Countdown to euro.

Nostalgic auto enthusiasts are understandably excited about Volkswagen's recent introduction of the revamped Beetle into the U.S. market. But the German car isn't the only European "Bug" invading our shores these days. The adoption of a single currency in Europe is slowly being recognized as a ticking time bomb, one that may be even more serious and difficult to address than Y2K.

Unfortunately, "slowly" is the operative word here. Despite the globalization of the economy, many U.S. business leaders have not fully absorbed the technological and strategic ramifications of the new currency, regarding it as many Americans did the conflict in Bosnia - as a "European thing." This in spite of the fact that the European Union (EU) represents the world's largest trading bloc, spanning 15 countries with a combined population of 370 million and a combined GDP of $84 trillion. The U.S.-dollar bloc, by comparison, can claim 260 million people and a GDP of $71 trillion.

In a recent survey of non-financial companies conducted by IT consulting firm GartnerGroup, 70 percent of respondents said their organizations were not adequately aware of the euro issue. A poll conducted by Information Week revealed that two-thirds of IS managers responsible for European systems realized they would need to convert or upgrade their systems but did not expect the procedures to be particularly difficult.

The media gets blamed, rightly or wrongly, for many of society's ills, and an argument could be made that our intellectual neglect of the euro issue stems in part from a lack of urgency in the press. Financial Times editor David Lambert, whose newspaper probably covers the topic more extensively than any other outlet, said in a recent interview that the biggest challenge he faces in trying to increase circulation in the U.S. is making European coverage relevant to American readers. One case in point: the March 2 edition of Business Week, which included a six-page, doomsday cover story on the Y2K problem and a 150-word, bottom-of-the-page blurb on the euro.

But assigning blame at this point is just another futile exercise in procrastination. Conversion to the euro will affect IT systems that control finance and accounting procedures, inventory controls, sales, and purchase orders, payroll and other human resource operations, pricing, tax compliance, and cash transfers between U.S. parents and European subsidiaries.

Exchange rates will change, as will the face of European capital markets and economic indicators. Internet and mail-order programs may have to be redesigned, pension plans recalculated, and terms of legal contracts reconfigured. Not to mention getting that new currency character for the euro into your word processor.

Expect these changes to be expensive and complicated. Nearly 40 percent of the respondents to the IW survey estimated that their conversion costs would exceed $1 million, while about 25 percent put the figure at more than $2 million. For larger companies, the price could be much higher, as evidenced by the $100 million to $300 million cost range being estimated for large banks such as Chase Manhattan. (The financial services sector will likely be affected more than any other industry group, which may be one reason that U.S. banks are among the best-prepared for the euro - better even than European banks, according to American Banker.)

Another major cost consideration will be hiring the technicians, programmers, and IT consultants needed to implement the changes - if you can find anybody left in this labor pool who's not already under contract on somebody else's euro-conversion project or working on the Y2K problem. Then there are the strategic questions of how to prioritize the two projects and whether to convert systems gradually or with a "Big Bang" approach.

Some experts recommend combining euro and Y2K conversion efforts to save time and resources, particularly in the systems analysis and cataloging procedures. Others recommend keeping the two separate. In either case, you should establish an independent allocation for both, rather than depleting your existing IT budgets to cover them.

Any U.S. executive preparing to deal with the new Europe must also realize that, despite having the term "union" in its title, the EU will still consist of independent countries with unique cultures and varying economic undercurrents; strategies and systems should therefore be flexible. For example, though under the euro system Germany and France will belong to one currency with one interest rate and one rate of inflation, differences in such economic factors as liquidity and transparency could create two very different government bond markets. According to an International Monetary Fund working paper, EMU countries can be divided into two groups based on the speed and extent with which they react to interest rate changes.

Further adding to this complexity is the euro phase-in process, occurring over a period of three years. Starting on January 1, 1999, participating countries will use the new currency for non-cash transactions, but euro coins and bank notes will not go into circulation until January 1, 2002. Six months later, the euro will replace the individual national currencies and become the only valid currency in all participating countries. Under EC rules, countries are permitted to adopt the euro at any point during this three-year stretch, so you may find that individual customers, suppliers, and partners in Europe are switching their accounting systems to the new currency at widely varying times.

Timely action will not only help you ward off internal chaos but grant you a significant competitive advantage. IBM, Chase Manhattan, Ford, General Motors, and McDonald's are among the U.S.-based multinationals that have already initiated aggressive euro conversion programs. They all, for example, have formed internal, cross-functional "euro task forces" to deal specifically with the problem; are making conscientious efforts to keep customers, suppliers, and employees updated on their euro-related activities; and are carefully monitoring relevant political developments in Europe.

And while there still exists the possibility of a delay of the euro's arrival, in early March, all European Union members, except Greece, released deficit, inflation, and interest-rate information indicating that they have indeed met the qualifying conditions for the single currency. With this news adding to the steam-train momentum that the EMU had been building up over the previous months, it would be terribly unwise to avoid planning for the euro in the hope that a delay will get you off the hook.

VOCABULARY BUILDER

sniff*er 1. software insidiously placed on corporate networks and then used by hackers to eavesdrop or snoop 2. individual who engages in sniffing 3. an uninvited network guest

Euro*hack*ers 1. hackers living in Europe 2. European hackers, supposedly more worldly and politically motivated than their U.S. counterparts 3. individuals who plan to steal large quantities of the euro

Frank Ruotolo, President, The Futures Group.