So far, the euro is a multi-tasker extraordinaire time-savre,cost-cutter,even trade booster. Can it keep up the pace as the European Union grows.?
Siemens VDO Automotive Corp. does business in a dozen countries in Western Europe. Traditionally, chief financial officer Ashoka Achuthan had to oversee budgets that allowed for 12 different currencies. Sales forecasts for Greece meant converting dollars into drachmas. Projections for France meant changing dollars into francs. At year's end, sales figures and results had to be converted into deutsche marks from dollars and sent to the Munich headquarters of its parent company, Siemens VDO Automotive AG.

But not anymore - to Achuthan's great relief.

"Our life has been made much easier in a number of ways," says the Bombay native, who oversees the financial and administrative functions for the $9.1 billion company from its headquarters outside of Detroit. "In one fell swoop, all of that was eliminated. It was almost like we got a magic currency."

Or, by its official name, the euro - the common money for most of the countries of Western Europe (save Britain, Denmark, and Sweden). It's four years old this spring, and just one year into mandatory usage, but it seems to have worked so well in such a short time that hardly anyone can complain. Yes, there are some minor nits to pick, like a suspicion that some prices increased when restaurateurs and shop owners rounded up when they converted from local currencies. And banks, which have lost billions in foreign exchange fees, probably aren't too happy.

But, say consultants and business people, that's about it.

"The overall feeling of doing business in Europe is different because of the euro," says Bob Uhler, the chief executive officer for MWH Global, a global engineering and construction company with some two dozen European offices. "There are so many things you don't have to worry as much about, like volatility of exchange rates. It has standardized the risks of doing business in 12 different countries."


MAKING CHANGE

The euro's roots date to 1957, when the Treaty of Rome laid the groundwork for the Common Market, the economic integration of Western Europe from Spain to Scandinavia and Ireland to the Iron Curtain. One key part of this union, said the treaty, would be a common currency. Until 1991, this was one of those things that was a good idea but probably wouldn't happen, given the cultural, religious, and historical differences among European countries.

After all, Europe had fought two major wars in the 20th century, and the 20th century wasn't all that different from any of the others going back to the collapse of the Roman Empire some 1,500 years earlier. How could countries that regularly tried to destroy each other use the same money?

"But if you look at the period between 1875 and 1914, they were using the same money," says Joel Mokyr, an economic historian at Northwestern University in Evanston, Illinois. "Europe was on the gold standard, which meant you could take a bag of gold coins from one country and use it in another country without much trouble."

Which meant that the countries that signed the Maastricht treaty in 1991, committing themselves to a common currency by 1999, had precedent to build on. They also had increasingly similar economies, based on market capitalism; almost four decades of working together in the Common Market; and a common political vision that probably hadn't existed since Napoleon imposed his on Europe at the beginning of the 19th century. Says Mokyr: "This didn't happen overnight. It took them 40 years to get their act together."


Reducing costs

The euro debuted in 1999, when the exchange rates of the 11 original participating currencies were set and the new currency and its symbol - € - started appearing in financial statements. Greece met the euro zone's budget requirements in 2001, which meant 12 countries traded in their local coins and bank notes for euro-denominated currency on January 1, 2002. The euro was set at €1 to $1.18, and has traded between there and $0.825 since, making the exchange rate more or less one-to-one.

So far, everything seems to be working. At Siemens VDO, ask an employee for a budget number and the answer is likely to be in euros. And why not? The advantages have been considerable:

FEWER EXCHANGE RATE COMPLICATIONS.
Camp Dresser & McKee, a Cambridge, Massachusetts, environmental engineering consultancy, upgraded its project accounting and financial application software in 2002. Before the euro, it would have included routines to convert dollars and financial reports to assorted European currencies, so that employees in Europe and the United States could get real-time access to project numbers. After the euro, says CFO Bob Anton, the company was spared the time and expense of all but one conversion process.

REDUCED TRANSACTION COSTS.
Bankers throughout Europe, says Keith Stock, a global vice president for Cap Gemini Ernst & Young, are probably still scrambling to find ways to replace the revenue lost from changing money. U.S. and European companies no longer need extensive hedging systems to account for currency fluctuations, further cutting costs. A typical multinational would have had extensive currency hedging operations in each country in Western Europe; now it needs just one.

CUT RISK IN ASSESSING BUSINESS DEALS.
Uhler says MWH probably hasn't made a deal because of the euro, but that the euro has made the company feel better about those it has made. "We can go into Italy and know that our profit margins won't be eaten up immediately if the lira sinks," he says. "It allows us to make bets on things we can control, like the company, rather than exchange rates, which we can't."

