51995AC1174

Opinion on the Green Paper on the practical arrangements for the introduction of the Single Currency

(96/C 18/22)

On 21 June 1995 the Commission decided to consult the Economic and Social Committee on the Commission Green Paper on the practical arrangements for the introduction of the Single Currency.

The Section for Economic, Financial and Monetary Questions, which was responsible for preparing the Committee's work on the subject, adopted its Opinion on 4 October 1995. The Rapporteurs were Mr Burani (Part A), Mr de Bigault de Granut (Part B) and Mr Geuenich (who contributed to the sections concerning the protection of consumers' interests in both reports). A summary of the comments made in the Opinion is to be found in Part C.

At its 329th Plenary Session (meeting of 26 October 1995), the Economic and Social Committee adopted the following Opinion by a majority vote in favour and five votes against with fourteen abstentions.

PART A - THE MARKET

1. Foreword

1.1. The Committee has already taken a stand on the monetary and economic problems connected with the Single Currency (). However, further comments need to be made on the practical issues raised by the Green Paper (GP) - namely the requirements of the markets in general (banks, companies and consumers), the particular need to take account of consumers' interests, and the initially disorienting aspects of a changeover which will affect everybody in the European Union. Furthermore, the sometimes conflicting yet legitimate requirements voiced by the social partners are all worthy of consideration, within the framework of the overriding need to ensure that transition to the Single Currency (SC) takes place according to the principles set out in the Green Paper - feasibility, compliance with the legal framework, and credibility - and with an emphasis on simplicity, flexibility and low cost.

1.2. The Committee believes there is a specific duty - both for the ESC and the Community authorities - to look at the situation realistically, without over-enthusiasm or self-satisfaction. The market must be aware that many difficult problems remain to be solved, and that the changeover will involve expense; they must also be aware that this is the inevitable downside to the benefits that the single currency will bring to Europe.

2. General comments

2.1. The essential components of EMU are:

a) coordination of Member States' economic policy, and

b) maintenance of price stability at Community level.

2.1.1. Coordination of economic policy signifies for the Member States that they have a duty to help achieve the Community's objectives. Article 2 of the Treaty lists among these objectives 'sustainable and non-inflationary growth (and) a high level of employment'.

2.1.2. Maintaining price stability is the primary objective of the ESCB (Article 105). The Committee is considering drawing up an additional Opinion on EMU to study the connection between promoting employment and maintaining price stability. The present Opinion is confined to those issues linked to the introduction of a single currency.

2.2. The Economic and Social Committee wishes to congratulate the Commission on the Green Paper's clear vision of the practical problems which will arise in the changeover to the Single Currency. The approach is pragmatic and interactive, and betrays an awareness of the fact that implementation of the programmes, however rational in theory, must accommodate the objective requirements of the market.

2.3. In keeping with the provisions of the Treaty, the changeover must be 'rapid'; all interested parties agree that it must be 'as rapid as possible'. However, the Economic and Social Committee reminds the Commission and the Council that 'rapid' should not be confused with 'hasty': there would be no point adopting a timetable which the market cannot keep up with because of objective technical, organizational and economic difficulties. On the other hand, if, during the preparatory studies, it should turn out that the allotted time has been overestimated, there should be no obstacle to setting shorter deadlines. In other words, the various transition phases should be considered as guidelines which can be revised pragmatically, but they must be decided definitively - and no longer subject to revision - well before the start of phase A.

2.4. Moreover, the calculation of the implementation timescale, for inclusion in the document which the Ecofin Council will submit to the Council of Ministers at the end of December 1995, on the basis of Commission proposals, should be carried out independently by the Commission, after assessing market requirements.

2.5. The Commission's decisions should also be coordinated with the Opinions expressed by other authorities which are heavily involved in the changeover to the Single Currency. When the Commission report is published at the end of the year, the European Monetary Institute (EMI) is also expected to present its own report on the monetary aspects which fall within its remit. The Council has asked the Commission and the EMI to consult each other when drawing up the two reports. Whilst this is necessary it does not go far enough; it is vital that the two reports be perfectly consistent.

2.6. An important omission in the Green Paper concerns the problem of countries which will not be able to respect the criteria for participation in the Single Currency, or which have opt-out clauses in the Maastricht Treaty - the so-called derogation countries. The omission is serious, and must be rectified. It was pointed out at the extraordinary Summit of Heads of State or Government in Paris on 9 and 10 June 1995. The Committee notes President Santer's statement that the Commission will devote the second half of 1995 to this problem in particular.

2.7. Whilst it remains true that the changeover to the Single Currency must not be hindered or modified by side issues, it is important to be aware, from the very beginning, of any problems which the creation of the Single Currency might cause for derogation countries. The Commission report should recommend appropriate provisions if it turns out that these problems are liable to cause additional costs or distortions of competition, or worse still, give the impression the Single Currency might create a 'two-speed' Europe.

3. The changeover to the Single Currency

3.1. The following comments on the Green Paper pay particular attention to the points of view expressed in the abundant literature produced by the various social partners, and to the opinions expressed during discussions with experts from banks, industry, trade, crafts and consumer organizations. The Economic and Social Committee also wishes to thank the Commission and the EMI for their offer to provide effective assistance.

3.2. The Single Currency - a factor in lowering costs

3.2.1. In illustrating the benefits of the Single Currency, the Green Paper (point 5) emphasizes the fact that transaction costs will disappear altogether within the monetary union. These costs are estimated by the Green Paper to be 0,3-0,4% of the Union's GDP, i.e. circa ECU 20-25 billion. This figure - calculated on the basis of previous Commission studies - is an over-estimate, since it refers to all currencies and all countries, including derogation countries which obviously cannot be included in the calculation. However, since GDP is the product of all economic activity, including services, then the reduction in corporate costs is offset by reduced income for the financial sector; the GDP bottom line thus remains unchanged.

3.2.2. In the same paragraph, the Green Paper says that if a European citizen changed DM 1 000 into each of the other currencies in succession, he would only have half that amount left when he got back to his own country. A simple calculation reveals that the average margin on each transaction is less than 4,5%; this is perfectly normal for banknote transactions. The benefit for individuals and companies (cf. 3.2.1) is self-evident: there is no point in quoting unrealistic examples - which are misleading anyway due to the criticism they imply - in order to make the Single Currency more palatable. The Economic and Social Committee would suggest that the whole of point 5 be deleted in the Commission's final report, or that it be replaced by a reference to the fact that conversion costs will disappear when the parities are fixed, but only for those currencies which take part in the Single Currency and only for individuals from non-derogation countries.

3.3. A contribution to internal stability

3.3.1. It is the Green Paper's view (point 6) that the Single Currency will become a strong, stable currency, at least on an equal footing with the yen and the dollar. The Committee acknowledges that the Commission is doing all it can to achieve this objective. No reference is made, however, to the fate of currencies from derogation countries. The problem posed by 'weak' currency countries competing with 'strong' currency countries is already apparent and could become acute when the Single Currency comes into being. A call for economic and monetary 'discipline' may fall on deaf ears if adequate protective systems are not set up. The Commission - together with the EMI - should look into the possibility of linking derogation country currencies to the Single Currency through a reformed European Monetary System, which could perhaps allow fluctuation margins varying from currency to currency.

3.3.2. Industry in derogation countries will be affected by the fact that imports will be paid for in 'weak' currency which will make them relatively more expensive. As far as exports are concerned, there could be a tendency - emerging either spontaneously or imposed by exporters - to bill them in the Single Currency: this would widen and consolidate the Single Currency market, but also narrow and therefore weaken the national currency market. The Community is aware that any intervention to correct or curb market trends would be counter to the provisions of the Treaty and to the regulations of the Single Market. Furthermore, it is expected that the Commission and the EMI will deal with this aspect in their report to the Council, and indicate measures - consistent with the single market regulations - which might be adopted.

3.3.3. Point 8 of the Green Paper mentions the fears expressed in some quarters concerning the 'rigidity' of the (fixed) exchange-rate instrument, which would be unable to deal with the problems of a country experiencing particular difficulties. It is the Commission's view that these problems could be solved, in most cases, by appropriate 'internal' adjustments. The Committee would concur, whilst emphasizing that 'in most cases' does not mean 'in every case', and that there is therefore a need to provide for situations which cannot be solved by ordinary measures. One of these measures could be preventive realignment of the exchange rate within the EMS: this would allow one or more currencies to participate in the Single Currency at a value which reflects the 'real' state of the economies they represent. In the hypothesis that this realignment might become necessary, it should be carried out at least two years before deciding the changeover date for the Single Currency (start of phase A); this deadline is set out in the Treaty (Article 109 f). If it were decided that the Single Currency should come into force on 1 January 1998, then the deadline for a realignment would be 31 December 1995.

3.3.4. A realignment of exchange rates following an objective assessment of the economic situation of one or more countries could be acceptable - and even welcome, if the aim of the decision was to avoid any future weakening of the Single Currency. But the utmost care must be taken to ensure that one or more countries do not use realignment as an excuse to increase their competitiveness.

