Switch to Euro is tech challenge

The European Monetary Union (EMU) conversion poses a dilemna just as serious as the Year 2000 bug.

CNET News staff
4 min read
With most of their attention focused on the Year 2000 bug, few companies are addressing another computer issue that looms even closer.

The European Monetary Union (EMU) conversion is a systems challenge that is in many ways just as serious, according to analysts.

Carlton Schowe, president of information consulting firm IMI Systems, said in a recent report, "Many North American companies and their chief information officers--already distracted by the Year 2000--must start preparing immediately for EMU."

"In fact, EMU will kick into high gear just as many organizations will be struggling with the after effects of the Year 2000 challenge," Schowe said.

Because the economies of both continents are inseparable, the EMU conversion poses a serious concern to North American currency trading and financial institutions, added Schowe.

Under the current EMU plan, countries in the European Community plan to switch to a single currency, the Euro, starting on January 1, 1999. On that date all parts of the financial system other than physical currency will begin conversion to the Euro. Three years later, Euro money will replace Europe's 13 billion notes and 76 billion coins.

Gartner Group research director Nick Jones noted that the EMU conversion is very much an issue in the United States, since so many organizations share code and financial information between U.S. and European operating companies.

Jones said "As a result, certain U.S. and European enterprises are faced with an event that will likely affect every installed PC--in applications and system reprogramming--and cost more than $100 billion in corporate IT (information technology) costs in Europe alone."

Martha Bennett, vice president research Europe of Giga Information Group, said, "The $100 billion figure is a good eye opener. This is an enormous issue, although, because it is so complicated, you can't really quantify the cost."

According to Bennett, the Year 2000 bug requires enabling systems to continue functioning in the same manner while identifying "00" as 2000.

She said, "In the case of the EMU conversion, we have to potentially introduce completely new system requirements. The Year 2000 bug is an IT issue; the EMU is a business problem with serious IT consequences. Companies can't really do anything until they make the business decisions."

Between January 1, 1999, when companies can begin switching to the Euro, and December 31, 2001, when companies will have to have completed the conversion, there will be two currencies in use.

Bennett added "This means that trade between companies and business partners that have switched to the Euro and those that haven't becomes very complicated. And the consequences for the financial sector, which will have to cope with an extra currency, are huge."

On some level, most financial institutions can simply handle the Euro as just another currency. But when it comes to inter-bank transfers, for example, banks may suddenly be faced with thousands of transactions in a different currency and won't be able to handle the volume.

Bennett said "There is no regulation on how to achieve this. There are also serious issues of exchange rates between the European national currencies and the Euro."

In currency trading and other financial services, the Euro will pose a problem for trend analysis. How do you analyze the trends of a currency that did not exist a year ago?

"Conversion of historical data will be a major requirement," Schowe said. "Organizations will need to build and manage parallel systems to handle both legacy and Euro currencies. Interfaces to external systems may need to support multiple currencies or trading partners from nations adapting to Euro on different schedules."

For some retail businesses, many of which are U.S. companies operating in Europe, there will be a period when cash registers will have to be equipped to handle two currencies.

"There are no rules for reporting," Bennett said. "Tax and accounting rules are not unified, and that will have serious implications for it."

EMU also poses the problem of price transparency. Companies could hide a lot in currency fluctuations but faced with the Euro, companies like IBM are already reviewing manufacturing locations and marketing and sales strategies.

According to a survey commissioned by IBM this month, 51 percent of large companies have taken steps to prepare for EMU, yet only 12 percent of Europe's small and medium-sized businesses have taken such steps.

Bennett said "If a company were to be in proper readiness for EMU, it would have had to start preparing in September 1996."

Last year, a study of more than 300 North American senior executives conducted by IMI's parent company, Olsten, showed that 47 percent were only in the planning stages for EMU conversion.

"Unfortunately in the United States, only the large banks are really aware of the challenges of the Euro and have begun addressing the problems," Jones added. "This is something that U.S. companies doing business in Europe or with European companies can't afford to ignore and, frankly, they should have done something already."