Round Table on SME preparations
hosted by the European Commission at Brussels, 6 June 2000.
Disclaimer: This report is based on memory, it is not guaranteed to be accurate or complete, and it may be updated. It is structured according to the common themes that emerged, rather than a minuted note of the presentations in sequence. I have added my own comments and some web site references where I consider it useful.
The official record can be read at Conference "Enterprises 2002" - 6 June 2000. A round table on the practical impact on enterprises at the end of the "transition period"
Take up of the euro
Pedro Solbes, Finance Commissioner, began by saying "We are not seeing the snowball effect anticipated." Value Added Tax (VAT) returns and customs returns are regarded as leading indicators of euro usage and only a few percent of companies are making those returns in euro. (For further information, see "Quarterly review of the use of the euro" on the web at http://www.europa.eu.int/comm/economy_finance ) Joseph KortLeven of the Ministry of Finance in Belgium reported that 2% of VAT returns were in euro end-99, but 4% by Feb 2000, so they are increasing fast. Utility companies will issue bills to consumers in euro only by Oct 2000. DATEV in Germany is a massive centralised mainframe system that does all the accounting for 2 million small companies and wage slips for 7M people. Their changeover cost them €15M. However, only 0.2% of companies have actively changed over to euro and 0.6% of transactions are in euro. One of the Small & Medium Enterprise (SME) case studies, Efekti Sisustus Oy, reported that they had not yet received any invoices in euro.
Commissioner Solbes made the point that the success of an enterprise lies in its ability to anticipate external impacts. Goran Tidström of the Federation of European Accountants (FEE) said "If they cannot handle accounts changeover, what does that say about the rest of their management ability?". This was neatly illustrated in reverse by Richard Boulesteix of Paris, one of the SME case study companies, who spoke of their accounting changeover in one sentence - "Our accountant does that for us - no problem." Franz Einhaus of Schwingel made the chilling remark that "It won't be hard to lose money at that time, if you don't prepare".
Perception and Risk
A number of speakers acknowledged that the Euro has a perception problem of weak value. In fact, one politician in Ireland was recently reported as saying that the euro notes and coins should not be introduced on 1.1.2002 because it was losing too much! Obviously he had not grasped that Ireland is already in the euro. Goran Tidström quoted a German survey that 50% of managers were uncertain that the euro rate was fixed. A delegate from Credit Lyonnais said we should speak not of the introduction of the euro, which is already here, but the death of the NCU (National Currency Unit, the French franc in their case). This has considerable political and emotional risk, and that was a remarkable statement from a French person.
1.1.2002 will not be a non-event. If it goes badly, there will be political repercussions, a point not lost on the chairperson of the morning session, Christa Randzio-Plath of the European Parliament.
Introduction of the Notes and Coins
Eugenio Domingo-Solans of the European Central Bank outlined the practical preparations. (For further information, see Euro-paper no. 37) Euro coins. From design to circulation http://europa.eu.int/comm/economy_finance/publications/euro_papers/europapers37_en.htm
They expect to issue the bulk of notes and coins in the first two weeks of 2002 and dual circulation is expected for 4-8 weeks. There will be a limited coin issue to vulnerable groups such as blind people, but not before mid-Dec 2001.
Accounting System Changeover
Joseph Kortleven reported that some people trying to hold out until June 2002.
Goran Tidstrom, Vice-President of FEE and a senior partner in PWC stated quite firmly "As an auditor, I say you cannot maintain accounts in national currency after 1.1.2002". Companies have a duty to keep records in an acceptable form and there is a risk to a going concern from weakened financial control and an increased risk from error and fraud if companies try to maintain internal accounts in NCU even though the entire external environment has changed to euro.
He stated that software cannot continue in a single currency, the users must adapt or get new software. However, Eoin Gahan (Forfás, Ireland) and other speakers indicated that for SMEs, a single currency package can be used for one currency at a time. I provide guidelines for SME accounts changeover at www.sysmod.com/euroex01.htm
Denis Keeling of the Business and Accounting Software Developer's Association (BASDA) asked for an extension of the allowable date for payroll returns in IEP (Irish pounds) to April 2002 to facilitate Irish payroll companies who don't have conversion routines.
