The changeover to the single currency is an essential step in the European integration process and will concern all economic players : banks, business, administrations and consumers.
The decisions taken by the Madrid European Council in December 1995 have now dispelled the main uncertainties, and particularly those surrounding the name of the single currency and the timetable and scenario for its introduction.
The single currency will thus be called the EURO and it will be introduced in three main phases :
The introduction scenario
In early 1998, as soon as the group of countries taking part in EMU is known, the European Central Bank will be set in place. The conditions for conducting monetary policy will be decided, and the production of EURO banknotes and coins can begin.
Preparations in the participating countries will be stepped up throughout this phase, particularly in administrations, banks and financial institutions. But the economy as a whole will continue to function as before, in other words on the basis of the national currencies, which alone will continue to be legal tender in this phase.
The rates of conversion between the EURO and the national currencies will thus be irrevocably fixed in early 1999 and the EURO will become a currency in its own right.
The European System of Central Banks (ESCB), which groups together the European Central Bank and the participating national central banks, will then come into the picture. It will be responsible for framing and implementing the single monetary and exchange-rate policy - in particular setting short-term interest rates - and any intervention vis-à-vis the dollar or the yen. The participating national currencies will no longer be listed independently on the foreign exchange markets vis-à-vis other currencies; their external value will be set exclusively via the EURO thanks to the irrevocable conversion rates. New issues of tradeable public debt will be denominated in EUROs from the beginning of this phase.
As far as the banking sector is concerned, the transition to the single currency will begin chiefly via monetary policy, the capital market and the associated settlement systems. More generally, the banks will take advantage of the time available in this phase (not more than three years) in order to inform their customers of the consequences of the switch to the single currency for their financial transactions. They will step up their staff training efforts and could also offer certain products in EUROs, legal and technical constraints permitting. For example, customers' account statements could be drawn up in both national currency and EUROs.
Firms could also begin operating in EUROs. Companies most heavily involved in international trade are likely to opt for early conversion, although there will be no obligation to do so.
Administrations will also have to prepare actively for their own changeover. They will also provide operators and consumers with the necessary information on introduction of the single currency. For the most part, however, their transactions with the public will remain in national currency until Euro banknotes and coins are put into circulation.
Consumers will continue to use chiefly their own national currency because EURO banknotes and coins will not yet be available. Public demand could, however, prompt some banks or firms to offer services in EUROs.
The gradual introduction of dual pricing of goods and services will enable consumers to get used to the single currency. By developing a "feel" for prices in the single currency and learning to convert national currencies into EUROs at a fixed rate, they will thus realise that they do not stand to lose from the introduction of the single currency.
By not later than 1 January 2002, and over a short period (not more than six months), the national currencies will be withdrawn and the new EURO banknotes and coins will be put into circulation. This phase will deliberately be kept short in order to minimise the complications that would inevitably arise if national currencies were to remain in circulation for an extended period alongside the single currency. The exchanges will, of course, have been thoroughly prepared. In some cases (reprogramming of tills and cash dispensers, for example) preparations will have to be made long beforehand to ensure that software and machinery are properly adapted.
From the beginning of this phase, retailers will continue to accept national currencies but will also carry out transactions in EUROs. All money-based transactions in the economy (wages and salaries, pensions, bank balances, etc.) will be denominated in EUROs. References to national currencies in contracts will be converted into EUROs without any other changes in terms and conditions. In other words, the principle of continuity of contracts will apply in full.
Public administrations in the countries taking part in EMU will also implement a coordinated switch to the EURO for their transactions with the public. The definitive changeover to the single currency should be completed by 1 July 2002 at the latest with final withdrawal of the national currencies.
The success of the changeover to the single currency will depend on one condition : the EURO must win full public acceptance. Although the switch will indeed be a radical change and will upset people's habits, it will at the same time bring many benefits : elimination of the additional costs associated with the existence of different national currencies, enhanced price stability and transparency, simplified travel across Europe, less costly funds transfers from one country to another, but also stimulation of employment and a stronger role for Europe on the world stage. In short, the single currency will bring Europe closer to the citizen, strengthen European unity and make a genuine contribution to stability, peace and prosperity.
In the long run, all the Member States of the European Union that so wish will be able to adopt the EURO once they satisfy the criteria laid down by the Treaty. Meanwhile, efforts to achieve convergence and develop solidarity between the Member States will make for greater exchange-rate stability in Europe and thus preserve the smooth functioning of the single market.