3.3.5. The concept - enshrined in the Treaty - that strong monetary union (i.e. able to maintain price stability) must be confined to countries which are 'well-managed economically' is vigorously endorsed in point 10 of the Commission Green Paper. The Committee agrees with this principle and notes the statements from authoritative albeit unofficial sources that the convergence criteria - price and exchange-rate stability, economic convergence, deficit and national debt - will be subject to a political assessment of the problem as a whole. The Economic and Social Committee would emphasize that the Commission's and Council's authority to assess, provided for by the Treaty, should not lead to an over-flexible assessment of the criteria, nor to any negligence which might damage the Single Currency before it even gets off the ground. This is how the Green Paper's reference to a 'scrupulous observation of the nominal criteria' should be interpreted.

3.3.6. The Committee would thus draw the attention of the Commission and the Council to the need for a careful, thorough assessment of the entry criteria for each country. Economic laws must not be bent other than to the limited extent which is 'politically acceptable'.

3.3.7. Apart from weakening the Single Currency, against other currencies, any deviation from the rigorous application of the admission criteria would produce a situation which the Green Paper mentions in point 8, although it draws no conclusions: if a country should be experiencing unusual difficulties some time after its accession to the Single Currency, the Treaty provides, under certain conditions, for financial aid. Clearly, this aid would be an indirect Single Currency support measure paid for by all EU countries, including those with a derogation; the latter will not, however, have a say in its management (Green Paper, point 10). The Economic and Social Committee would point out a possible consequence of this: if the country concerned had been admitted thanks to a political 'fudging' of the criteria established by the Treaty, then the derogation countries could be highly critical of any solidarity measures which could have been avoided if the necessary criteria had been scrupulously applied at the outset.

3.3.8. In conclusion, the Economic and Social Committee would emphasize that the best and most efficient guarantee of stability comes from the central banks - the future ECB and the ESCB. In order to achieve this fully, they must be given a concrete guarantee of complete independence when carrying out their duties, as provided for under the Treaty (Article 107), in order to ensure efficient management of the Single Currency and price stability.

4. Criteria behind the scenario for the changeover to the Single Currency

4.1. When discussing feasibility, the Green Paper (point 20) notes that the 'immediate big bang' would be the most satisfactory solution. There are, however, two basic requirements which hinder this solution: the need for preparation (of accounting systems, information campaigns, etc.) and the time required for technical change (preparation of banknotes and coins, adaption of computer systems, vending machines and cash dispensers, etc.) The Economic and Social Committee agrees that a big bang, however welcome it may be, is not materially possible. However, the transition period required for the full introduction of the Single Currency still needs to be as short as possible and compatible with market requirements.

4.2. When discussing compliance with the Treaty and the credibility of the process, the Green Paper (point 21) suggests that monetary and exchange-rate policy should be conducted in the Single Currency by the European Central Bank (ECB) and the European System of Central Banks (ESCB) right from the start of Phase B, and that governments should switch their national debt issues to the Single Currency within the shortest possible time. This would bring forward the 'critical mass' concept, which is discussed below (cf. 5.3.4 and 5.3.5).

4.3. Another objective of the Green Paper scenario is simplicity, flexibility and changeover at the lowest possible cost (point 22). The Economic and Social Committee will express its opinion on the questions dealt with in this part of the Green Paper at the most appropriate juncture. It is, however, important to mention a general principle with which the Committee is in full agreement: the need to achieve the objective should not lead to an excessively rigid, controlled approach. The Committee would therefore recommend that the changeover to the Single Currency should be subject to mandatory rules only when strictly necessary; the market must be allowed to adapt according to its professional, national and international rules and in compliance with the rules already laid down for the Single Market (free movement of goods, services and capital, and consumer protection).

5. The reference scenario

5.1. The three transition phases

5.1.1. On the basis of the above general comments, the Green Paper presents a scenario (point 25), which 'corresponds to the letter, spirit and logic of the Treaty'.

- Phase A - launch of economic and monetary union (EMU);

- Phase B - effective start of EMU;

- Phase C - final changeover to the Single Currency.

This breakdown into three distinct phases seems to be consistent with the requirements of both the market and the monetary authorities, and does not run counter to the Treaty.

5.1.2. The Green Paper makes no reference to a key issue: the starting date for the whole process. The Committee is aware that the Commission cannot anticipate a decision which can only be made by the Council. However, this date is of fundamental importance for the market, since it has to draw up a timetable for tasks and deadlines. The uncertainty cannot be allowed to last long. The Committee is aware of the opinions expressed at the various ECOFIN Councils, and of the exchange of views which took place at the Valencia European Council, which indicate that the most probable starting date for phase B (the 'third phase' provided for under Art. 109j.4 of the Treaty) is 1 January 1999. The choice of this date - which was the last possible date under the terms of the Treaty - reportedly results from economic considerations, and the Committee adopts it as a possible reference date. It is vital that when the Madrid Council meets at the end of the year, it should give a final indication of the implementation date and the length of the different phases. If the market is to be able to prepare for the changes, it may not need certainties which cannot yet be provided, but it does at least need reasonable estimates.

5.2. Phase A - Launch of economic and monetary union (EMU)

5.2.1. As provided for under the Treaty, the start of this phase will be characterized (Green Paper, point 27) by the decision of the Council to move to monetary union, together with the announcement of the final date for full introduction of the Single Currency (4 years later at the most according to the Commission plan). The Council will take the necessary steps to establish the ECB and the ESCB; together they will initiate introduction of the operational instruments required for conducting monetary and exchange-rate policy, and confirm which Member States will take part in the single currency system. According to the Commission, phase A will last 12 months at the most, whereas Article 109j.4 of the Treaty provides for a period of not less than 6 months; if phase B were to start on 1 January 1999, phase A would start sometime between 1 January and 30 June 1998. Moreover, the Economic and Social Committee believes that, considering the many tasks which have to be carried out, the estimated length of 12 months is more realistic than shorter estimates.

5.2.2. Phase A will be the most delicate and difficult part of the whole changeover: whereas the decision to implement EMU and communication of the list of participating countries will come at the start of this phase, conversion and interest rates will only be fixed at the start of phase B when the ECB and the ESCB become responsible for Single Currency policy and management. In practice, the Single Currency will exist virtually from the moment its creation is decided, but for a whole year there will be no central authority to govern the currencies which will inevitably become a part of it. The Economic and Social Committee would emphasize the need during this interregnum for an efficient policy, fully coordinated between the central banks.

5.2.3. The most serious danger during this period comes from the fact (inevitable for several reasons) that the decision to create a 'new' currency, with a 1:1 conversion rate against the basket ECU, leaves a degree of uncertainty regarding the definitive fixing of the conversion rate and the interest rates. Such uncertainty could pave the way for large-scale speculation, and lead to great upheaval on the financial and monetary markets.

5.2.4. Further uncertainties which could lead to speculation are linked to the future external value of the Single Currency against other currencies. This will depend on the economic performance of participating countries and the faith investors have in the ECB. A possible scenario - although quite realistic - could be that, at least in the early stages, the external value of the Single Currency will be proportionately lower than the European currency which is currently the strongest. There is a certain amount of uncertainty in any monetary grouping, and these translate into higher risk premiums on the financial markets.

5.2.5. There is a real possibility of market upheaval being caused by large-scale speculation, in spite of the reassuring noises made by the monetary authorities and by some influential financial circles; the events of September 1992 - when central bank solidarity and efficient cooperation were put to the test - have shown that in certain cases the monetary authorities could be powerless to stop any abnormal pressure on one or more currencies. Every day, there is around 1 200 billion dollars' worth of transactions on the exchange markets. This figure is far more than the total currency reserves of European central banks.

5.2.6. The Committee acts as a vehicle for the opinion expressed by the social partners; the EU public and companies cannot be content with reassuring statements: the monetary authorities - in agreement with the Commission - must provide for and take concrete measures so that past events will not be repeated. There is no need to give details of these measures (speculators would be ready to adopt the necessary counter-measures); it will be enough for the market to know that they exist and that, in the regrettable case that they should become necessary, they will be efficient.

5.2.7. It is most certainly a difficult task to adopt efficient measures which do not impose restrictions on the free movement of capital or the free provision of (financial) services; just as it does not seem possible to impose restrictions on European markets alone, since this would put them at a disadvantage compared to their non-European competitors whilst failing to block speculation. The necessary measures should therefore aim mainly to promote a concrete commitment to surveillance and cooperation between Member State controlling authorities and the central banks, which will enable implementation of the necessary measures.

5.2.8. Point 29 of the Green Paper lists the measures which should be adopted at the start of phase A:

- the legal framework for the Single Currency, should be introduced at the start of phase B;

- the characteristics and technical specifications of notes and coins;

- establishment of national steering structures for supervising the move to the Single Currency;

- drawing-up of changeover plans by the banking and financial community.

These measures - which are discussed in detail below - have one thing in common: preparation for them is urgently required and where possible should begin immediately.

5.3. Phase B - effective start of monetary union and the emergence of a critical mass of activities in the Single Currency

5.3.1. The start of this phase is marked by the Council fixing the conversion rates of participating countries (Green Paper), whilst the ESCB assumes responsibility for single monetary policy. The ECU ceases to be defined as a basket of currencies and becomes a currency in its own right and for which the national currencies are perfect substitutes. However, only national currencies will have the status of legal tender. The conversion rate of the basket ECU in relation to the single currency will be 1:1. All this is in keeping with the Treaty.

