Finance: EMU could hatch some golden eggs

SO MUCH attention surrounding the arrival of Economic and Monetary Union (EMU) has been focused on the negative aspects that it is easy to lose sight of the possibility that there it might in fact offer some advantages.

Typical of the way in which the development is being seen as a challenge rather than an opportunity is the publication by Gower Publishing of a book entitled Managing the impact of the euro. It is written by Simon Sear, a financial sector consultant, and is aimed at financial directors, telling them that they must prepare their companies for the single currency or see them face financial ruin.

But there is a positive side, and it is not just that companies may obtain some relief from the interest fluctuations that are a constant source of pain to UK manufacturers in particular. Perhaps most important, the coming of the single currency in January 1999 will introduce greater simplicity when performing transactions between different countries.

But, as Chris Robinson, vice-president for global cash management services at Citibank, points out, the potential impact goes far beyond that. While consumers will benefit from more consistency of pricing with the European Union, companies will be able to achieve economies of scale in their treasury and financial management operations by, for example, basing all their activities in one place, and by dealing with just one bank rather than several.

"It is an efficiency play. The corporate treasurer or financial manager can, in the short term, gain efficiencies," he says, pointing out how the convergence of money market and interest rates and competition will force organisations to find the lowest exchange levels.

Moreover, though the largest corporations will be the early adopters of the euro, their increasingly extensive use of it will have a knock- on effect for small and medium-sized enterprises, which will then be encouraged to go down the euro route themselves.

However, as Thomas Cook's foreign exchange business points out, this may not necessarily lead to such businesses opening separate euro accounts. Unless they expect high volumes of euro-denominated business, it may be easier for them to use a foreign exchange service provided by an organisation such as Thomas Cook.

Large corporations, on the other hand, have to do two key things in the coming months, Mr Robinson adds. First, establish a system for clearing the euro and, second, work out who will be their banking partners for the future.

Large multinationals are also realising that they can become more efficient if they can get their suppliers and customers to use the euro, and some are already prepared to go as far as creating shared service centres covering such activities as accounting. And, he says, some are even out-sourcing functions such as "accounts receivable".

Nor is it just the companies that are having to deal with the change. Mr Robinson is also predicting huge ramifications for the banking sector itself. Just as the last few years have seen extensive consolidation in the United States, so he predicts there will be "a hurricane of change" in the European banking industry, with the likes of Deutsche, ABN-Amro and Citibank emerging as among the most powerful players.

And while the debate goes on about the potential impact on London as a foreign exchange centre, there are signs that the City could benefit from organisations being free to site operations wherever they think is most efficient. And as a result of the combination of its regulatory and tax climates, London has much to recommend it.