Software and Systems Implications
Eoin Gahan of Forfás reported on the suitability of software for SMEs and the Eurotown project (www.eurotown-loughrea.ie). While packages are available, most businesses use simple single-currency software. A common problem in upgrades is that many current SME users are still running DOS, and an upgrade requires new hardware to support the new operating systems which current packages are written for. Klaus Puka of DATEV said there was no reason why any supplier would not sell a euro-ready version, which is understandable in Germany. But the Irish SME software user base is predominantly supplied by UK vendors who have no incentive to introduce euro capabilities for such a small proportion of their user base.
It seems to me that many users just see a "computer" - they cannot distinguish software from data and think that they have to change everything. Which suits the vendors. However, the more tailored and specialised the software is, the greater the risk that the developers have embedded literal constants for amounts or currency symbols that will require code changes. If you remember the Year 2000 (Y2K) changes, we used CDC to mean "Century Date Change". Speakers can now use it to mean "Currency Data Conversion" and re-use the same Y2K slides at conferences on the euro!
The case study companies all spent a lot of money to change from old systems to avoid Y2K problems and tackled the euro as well. There was a recommendation from the floor that SMEs should take the opportunity now to change from bespoke to package software. I should point out that for many companies, this is difficult as the bespoke system is so closely tied to their business processes. I also consider that the focus on accounting systems misses the really crucial point for many companies - their costing and pricing systems and procedures.
Actions and Incentives
A number of speakers asked for fiscal incentives - tax reliefs - for changeover. (I do not believe there is any likelihood of tax reliefs. SMEs are always lobbying for them, for example when the sterling exchange rate does not suit exporters, or for system upgrades for Y2K.) Others spoke of the need to try to start a "virtuous circle", a critical mass, by for example requiring all public procurement to be in euro. Maybe some administration deadlines should be moved nearer than 1.1.2002.
More seriously, auditors may be required to report on the company's euro readiness. Eoin Gahan noted that as Irish SMEs are often not members of business clubs, they need other channels and they need examples. A mentoring program by recently retired businesspeople has been found useful. Planning takes time and should not be postponed.
Euro Cross-border payments
The Euro Banking Association (www.abe.org) speaker, Gilbert Lichter, spoke of the introduction of a small value cross-europe payments system. The current EBA system is like TARGET, a large value system. Their new system, STEPS - Straight-Through Euro Payments System, is expected to go live 20-Nov-2000.
SME case studies
The Schwingel Automaten example was particularly striking as they sell gaming machines, so their business depends on processing notes and coins! It will take 3 weeks for euro coins to build up, so slot machines need to handle both types, or lose business. "It won't be hard to lose money at that time, if you don't prepare". Ironically, in spite of all the publicity about the trading benefits of EMU, they have no export possibilities because of different European national gaming regulations - their machines only suit the German legal requirements.
Satecma, a chemical company, was notable for its proactive response including competitive SWOT (strengths, weaknesses, opportunities, threats) study, training, aiming for ISO9001 and IS14001, and setting up commercial agreements with community companies. They had a very detailed IT changeover plan which included 400 hours external consultants, 1200h staff, €35,000 eqpt, total €100K. When asked "Could you adapt systems in less than 40 weeks?" Mr. Vázquez insisted "No!"
Efekti Sisustus Oy spent €16K on their Y2K & euro changeover, in a company with a turnover of €2M.
Richard Boulesteix of Paris raised eyebrows of their trading partners by changing early, but they wanted to project an image. Like other companies, they got very little response to a query letter, so he recommends individual discussions. "Accounting? No problem, our accountant does that." He is worried about rounding effect on prices, they are used to ± 5c rounding.
Mr. Gert Wanderer of Dolenz-Gollner in Austria reported on a good example of a company with unique software issues that cannot be addressed by standard packages. They have an integrated production planning system and customer special solutions for home & export. He also recognised that the dual currency periods are the most difficult (EUR->ATS, ATS->EUR)Patrick O'Beirne, 8 June, 2000
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