5.3.2. The Green Paper (31-37) envisages a maximum preparatory period of three years for introduction of the Single Currency as the sole currency of the monetary union; given the requirements of the market where companies of all sizes and with extremely different organizational structures operate, and the need for individuals to get used to 'thinking' in the new currency, a three-year period seems quite adequate, unless an assessment of the situation in the run-up to phase B recommends a shorter period. The Economic and Social Committee would, however, repeat the point mentioned in 5.1.2 above: any variation in the established programmes should not take the market by surprise and must be announced well in advance.

5.3.3. In calculating the length of phase B, the Commission relied mainly on two factors: information from the markets and the estimated time needed for the EMI to prepare banknotes and coins for circulation. Unofficial sources seem to think that the amount of money needed for circulation could be ready sooner than expected: this consideration alone must not be used to shorten the length of phase B.

5.3.4. As far as preparation of the markets is concerned, the Committee notes that a bottleneck situation could arise following the massive request for the modification of computer programmes from the whole of the market, i.e. banks, companies and public administrations. Market players will only be able to rely on in-house resources to a minor extent; most will have to call in computer-service companies, which do not seem to have been consulted and are not mentioned amongst the social partners who should take part in drawing up the Commission's final document. The computer industry (software and hardware) should also be asked whether a three-year period is consistent with its resources.

5.3.5. A key element of phase B is immediate establishment, from the very outset, of a critical mass of activities in the Single Currency. The emergence of this critical mass 'requires an initial changeover [in the Single Currency] in the banking and financial sector, which would then have a maximum of three years to complete the changeover of remaining operations and systems'. The reasons for creating the critical mass are purely monetary: it would help to reinforce the perceived credibility and irreversibility of the Single Currency (Green Paper, point 31).

5.3.6. According to the Green Paper (point 32), the activities which will make up the critical mass will be taken from as broad a range as possible, and include monetary and exchange-rate policy, inter-bank, monetary, capital and exchange markets, new government debt and wholesale payment systems. Seen in this light, these operations will only concern the central banks, governments and banking and financial institutions, and a small number of large companies (multinationals and institutional investors). The general market (companies and consumers) would continue to work in the national currency (Green Paper, point 33).

5.3.7. If critical mass activities - to be decided in the coming months in consultation with the Commission and the EMI - were to be restricted to those mentioned in the Green Paper and reiterated in the paragraph above, the Committee would give its approval. It is, however, concerned by the statement that the range of activities should be as 'broad as possible'. The Committee cannot accept the inclusion of activities which would lead to the market being affected by measures which are purely monetary - and should remain so.

5.3.8. Banks and financial institutions will contribute to achieving the critical mass in their specific sectors - monetary and exchange-rate policy, wholesale market transactions and associated settlements' systems. These transactions concern the banks and financial institutions in themselves and a restricted number of market operators, (institutional investors, large multinationals) and settlement could be by means of the apposite TARGET system. The Green Paper also states that any private operator could decide voluntarily to change over to the Single Currency, which would mean that the banks would have to channel all those operators' transactions towards the critical mass. National and international 'retail' payment systems cannot work in two different currencies; they can only switch over to the Single Currency at the start of phase C. It could also be that these systems will change over to the Single Currency earlier; but this can only happen if and when the whole banking sector is equipped to act as an interface between national currency and the Single Currency.

5.3.9. No regulation, whether legal or otherwise, can stop banks from providing services in the Single Currency or prevent individuals from making use of them, it is important to wall off critical mass from the market. The banks should be able to provide services in the Single Currency and channel the amounts towards the critical mass, but the market would use services expressed in dual amounts (national currency and Single Currency), whilst the national currency would still be the currency used for settlement throughout phase B. In other words, the interface would help to 'create' the Single Currency without interfering in internal, national currency mechanisms.

5.3.10. The Committee is aware of the criticism which has been expressed in certain quarters concerning the critical mass scenario in general and the provision of services in the Single Currency in particular. It has been said that these options would distort competition in the banking and financial sectors since the smaller credit institutions will need more time to adapt to the Single Currency; these distortions could lead to concentration in the banking sector, which would be detrimental to healthy competition. The Committee would highlight the comments made in the above paragraph, concerning the legal impossibility of banning the provision of services; it would also express the opinion that smaller firms - and not only banks - could arrange for the changeover via a previously prepared programme, especially if 1 January 1999 was confirmed as the starting date for phase A.

5.3.11. According to point 35 of the Green Paper public administrations in the various participating countries would have a leadership role to play in the changeover to the Single Currency, by adopting it as a denomination for the major items of public expenditure and paying the relevant amounts in Single Currency wherever possible. It should also be possible to pay certain taxes in Single Currency. The Committee disagrees with this scenario: public administrations should be the first to realise that working in the Single Currency - and in national currency at the same time - in a market which is not yet completely ready to adopt the new currency, would tend to confuse the market and its accounting procedures; this would be detrimental to individual citizens and to the transparency of public accounts; furthermore, the cost of adopting these measures would weigh heavily on the national budget, and consequently on the taxpayer. Moreover, it is interesting to note that amongst the administrations which should adopt this type of changeover to the Single Currency there is no mention of the Commission - which, more than any other administration, should play a 'leadership' role. The Committee does however agree that public administrations should mount information campaigns.

5.3.12. Private businesses (point 36 of the Green Paper) will be able to continue to work in national currency throughout phase B, although they may choose to conduct all or some of their operations in the Single Currency. Whilst this is, in itself, perfectly feasible, the Committee (cf. 6.5.1 and 6.5.2 below) feels that the Commission's final report should highlight the disadvantages and costs for companies who take up this option. Point 103 of the Green Paper does not discuss this in sufficient detail.

5.3.13. For consumers the Single Currency will obviously have no practical significance throughout phase B. Point 37 of the Green Paper discusses the hypothesis that competition and market demand may lead a number of private operators to provide services in the Single Currency. Consumers will have to be properly informed as to what 'Single Currency services' actually means; if investment services (in all their various forms) are meant, or transfers to and from foreign countries in the Single Currency, the Committee can only endorse the suggestion; but if it means running accounts in the Single Currency (and of necessity in national currency too), then it would be a mere accounting strategy which might well be useful in familiarizing the consumer with the new currency, but would be of no practical use. For the consumer national currency will remain the currency in which his income and liabilities are expressed. The 'distortions of competition' feared in some quarters could in fact come from services in dual currency being presented as 'services in the Single Currency'. The Committee would draw the Commission's attention to the need to emphasize this important distinction in its final report.

5.3.14. In summary, the Economic and Social Committee's position concerning phase B as described in the Green Paper is as follows:

- in favour of the creation of a critical mass according to precise criteria, to be established in agreement with the EMI and well in advance of the start of phase B;

- no 'spill over' of the critical mass to the general market;

- the need to inform the market of the true nature of the services offered in the Single Currency, and the costs/benefits involved, with reference to large companies, small and medium-sized firms and consumers.

5.4. Phase C - Final changeover to the Single Currency

5.4.1. The starting date of phase C will be announced at the start of phase A, and it should only last several weeks (Green Paper, point 38), i.e. just long enough to change national banknotes and coins into single currency, and to adapt machines - cash registers, cash dispensers, ticket machines, vending machines and payment-card point of sale terminals. From day one, banks, the financial system in general and 'retail' payment systems will use the Single Currency; the same will be true for the rest of the market. The Single Currency will be the sole legal tender. The Economic and Social Committee feels that the above scenario is both realistic and acceptable, as long as certain vague points are clarified.

5.4.2. First of all, it is necessary to define the legal relationship between the Single Currency and the individual national currencies during phase C. Clearly, the Single Currency is going to be the sole legal tender. But special legislation is needed to establish whether the Single Currency will be the sole legal tender from the start of phase C, or whether both currencies - national and Single Currency - will be legal tender throughout phase C, or whether the national currency will remain the sole legal tender (although this is unlikely) throughout phase C. Despite the relative shortness of the transition period, each of the three alternatives poses tricky legal problems; the Committee does not feel obliged to take a stand in favour of one of the scenarios, but would merely ask that the market be provided with the certainty it needs.

5.4.3. As far as machines are concerned, the problem differs according to whether they take coins or notes or whether they are machines (terminals) which take payment cards of all kinds (credit cards, debit cards, prepaid cards).

5.4.3.1. Machines that take coins or notes - whether cash dispensers or vending machines - have both mechanical and electronic parts: mechanical parts are involved in the distribution of banknotes or goods, electronic parts are used for recognizing and checking banknotes and coins. The period required for the adjustment of mechanical parts will depend on how compatible the new Single Currency banknotes are with the national currency banknotes; it is generally considered that for coin operated vending machines adjustment will require two years. Electronic adjustment is not usually carried out by the suppliers of the machines and, whilst it should be relatively simple in itself, the organization and logistics of the operation could be considerably complex.

5.4.3.2. Manufacturers will be informed of the characteristics of banknotes and coins in good time. The current state of play leads us to believe that this could even happen before the start of phase A. Manufacturers of electronic machines should therefore be able to prepare the new machines for recognition and checking in good time. The problem arises from the need to use these machines only when the new currency is introduced, and not before. They could of course be put into service earlier, but they would be unable to handle the national currency. Since we must leave aside the possibility that they would all come into use in a 'big bang' scenario - there are millions of them - we can only put up with a difficult situation for an as yet unforeseeable period which will outlive phase C by several months. Machines which can accept both currencies are one - technically valid - solution. This solution could be adopted if the extra expense is warranted by the short period in which both currencies will circulate: i.e. they would be used for a limited period only. The Economic and Social Committee is in favour of this solution, but would point out that it can only be adopted spontaneously and must be a result of market decisions.

