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Euro inflation unavoidable - EMUbusiness - Issue 30

EMUbusiness - Issue 30
27 November 2001
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EMUbusiness top stories
1. No need to worry excessively about prices, says BNB
2. Unsettling preparation messages from IT firms
3. Risks for non-eurozone companies of getting it wrong
4. Help for UK businesses from Basda
5. Cross-border payment charges to drop

Publisher's Note
One of the lessons learned in retrospect from introduction of the euro will undoubtedly be that it contributed to inflation in the short term, and that probably includes this year and possibly even last. However many soothing noises the Finance Ministers, Central Banks and others may make, there are too many indications around that larger businesses took the opportunity to re-align their prices by the middle of this year and that this exercise was not necessarily price-neutral, that many smaller businesses are clearly rounding up their prices and that the price of many small items is being rounded up.

It is hard to see how it could have been otherwise. Price controls would certainly not have been an answer. And it is all very well to seek assurances from business that they will not pass on the cost of the changeover, but they have profits to make and shareholders to satisfy. Of course, competitive pressures and the current economic gloom will have a dampening effect and the euro will bring some long-term benefits, but in the meantime reassurance that price increases from introduction of the euro will be insignificant should in my view nevertheless be taken with a pinch of salt even if it may never be possible properly to establish the cause and effect.

Marion Bywater
Publisher, EMUbusiness

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1. No need to worry excessively about prices, says BNB
Consumers should watch out for price rises as the euro comes in, but there is no real reason to be excessively worried that the introduction of the cash euro and euro-based pricing will be inflationary according to the Belgian National Bank (BNB).
Full story: Story 64854

2. Unsettling preparation messages from IT firms
No computer/IT company in a recent survey gave itself the highest possible rating for the state of its euro preparations. The palpable concerns of the companies in this sector should "give us all cause to assess our contingency plans," comments europartnership which carried out the survey of 320 organisations.
Full story: Story 64855

3. Risks for non-eurozone companies of getting it wrong
Companies outside the euro area should not forget in making their own preparations for the final changeover to the euro that this has strategic as well as practical implications for them.
Full story: Story 64857

4. Help for UK businesses from Basda
The BASDA (Business Application Software Developers Association) has launched a new booklet entitled 'The Euro & UK Business in 2002', aimed at helping UK businesses deal with the practical issues arising from the changeover to the new currency on 1/1/2002.
Full story: Story 64858

5. Cross-border payment charges to drop
The cost of spending euro in other countries is to drop sharply across the EU, starting in the middle of next year. While the European Commission has not achieved all its objectives, the recent agreement by EU Internal Market Ministers on progressive lowering of charges will make a significant difference to the cost of cash withdrawals and cross-border transfers.
Full story: Story 64860

These articles are provided by Euro-impact. Euro-impact is a monthly newsletter on the regulatory, practical and strategic impacts of the euro for companies. Articles may be reproduced with acknowledgement of the source and Euro-impact. Every reasonable effort has been made to ensure the information is correct at the time of writing. Euro-impact

Other stories on EUbusiness in October/November

French officials seize euros, master-stamps to beat strike
French officials backed by security forces seized millions of euro coins on Monday from a government mint near the southwestern city of Bordeaux, ten days after the start of a strike that has crippled production there.
Full story: Story 64620

OECD puts British economic performance close to core of euro zone
The British economy is already performing as if it were close to the core of the euro zone and the pound, while likely to fall by about 10 per cent, trades more in line with the euro than the dollar, the OECD signalled on Monday.
Full story: Story 64546

Euro cash in Luxembourg unlocks secret of near-collapse of monetary union
Five weeks before the arrival of euro notes and cash, the prime minister of Luxembourg has revealed how manoeuvres by France to avoid devaluation nearly wrecked the entire euro plan in 1993. And Prime Minister Jean-Claude Juncker, who was finance minister at the time, explained that only two months ago Luxembourg destroyed a reserve of notes held in case it had to break monetary union with Belgium.
Full story: Story 64545

Sweden should join euro if Britain does: Swedish PM
Sweden should, and probably would, vote to adopt the euro if Britain does so, Swedish Prime Minister Goeran Persson said on Saturday, one day after his British counterpart Tony Blair made an impassioned speech for the single currency.
Full story: Story 64494

Our future is with you, Blair assures Europe
Citing the failures of the past, Prime Minister Tony Blair
mounted a stirring case on Friday for Britain's future at the heart of Europe, in his strongest plea yet for the single currency.
Full story: Story 64425

EU cross-border clearing and settlement remains fragmented
The infrastructure for clearing and settling cross-border
transactions in the EU remains highly fragmented, according to a report submitted to the Commission by Alberto Giovannini, Chairman of the so-called 'Giovannini Group' - the group of financial experts offering advice to the EU on capital market issues.
Full story: Story 64464

Euro cash should not durably change spending patterns: consumer groups
The introduction of euro banknotes and coins in January will do little to change consumer spending patterns, although in border areas prices might rise, European consumer groups said last week.
Full story: Story 64432

Commission paints bitter-sweet economic forecast for the EU
The Commission has painted a bitter-sweet economic forecast for the EU over the next three years, with up-and-down GDP growth, mounting unemployment, falling inflation but seasoned with cautious optimism for recovery.
Full story: Story 64185

Euro switchover is leading to price rises in some areas:
The imminent switchover to euro banknotes and coins on January 1 is leading to perceptible increases in the prices of a number of goods in Germany, the Bundesbank said last week. Price increases were "clearly perceptible," particularly in the case of food items, the German central bank said in its November monthly report.
Full story: Story 63985

