Europe prepares for euro 'big bang'

David Knott
London
[email protected]

While the petroleum industry wrestles with the Year 2000 problem in computer systems, European firms have the extra hassle of the European Union's (EU's) planned move to a single currency.

The European Commission (EC) has published guidelines for companies preparing their financial systems for introduction of the euro, slated for Jan. 1, 1999.

The euro will be introduced gradually during 1999-2002. On Jan. 1, 1999, the rate of conversion between the euro and participating national currencies will be "irrevocably" fixed, and the euro launched as a currency.

Yet euro banknotes and coins will not be introduced until Jan. 1, 2002. In the transition period checks and credit card payments will be allowed in euros, so companies will need to handle local money and the euro.

What's affected

The EC said that, while any software that incorporates dates can be affected by the Year 2000 problem, only systems that process financial information in a participating country will be affected by the euro.

"Since most financial information systems also use dates," said EC, "they must be reviewed for problems associated with both the changeover to the euro and the Year 2000.

"Some enterprises have decided to combine preparation for both issues to avoid modifying the same information systems twice. However, there are good reasons for managing subsequent phases of the projects separately."

The EC says Year 2000 is largely a technical problem within information technology (IT) systems, while the euro requires additional functionality. Combining the two would create a project too big to handle.

Peter Griffiths, management consultant at CMG U.K. Ltd., London, says that, while Year 2000 is a technical challenge to companies, the technical side of the euro problem is comparatively routine.

"With the euro," said Griffiths, "the hard bit for companies will be sorting out the business issues-for example, when they want to start accepting payment in euros.

"Renegotiation of many contracts will be required. If contracts deal in local currencies only, they will be redenominated. But in the oil industry, lots of contracts are in dollars, so they won't get automatically re-denominated."

Year 2000 vs. euro

The transparency brought about by having all deals in one currency may also cause problems. For retailers this may highlight price differences across borders, which customers may resent.

Griffiths reckons conversion to the euro may ultimately cost European petroleum companies two to three times as much as the Year 2000 problem. Hardest hit will be companies with Europe-wide retail networks.

"Besides the cost of IT changes," said Griffiths, "retailers will have to train their staff to deal with befuddled customers. Both staff and customers will make mistakes with the new money.

"Year 2000 is an IT cock-up, but the euro issue is not. Year 2000 requires an IT fix, but the euro requires mainly a business fix.

"Year 2000 teams can split IT systems into lumps, then take them off-line to fix one by one. To prepare for the euro, companies cannot take their entire financial system off line, so they have to arrange for a 'big bang.'"