5.4.3.3. The problem is different with terminals which take bank cards or other kind of cards: programmes can be prepared well in advance and the incorporation of a system of figures expressed in a currency other than the traditional currency does not seem to pose any particular problem for 'latest generation' terminals. Moreover, many terminals cannot be adapted for technical reasons: these will have to be changed, and the cost and time involved will be considerable. It will have to be decided whether to leave them working in the national currency until the last minute, or install them in advance, ready to operate in the Single Currency when the time is right. An essential precondition, however, is that the change-over date from national to Single Currency should be defined as a 'big bang' - and this holds true for all payment systems; it is technically impossible for systems with input from various parties - banks, business people, consumers - in different currencies to co-exist even for a short period, and there is a risk of causing the systems simply to break down. The Commission must therefore choose an exact date - at the beginning or at the end of phase C - for the changeover of terminals and payment systems. In any case, cards are simpler and more flexible than other payment systems, and the Commission should encourage their use as a means of paving the way for the changeover to the Single Currency.

5.4.4. There are technical, organizational and logistical problems involved in preparing the new notes and coins. The physical characteristics and the design of the notes and coins are often brought up, usually by citizens' organizations, in an attempt to achieve a design which, at least in the first instance, recalls the national currency of each country. This is a valid argument, particularly from a psychological point of view which is dealt with in part B of the Opinion; but the Committee would draw the authorities' attention to the fact that market acceptance of any request must be subject to verification that it will not increase production or running costs for machinery or lower safety levels. If it were to be shown that these requirements were not complied with, then the Committee would come out strongly in favour of a single design of uniform appearance.

5.5. Implementation dates

5.5.1. The Green Paper (points 40 to 42) describes the implementation phases and says how long they will last. As outlined in 5.1.1 above, the Committee feels that the proposed scheme is, broadly speaking, in keeping with market requirements and expectations. However, it does not feel that the Maas Group proposal to shorten phase B by one year is realistic, even if the starting date is set for 1 January 1999. The market would not be ready to comply with this requirement.

6. The role of the different operators

6.1. The banking sector

6.1.1. The Green Paper states that the financial and banking sector would play a key role in paving the way for the changeover to the Single Currency. They will therefore have to be ready to cooperate fully with the organizations responsible for managing and coordinating the whole operation. This cooperation can only be interactive: i.e. it is hard to imagine a situation based on requirements imposed from above rather than on mutually agreed actions. The Economic and Social Committee explains its thoughts on the subject in the following paragraphs.

6.1.2. Point 47 of the Green Paper says - quite correctly - that from the start of phase B, the Single Currency will be a currency in its own right, and the participating currencies and the Single Currency will be perfect substitutes for each other once the conversion rate has been irrevocably fixed. The statement becomes a little misleading when it says that the currencies (banknotes) will no longer be exchanged against each other on the foreign exchange markets and that 'the bank cashier will replace the foreign exchange dealer'. Interchangeability implies that currencies will be exchanged at no cost at fixed parity rates; this could be the case for book money, but not for paper money, and even less so for coins. If we are to avoid misinterpretation, then the Commission must explain that exchanging banknotes at fixed parity rates does not mean that they must be exchanged at no cost. Foreign banknotes are a source of expense (they have to be forwarded abroad or kept in the vaults and sold on later; they have to be counted; there are costs connected with counting, administration, transport, insurance, loss of interest, staff, etc.). This expense is currently covered by the difference between the buying rate and the selling rate: in future it will have to be paid for by an explicit, transparent commission charge or 'reimbursement of expenses'. The Committee would point out that the Green Paper is a study document in which precision is of the utmost importance; populist imprecise propaganda risks causing incomprehension and could lead to false expectations by the market.

6.1.3. Point 48 of the Green Paper refers to the fact that the Member States should confer legal status on the Single Currency at the start of phase B, thus allowing residents to use it in the same terms as national currency. Here, as in the preceding point, precision is required: throughout phase B, the option open to residents to use Single Currency instead of national currency cannot and must not turn into an obligation for the banks to provide services involving dual accounts.

6.1.4. The dual display of amounts in national and Single Currency (point 56 of the Green Paper) poses similar problems to those involved in printing Single Currency banknotes bearing a reference to the 'national' origin of each currency. In point 5.4.4 the Committee expressed its approval for any measures which are likely to pave the way for the changeover to the Single Currency (and familiarize the public), but not at the price of an unwarranted increase in costs. This, however, would seem to be the case: whilst systematic dual display of accounts is not the same as dual accounting, it does require a certain amount of work and expense: it involves adapting computer and printing programmes, throwing away existing paperwork and printing new forms, only to move on to a further adjustment of the computer and printing programmes at the start of phase C, and destruction of the paper work in dual currency and reprinting new forms. In terms of paperwork alone, millions of forms would have to be printed and shredded twice.

6.1.5. The cost - and especially the destruction of natural resources at a time when the market is sensitive to ecological problems - are strong arguments against adopting any measures which impose dual display of amounts; since the declared aim is to familiarize the market with the Single Currency, and to allow the market to check parity calculations, solutions other than the one mentioned must be sought. An alternative solution involving less expense and complication could be to have forms, receipts, counterfoils, etc., preprinted with a statement of the Single Currency equivalent of the amount indicated in national currency, plus an indication of the conversion rate. Given an adequate information campaign, it would be extremely easy for anyone to make his own calculations, if he so desired. It is of course up to the market to find other acceptable solutions, as long as they are simple, cheap, and above all transparent. The British decimalization experience, in which an extremely pragmatic approach was used and coercive methods avoided - but following an efficient information campaign - shows that flexibility and common sense yield better results than the use of force, and involve infinitely less expense (cf. Part B, 10.4).

6.1.6. The EMI must be congratulated on designing a large value payment system (Target), which, together with the existing private ECU compensation system, will help in managing the currency flows needed to create the critical mass (Green Paper, point 62). The Commission admits that retail payment systems (point 64) cannot operate in two currencies simultaneously - but this is also true for all other types of payment system, including large value payment systems - and that the banks, generally speaking, (cf. 5.3.8) will be able to keep their national currency payment system until the start of phase C.

6.1.7. Furthermore, point 65 of the Green Paper anticipates a situation in which phase C could be brought forward in some countries and for certain specialized systems (e.g. cards). Even if this were possible, the Economic and Social Committee would point out the dangers involved in solutions which are put forward as an end in themselves, against the interests of the market: it is only fair to point to the chaos this would produce for the public and the banks (cf. 5.4.3.3).

6.2. The banking sector: competition and costs

6.2.1. The Green Paper does not deal with the competitive situation which would be created between participating-country banks, and, further afield, between the banking systems of these countries and those of derogation countries. The Committee feels that this problem should be addressed, and would point out that it figures among the requests made by the Council to the Commission.

6.2.2. One of the most contentious issues - and not only in the banking industry - regards the option to provide services in the Single Currency during phase B: it has already been said (cf. 5.3.10) that this is perfectly legal and it would therefore be useless to try to oppose it. The market, however, has the right to be informed of the nature, practical value and costs of Single Currency services (cf. 5.3.13). The consumer needs complete, transparent information This will also help to prevent distortions of competition.

6.2.3. Banks from participating countries could provide Single Currency services in derogation countries in order to get a foothold in these markets. Although theoretically this possibility exists for banks from any country, in practice distortions of competition could come from the fact that, for banks from derogation countries the Single Currency will still be a foreign currency involving additional costs. The provision of services in the Single Currency would be beneficial for individuals and companies of derogation countries; but at the same time there could be a run on the national currency in these countries.

6.2.4. The Committee notes the problem of changeover costs. Studies carried out for the Commission or directly by the banking industry and individual banks have revealed a fact which has gone unchallenged: the banking sector will have to cope with far greater problems and increased costs than the rest of the market. To this should be added the loss of currency-exchange earnings (cf. 3.2.1). The banking industry has not requested - at least at the time of writing - any subsidies or assistance; it has merely provided an estimate of the likely costs.

6.2.5. However, the problem will come out into the open sooner or later; the Committee wishes to express its opinion before it is dealt with officially. Calculations from various banking sources - and particularly those from the banking federation - estimate costs at several hundred billion ECU (132 billion for payment systems alone). However, some object that a portion of this expense would be required anyway in order to keep up with normal organizational development and updating, and with technological progress. Bearing this in mind, the idea - not openly expressed - that the banking sector might be given funding or subsidies does not seem to be a feasible option. It should also be remembered that other economic sectors seem to be thinking of asking for aid or incentives to proceed with the changeover. At this rate, the whole market will think, for one reason or another, that it has the right to funds for the privilege of having the Single Currency; the Economic and Social Committee does not feel this is generally speaking, a viable solution.

6.2.6. Whenever a company, an economic sector or a group of sectors have to cope with increased costs, they do so according to the rules of the market i.e. amortization over the maximum duration allowed by tax legislation, thus spreading costs out over several financial years. Each company achieves break-even by following its own strategy, bearing in mind the prevailing state of the market and competition. Competition ensures that market share-out of costs will be practically unnoticeable, considering that consumers will strongly resist any increase in the price of services. The authorities will have to see to it that these principles are observed, whilst refraining from any form of price regulation.

