Yippee! The euro is here at last!
We lucky Europeans can now run randomly across borders, spending the same crisp notes and freshly minted coins without any need for a second glance toward those nasty commission grabbers in the bureau de change. Well, until you happen to land in the UK, Sweden, or Denmark, anyway – they’ve gone and thrown a wrench in the works of European unity by refusing to join the gang.
Still, enough of the party-poopers, with the currency in people’s hands for the first time, it is an occasion to celebrate. Yippee! For it has been dictated from high up that now is the time for true price transparency across all twelve Eurozone states. No longer will we be ripped off by horrible capitalists trying to charge us more for our bière in Paris than our cerveza in Madrid. Consumer power will change the world and big business had better watch out. IR officers should get ready to explain plummeting earnings.
Wait a minute… much as I am a supporter of the euro, the idea that simply introducing one currency across a wider area will magically lead to the disappearance of price differentials seems a bit far-fetched. The first week of the new year saw stories abound as to just how much we are all going to benefit as consumers and the fact that companies had better learn to face up to the new reality. BMW has already announced it will harmonize car prices across the Eurozone.
Sure, the euro will have an effect on price differences across the region. Indeed, it already has had an effect of sorts, as consumers have been able to react to the ‘mirror’ euro prices they have seen alongside their own national currencies for the past two years. That trend is set to continue.
But the idea of greater price transparency having a dramatic ‘overnight’ effect on normal consumer behavior is ridiculous. It will be a much longer process and nor is it guaranteed to occur in many sectors. Let’s face it, if you discover that your beer in Paris is more expensive than in Madrid you don’t immediately hop on a plane. Just because one area operates under the same currency does not imply that pricing will be perfect or uniform.
Anyone with any grasp of reality knows that they are likely to pay more for a sandwich in a café in London than, say, in rural northern England. The US has a single currency but few expect the price of an apartment in Greenwich Village to be the same as a similar pad in upstate New York.
Where the euro will certainly have a growing effect is in business-to-business and consumer orders where the goods or services can easily be delivered across long distances. Also, the companies most likely to be quickly hit by a change in consumer attitudes are those whose goods or services make up a substantial expenditure for the average person in the street. Then there’s the added incentive to get on a plane or surf the web searching for a lower price.
IR officers across the globe are going to be facing questions on the impact of the introduction of the euro over the coming months – particularly from overseas investors who might not understand the whys and wherefores of the currency. Careful consideration and explanation of the issues involved is preferable to the current situation of many companies insisting it will have little effect, and pro-euro campaigners insisting we are all going to change our behavior overnight. Most people care too much about their money not to notice major price differences on large expenditures. The saving grace from the corporate point of view is that many people are also too lazy to do much about it.
