Funny Money

Some UK IT firms are as happy about joining Emu as they would beabout changing the colours of the Union Jack. Sharon Smith looks at thepros and cons of the Ecu

The Maastricht Treaty (Treaty on European Union) was signed by the heads of state of EU countries in 1992. The signatories, committed to the introduction of a single European currency, are faced with an obstacle - the UK's opt-out on the European Monetary Union (Emu) as negotiated at the Maastricht summit in December 1991. The idea of a single currency is at the centre of controversy in the IT arena.

One of the biggest issues for IT businesses is whether the UK should foster closer economic and financial ties with its fellow EU members or try to recapture the fiercely imperialistic days of the empire in the name of sterling and sovereignty.

But the truth for many seems to be that Europe signifies an insufferable interference in the UK's economic fabric, with the increasing imposition of European directives viewed as either loaded against UK citizens or damaging to the economy.

For the IT and business sectors in the UK, Emu is far too serious an issue to be debated or dismissed in a cloud of emotional imperialistic fervour, or mauled in a battle of political point-scoring.

While the business sector as a whole is urging extreme caution towards Emu, some observers argue that when it comes to the IT sector, because it is by its very nature a global industry, a single currency can only make life easier.

Mike Watkins, sales vice president at Ingram Micro, believes a single currency would simplify pricing structures across Europe. 'If a customer asks why a product sells at one price in the UK and a different one in Holland, I would not immediately know the answer, whereas if goods were all priced in European currency units (Ecus) it would point out any differences and the reasons for those differences.'

Managing director at Dane Elec UK Alan Stanley agrees Emu will make trading easier. 'It would encourage more British companies to venture into Europe because it will eliminate the currency fluctuations that cause so many uncertainties. Everybody would be talking the same currency language as well.'

Ian Humphreys, director of marketing at Kasten Chase, says that many IT resellers are working on low margins. A small change in exchange cartes can make all the difference between profit and loss.

But many IT firms contend that the matter is not so straightforward.

One of the biggest criticisms to emerge is the UK government's lack of sound information on the potential economic benefits and drawbacks of the UK joining a single currency.

Further, the IT sector is unanimous in its belief that politicians are adding to the air of uncertainty and confusion by engaging in political infighting to enlighten the electorate.

Alex Campbell, group marketing manager at distributor Osmosis, says: 'It is a political hot potato, but the rest of us simply don't know enough about it. A lot of politicians in the UK use Emu as a football to score points off one another to further their careers in Parliament.'

Stanley agrees: 'People don't really know what Emu entails. The lack of knowledge and all the political uncertainty is highly damaging.'

Rather than the issue remaining a focal point in the political arena, many argue that it has to be examined purely for its contribution to the UK's economic future.

Pat Harvey, managing director of distributor DMST, says: 'We need to ignore the political side of it, get over the irrational fear of losing our sovereignty and look at it from a pragmatic point of view. In other words, will it cost the UK economy more, the same or less to join Emu?'

While many agree that eradication of currency speculators would also be a positive point in Emu's favour, Campbell argues the opposite. He says currency fluctuations allow distributors and resellers to add to their margins. 'It is hard enough to find a margin and playing with currencies is one of the few ways a distributor can increase margin.

'For example, we deal in sterling and US dollars because our products are manufactured in the US and the Far East. We set dollar rates, buy a certain amount of dollars for the month and use them to sell our products.

If the dollar rate changed in our favour we would buy in dollars and get more for our money with an automatic margin on top of the actual margin we have. With the Ecu we would lose all that.'

But Harvey maintains that the arrival of the Ecu would not deter speculators because they would simply move further afield and start pitting currencies like the US dollar and the yen against the Ecu.

Humphreys says it is more a case of what the UK would lose by remaining outside Europe than what the UK could gain from joining. 'If the City is not part of Emu it would dangerously dilute its authority against financial centres in the rest of Europe with adverse consequences for companies in the UK,' he says.

'A lot of IT companies in the US and Canada come to the UK because we speak the same language as those nations, while being a part of Europe.

If the UK is no longer seen as a major player in Europe, investors would eschew us and go straight to another country, probably Germany.'

Humphreys believes that is the case because of the fundamental lack of information about the effect of Emu in the UK. The general reaction to the concept tends to be emotional rather than logical, with widespread fear about the UK losing its sovereignty and ending up as a powerless puppet manipulated by the Eurocrats.

Harvey thinks that a more urgent priority should be the realisation that a single currency cannot be implemented in isolation. 'Buying and selling IT in Europe in one currency is a marvellous idea as long as we unify VAT, import duties and export charges, warranty agreements and distribution contracts to a single standard.

'It is one thing to have an Ecu, but we will not reap the full benefit of that nor achieve a simpler process while countries have different rules, regulations and rates on trade. The single currency is the tip of the iceberg. We need a common trading standard across Europe to make it work because at the moment the differences affecting prices are a nightmare.'

Ruth Lea, head of the policy unit at the Institute of Directors, agrees it is vital that the UK concentrate on the economic implications of Emu. Lea says that while membership will produce the business benefits of an end to transaction costs and exchange rate uncertainty for trade with other members of Emu, trade benefits will be limited.

'The UK's trade patterns are more diverse than those of some EU members, particularly compared with the US, therefore the trade benefits of Emu would be fewer for the UK than for other European economies.

For Lea it is crucially important that the UK does not join Emu until the time is right economically. She says: 'The UK must not go into Emu until its economy is more closely converged with the rest of Europe.

'For example, interest rates for Emu would be decided by the European Central Bank. But the UK is far more sensitive to changes in short-term interest rates than the rest of Europe because it has a higher proportion of domestic borrowing. Monetary policy is a more powerful lever in the UK's economy than in Germany and France.'

But executives within the IT sector endorse the findings of the Institute of Directors, whose recent survey found that 70 per cent of delegates are against joining Emu.

The IT sector supports an informed, unbiased and pragmatic debate on the issue aimed at providing the business sector and the public with solid economic information without the political rhetoric.