6.2.7. Should a later appraisal of the situation, based on irrefutable evidence, point to an excessive impact on the market, taxation (e.g. VAT deduction) could be resorted to in order to cover part of the changeover costs.

6.3. The financial markets

6.3.1. Generally speaking, the financial markets as a whole will have less trouble than the banking sector in adapting to the changeover to the Single Currency: they are highly flexible and, to a certain extent, equipped to deal with innovation; furthermore, financial market operators - including the banks - will have the same information technology problems as those already mentioned for the banking sector in general.

6.3.2. The main problem, both for the capital markets and the securities markets, is that of ensuring stability. As the Economic and Social Committee has already pointed out (cf. point 3.3), turbulence, uncertainty and large-scale speculation could hinder this goal. Instability would cause considerable damage to EU Member State economies, but there is an even greater risk of damaging the credibility of the Single Currency and its position as a 'strong' currency against the dollar and the yen.

6.3.3. The Green Paper (points 69-87) is relatively optimistic about this: stability will be ensured (point 71) by a high degree of nominal convergence between those Member States which have adopted the Single Currency. The Committee feels that this is a necessary but insufficient condition. In this respect - and with reference to what has already been said in points 5.2.2 and 5.2.7 above - the Committee would emphasize that the Single Currency cannot be defended on the monetary and securities markets unless the Member States and their central banks make it plain that they are willing to do this. It is necessary to take a closer look at the rules governing the two markets, in order to pinpoint 'shortcomings' which might be exploited by international speculators, as happened recently. Moreover, the problem cannot be solved at European level: worldwide cooperation is needed.

6.3.4. The Green Paper contains a realistic analysis of the possible causes of major market upheavals but offers no particular remedy. Financial markets, by their very nature, involve a high degree of risk, and adoption of the Single Currency is not, in itself, likely to reduce this risk. Financial operators are well aware of this axiom. The consumer should be informed of this fact, so that he will not confuse a stable currency with guaranteed profit.

6.3.5. There is a glaring omission in the Green Paper: any consideration of the impact of the Single Currency on external markets, i.e. the markets of derogation countries and third countries. An analysis is needed of the possible actions for investors who have purchased fixed-rate bonds in one of the currencies which will join the Single Currency. Apart from the considerations of a legal nature dealt with below (cf. 7.5 and 7.6), if the exchange rate for a currency deemed to be stronger than the Single Currency, is expected to provide an inadequate return, there could be repercussions on the markets. The markets in derogation countries could be weakened, since the Single Currency is likely to be more stable than their national currencies.

6.4. Public administrations

6.4.1. The Green Paper (points 88 to 99) points out the fundamental importance of initiatives and action by public administrations at all levels, from Community to local. The Economic and Social Committee will refrain from commenting on direct action by the public administrations, but it does feel it should comment on the issues concerning the relationship these administrations have with individual citizens and companies.

6.4.2. The suggestion that new issues of public debt be denominated in the Single Currency, from the start of phase B and continuing throughout the whole period is logical from a monetary point of view (helping to create the critical mass) and in keeping with the aim of familiarizing the market with the Single Currency. This is one of the few exceptions to a principle endorsed by the Economic and Social Committee: any provision of services in the new currency throughout phase B must - in addition to the aim of familiarizing individuals with the Single Currency - also be of some practical use. These two requirements cannot be separated.

6.4.3. All this means that the public administrations' changeover to the Single Currency during phase B should concern the internal dealings of the administration, without affecting individuals or business. As already mentioned in point 5.3.10 above, any partial initiatives on markets which only use national currencies for ordinary transactions, would cause confusion and an increase in costs; if all this happens solely to 'familiarize' the public with the Single Currency, it will not be worth the trouble. This is particularly true for social security and taxation.

6.5. The corporate sector

6.5.1. The first decision companies must make is whether to change to the Single Currency during phase B or whether to wait for the start of phase C. As the Economic and Social Committee has already pointed out (cf. 5.3.6), the formation of a critical mass is a monetary objective which must be endorsed; the desire to achieve this objective must not, however, lead the Commission to encourage companies to make choices which are unlikely to be useful for the market, or worse still, run counter to their interests. The Green Paper (point 103, last paragraph) admits that this is the case for small and medium-sized companies; however, this also holds true for larger companies: the need to establish 'some form of interface' (point 103, second paragraph) between Single Currency internal operations and transactions in national currency could be a source of increased costs and complications. Then there is the case of large companies, especially multinationals, which would probably benefit from an early changeover to the Single Currency.

6.5.2. In due time, the Commission will have to draw up and publish a neutral, objective document to help companies to understand the pros and cons of an early changeover to the Single Currency during phase B. The Economic and Social Committee particularly recommends that the Commission should heed a suggestion made by the head of one of the central banks: 'all Member States would do well to avoid over-burdening operators and individuals with the co-existence of several calculation systems'.

6.5.3. It should therefore be emphasized that the gradual changeover to the Single Currency during phase B must come about because companies have chosen to do so of their own free will; the market must also exercise extreme caution in order to avoid 'leakage': i.e. the effect which could be produced if large companies put direct or indirect pressure on smaller companies in a position of 'dependency' (suppliers and customers), to adopt the Single Currency before the start of phase C.

6.5.4. One major problem for trade - in particular large-scale retail trade, is the proposed mandatory dual pricing indicating prices in both national currency and the Single Currency. Quite apart from the difficulty and costs, similar to those in the banking sector (see 6.1.5), it must be remembered that the draft directive requiring prices to be indicated per unit sold and per unit of volume or weight would enter into force in 1997. The planned measure would mean that four prices have to be indicated, two in national currency and two in the Single Currency. The expert consumer will have no difficulty in understanding but the 'weaker' consumer - who is in greater need of protection and information - will find it hard to find his way through this maze. This system should anyway be regarded as an alternative to others recognized as suited for the purpose (again see 6.1.5).

74.16.5.5. As for coins and banknotes at the start of phase C, the Green Paper (point 104) would leave it up to companies whether to accept only national currency, only Single Currency, or both, for the whole duration of the phase, which would last several weeks. An option of this kind cannot be left to the market: consumers cannot be left in doubt as to whether the currency they hold will be universally accepted, or whether there will be restrictions, and if so, what these might be. The Economic and Social Committee believes that the legislation currently being prepared must allow both currencies to be accepted as a means of payment throughout phase C; the problem of their status as legal tender (cf. point 7.2), remains unsolved. However, this should not be overestimated since the duration of phase C is likely to be short-lived and the amounts involved relatively small (cash is not used for large transactions).

6.5.6. The Green Paper (points 106 and 108) adopts a realistic and flexible approach to the problems of cash registers and vending machines, including cash dispensers (ATMs) and point of sale card terminals. It should be remembered that several months will be needed to adapt all existing machines (several million): the public will therefore have to be prepared to put up with some inconvenience for a certain time. In order to cope with this situation, the Green Paper recommends a range of preparatory measures which will be needed to avoid most of the inconvenience; these measures are logical, and the Economic and Social Committee can but endorse them. The only area where caution is needed concerns acceptance of both currencies and/or the production of receipts, notes or forms expressed in both Single Currency and national currency: as pointed out in points 5.4.3.1, 5.4.3.2 and 5.4.3.3 above, adjusting machines, computer and printer programmes for a short period only would involve unwarranted technical complications and increased costs, and in some cases is technically impossible.

6.5.7. It would be helpful to the circulation of the Single Currency at the start of phase C if, wherever possible, the banks, and consequently the public, were provided with sufficient reserves of Single Currency sometime before the start of phase C, on the proviso that the currency would not be used before then. The interest lost by the public and companies would be negligible, and would in any case be more than compensated by the benefits of avoiding queues at the counters. Furthermore, the Committee is well aware of the security, storage and transport problems this would cause for the central banks and the banking system, but in any case, these problems could not be avoided even if the changeover were to start at the beginning of phase C.

7. The legal framework for the Single Currency

7.1. The Green Paper is particularly sensitive to the many legal problems which must be solved in order to achieve a smooth changeover for the markets and consumers (points 125 to 137). Studies should start well in advance so that legislation can be prepared, wherever possible, before phase A. The Commission mentions the need for close cooperation between Community and national authorities, but the Committee would add that the study groups should include legal experts appointed by the European associations representing the market categories concerned. All too often the 'national experts' of these study groups have ignored the needs of the market, and merely examined the legal aspects of the problems.

7.2. It has already been said (cf. point 5.3.1) that the fact that the Single Currency will become a currency in its own right at the start of phase B does not mean that it will be legal tender, since this is the prerogative of national currencies. This is quite clear and requires no special legal explanation; appropriate legislation will be required, however (cf. 6.5.3), to address the problem of whether the Single Currency or national currency (or both?) will be legal tender during phase C.

7.3. At the start of phase B, the Single Currency could be used as a unit of account, and as a means of payment provided that the contracting parties agree; the legislation needed would therefore have to ensure that the Single Currency and national currencies were perfect substitutes in the legal sense (Green Paper, 126 and 127); furthermore, the individual currencies should be treated in the same way. Legislation would ensure that bank deposits, payments and transactions in the Single Currency were perfectly equal to transactions in the other currencies, whilst giving every contracting party the option to accept payment in currency other than national currency. This option should also be extended to the banks, which should not be forced to open and operate accounts in the Single Currency or in other currencies.

