Taking The Europlunge
Prime Minister Tony Blair may be agonizing over when Britain should join Europe's monetary union. But Imperial Chemical Industries PLC has already taken the plunge. At home and abroad, ICI is doing more and more business in euros. While the company still accepts payments in sterling or dollars, nearly every day another British business joins ICI's Continental customers and suppliers in asking to pay or be paid in the new currency. Even customers outside the euro zone, in Sweden and Eastern Europe, for instance, want to use euros. "Whether Britain is in or out of the euro frankly is irrelevant to our multinationals," says Peter Everett, Imperial Chemical Industries' point man for European monetary union. "Commercially, we're already part of it."
ICI, which had $18.5 billion in sales last year, is not alone in using the euro in daily transactions. British Telecommunications, Unilever, and Rover Group are already trading, billing, and keeping the books in euros. Blair still says that Britain will join the union when the circumstances are right. But most observers view the next election, due by 2002 at the latest, as a referendum on the question, and mounting pressure from the private sector could well force Blair's hand. "As long as the United Kingdom remains outside the euro zone, British business is at a competitive disadvantage with the rest of Europe," says James Ashe-Taylor, a partner in the Brussels office of British law firm Wilde Sapte.
In effect, some of the biggest names in British business are already treating the country's entry into the common currency as a fait accompli. It's not just that dealing in one currency instead of 11 is cost-effective. There's the added appeal of simplifying price comparisons for management and customers. For British companies dependent upon exports to Europe, those are issues that can't be ignored.
Indeed, such is the momentum now building that some big British companies, including Rover Group Ltd. and Siemens Nixdorf Information Systems Ltd., are considering giving employees the option of receiving all or part of their salaries in euros. That is spurring some British lenders, including Barclays Bank PLC and Abbey National PLC, to offer corporate and retail clients an array of euro-denominated products and services. Marks & Spencer PLC, a leading retail chain, which refuses even British credit cards, now accepts euro-denominated checks. At British airports, duty-free shops will accept euro checks and credit cards.
POWERFUL INCENTIVES. Barclays was the first British bank to woo corporate and retail customers aggressively. In the first week of trading, it processed more than $107 billion in euro-denominated transactions. It's offering everything from derivatives and foreign-exchange hedging tools to euro loans and mortgages. Since the euro's launch on Jan. 4, Barclays has opened roughly 450 euro-denominated consumer accounts. And it expects the 10,000 euro accounts businesses have opened to triple by yearend.
With British interest rates nearly double those on the Continent, the 4.5% rate available on euro mortgages at Barclays Bank and Abbey National are already attracting a lot of attention. But to avoid potentially crippling currency losses, banks offering mortgages and loans in euros are insistent that borrowers must have some form of euro income. However, few British employees are paid in euros right now. But bankers hope this will change soon. And there is already a small, upscale market for euro mortgages among those with income-producing property and other investments on the Continent.
It may be a couple of years before consumer demand for banking products and services priced in euros reaches the levels bankers would like to see. But as British corporations shift more business into euros, they are paving the way for more widespread acceptance of the currency--among both consumers and domestic businesses.
Despite growing corporate and consumer incentives to switch to euros, the British government says it won't abandon the pound and is sticking to its sterling guns. But if British businesses catch the euro habit in a big way, the question of when Britain joins may quickly become moot.