(1) (1103/97)

"Every reference in a legal instrument to the ECU, as referred to in Article 109g of the Treaty and as defined in Council Regulation (EC) No 3320/94, shall be replaced by a reference to the euro at a rate of one euro to one ECU. References in a legal instrument to the ECU without such a definition shall be presumed, such presumption being rebuttable taking into account the intentions of the parties, to be references to the ECU as referred to in Article 109 g EC and as defined in Council Regulation (EC) No 3320/94."

Article 3 (1103/97)

"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 which parties may have agreed."

Article 8 (974/98)
"(1) Acts to be performed under legal instruments stipulating the use of or denominated in a national currency unit shall be performed in that national currency unit. Acts to be performed under legal instruments stipulating the use of or denominated in the euro unit shall be performed in this unit.

(2) The provisions of paragraph 1 are subject to anything which parties may have agreed."
Article 14 (974/98)

"Where in legal instruments existing at the end of the transitional period reference is made to the national currency units, these references shall be read as references to the euro unit according to the respective conversion rates, The rounding rules laid down in Regulation (EC) No 97 shall apply."

A contract is included in the definition of legal instrument and those provisions will cover the vast majority of existing contracts without doubt. In a limited number of cases there may be significant issues as to continuity of contract but what this article tries to address are the issues the lawyer as part of a business’ EMU planning team, should bear in mind in advising on new contracts or negotiating changes to existing contracts.

It would be a brave person who claimed certainty as to the development of Europe as it embraces EMU. One has to accept that it is largely uncharted territory. The uncertainties and complexities have to be kept constantly in mind and call for flexibility and mental agility.

An important aspect of EMU is that it will inevitably lead to a deepening of the single market within the European Union. Eleven of the fifteen Member States will have the same currency and the likelihood is that most trade between the four outside the single currency and the eleven within and with each other will be in Euro. Thus, there will be substantial price transparency, reducing opportunities for market segregation and differential pricing.

The whole process of trading in the EU is in the course of being changed by EMU. Buying and selling arrangements are being critically analysed and substantial changes are most likely as market fragmentation is reduced.

To anticipate problems which may arise from existing contractual arrangements and to assess what changes are needed or may be needed, the first step is an EMU implication audit. Central collation of information on all the business legal relationships is necessary for analysis from the perspective of the eleven "in" member states and the four "outs" (each of which have different reasons for being out as well as different prospects of coming "in"). A company may, for example, have factories in UK (out) and Portugal (in); sales subsidiaries in Greece (out) and Spain (in); distributors in Sweden (out) and Finland (in) and strategic selling alliances in the other European countries; it purchases components from companies in Belgium (in), Switzerland (non-EU) and Korea (non-EU).

The company has a multiplicity of contractual relationships involving purchasing, selling, distribution and employment. EMU and the deepening of the single market will mean change, opportunities and dangers. It is not possible to list exhaustively or precisely how the company should cater for the legal implications but the management and lawyers must approach the issues with foresight and flexibility. They must be prepared to negotiate arrangements which provide opportunities for taking advantages of the opportunities whilst building in safeguards against the threats.

Each company will establish its own priority list but will need to address issues involving:-


Sales and Purchase Contracts


In the light of the changes envisaged because of EMU

Joint Ventures, Strategic Alliances and Long-Term Investment  

Distribution Agreements





Information Technology

Let the preparation and planning proceed!!


* Dibb Lupton Alsop - Brussels. david.church@dibbluptonalsop.co.uk