7.4. A guarantee of continuity of contracts is of vital importance not just for the Single Currency, but especially to provide the internal market with certainty in legal relations. In some Member States (Green Paper, 129 and 130) provisions exist in national legislation which allow for unilateral termination or modification of a contract in the case of fundamental disruption in economic factors. It is imperative that Community legislation should ensure that adoption of the Single Currency will not constitute a reason for contracts to be invalidated or grounds for changes in the terms of the contract. The legislation of the Member States concerned must also ensure that the adoption of the Single Currency is not considered as a cause of fundamental disruption in economic factors. The problem of contracts drawn up between residents of Single Currency countries and residents of third countries, and governed by the legislation of the latter countries, has yet to be solved.

7.5. An important question arises concerning monetary markets, and particularly securities markets, on which residents of third countries have issued or hold securities in Euro currency or in basket ecu. In theory, the rate of return could also cause problems for third countries, since it is not wholly clear whether the rate of return for bonds denominated in the Single Currency will be perfectly equal to that of each original currency.

7.6. On this point, the Green Paper (point 134) is optimistic, saying that third countries are likely to recognize the Single Currency as the successor to the national currency, and also recognize the continuity of terms of contract (return rates for securities, interest rates and other ancillary obligations). Presumably, recognition of the Single Currency will not pose any particular problems; an informal survey of financial operators in third countries leads us to believe, however, that the continuity of fixed-rate security contracts will not be as automatic as we might like. The Economic and Social Committee would ask the Commission and the EMI to establish official contacts in order to obtain assurances that the introduction of the Single Currency will not lead to any disturbances on European and third-country markets.

7.7. The problem of rounding-off in the conversion process deserves special attention: in large-scale transactions, such as on the monetary and securities' markets and transfers via wholesale payment systems, the number of decimals is of some significance, since considerable differences could result. For these markets, European legislation is required.

7.8. The situation is somewhat different for rounding-off in retail sales and day-to-day transactions; the conventional system (rounding up to the next unit if the remaining decimals are over five, and rounding down if they are five or less), should be adopted. Legislation may be necessary, but it might be best if it were enacted by the individual Member States, who are best acquainted with the practice and requirements of their markets.

7.9. The Committee has commented elsewhere in this Opinion on possible dual price displays for business and dual indication of amounts. Any legislation in this area should not make dual indication compulsory; it should allow alternative ways (cf. 6.1.5) of informing the consumer to accustom him to the new unit of account and enable him to check the conversions carried out by business or banks.

7.10. The Green Paper (point 136) envisages that the Commission, in conjunction with the ESCB, will make legislative proposals regarding the safety, protection and circulation of the banknotes. The Economic and Social Committee would point out that it should not be necessary to wait for the creation of the ESCB (at the start of phase A) before preparing legislation whose broad outlines are already clear: cooperation with the EMI should begin immediately. It could be that cooperation has already started, but the Green Paper has omitted to mention it.

7.11. Concerning the protection of banknotes against counterfeiting, the Committee would suggest a completely new approach which is particularly relevant given the current social and political situation: namely the fight against organized crime. The safety features of banknotes are now such that small groups of criminals find it practically impossible to counterfeit them: they would need to spend considerable sums of money on buying machines, find technicians and materials, and have a large-scale organization to circulate the counterfeit notes. The same conditions apply to organizations involved in drug trafficking, arms trafficking, etc.; moreover, they are often the same organizations or at least closely linked, and the fruits of one branch of crime finance other branches.

7.12. National legislation does not always consider counterfeiting and the circulation of false banknotes a priori as a crime by a criminal association: nor does it include protection measures amongst those intended to fight organized crime. The new European legislation on the Single Currency could exploit this opportunity to provide regulations along the lines of those already adopted for money laundering, and thus provide an invaluable instrument for cooperation between courts and police at European level.

7.13. The same applies to alternatives to hard money (payment cards, Eurocheques, travellers' cheques) which are gradually replacing paper money. They already account for 15% of all payments for business and services in Europe but in certain Member States and for certain types of activity (hotels, airlines, restaurants) the percentage is considerably higher. Book (or quasi) money has not only become a widespread feature of modern society: it will also be of great help in paving the way for the adoption of the Single Currency. The fight against payment system fraud - which is running at several billion dollars a year - is conducted by the issuing organizations and the banks, thanks to the technical sophistication of cards and cheques, and via organizational monitoring; these measures are useful for keeping system fraud in check, but the fight is complicated by the fact that the gangs which counterfeit payment systems, or circulate stolen payment systems, are international criminal gangs, with considerable resources and large organizations at their disposal. The proceeds from counterfeit and stolen payment systems go to finance organized crime. The Economic and Social Committee's conclusions are the same as in the previous paragraph: if it is not possible to apply the same sanctions - which remain the prerogative of Member-State criminal law - as for banknotes, then at least the approach to fighting organized crime must be the same.

7.14. The importance of hard money substitutes, which are discussed in the previous paragraph, becomes all the more obvious if we consider the characteristics of the electronic purse (pre-paid cards) which will probably be introduced on a large scale over the next few years: the electronic purse is not a substitute for money, it is money. If counterfeited, then the effects are the same as those of counterfeit hard money.

8. Common problems for banks and enterprises

8.1. Staff training

8.1.1. Staff training underpins all actions connected with the changeover to the Single Currency; given the wide range of cooperative activities, it will not be possible to give all staff the same training. Training will have to be tailored to specific tasks and it will not be possible to provide the same training for different categories of enterprises, apart from certain broad similarities: the differences in size and organization within each category means that each enterprise has its own specific makeup. The Committee is of the opinion that training should 'have' a common base, specifying the adjustment needed for each branch of activity in the changeover to the Single Currency; this would then branch off into a range of sectoral adjustments - according to category and corporate size - and end with individual initiatives carried out in house or by outsourcing.

8.1.2. Given the above, it must be clear from the very beginning who does what, and the Commission must produce a programme as soon as possible. The Committee feels that the programme should be drawn up along the following lines:

8.1.2.1. The Commission should draw up a general plan with a clear indiction of what is required in each individual phase of the programme for the changeover to the Single Currency. In drawing up the plan, it must be borne in mind that it will eventually be used for training, and should therefore be practical.

8.1.2.2. The Member States should tailor the general plan to national requirements; in this respect, the steering structures responsible for the changeover (Green Paper, point 29) should not only play, as already envisaged, a technical role but they should also include a section to look after the informative side. There will also be a need for uniform - and as far as possible, unified - information from the tax authorities, bearing in mind the local set-up of these authorities and the complex nature of the tasks the taxpayer has to cope with. The same holds true for social security organizations.

8.1.2.3. International and especially national collective associations should be able to play a useful role in adapting the general educational content to the specific needs of their sector, and if necessary, proceed with the training of trainers.

8.1.2.4. Individual companies will provide for staff training, either in-house or by outsourcing, according to individual needs. A special problem arises for banks since they will have to train their staff - especially the staff which comes in direct contact with the public - to provide information for a wide range of customers including consumers. For this staff, an awareness of the internal problems of the bank will not be sufficient: their advice will have to cover the problems faced by companies and the public in general.

8.1.2.5. This overall education strategy focussing on the 'professionals' will require a significant effort from firms and their sectoral associations, in the shape of both human resources and financial contribution. Appropriate funding under the Social Fund for training workers should be envisaged, in cases of established need, to further implementation of this project, which is of priority importance for the implementation of Monetary Union.

8.2. Communication

8.2.1. The communication strategy would aim to explain the short and medium-long term benefits of the Single Currency and its mechanisms. This communication must be clear, simple and above all avoid propaganda and promotional tactics: nowadays the public is used to advertising techniques and would inevitably react negatively to any message which tried to 'sell' an idea. The leitmotif of the communication must therefore be perfect objectivity: it is necessary to explain the benefits but also the inevitable initial difficulties, and there should be a clear reference to the possible disadvantages of the Single Currency.

8.2.2. The message the public receives must be unambiguous: we cannot even contemplate giving individuals in one country information which differs from that given in another country; this is the reason why it must start with the Commission. However, it will be up to the Member States to pass on the message: they will be free to use the most appropriate language for the local mentality and culture, whilst keeping to the spirit and content of the basic message. The Member States will be able to choose the most appropriate media: the press, radio, television or other printed material. On the latter point, the Committee would warn against the temptation to print millions of brochures: experience has shown that very few people read them and their impact is almost negligible.

8.2.3. Apart from institutional tasks to be carried out by the public authorities, companies (especially the banking sector) should clearly be primarily responsible for getting information across on a wide scale, for the obvious reason that only such messages are of practical and direct interest to the consumer. It is one thing to talk in the abstract, albeit with practical examples, about the transition to the Single Currency and its use, but quite another to talk to the 'client' with reference to problems affecting him directly.

8.2.4. Though it can be hoped that the training drive will promote awareness of the problems involved among large and medium-sized companies, it must be expected that some of them, in particular small firms and self-employed entrepreneurs, will also turn to the banking sector.

