The Euro Is Born: Why CPAs Need to Know about It

Article excerpt

Will it grow up to challenge the dollar in the world's financial markets?

C is the symbol designed to denominate the euro. Born January 1, 1999, the euro had a gestation period of about six years. But the dream for a common csurrency as a means to unify Europe goes back to the time when the destructive consequences of World War II werc still fresh in leaders minds. It's a big baby, taking its place with the $ United States, (Canada, and Australia), i, Y, and ntrous other world currencies. The Curio (not to bcr he confused with the `eurodollar,' which refers to deposits of Lf. S. dollars held in European banks) is projected to significantly affect commercial transactions (i.e., borrowing, lending, banking), securities trading, investing, travcling and tourism, money laundering, and shopping In Brief

Euroland Arrives on the World Scene The euro is the new currency of I of the countries in the European Union, effective January 1, 1999. There will be a transition period. I.oral, or legacy, currencies will remain legal tender and the only medium of physical exchange until 2002, when euro bills and coins will first circulate. In the meantime, there are euro traveler's checks, and some credit card companies will process charges in euros immediately. Right now, all electronic transactions by businesses and investors in the euro zone can only be conducted in euros. In France, checks from the same bank account can be written in either euros or francs

This article provides practical guidance on the transutuin to the new currency. (CPAs involved in international business will want to be aw are of the business, legal, and tax considerationS. And handson issues have to be addressed sooner or later, such as how to produce the C and what travelers to Europe can expect during the phase-in period

Therefirem ut us uncynbent upon all businnes and professions to familiarize themselves with the euro dur ing its introduction stages (Janualy 1 1999 - July 1, 2002). Dyrung the transition, entities may be reqyured, or may want, to report their financial statements in the euro, therefore learning about the euro can't wait until December 31,1999. advice on the euro will be needed for completed transactions, those about to be executed, and throughout the full range of business planning. Not to be overlooked in the euro's effect on inteim financial statenet and if ciyrse tax costs.

As with any new commerical birth, it will take years of acturl experience to sort out the intricacics. There are ni established texts to turn to: reference material is available from websites (see Exhibit 1) and periodicals, but there's no substitute for actual experience.

What Is the Eruo?

The European single currency (the euro) replaces the existing currencies of the 11 participating European States and represents the most significant monetary union in world economic history.. Once the euro's introductory preiod is complete, in 2002. the existing ucrrencies referred to as legacy currencies of these countries will be completetely withdrawn. By that time, the euro likely will have established itself as an international currency similar in stature to the U.S. dollar. A strong euro will help U.S. exports-against European goods, but a weal euro will make U.S. goods more expensive abroad.

the I I countries adopting the euro are Austria, Belgium, Finland, France, Germany- Ireland, Italy, Luxembourg, the Nehterlands, Portugal and Spain (see Exhibit 2 for an easy way to remember them. The remaining four European Unipn members have not adopted the euro at this stage (known as the first wave). Of these foru. Denmark, Sweden, and the United Kingdom are not participating for domestic political reasons. Greece was ineligible ot join beacuas it failed the standards test: however, it has moved to reduce its deficit, debt, and inflation with the hope of joining in 2001.

The euro is run by the European Central Bank, located in Frankfurt, Germany. …