BOOSTED EXPORTS.
It's difficult to get exact numbers, but the sense among those involved is that exports have increased not only between countries in the euro zone, but with the Americas and Asia as well. Tariff disputes between the U.S. and the European Union and the global economic slowdown have further clouded the picture, but the impression is that the recession in parts of Europe might be worse without the euro.

"It's amazing how much more my comfort zone has increased in doing business in Europe," says Debbie Lombard, the director of international sales for Torrance, California's Anchor Audio, a multimillion dollar manufacturer of portable sound equipment. "Now, when I talk to a customer at a trade show, I know what's going on and I don't have to try to convert their currency in my head."


ON THE HORIZON

What isn't as certain is how well the euro will continue to work. So far, it has not been forced to deal with a serious political or economic crisis in Europe, for instance, the 1973 Arab oil embargo. The trials of the past four years have not affected Europe as deeply as they have the United States. But what happens if a member government or economy collapses, dragging the value of the euro down with it? Will the other member governments sit idly by?

There are also some questions, say economists, about the euro zone's rigid membership requirements. Countries must meet certain targets for inflation, budget deficits, and long-term interest rates, but no one is quite sure what will happen if a member violates the targets. Would Germany really be expelled for exceeding the budget deficit limit? And, if it did, could the euro survive without the strongest economy in Europe?

And that still doesn't take into account what could happen in the next decade when former communist countries like Poland, Hungary, and the Czech Republic - with their much less developed economies - are scheduled to join the euro.

"One of the things that has made the euro work is that the members have accepted the ideas of free movement of capital and goods and services across borders," says Achuthan. "Can that mindset be extended? It's a question that no one has an answer to yet. I'm not sure it's a question that a lot of people have started asking."
Until then, officials like Achuthan at companies across the U.S. and Europe will appreciate what has worked. It's a whole lot better than preparing 12 sets of financials.

KEEP THE CHANGE?
Talk to any traveler who spends substantial time in Europe, and each, no matter how experienced and savvy, has the same story. They have local currency left over from the switch to the euro, and not only will businesses not accept it, they can't find anyone to change it to euros.

"I was pretty surprised the first time I walked into a shop in Belgium, and the owner wouldn't take my Belgian francs," says Joel Mokyr, an economic historian at Northwestern University in Evanston, Illinois. "I've got all these Belgian francs at home. What was I going to do with them?"

The answer, for the most part, is that the wad of Spanish pesetas or Austrian schillings stuffed in a drawer can only be converted to euros at a branch of the respective country's national bank. Legally, swapping your foreign money for euros can't be done by businesses or even banks and bureaux de change. Which means, unless you want to send cash through the mail to one of those national banks, you need to do it in person.

There are also time limits (Portugal won't redeem coins anymore) and restrictions on how much can be exchanged (Ireland will only do 3,800 punts). For complete information, including addresses, phone numbers, and a nifty currency converter, check out the European Central Bank's Web site at www.euro.ecb.int and at www.ecb.int/change/bn01.htm#limits.

- JOSH SENS

EURO-ENGLAND

Denmark opted out of the euro and Sweden didn't qualify. But neither country's absence has attracted as much attention as that of Great Britain, the other noneuro European state.

In fact, one of the biggest questions in British politics today is whether Britain will vote to join the euro. Prime Minister Tony Blair says he favors joining, but his Labor Party is split over the issue, and most opinion polls show the country evenly divided. Blair, meanwhile, says he'll hold referendum only after his government publishes a report this summer on the so-called Five Economic Tests - whether the euro will benefit Britain.

"Will Britain join? I don't think it's a question of if but when," says Bob Uhler, the chief executive officer for MWH Global, a global engineering and construction company with some two dozen offices in Europe. "It's like putting dye in the water. No matter how much you want to take it out, it's awfully hard to do. It's going to be increasingly difficult to remain in the European Community and not be in the euro."

That seems to be the consensus among economists, business leaders, and consultants. No matter how much the British kick and scream, their course has been set since the country joined the Common Market in 1973.

Says Keith Stock, a senior consultant for Cap Gemini Ernst & Young: “The ship has sailed, and it’s not like the British not to have noticed that.”

— JOSH SENS
“There are so many things you don’t have to worry as much about, like volatility of exchange rates. It has standardized the risks of doing business in 12 different countries.”

— Bob Uhler, MWH Global