Money changers have gone with the euro but their fees remain
With the arrival of euro banknotes and coins on January 1, EU legislators are inspecting the foreign exchange legacy that national currencies will leave behind. Although the euro is the formal currency for all cross-border and financial deals between participating countries since the start of 1999, fees charged for moving money from one country to another have continued to rise.
Full story: Story 63990

EU parliament approves euro transfer legislation
The European Parliament has approved by a wide majority EU
legislation that would standardise the charges for electronic money transfers within the 12-nation euro zone. Under the regulation, which now awaits final approval from EU internal market ministers, bank fees for transfers between accounts in different euro-zone countries must be the same as those for domestic transfers.
Full story: Story 63694

Italian officials divided on dirty money threat during euro
Italian authorities remain divided over whether the changeover to euro banknotes and coins will be a blessing for mafia money launderers and counterfeiters or if the government can use the event to crack down on illicit operations.
Full story: Story 63650

Euro-zone economy set for recovery next year: ECB
Prospects for the 12-country euro zone will brighten next year when the economy will begin to recover, according to the European Central Bank. "The conditions exist for a recovery to take place in the course of 2002 and economic growth to return to a more satisfactory path," the ECB said in its November monthy bulletin.
Full story: Story 63652

US investors uninspired by arrival of euro cash
The looming changeover to euro banknotes and coins across the 12-nation euro zone on January 1, 2002, has left US investors uninspired and blase, expecting the event to have little impact on the currency's fundamentals, analysts said. David Gilmore, partner at Foreign Exchange Analytics, said: "We're looking at pricing the euro based on fundamentals and trends, and not on whether Johann in the streets of Munich buys his beer with euros instead of deutschemarks."
Full story: Story 63328

EU sees big increase in German public deficit: Eichel
The European Commission estimates that Germany will have a
public deficit of 2.5 per cent of output this year and 2.6% in 2002, German Finance Minister Hans Eichel has said, signalling a far higher figure than planned. A deficit of 2.5-2.6% would put Germany within range of the 3.0% limit for euro-area members laid down in the EU's Stability and Growth Pact pact.
Full story: Story 62737

IMF cuts euro-zone growth forecasts
The IMF has cut its growth forecast for the euro area economy to 1.6 per cent percent in 2001 and 1.5 per cent in 2002, down from 1.8 per cent and 2.2 per cent, respectively. An IMF executive board report said that "under a cumulation of adverse supply and demand shocks, the euro area's three-year old economic upswing came to a virtual standstill in the second quarter of 2001."
Full story: Story 62689

No change to EU jobless figures
Euro-zone seasonally-adjusted unemployment was unchanged at 8.3% in September 2001 compared to the previous month, Eurostat reports. The jobless figure for the entire 15-nation EU also remained the same as in August at 7.6%. Lowest rates were registered in the Netherlands (2.2% in August), Luxembourg (2.5%), Ireland (3.8%) and Austria (3.9%). Spain's 13.0% retained the EU's highest rate.
Full story: Story 62684

Survey shows Danes warming towards euro
Danes are warming towards the euro after having rejected the single European currency in a referendum over a year ago, according to a survey published in the business newspaper Boersen showed. The survey found that 52.2 per cent of those people polled were in favour of adopting the euro while 47.8 per cent were opposed.
Full story: Story 62368

Britons will remain wary of euro despite cash launch: economists
Britain's cautious attitude towards the EU means the public will probably remain wary of joining the euro even after the launch of notes and coins, according to economists. Voters' solid opposition to closer integration with the EU shows no sign of easing, with the Commission's latest Eurobarometer showing a mere 25 per cent of British citizens in favour of adopting the single currency.
Full story: Story 62374

All quiet on the price front in run-up to euro launch
Fears that the switchover to euro coins and banknotes next year might lead to higher inflation in the euro-area by allowing companies and retailers to push through hidden prices rises are so far proving exaggerated, analysts in Frankfurt have said.
Full story: Story 62218

Euro debut will show Britons benefits of single currency:
The birth of euro cash on January 1, 2002 will show Britons the potential benefits of the single currency and help them decide whether they want to join, Europe Minister Peter Hain has said.
Full story: Story 62212

Germany launches cinema ad campaign for euro
The German government last week launched a glitzy cinema advertising campaign aimed at building confidence in the euro two months before its launch as cash currency in 12 European countries. Using the motto "We belong together", the ads sponsored by the finance ministry feature plugs by popular German actors Goetz George and Ingolf Lueck, and Finance Minister Hans Eichel.
Full story: Story 62126

Euro-zone monetary reserves decline
The net foreign currency reserves of the European System of
Central Banks (ESCB) fell by EUR 600 million to EUR 257.5
billion in the week to October 26, the European Central Bank has said.
Full story: Story 62031

Euro-zone current account in surplus in August
The euro-zone's current account recorded a EUR 4.2 billion surplus in August, compared with a deficit of EUR 6.3 billion in August 2000, according to latest figures released by the European Central Bank. The ECB said the shift was mainly down to a significant upturn in the euro-zone goods surplus.
Full story: Story 61874

This newsletter is produced in association with FEE, the Federation des Experts Comptables Europeens. FEE is the representative organisation for the accountancy profession in Europe. It is a "non profit" organisation which groups together 38 professional bodies from 26 countries, including all 15 Member States of the European Union and the 3 main member countries of EFTA.
FEE Euro Information Service

Internet Monitor

EU balance of payments
A revised version of the ECB's annual publication "EU balance of payments /international investment position statistical methods" ("B.o.p. book") was released on 5 November. It provides documentation on the statistical methodologies applied in Member States for compiling balance of payments and international investment position statistics. Download from ECB's web site (pdf 1740 kB):
ECB site

Euro area key indicators
These tables contain the latest economic statistics for the euro area.
Europa site

EMU diary
4 December, ECOFIN Council, Brussels
14-15 December, European Council, Laeken

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