8.2.5. Regardless of the scale of the problem, the basic message - and hence the substance, significance and implications of Monetary Union for the consumer and companies - should be straightforward, without scope for interpretation. The drafting of this basic message should therefore be agreed at national level, jointly between the authorities and the sectoral associations. In contrast, the second part, concerning the application of the Single Currency to the services provided, could be left to the discretion of companies. However, especially in the initial phase, clarity and transparency will be necessary to facilitate price comparison.

PART B - PUBLIC ACCEPTANCE

9. Introduction

9.1. This part of the document looks at the acceptance problems raised by the adoption of the Single Currency by a number of EU Member States, in the light of the programme envisaged in the Green Paper and the decisions taken at the Cannes Summit in June 1995.

9.2. Under the scheme foreseen at present, implementation of the Treaty of Maastricht will lead to a Single Currency, to be called the 'ECU', being adopted by the Member States which meet the convergence criteria. The timetable for the adoption of the Single Currency will be as follows:

- Phase A: this phase, as envisaged by the Green Paper, will start on 1 January 1998, the date on which the list of Member States adopting the Single Currency will be established;

- Phase B: this will start on 1 January 1999; the ecu will become a currency in its own right and will be used in the inter-bank, monetary and capital markets;

- Phase C: this will begin on 1 January 2002, the date on which ECU coins and notes will begin to be used.

After a period of several weeks, the ECU will be the sole currency in use.

9.3. The man in the street identifies his national currency with his country, even if he does not realize that the term 'currency' covers a number of concepts: 'cash'; 'means of payment and trade' and 'currency reserves'.

9.3.1. The public does however realize, at least intuitively, that the right to issue currency is one of the attributes of an independent state, particularly since the very name of a state's currency is generally closely linked to the history of the state.

9.3.2. Assenting to the introduction of the Single Currency is therefore regarded as asserting to a partial loss of identity and a surrender of sovereignty, which is offset by the fact that such a step constitutes a significant and conscious contribution towards the building of Europe.

9.4. When considering the question of public acceptability of a Single Currency, it is necessary to highlight the close relationship of the public with its currency and to understand the consequences of this, in order to ensure that the changeover to a Single Currency takes place as smoothly as possible.

9.4.1. To some degree public acceptability is related to the extent to which people handle different currencies in their day-to-day activities.

9.4.2. People who work in the civil service, the banking sector or large enterprises and are involved 'professionally' with the currency, tend to be less sensitive about the title of the currency and its nationality.

9.4.3. For these people their country's currency mainly represents a means of payment which can be exchanged with other currencies. They look on currency as a store of value rather than a symbol.

9.4.4. On the other hand, people who use only their national currency in their day-to-day and working lives and who have only occasional recourse to exchange transactions will feel themselves to be at the sharp end of the exercise.

9.4.5. It is mainly these users of currency - the vast majority - who will be inconvenienced and, in the early days at least, very probably annoyed as well, by the daily practical realities of coping with the transition. The difficulties will be greatest for the elderly and those not fully integrated in society, and their problems will need to be addressed with particular care and sympathy.

10. Psychological problems

10.1. As indicated in the introduction, surrender of the national currency is regarded by the public as the most important of all the decisions taken with a view to establishing a European Union, which has supra-national overtones. At all events it is this decision which will have the most direct impact on individual members of the public.

10.1.1. The problems must be tackled with care since this is unchartered territory. There are no important precedents. Furthermore the process will not start for more than two years and will take at leave four years to complete. Everyone is aware of the uncertainty of such long-range forecasts.

10.1.2. For this reason the issues must be considered with an open mind and without being influenced by the concerns of any one group. The analysis must always be objective.

10.2. The question of costs should certainly be considered in this light.

10.2.1. Everyone believes that this changeover will be costly. On the one hand, the banks will have to contend with more complex procedures, the need to modify data-processing systems and automatic cash-distribution systems.

10.2.2. On the other hand, private individuals fear that they will not be able to directly judge the price of goods, that conversion to the ECU will boost prices and that they will be unable to compare their revenue and expenditure.

10.2.3. These observations are valid enough in their own terms, but they must be kept in proportion. At the very least their significance must be gauged with due prudence, given that we are talking about a process which will commence on 1 January 1998 and continue beyond 1 January 2002.

10.2.4. Private individuals - for example tourists - will benefit from the fact that it will no longer be necessary to exchange currency when conducting transactions between Member States which adopt the Single Currency. Private individuals are likely to make a saving of more than 4% by not having to exchange currency.

10.2.5. As a corollary, however, the banks will incur a sizeable loss of income.

10.2.6. The cost of changes to data-processing systems and cash dispensers will have to be evaluated very carefully.

10.2.7. Data-processing hardware and software is undergoing very rapid change. The systems currently in use will be obsolete by 2003, whether or not a single currency is introduced. Bearing in mind the five-year amortization period, the increase in costs could be limited if equipment is designed forthwith to take account of the introduction of the Single Currency.

10.2.8. Over a period of six years, adjustments to new systems to accommodate the Single Currency should therefore have a limited impact on the operating costs of banks and large companies.

10.3. There is therefore a need to carry out an in-depth study of the factors entailing an increase or a reduction in the cost of introducing the Single Currency; this study will have to cover banks, firms and private individuals.

10.3.1. The study may show that, in fairness, a proportion of the costs will have to pass on to the 'user'.

10.4. Private individuals, who are used to counting in one currency and judging their outgoings on its basis, will find difficulty in making the mental calculations involved in converting from one currency to another. And this difficulty will be compounded by the fact that the conversion rate will normally not be a simple multiple but have several decimal places.

10.4.1. These problems of converting and generally adapting to a new currency have already been encountered by a number of EU Member States in recent decades.

10.4.2. In France, the 'Pinay franc', whose introduction as successor to the 'germinal franc' was decided in December 1958 and implemented on 1 January 1960, did not come readily into general use in France. The very short period between the decision to change the currency and the actual changeover made the transition difficult, despite the fact that a simple 1 to 100 conversion rate was applied.

10.4.3. The public was not sufficiently educated by the media which, on the contrary, continued for far too many years to use the term 'old francs'.

10.4.4. In the UK, on the other hand, decimalization was introduced smoothly a few years ago, thanks to the work of the Decimal Currency Board and a thorough preparation over a four-year period, in schools and elsewhere.

10.4.5. The Green Paper rightly stresses (in paragraph 116) the need for prior information and education. The proposals will have to be made more specific and broadcast to a wider audience; this Opinion puts forward proposals for achieving these aims.

10.5. All the studies which have been carried out so far recommend indication of prices in both the new and the old currencies. This essential transitional measure will provide a visual back-up to general consumer information and education. However, should this come up against practical difficulties, unjustified increases in implementation costs or technical hitches, then other ways of achieving an equivalent effect could be looked into.

10.5.1. The adoption of such a system will certainly place a burden on the distributive trades, which, with effect from 1997, will also have to contend with the obligation to introduce an initial dual pricing scheme, whereby prices will be indicated both by unit and by volume or weight. There are however grounds for hoping that competition between retailers will ensure that part of these extra costs is absorbed by retailers rather than the consumer.

10.5.2. Dual pricing is already mandatory (see the relevant decree) in France where it does not appear to have given rise to insurmountable problems.

10.5.3. In the context of the changeover to the single currency, dual pricing must have an educational function, and should not encourage a lack of mental alertness by remaining in force too long. Dual pricing should be introduced some months before the beginning of phase C and continue for a similar period following this date.

10.6. Attention is frequently drawn to the difficulty which consumers have in judging the cost of purchases made in a currency other than the one which they usually use.

10.6.1. Such a judgement is that much more difficult if the consumer's sources of income (wages, pensions, dividends, etc.) are not denominated in the currency used for purchases.

10.6.2. Appropriate steps will have to be taken to ensure that, with effect from the beginning of phase B, wages and other forms of income are denominated in both the new and the old currencies in an appropriate form.

10.6.3. The same should, of course, apply to tax declarations, to official tax communications and to tax demands.

11. Recommendations

11.1. Education

11.1.1. Preparations for the changeover to the Single Currency must be both of a long-term nature and as broad-ranging as possible.

11.1.2. First of all, a special effort will have to be made to educate schoolchildren under a unified, 7-year European programme targeting schoolchildren from the age of 11, who will be 18 or more in 2002.

11.1.3. Primary schools too should contribute to the education drive: children have a natural ability to learn, and they will be the best 'ambassadors' for the Single Currency. Audiovisual aids are most certainly the best way to ease the learning process. The Economic and Social Committee would point out that some interesting projects already exist and the Commission would do well to look into these now.

11.1.4. With regard to the general public, it will be necessary to harness all information conduits - public administrative bodies and private bodies such as associations, trade unions, distributive networks and vocational organizations. The press, radio and television will have a leading role to play. The nature of the information provided will have to be geared to each social group and its assumed level of knowledge.

11.1.5. The raft of measures will have to be planned and implemented in two stages:

- an initial stage lasting from January 1996 to 31 December 1998;

- a second stage lasting from 1 January 1999 to the end of 2002.

11.1.6. During the initial period, consumer education will have to be theoretical and optional up to 1 January 1998, which is the closing date for establishing the list of participating states and setting exchange rates.

11.1.7. Before exchange rates are fixed, no figures should be quoted as examples.

11.1.8. As against this, intensive efforts should be made to familiarize the general public with the difference between the single and national currencies and with the existence of a European Central Bank.

