Select Committee on European Scrutiny Second Report


INTRODUCTION OF THE EURO


(22324)
7880/01
COM(01) 190

(22731)
— 

Report on the preparations for the introduction of euro notes and coins.



Second report on the preparations for the introduction of euro notes and coins.


Legal base:
Forwarded to the Council: (a) 3 April 2001
Deposited in Parliament: (a) 25 April 2001
(b) 10 October 2001
Department: HM Treasury
Basis of consideration: (a) EM of 4 May 2001
(b) EM of 11 October 2001
Previous Committee Report: None
To be discussed in Council: (a) —
(b) 16 and 19 October 2001
Committee's assessment: Politically important
Committee's decision: (Both) cleared



Background

23.1 Euro notes and coins will be introduced on 1 January 2002 in the 12 participating Member States. The Commission estimates that the majority of the population will have received euro banknotes from banks by 5 January and in some countries even earlier. The replacement of national currencies by the euro is expected to be largely completed within a couple of weeks, perhaps as early as the end of the first week. The Commission describes the introduction of the euro in the following terms:

    "At 00.00 on 1 January 2002, the national currencies will cease to exist. ... National notes and coins will continue to be used in most countries for a further eight weeks at the most, but it will no longer be possible to make payments in the old national currency units by card, cheque or transfer. Businesses will have to operate entirely in euros. ATMs [Automated Teller Machines] will supply euros, and traders will endeavour to give change in euros, even if payment is made in the old national currency unit. From the end of the first week of January, most cash transactions will normally be in euros. At the end of the second week, the process of introducing the euro will have been largely completed."

The documents

23.2 Document (a) gives an account of the state of preparations for the introduction of the euro in the 12 participating Member States as at April 2001.

23.3 The chapter on state of progress with preparations notes, amongst other things, that, overall, large businesses were making satisfactory progress but small and medium-sized enterprises (SMEs) were tending to underestimate the scale of work that needed to be done; the provision of information needed to be improved, particularly for SMEs. This was reflected in the fact that almost one business in three in the euro area had not realised that 1 January 2002 is the final date for operating entirely in euros. As regards financial institutions, the report notes that the banking community was pursuing an active policy of preparing for the euro, which included the early conversion of customers' accounts and the rapid adaptation of automated teller machines in 2002. As regards public administrations, the report notes that all participating Member States had published a euro changeover plan for public administrations and a plan for the exchange of notes and coins.

23.4 The report notes that the general public was becoming more knowledgeable about the general timetable for the changeover to the euro, but that, on the whole, members of the public in a number of countries had not come to grips particularly well with the main elements of the changeover and were unfamiliar with the new scale of values. This unfamiliarity with the euro persisted despite national and Community information campaigns.

23.5 In the chapter on work in progress and ways forward, the report notes that the main areas of work included: ensuring the security of the new notes from counterfeiting; helping the general public, especially vulnerable groups, prepare for the euro's introduction; and ensuring that businesses do not exploit the introduction of the euro by increasing prices unjustifiably.

23.6 The Commission considered that dual pricing was the most obvious way for consumers to check price stability. In drawing on good practice in Member States, the report identifies some ideas that could be put into practice in participating Member States and could usefully be copied elsewhere, such as, making freely available simple conversion tools and kits of euro coins.

23.7 Document (b), which was published in October 2001, provides an update on the state of preparations for the introduction of the euro, looks closely at a number of major operations and identifies what the Commission considers as the best practices for ensuring a trouble­free changeover.

23.8 The report makes clear that significant progress has been made since the earlier report. However:

    "the situation is still rather uneven: the state of preparation varies appreciably between economic operators. While national administrations have nearly completed their preparations, local authorities do not appear to be as far advanced. Preparations by SMEs are also moving rather slowly, with significant numbers not sufficiently aware of deadlines or costs. General public awareness has improved considerably but remains insufficient overall. The use of the euro has increased slightly, particularly in transactions with the public authorities. But businesses are not turning to the European currency readily and its use by private individuals remains very low. Communication efforts are being intensified. The Eurosystem has launched an extensive campaign with a budget of _80 million, using all media. Information campaigns by Member States and the Commission are being stepped up and will peak in December, with a Community contribution of _28 million."

