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THE EURO: ARE YOU READY? (int'l edition)The switch to a single currency, starting on Dec. 31, will cause carnage, consolidation--and, ultimately, profits for the forward-lookingDespite political opposition and popular resistance, despite financial upheaval and frightened workers, monetary union is about to become reality in Europe. The idea of a single currency that would knit Europe into a world economic superpower has survived decades of skepticism. Now, on the threshold of the euro's launch, government leaders and independent analysts alike are breathlessly anticipating the Decade of Europe. Yet even though monetary union has been years in the making, many economic players remain unprepared. That's dangerous. In the long run, if the euro works as planned, it will transform Europe from a jigsaw of costly, protected markets into a vigorously competitive economic bloc. But between now and then, banks and companies face a grisly shakeup. A Europe without currency barriers will offer enormous benefits to businesses that have planned ahead, both technologically and strategically. It is also likely to prove fatal to those that have not. The biggest, savviest global companies have already decided that the best way to succeed in the new market is to merge their way into even greater size and expertise. From DaimlerChrysler's historic merger to Deutsche Bank's bid for Bankers Trust and Hoechst's marriage with Rhone-Poulenc, the recent megadeals by European companies have been aimed at getting into position for the euro zone. In many cases, they are looking across the Atlantic for new products, management skills, and financial sophistication to boost their competitiveness in the Old World. The consolidation is just beginning. After America's regulatory ''Big Bang'' during the 1970s, the number of lending institutions in the U.S. shrank from 15,000 to about 9,000. In overbanked European countries such as Germany and France, the carnage could be even more drastic. And 10 years from now, cross-border finance could be dominated by just a few dozen Europe-wide banking titans. For companies, the prospect is not much rosier. Whether they cater to consumers or to other businesses, the euro will make it impossible for them to subsidize low prices in one country or region with high prices somewhere else. They must rethink their strategies, walking a fine line between building market share across the Continent and keeping their margins healthy. As with financial institutions, more mergers and takeovers lie ahead. Any U.S. company that does business in Europe needs to be euro-ready, too. Yet until recently, many American executives underestimated the political will and historical momentum behind monetary union. That could cost them business when better-prepared rivals fight for new customers. Officers at SunTrust Banks Inc. in Atlanta say that although they began alerting their major U.S. corporate customers months ago about the January deadline for converting European financial data into euros, few have retooled their accounting systems to deal with the new currency. Delta Air Lines Inc., which competes with big European carriers on trans-Atlantic routes, is an exception. Of course, as in Europe, the more global the company, the more likely it is to take early action. General Electric Co. has a council of ''euro leaders'' from each of its European units who are pooling their experience in marketing, sales, finance, and technology to tailor a euro strategy to each business. And GE Capital Services Inc. is cooking up new products for its U.S. customers who work in Europe, including a credit card that can make electronic payments denominated in euros--the first of its kind. On both sides of the Atlantic, the technical and logistical headaches loom nearly as large as the strategic issues. Making the transition is expected to cost Europe's companies around $65 billion. The largest companies will pay some $30 million apiece. Reconfiguring a single computerized parking meter to accept euros will set a city back about $800. During the phase-in period between now and 2002, a business that wants to convert French francs to Deutschemarks, for example, must do it in two steps: francs to euros, then euros to marks. And to avoid errors in large financial transactions, which could be costly for them or their clients, banks must tally euro amounts to six significant digits. If monetary union fulfills its promise, the payoff will be worth all this trouble. One European Commission study estimates that European businesses now spend some $12.8 billion a year on currency conversions within the European Union, or 0.4% of the EU's gross domestic product. And economists at the new European Central Bank predict that as the euro forces greater efficiency and more aggressive strategies, it could add as much as one percentage point a year to Europe's long-term GDP growth. Politics could still get in the way. Indeed, the real end of Europe's long road to integration won't come unless and until its national governments decide to join forces once and for all. Yet if companies prepare themselves for the changes ahead, they will turn Europe into a much more business-friendly place.
By Joan Warner in New York RELATED ITEMS
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Updated Dec. 3, 1998 by bwwebmaster
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