Danish euro impact - EMUbusiness - Issue 4

EMUbusiness top stories
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1. Time not yet ripe for Latin American EMU
2. Few people have used the euro
3. Call for banks to do more on cross-border payments
4. Corporates like euro-denominated bonds
5. Time for East European companies to get ready for euro

Publisher's Note
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Denmark's 'No' to Euroland was clearly the event of the last few days, in particular because of the potential spillover effects both inside and outside the existing euro-area.

Electorates have short memories, so it is arguable whether there will be a lasting impact on opinion in the United Kingdom, but it will probably be lasting enough to put paid to any thought of a referendum within the next eighteen months. In Sweden, the impact is likely to be more lasting. For while polls of Swedish business have shown that they understand that U.K. membership is a bigger issue for them than Danish membership, the Danish vote will have affect the psychology of an electorate at large which is less than enthusiastic about the euro in the first place. It is also attached to many of the same values which the Danes felt were different enough from those of the EMU area
to warrant staying out.

The analysis of the impact on Denmark has tended to concentrate on the macroeconomic implications for interest rates and of being excluded from key decisions on economic policy which will nevertheless affect the Danish economy because all EU members are bound to manage their economies in the interests of EMU. But there are also likely to be micro-economic repercussions which have received less attention.

Euro-creep, i.e. at the very least the insistence of Euroland countries that Danish companies invoice and pay them in euro, and possibly the use of the euro as the corporate base currency by major Danish companies and the use of euro cash as a means of payment by visitors to Denmark, is inevitable. What could also happen and in
the long-term be detrimental to the Danish economy is capital flight. If polls on what Swedish business would do in the event of Sweden staying out of EMU on a semi-permanent basis are any guide to likely corporate behaviour in Denmark, then the 'No' vote will start a process of migration. Manufacturing facilities, treasury operations and perhaps even head offices could transfer within the
borders of Euroland.

Within Euroland, attention will be focused in the next few weeks on what the Danish result has done to domestic opinion on the euro. Initial polls indicated a slump in support for the euro in Germany to unprecedented lows, for example. But now that the euro is a reality, it would be bad for business and politicians if the general public
got the idea that they could or should reject the introduction of the euro in cash form.

Regards,
Marion Bywater
Publisher, EMUbusiness
mailto:mbywater@eubusiness.com

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1. Time not yet ripe for Latin American EMU
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Don't rush into monetary integration was the message to Latin America from European Commissioner for Economic and Monetary Affairs, Pedro Solbes, to an audience of specialists in Latin American affairs in Barcelona last month. Not that Economic and Monetary Union was not a
good idea, he said, but it was part of a process in which timing is crucial.
Full story: http://www.eubusiness.com/item/27907

2. Few people have used the euro
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Personal experience of the euro is still limited according to a recent poll by Gallup for the European Commission. Fewer than one in ten people in the euro area have so far made practical use of the euro in either their business (9.4%) or private life (8.2%). This is a cumulative total of 15.4%, as some respondents have used the euro
in both spheres.
Full story: http://www.eubusiness.com/item/27908

3. Call for banks to do more on cross-border payments
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The Economic and Monetary Affairs Committee of the European
Parliament is expected next week to adopt a call for banks to make faster progress in bringing down the cost for individuals and businesses of cross-border transfers of small sums of money. These are generally defined as sums up to EUR 50,000.
Full story: http://www.eubusiness.com/item/27909

4. Corporates like euro-denominated bonds
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The pattern of euro-denominated bond issuance in July and August continued to be in line with pre-EMU predictions. Public sector issuance is down as borrowing requirements fall because deficits are falling or have been eliminated, leaving room for more private sector issues. What has been slower to take off than some commentators had expected, however, is the issue of higher risk corporate bonds, i.e.
those with sub-A ratings.
Full story: http://www.eubusiness.com/item/27910

5. Time for East European companies to get ready for euro
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Companies in the EU candidate countries of Central and Eastern Europe should not fall into the trap of thinking that preparation for the euro is not a pressing issue. Just because accession to the EU is still a few years away and adoption of the euro even further away does not mean that preparation can wait, a paper presented to an
audience of Eastern European businessmen and bankers in Hanover last month stressed.
Full story: http://www.eubusiness.com/item/27912

Other stories on EUbusiness in September
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EU leaders try to play down Danish snub
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EU leaders moved quickly to play down the significance of the Danish snub to the euro, saying it was business as usual in the euro-zone. Commission President Romano Prodi said the good results achieved in the first 21 months of EMU would not be affected by Denmark's decision. Economic Affairs Commissioner Pedro Solbes said he did not
envisage a two-speed Europe with 12 core members with Denmark, Britain and Sweden sidelined. Wim Duisenberg, President of the European Central Bank, said the Danish position would not alter the ECB's relationship with the Danish Central Bank.
Full story: http://www.eubusiness.com/item/27679

EUR 2.2 billion deficit in euro-zone balance of payments
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The euro-zone's balance of payments recorded a deficit of EUR 2.2bn in July, compared with a surplus of EUR 6.4bn for the same month last year. As in previous months, this was due mainly to a decline in the goods surplus combined with higher deficits for both income and current transfers. The balance for services shifted from a small deficit to a slight surplus.
Full story: http://www.eubusiness.com/item/27132

Euro boost as central banks step in
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In late September, the banks finally moved in to help the euro. The European Central Bank (ECB), the US Federal Reserve, the Bank of Japan and the Bank of England all combined to support the ailing currency. The G7's weekend meeting in Prague said it was ready to intervene again to prop up the troubled currency. Signs are that the
intervention has worked in part; the fall in the euro's value against the dollar appears to have been checked, but initial gains were not maintained.
Full story: http://www.eubusiness.com/item/27126

Firms in East/Central Europe must gear-up for euro
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The Commission, with the backing of the European Parliament, has launched an information campaign on the practical impact of the euro cash change-over for businesses in EU candidate countries. The Commission promises to be "pro-active" in helping all companies, both
within and outside the euro-zone, prepare for the euro. The impact of the EUR cash changeover will be proportionate to corporate exposure to foreign trade and competition, it says.
Full story: http://www.eubusiness.com/item/27348

Relief as annual inflation falls slightly
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Euro-zone annual inflation fell from 2.4% in July to 2.3% in August, according to the latest statistics released today (18 September) by Eurostat. The data means good news for the European Central Bank, which has combating high inflation as its number one economic priority in its management of the struggling euro.
Full story: http://www.eubusiness.com/item/26677

Internet Monitor
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Key indicators on the euro: new web site
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Information on the economic development of the euro area - a new service with key information on economic and financial variables of the euro area. A tool to monitor and assess the performance of the currency.
http://europa.eu.int/comm/economy_finance/document/euro/keyindicators/main_en.htm

First survey of fiscal developments in candidate countries
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A Commission survey of recent fiscal developments in each of the candidate countries - a preliminary assessment on the quality of fiscal data, recent fiscal developments and progress towards fiscal reform for each of the candidate countries. (PDF format)
http://europa.eu.int/comm/economy_finance/document/enlargement/elp02en.pdf

Improving cross-border retail payment services - report
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Advances are being made in cross-border banking and payment systems over the last year but there is still much work to do, according to a European Central Bank report.
http://www.ecb.int/pub/pdf/retailps2000report.pdf

Car price differentials
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The Commission has published a report on car price differentials within EMU and the EU as at 1 May 2000. Read the full report, including manufacturers' price tables, at:
http://www.europa.eu.int/comm/competition/car_sector/#prices

EMU diary
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European Parliament session, 2-6 October, Strasbourg
Ministers of Finance, 17 October, Luxembourg

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