23.9 The report notes that the production of euros is on schedule and that by the end of August 2001 more than 11 billion euro banknotes and by the end of September 46.8 billion euro coins had already been produced, quantities that cover the overall requirements for the initial launch:

    "Simulations show that the majority of the population will have received euro banknotes from banks by 5 January and in some countries this period will be even shorter. The pace of introduction will therefore be even faster than initially planned. The November 1999 Council declaration set the target of completing the bulk of the exchange operations in two weeks; in actual fact it will probably take only half that time. Euro coins will be available from 14 December at the earliest and will also be brought into circulation rapidly in the first days of January.

23.10 The report identifies that the main risk as the storage and transport of euro cash, but notes that most Member States are addressing this and that several are drawing up contingency plans. As regards the public's concern that the changeover will be used as a cover for unjustified price increases, the report notes that:

    "the risk of price rises is, broadly speaking, very slight or even non­existent. To keep it as low as possible, the Commission would ask the national authorities and traders to honour their undertakings to keep prices stable when changing over to the euro and consumers to remain vigilant. Together with the ECB and the Council, the Commission will keep a close watch on prices. It calls on Member States to publish appropriate indications as frequently as possible in 2002."

23.11 As regards the protection of the euro against counterfeiting, the report states that

    "Important progress has been made in establishing a comprehensive framework for protection against counterfeiting of euro banknotes and coins. Implementation of the relevant texts (Council Regulation, framework decision, etc.) is monitored by the Community institutions."

23.12 The Explanatory Memorandum of 11 October 2001 from the Economic Secretary to the Treasury (Ruth Kelly) summarises the report's detailed findings:

"Preparations by businesses

    "Large Businesses. According to the latest surveys by the Federation of European Accountants and the Union of Industrial and Employers' Confederations of Europe large businesses have attained a satisfactory level of preparedness.

    "SMEs. The degree of readiness for the euro among SMEs in Europe is generally lagging far behind that of large firms. Member States and trade associations must step up their efforts as a matter of urgency so that advantage is taken of the remaining months to catch up. Small firms, particularly those in the distributive sector, should be the focus of special attention. Euro area governments and trade associations need to raise awareness in this sector and ensure that all SMEs are aware that 31 December 2001 is the cut­off point after which all non­cash transactions will have to be made in euro. The Commission emphasises the importance of preparations in the retail sector. Training is particularly important for cash handlers, who will deal with the public throughout the introduction of euro cash and the withdrawal of legacy cash.

    "Euro use. Businesses in general are still not making much use of the euro for their payments, their bank accounts and their accounting. The Commission reports that euro use averages 26 per cent by businesses in domestic transactions and 33 per cent in cross border trade. The Commission estimates that some 30 per cent of businesses have euro accounts. The Commission recommends that authorities encourage greater euro use in the business sector.

    "Financial Institutions. The Commission reports that banks in several euro area countries have already started or are about to start extensive account conversion, mostly by tacit customer agreement, and recommends that other euro area banks follow suit.

    "Front Loading. Distribution of cash to banks and post offices began in September 2001 and will continue during the final quarter 2001. The Commission state that no major security incidents have so far been reported.

    "Sub­frontloading.[64] The Commission reports that banks forecast that an average of 48 per cent of their retailer customers will submit orders for the euro cash in the final quarter 2001. The Commission recommends that retailers be encouraged to sub­frontload by offering flexible debit terms.

    "Distribution of cash outside the euro area. The European System of Central Banks will distribute euro notes, and in some cases coin, to the banking sector outside the euro area under strict guidelines. The Commission also sets out elements of national cash distribution plans and identifies issues related to security and the integrity of the cash supply.