11.1.9. The benefits of a Single Currency and its global status will also have to be explained. The aim should be to make the single currency attractive.

11.1.10. By 1 January 1999 the information campaign should be in full swing and backed by all the means available to modern society.

11.2. Provision of income data in two currencies

11.2.1. As soon after the beginning of phase B as is technically possible, bodies paying out wages and other forms of income should be urged to draw up statements (pay slips, dividend payment statements) in the national currency, backed up by statements expressed in the single currency, at least in respect of the sum to be paid.

11.2.2. With effect from 1 January 2002, the beginning of phase 3, data should be presented in the opposite way, i.e. statements should be drawn up in their entirety in the Single Currency, but should include conversions - at least as regards the sum to be paid - into the former national currency. This requirement would apply for a twelve-month period only.

11.3. Dual pricing

11.3.1. Some months before the beginning of phase C, in tandem with the provision of information with regard to income, information should be provided on sale prices to enable the consumer to check the equivalence of prices in national currency and the Single Currency.

11.3.2. The dual pricing requirement will cause a number of problems bearing in mind that from 1997 it could also be mandatory to indicate both the price of goods and the price per unit of measurement.

11.3.3. This dual pricing requirement has, however, been in force in France since 1 September 1985 in respect of prepacked products sold in retail outlets having a surface area in excess of 120 mª. There have been no reports of difficulties.

11.3.4. In view of the difficulties referred to in part A, point 6.5.4, the Committee feels that the second dual pricing requirement could be implemented in the same way without major problems, especially as it would be of a temporary nature.

11.3.5. As regards till receipts and bills, one solution could be to convert only the total amount into the Single Currency.

11.3.6. With effect from 1 January 2002, prices should be indicated in the reverse way, i.e. the first price given would be expressed in the Single Currency, followed by the price in the national currency.

11.4. Between now and 1 January 2003 there will be many technical advances.

11.4.1. For example, the storing of cash electronically on 'smart cards' has already been put to the test in a number of countries. This system can enable any user to spend up to a pre-set amount withdrawn from his bank account or prepaid in cash, using the smart card.

11.4.2. Debit sums would be indicated in the currency used and, perhaps, converted into the other currency. The balance remaining would be displayed immediately.

11.5. It is also likely that, in addition to official measures, banks and traders will hand out, free of charge, conversion tables which cut out the need for mental calculation.

11.5.1. With effect from the beginning of phase B, cheque books should include a conversion table, set out on the inside cover.

11.6. Notes and coins

11.6.1. 1 January 2002, the beginning of phase C, will be the starting date for exchanging national banknotes in circulation for notes denominated in the Single Currency.

11.6.2. The operation will be on an unprecedented scale and all research points to the need to minimize the duration of the changeover to ECU notes. During this time notes denominated in both the national currency and the Single Currency will be in circulation.

11.6.3. Recent studies have demonstrated that three years will be needed to issue the quantity of Single Currency notes required for full exchange.

11.6.4. Consumers will therefore experience the greatest psychological shock at the beginning of phase C, which will also be the time at which there is the highest risk of confusion.

11.6.5. It is however likely that in the intervening period the use of credit cards, which at present varies between Member States, will become more widespread, and that new products such as smart cards which store cash, described above, will come into use.

11.6.6. Every effort must nonetheless be made to enable people to use the new Single Currency notes in full knowledge of their value, although at first they will tend to convert them mentally into their national currency by mental calculations.

11.6.7. With a view to providing the necessary assistance to the users of the new currency, it would be extremely helpful, if not essential, for the first generation of the Single Currency notes to use the dual pricing system which will be in force in the initial months of phase C.

11.6.8. This could be done by printing on the reverse side of the notes - the main side of which would have its definitive form - a 'window' indicating, by means of a symbol and a simple figure, the value of the new note in the national currency.

11.6.9. Account should also be taken of the need for blind or partially sighted persons to recognize specific banknotes through touch. Effective solutions have already been found in some countries.

11.6.10. There are grounds for fearing that technical and financial requirements will tend to rule out the abovementioned solution, even though everyone must realize that if the first generation of Single Currency notes were issued in this form it would facilitate the introduction of the Single Currency.

11.6.11. Coins give rise to more complex problems and it would be difficult to imagine that coins issued in the Single Currency could also give the conversion rate into the national currency.

11.6.12. With a view to limiting the scope for error, one possible course of action would be for coins to be issued, initially, in small denominations only.

11.7. Under the Treaty of Maastricht the future Single Currency is to be called the 'ECU'. This title could only be changed by amending the Treaty.

11.7.1. As objections have, however, been raised to the title 'ECU', it is possible that a different one may be chosen.

11.7.2. A title which recalls that of a national currency, such as the 'Euro-mark' or 'Euro-franc', should be ruled out in view of the sensitivity of other states on this matter, particularly those states which will not meet the convergence criteria by 1 January 1999.

11.7.3. The proposal made by the president of the working group that the name 'Euro' be chosen if the name 'ECU' is abandoned should be endorsed.

PART C - SUMMARY

To facilitate consultation, the key points of the ESC Opinion are summed up below:

1. Support for the Commission move to implement and facilitate transition to a Single Currency. Transition should be as speedy as possible, taking account of the market's capacity to adjust smoothly to change, the need to minimize costs, and the extent to which EMU is also used to boost job-creating growth;

2. Pragmatic approach to practical problems: directives and regulations only when strictly necessary;

3. Need for outline scenario so as to predict the situation of countries granted exemption, indicating what measures will have to be taken to avoid monetary disruption and particularly the emergence of an unbridgeable gulf between these countries and those that have joined the Single Currency system;

4. Need for stringent application, with a political vision, of admissibility criteria; political derogations only possible if they do not endanger the future stability of the Single Currency;

5. Enhancement of the role of the ECB: the independence provided for in the Treaty should be translated into practical terms;

6. Starting date, and duration, of the various phases, to be announced as soon as possible. However, once established, no variation should be allowed. The market needs certainty, not conjecture;

7. Support for the 'critical mass' solution. The components must be clearly indicated and defined, without repercussion on the markets: the banking sector should operate as an interface between the national currency and Single Currency as soon as it is in a position to do so and payment systems have been adapted for that purpose;

8. Adoption of the Single Currency may disturb the financial, monetary and securities markets. Regardless of assurances to the contrary - hopefully warranted - the authorities are responsible for anticipating possible destabilizing speculation and determining the necessary countermeasures;

9. Acceptance of the possibility of a gradual market transition to the Single Currency during phase B, on condition that this is entirely voluntary, that decisions are taken in full knowledge of the costs and benefits, and that competition is not unduly distorted;

10. The costs of transition to the Single Currency should be borne and apportioned according to the rules of the market, with intervention only when really necessary;

11. Need to set up, as soon as possible, a sound legal framework to underpin the Single Currency. In particular, the non-renegotiability of contracts and the validity of conversion rates on the securities and exchange markets (both European and non-European) must be guaranteed;

12. Framing of effective legislation against forging and using Single Currency banknotes in the fight against organized crime, including alternatives or substitutes for money;

13. Recognition of the role of the public authorities in transition to the Single Currency, especially with the issue of government bonds immediately after the start of phase B. However, care should be taken during this phase, in relations with the market, to avoid partial or full change-over to the Single Currency which can cause disruption. This applies particularly to the tax authorities and social security;

14. Consumer interests must be heeded and protected as part of the overall policy of transition to the Single Currency. In particular:

14.1. The consumer must be made aware of Europe's aim in adopting a Single Currency, the advantages he stands to gain and the way the transition to the new currency will be organized. Here a joint, coordinated drive, involving the Commission, the Member States and companies, in particular banks, will be necessary;

14.2. The consumer must be able to reap the benefits of the Single Currency at minimum cost. The Commission and the Member States, though refraining as far as possible from imposing regulations, will have to show great vigilance in ensuring that this condition is respected;

14.3. The consumer should be able to familiarize himself with use of the single currency even before it comes into force and check that the conversion rates are strictly applied. The Commission and the consumer associations have pinpointed one single way of achieving this result: dual indication of prices and charges on bills, banking documents and payslips. Businesses object that the mandatory dual pricing requirement can generate additional costs, extra paperwork and organizational complications. While reserving the right to return to this matter, the Committee cannot ignore the justification, in principle, of such arguments. The consumer rights referred to above must be protected but a balance has to be found with the rest of the market, including alternatives which achieve the same results;

15. Effective training, education and communication strategies are needed:

15.1. In the case of training, responsibility will devolve to the Commission, Member States, sectoral organizations and individual companies, in turn. By ensuring coordination, duplication of tasks will be avoided;

15.2. Education must be provided in schools of all levels and types, with the Single Currency taught as a specific subject;

15.3. Communication strategy calls for a separate, specialist study, enlisting all available aids. However, asit is likely to be extremely expensive, a careful assessment will be needed of the potential impact in relation to the aids available. The business sector - especially banks - will play a key role in getting the message across to consumers.

Done at Brussels, 26 October 1995.

The President

of the Economic and Social Committee

Carlos FERRER

() Opinion on the Commission White Paper: Removing the Legal Obstacles to the Use of the ECU, OJ No C 133/36, 16. 5. 1994.