    "Automated Teller Machines (ATMs). The Commission reports that the euro area countries estimate around 80 per cent of ATMs will dispense euro notes from 1 January 2002. Some 68 per cent will not be dispensing any further national currency from that date.

    "Withdrawal of legacy currency. (Note: Dual currency periods vary but by 28 February 2002 at the latest national currencies in all euro area countries will cease to be legal tender. National central banks will continue to exchange national currency for longer periods.) The Commission reports that some 76 per cent of banks in the euro area will exchange national currency for euros free of charge during the dual currency period subject to prior notice for a large amount or, in some cases, payment into the customer's account. After the dual currency period some 57 per cent of banks in the euro area will continue to do likewise. 83 per cent will not charge handling fees for retailers depositing national currency notes and 76 per cent for legacy coin.

    "Public Sector

    "National administrations. The Commission reports that central government preparations are advanced and efforts now focus on early changeover of utilities billing, public contracts, civil servants payslips and staff training.

    "Local government. Local authorities do not appear to be as far advanced as national administrations. The Commission notes that it is difficult to gauge whether the overall state of preparations is satisfactory, particularly in the smallest local administrations (there are some 70,000 local administrations in the euro area). The Commission reports that the legal framework for the cash changeover in local government has been finalised throughout the euro area. Local initiatives continue where local public administrations retain competence. The Commission identifies a number of examples of local government activity to expand public awareness of the euro.

    "Preparation of the general public. National communication campaigns are being used to raise awareness amongst the general public in the euro area. Knowledge of the date on which euro notes and coins will be brought into circulation improved substantially in the second half of 2001 although the European public is still not very sure about the length of the period of dual circulation.

    "Most of the people living in the euro area now know the exact conversion rate of the national currency into the euro. The Commission states that the progress made in informing the public is substantial but still insufficient. The efforts already made by Member States must therefore be continued and stepped up.

    "On the whole, most people living in the euro area are confident in their ability to acquaint themselves with the new currency. A significant number (34 per cent) are afraid of not recognising euro notes and coins.

    "The Eurosystem campaign launched on 30 August precisely to promote euro notes and coins will probably reduce these percentages very significantly. One of the main sources of concern for consumers is price rises when the euro is introduced, a concern today shared by two thirds of the European public. Since, apart from national differences, women and the socially disadvantaged are on the whole relatively worried, participating Member States should direct a specific information effort at them.

    "The Eurosystem campaign. The European Central Bank and the twelve national central banks are conducting an extensive campaign in the final quarter 2001 to ensure that euro area citizens are familiar with the visual appearance and security features of the new euro notes and coin. Co­operative efforts with the European Blind Union continue for the visually impaired. The Commission recommends co­operation at local level between local government and trade associations to reinforce these efforts.

    "Good Practice. The Commission elaborates forty examples of good practice considered important or useful in facilitating changeover operations in the euro area. Examples include: dual pricing, early changeover of bank accounts and utility bills, rapid conversion of ATMs, deferred debiting for sub­frontloaded cash to retailers, practical training of cash handlers, commitment by retailers to good practice in maintaining price stability, avoiding mixed payments in change and continuing dual pricing at least until the end of dual circulation periods."

23.13 The Commission calls on Member States and trade associations to apply these good practices wherever possible in order to facilitate the introduction of euro notes and coins.

The Government's view

23.14 The Government states that there are no policy implications arising from the reports.

Conclusion

23.15 Although the UK is not one of the 12 participating Member States, UK businesses and citizens will nevertheless be affected by the introduction of the euro on 1 January 2002. In noting these two documents, including the forty examples of best practice that the October report mentions, we recognise that they have no policy implications for the UK. We clear the documents.


64  Sub­frontloading is the redistribution by banks of some of the notes and coins they receive to traders, which began in September in Germany, Luxembourg, Austria and, for the largest shops, in Spain. Sub­frontloading operations will be spread over the period between October and December in other countries. Back


 
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